"Even before the extensive devastation caused by Hurricane 'Ian', 2022 was a year of above-average large loss expenditure," said Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re. "What is more, high inflation rates are only adding to the costs of rebuilding. Our full-year earnings guidance nevertheless remains achievable. Among other things, this is possible thanks to healthy profit contributions from the investments as well as life and health reinsurance and it shows how important the interplay of diversification and risk management is."
In property and casualty reinsurance Hurricane "Ian" caused severe devastation in Cuba as well as, most notably, the US states of Florida and South Carolina at the end of September, putting it at the top of the current year's costliest insured natural catastrophe events by a wide margin. Natural disasters such as floods in Australia and winter storms in Europe had already caused substantial insured losses in the first half of the year.
Along with the resulting large loss expenditure well above expectations, high rates of inflation, the protracted war in Ukraine and the still ongoing pandemic are confronting insurers and reinsurers alike with major challenges. Against this backdrop, the brisk demand for covers from financially robust reinsurers is likely to further intensify. Hannover Re was already able to secure improved prices and conditions in many areas in the current financial year's various rounds of treaty renewals, a trend that it expects will gain added impetus in the year ahead.
Gross written premium in property and casualty reinsurance grew by 28% to EUR 19.5 billion (EUR 15.3 billion). The increase would have been 18.6% adjusted for exchange rate effects. Net premium earned was up 29% at EUR 15.6 billion (EUR 12.1 billion). Growth of 20.2% would have been booked at constant exchange rates.
In view of the significant natural catastrophe expenditures, the net burden of large losses rose to EUR 1,484 million as at the end of September (previous year: EUR 1,070 million) and was thus clearly higher than the expected level of EUR 1,079 million budgeted for the first nine months.
The largest individual losses for net account in the first nine months of the year were Hurricane "Ian" with a net strain of EUR 276 million, the severe floods in Australia at a cost of EUR 211 million and winter storm "Ylenia" in central Europe in an amount of EUR 115 million. In addition, Hannover Re set aside an IBNR reserve of EUR 331 million for possible losses from the war in Ukraine.
Furthermore, additional reserves were established in the first nine months for sizeable losses from the past year based on corresponding loss advices, including an amount of EUR 130 million for the drought in Brazil.
The underwriting result in property and casualty reinsurance including interest on funds withheld and contract deposits declined by 52% to EUR 121 million (EUR 253 million). The combined ratio stood at 99.2% (97.9%) and was thus higher than the medium-term expectation of no more than 96%.
The operating profit (EBIT) in property and casualty reinsurance fell by 16.4% to EUR 887 million (EUR 1,061 million). Net income contracted by 26% to EUR 545 million (EUR 739 million).
Earnings guidance for 2022 still achievable despite considerable major loss expenditure
Hannover Re is still maintaining its targets for the current financial year and expects gross premium on the Group level to grow by more than 7.5% adjusted for exchange rate effects as well as a return on investment in excess of 2.5%. Following the extraordinary burden of large losses in the first nine months the Group net income is expected to be at the lower end of the EUR 1.4 billion to EUR 1.5 billion range.
Hannover Re's full comments on the Group's 3Q results are available here.
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