Structured deals drive growth at Hannover Re despite ‘intense competition’
Structured reinsurance solutions drove impressive growth at Hannover Re across the first nine months of the year as it also confirmed that it anticipates a profit of more than €1 billion this year, even making allowance for a one-time charge from its life and health reinsurance business. But its CEO also warned on what he called sustained intense competition.
Its combined ratio in the period improved to 96.8 percent compared with 104.4 percent a year earlier; this was slightly higher than its full-year target of 96 percent or better. It said this was due not only to the vigorous growth in structured reinsurance business, which operates with slimmer margins, but also an increasing frequency of smaller and mid-sized losses.
The reinsurer’s net profit for the period increased to €725.3 million in the period, a 32.1 percent increase on the same period a year earlier when it was hit by more severe natural catastrophes than this year.
"In property and casualty reinsurance developments in the third quarter were dominated by large losses from typhoons in Japan and hurricanes in the United States," said Ulrich Wallin, CEO of Hannover Re. "The resulting strains for Hannover Re were, however, in line with our expectations. For this reason, and thanks to the good income from our investments, we are well on track to achieve our profit target for 2018."
Its overall gross written premium for the period increased by 11.2 percent to reach €15 billion primarily by a substantial expansion of structured reinsurance solutions in its property/casualty reinsurance business. Its P/C segment of the business increased its GWP by 17.8 percent to reach €9.7 billion.
The company said the treaty renewals in property and casualty reinsurance as at 1 June and 1 July 2018 saw sustained intense competition.
“Traditionally, parts of the North American portfolio, natural catastrophe risks as well as business from Australia and New Zealand are renegotiated at this time of year. Rate increases - in some instances on a significant level - were obtained under programmes that had suffered losses in the previous year. Even while enlarging the premium volume Hannover Re maintained its profit-oriented underwriting policy and the exposure in natural catastrophe business consequently remained within the risk appetite, which was unchanged from the previous year,” the reinsurer said.
It also noted that it has taken action in its like and health portfolio, which was harming its profitability.
"In life and health reinsurance the steps taken to improve US mortality business are weighing on profitability," Wallin explained. "These strains will be largely eliminated for the relevant treaties in subsequent years, and we therefore anticipate substantially improved earnings going forward."
It said that for the full year, it is now on track to hit its profit target and anticipates gross premium should grow by significantly more than 10 percent as anticipated; a major part of the growth is likely to derive from property and casualty reinsurance, most notably the area of structured reinsurance, it said.
"Hannover Re is confirming its targets for the current financial year," Wallin stated. "The good results for the first half-year and a successful third quarter with large losses in line with our expectations should enable us to absorb the aforementioned strains from our US mortality business."
For 2019, he said that the company anticipates a profit of €1.1 billion as the performance of its US mortality business improves and its P/C business remains stable.
"In the coming year the result from US mortality business should improve substantially," Wallin noted. "We also anticipate a stable profit contribution from property and casualty reinsurance and therefore expect Group net income in the order of €1.1 billion."
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