In 2018, as in the previous year, reinsurers incurred considerable large losses. Reinsurance programs or regions that had been spared losses saw pricing pressures increase again slightly in the recent renewals compared to the situation in 2018. Programs that suffered additional losses, on the other hand, recorded rate increases that once more reached double-digit percentages in some instances.
"In the face of another burden of heavy losses, demand from both existing and new clients was solid," Ulrich WALLIN, Chief Executive Officer of Hannover Re, noted. "Thanks to our good market positioning we were thus able to generate pleasing growth in the renewed portfolio at adequate conditions."
Roughly 66% of Hannover Re's book of traditional property and casualty reinsurance (excluding facultative reinsurance, insurance-linked securities (ILS) business and structured reinsurance) was up for renewal on 1 January 2019.
In contrast to the situation just one year ago, alternative capital providers in ILS business took a more restrained approach to the renewals. The capacity originating from the ILS markets nevertheless still accounts for a significant part of the reinsurance market.
Of the total premium volume booked in the previous year in traditional property and casualty reinsurance amounting to EUR 8,391 million, treaties with a volume of altogether EUR 5,551 million were up for renewal as at 1 January 2019. Of this, a premium volume of EUR 4,912 million was renewed, while treaties worth EUR 1,304 million were either cancelled or renewed in modified form. Including increases of EUR 829 million from new treaties and from changes in prices and treaty shares, the total renewed premium volume thus came in at EUR 6,406 million. At constant exchange rates this is equivalent to an increase of 15.4%.
Guidance for 2018 and 2019 confirmed
Group net income improved in the 2018 financial year to roughly EUR 1.05 billion (EUR 958.6 million) based on preliminary key figures. Of this total result, roughly 83% was attributable to Hannover Re's property and casualty reinsurance business and 17% to life and health reinsurance. Gross premium was in the order of EUR 19 billion (EUR 17.8 billion), equivalent to an increase of some 11% adjusted for exchange rate effects. The return on investments from assets under own management amounted to 3.2% for the past financial year. The audited annual financial statement will be published on 7 March 2019.
"In view of the favorable outcome of our main renewal season, we take an optimistic view of movements in prices and conditions in the current year and see good prospects for profitable growth in our property and casualty reinsurance portfolio," Mr. WALLIN commented. "We have put in place a solid foundation for achieving the targets for the 2019 financial year."
As already announced in November, Hannover Re is expecting Group net income in the order of EUR 1.1 billion for the 2019 financial year. Based on constant exchange rates, growth in gross premium income should be in the single-digit percentage range and the return on investment should reach at least 2.8%.
Hannover Re continues to envisage a payout ratio for the ordinary dividend in the range of 35% to 45% of its IFRS Group net income. The ordinary dividend will be supplemented by payment of a special dividend in light of capital management considerations if the company's comfortable level of capitalization remains unchanged.
Furthermore, Hannover Re has raised its net large loss budget for the first time in three years; it now stands at EUR 875 million for 2019 compared to EUR 825 million in previous years. This adjustment reflects the growth in the underlying business. The risk appetite remains unchanged. All statements regarding future targets are subject to the premise that large loss expenditure remains within the expected bounds and that there are no unforeseen distortions on capital markets.
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