Hannover Re gets P&C reinsurance profit for 2022 despite over-budget losses

Global reinsurance firm Hannover Re has reported an underwriting profit for its property and casualty reinsurance business for full-year 2022, despite large losses coming out above budget for the sixth year in a row.

Hannover Re experienced EUR 1.7 billion of large losses during 2022, above the budgeted expectation set at EUR 1.4 billion.

Hurricane Ian was the largest loss at a net impact of EUR 322 million, followed by the severe flooding in Australia at a cost of EUR 233 million, winter storm Ylenia in Central Europe at EUR 107 million and the setting of an IBNR reserve of EUR 331 million for potential losses from the war in Ukraine.

Losses from the previous year also continued to develop, with a further EUR 106 million for the drought in Brazil and EUR 54 million for floods in Malaysia booked.

2022 was the sixth year in succession that Hannover Re has gone over-budget on its major loss expenditure and as a result the reinsurer has boosted its allowance for 2023, setting the major loss budget at EUR 1.725 billion for this year.

Of course, while Hannover Re does believe the loss environment has been elevated and factors like advancing climate change are an issue, the other driver for raising the loss budget is the growth the reinsurance company has been achieving in the hard market environment.

“In view of advancing climate change, considerable expenditures for large losses and protracted geopolitical conflicts, the risk situation worldwide will remain challenging for the foreseeable future,” Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re said.

“Against this backdrop, Hannover Re’s solid and reliable reinsurance protection will continue to be highly sought-after among our clients. At the same time, though, our own resilience will be called on even more than it has to date.

“With the significant improvements in prices and conditions obtained in the 1 January renewals, we have put in place a crucial basis for meeting these challenges.

“My assessment of Hannover Re’s sustained earning power is correspondingly upbeat. This optimism is reflected not least in another increase in the ordinary dividend.”

Hannover Re’s P&C reinsurance gross written premiums rose 26.1% in the 2022 financial year to EUR 24.2 billion (EUR
19.2 billion).

Net premium earned was up by an impressive 30.2% at EUR 21.6 billion (EUR 16.6 billion), while this would have grown 22.0% at constant exchange rates.

The company reported this morning, “The various rounds of treaty renewals in property and casualty reinsurance during 2022 passed off favourably for Hannover Re. Business showed gratifying growth, with significantly improved prices and conditions in some areas. The clear improvement in prices and conditions was also sustained in the renewals as at 1 January 2023.”

Because of the large loss experience and the Ukraine war reserves set, Hannover Re’s P&C combined ratio increased to 99.8% for 2022, so the company managed a technical underwriting profit, albeit only just and likely some reserve releases will have helped in this goal.

The P&C reinsurance underwriting result was just EUR 46 million for 2022, down from EUR 383 million in the prior year.

But, the operating profit (EBIT) was only down 10.6% at EUR 1.4 billion (EUR 1.5 billion) and the contribution P&C reinsurance made to Hannover Re’s Group net income was only down by 18.7% to EUR 880 million (EUR 1.1 billion).

Across its entire business, Hannover Re increased its gross premiums written by 19.9% to EUR 33.3 billion in 2022.

As a result of which and helped by a record life and health result, as well as a good investment returns, Hannover Re’s group net income improved by 14.2% to reach a new record high of EUR 1.41 billion for the year.

“In the 2022 financial year we further improved our already very robust capital adequacy ratio,” explained Chief Financial Officer Clemens Jungsthöfel. “At the same time, we are looking back on several financial years with above-average loss expenditures and will therefore adhere even more closely to our prudent reserving policy going forward in 2023.”

“In the 2022 financial year we once again demonstrated Hannover Re’s resilience,” said Henchoz, CEO. “The environment in which we are operating remains challenging. Property and casualty reinsurance, in particular, saw heavy losses in 2022 from natural catastrophes, the war in Ukraine and the pandemic. Thanks to good profit contributions from the investments and from life and health reinsurance, we were nevertheless able to deliver a pleasing Group net income. Building on this success, we can offer our shareholders the prospect of an even more attractive dividend.”

Looking ahead, Hannover Re forecasts that its reinsurance revenue in total business will increase by at least 5% in 2023, at constant exchange rates, while the currency-adjusted growth in reinsurance revenue should again be stronger in property and casualty reinsurance than in life and health reinsurance.

Group net income for 2023 is targeted at EUR 1.7 billion, while P&C reinsurance is expected to contribute around EUR 1.6 billion to the operating result (EBIT) and life and health reinsurance around EUR 750 million.

The result shows that retrocession will clearly have been another helpful lever for the P&C reinsurance business, in helping the underwriting result settled at a technically profitable level for 2022.

As we reported recently, Hannover Re secured an increase in natural catastrophe retrocession for 2023, including the expansion of its capital markets backed K-Cessions quota share sidecar facility of almost 85% to $831 million, the biggest it’s ever been.