"After the first quarter had passed off broadly in line with expectations, the impacts of the Covid-19 pandemic on Hannover Re left a much clearer mark on the results for the second quarter of 2020," the company mentioned.
The overall gross written premiums for the Hannover Re Group rose to EUR 13.1 billion (+12.4%). Net earned premiums increased to EUR 10.4 billion (+10.9%).
The half-yearly result fell by 39.3% to EUR 402.4 million. This was due to an increase in the reserves established in the Property & Casualty reinsurance business group: in the second quarter Hannover Re set aside reserves for estimated losses associated with Covid-19 in an amount of EUR 380 million and hence reserved altogether EUR 600 million related to property and casualty reinsurance in the first six months.
The capital adequacy ratio, which measures Hannover Re's risk-carrying capacity, amounts to about 225% as at the end of June based on preliminary figures. This level is significantly above the limit of 180% and the internal threshold of 200%.
- Gross written premiums: EUR 13,146 million (+12.4%), of which:
- P&C GWP: EUR 9,174 million (+16.9%)
- L&H GWP: EUR 3,972 million (+3.3%)
- Net earned premiums: EUR 10,378 million (+10.9%)
- Net investment income: EUR 793 million (-8.4%)
- P&C combined ratio: 102.3% (+5.6 pp.)
- Return on equity: 7.6% (-6.7 pp.)
- Operating profit: EUR 504 million (-46.6%)
- Net income: EUR 402 million (-39.3%)
At the end of June 2020, the gross written premiums for property and casualty reinsurance increased compared to the first period of 2019, reaching EUR 9.2 billion (+16.9%). Net premiums earned climbed to EUR 6.9 billion (+15.2%).
The net major loss expenditure of EUR 737 million (1H2019: 141) was well in excess of the EUR 414 million budgeted for the first six months. The reserves constituted for losses related to Covid-19 amount to altogether EUR 600 million. The move to increase these reserves by EUR 380 million in the second quarter was prompted primarily by the fact that the duration and intensity of the pandemic cannot be foreseen. Furthermore, Hannover Re anticipates losses amounting to EUR 31.1 million for tornados in the United States and EUR 26.3 million for bushfires in Australia.
The underwriting result in P&C reinsurance retreated to close with a deficit of EUR 161 million (1H2019: profit of EUR 196 million). The combined ratio climbed to 102.3% (1H2019: 96.7%). After factoring out the loss reserves relating to Covid-19 and allowing for large loss expenditure within budget, the combined ratio would have reached 97.6%.
The operating profit (EBIT) in P&C reinsurance contracted to EUR 290 million (-55.8%). The contribution to Group net income stood at EUR 245 million (-43.3%).
Gross written premiums in life and health reinsurance grew to EUR 4.0 billion (+3.3%). Net premiums earned climbed to EUR 3.5 billion (+3.5%).
The pandemic impacted life and health reinsurance, just as it did property and casualty reinsurance, albeit on a significantly more moderate scale. At the end of the first half-year worldwide loss expenditure associated with Covid-19 amounted to around EUR 60 million, the bulk of which derived from the United States.
The operating result (EBIT) declined to EUR 214 million (-25.1%) owing to the strain from the Covid-19 crisis. As a further factor, the previous year's figure had been assisted by one-time income of EUR 100 million booked from investments. The contribution to total Group net income contracted to EUR 188 million (-26.9%).
The Covid-19 pandemic took a further toll on what was already a challenging investment climate. Prices in financial markets have since all but made good the steep declines seen in March.
The portfolio of assets under own management as at 30 June 2020 increased to EUR 48.8 billion (+2.4%) due to the rise in hidden reserves induced by interest rate movements. The allocation of investments to the individual classes of securities was not significantly changed.
Net gains on disposals reached EUR 140 million (1H2019: 128) and can be attributed primarily to regrouping activities as part of regular portfolio maintenance as well as the successful sale of a real estate investment. Impairments of EUR 85 million (1H2019: 42) were taken, including EUR 45 million on alternative investments. This is a reflection first and foremost of the economic uncertainties associated with the Covid-19 pandemic.
Altogether, the assets under own management generated income of EUR 657 million (1H2019: 772). The resulting annualised return stood at 2.7%. Interest on funds withheld and contract deposits surged to EUR 136 million (1H2019: 94). Investment income including interest on funds withheld and contract deposits came in lower at EUR 793 million (-8.4%).
"We have come through the crisis relatively well so far. This enables us to make appropriate provision for the anticipated Covid-19 losses and take account of the still considerable uncertainty surrounding the scale of the pandemic. Our business model is geared to managing such extreme events. We offer our clients and business partners our unqualified support."