Hannover Re boasts stellar H1 results boosted by structured deals and investments

Hannover Re posted a remarkably bullish set of results in the first half of 2017 enjoying growth in profits and gross written premiums despite an “intensely competitive” property/casualty market and its performance in life and health reinsurance “not entirely satisfactory”.

The Germany reinsurer’s net profits increased by 9.6 percent in the period to reach €535 million; its operating profit totalled €799.4 million, 7 percent higher than in the same period in 2016. On this basis, the reinsurer said it is well on track to achieve group net income for the full year of more than €1 billion.

Its profits were boosted by vast improvements in its investment performance. Ordinary investment income recorded growth of 11.8 percent to reach €635.1 million. The key driver here was income - in some cases non-recurring - booked from private equity and real estate investments.

Altogether, income from assets under own management increased by 15.3 percent to €656 million, equivalent to an annualised return of 3.2 percent. Net investment income including interest on funds withheld and contract deposits increased by 4.6 percent to €779.4 million.

The company also enjoyed solid growth. Its gross written premium increased by 8.6 percent to €9 billion in the period; its property/casualty business grew by 17.3 percent to reach €5.4 billion. It said the main driver was the rise in demand for structured reinsurance solutions in Europe and North America, which more than made up for premium declines in other areas. Its combined ratio increased slightly 96.5 percent compared with 95.4 percent a year earlier, the increase attributed to the growth in structured reinsurance.

The reinsurer stressed that market conditions in property/casualty reinsurance remain intensely competitive: an excess supply of reinsurance and additional providers from the insurance-linked securities (ILS) market, along with the absence of large losses, combined to put prices and conditions under pressure, it said.

But it again benefited from its selective and margin-driven underwriting policy, the company said.

It also noted that while major loss expenditure in the first quarter had come in slightly under budget, the second quarter passed off entirely without large losses. In keeping with past practice, the unused part of the budget has not been released to income but instead allocated to the reserves for claims that have been incurred but not yet reported, hence boosting the large loss budget for potential loss events that may occur in the second half of the year.

It also noted that the effects of the change in the discount rate for compensation payments associated with personal injury claims in the UK (Ogden rate) again made themselves felt in the second quarter of 2017. It has booked loss reserves of €291 million for the first half-year.

In contrast to its P/C business, Hannover Re said that developments in life & health reinsurance were not entirely satisfactory: following on from an adequate first quarter, the second quarter fell short of expectations. Gross written premium showed a modest decline of 2.4 percent as at 30 June 2017 to €3.6 billion.

“Market conditions in life and health reinsurance remain challenging, although attractive business opportunities opened up in some regions and new product segments. Demand among life and annuity insurers for reinsurance solutions offering capital relief has surged sharply, as a consequence of which financial solutions business again fared very well,” it said.

"Once again, both of our business groups, namely property & casualty and life & health reinsurance, as well as exceptionally good investment income all contributed to our pleasing half-yearly result," said chief executive Ulrich Wallin. "We are nevertheless faced with a market situation that remains challenging going forward."

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