|Key figures for property and casualty reinsurance|
|in EUR million||2017||2016|
|1.1. – 31.3.||+/– previous year||1.1. – 31.3.|
|Gross written premium||2,814.7||+12.5%||2,502.1|
|Net premium earned||2,165.7||+10.4%||1,961.3|
|Net investment income||243.4||+17.5%||207.2|
|Operating result (EBIT)||309.8||+3.4%||299.7|
|Group net income||215.4||+5.4%||204.3|
|Earnings per share in EUR||1.79||+5.4%||1.69|
|1 Operating result (EBIT) / net premium earned
2 Including funds withheld
The situation in worldwide property and casualty reinsurance was little changed overall from the previous year. The increased loss expenditure in 2016 had positive implications for reinsurance premiums only on a local level, with the result that the intense competition prevailing in the markets was largely sustained. The supply of reinsurance capacity still clearly exceeds demand, even though the decline in prices was less marked than in the previous year. This was also evident in the treaty renewals as at 1 January 2017, when roughly 64% of our property and casualty reinsurance portfolio was renegotiated. We maintained our rigorous underwriting discipline and focused on high-quality existing business, complemented by opportunities in niche and specialty segments. Once again we benefited from our excellent financial ratings and our long-standing customer relationships. Attractive possibilities to enlarge our portfolio opened up primarily in North America, including for example in the area of cyber covers. Overall, the pressure on rates in North America eased; signs of a bottoming out in prices could be detected here across the various lines of business. Furthermore, the treaty renewals in Canada also passed off very favourably; appreciable rate increases were booked in property business under virtually all programmes. Last year’s heavy losses from the devastating forest fires in the province of Alberta were the driving factor here.
In the aviation line as well as in parts of Eastern Europe and in China we scaled back our shares in view of inadequate prices. The treaty renewals in credit and surety reinsurance, on the other hand, were satisfactory. In credit reinsurance, in particular, we were able to enlarge some existing sizeable customer accounts and acquire new clients, hence boosting the premium volume in this line. In the area of structured reinsurance demand for solutions offering solvency relief was thoroughly pleasing: we booked significant premium growth here from Europe, North America and Latin America.
Reflecting these developments, gross premium for our Property & Casualty reinsurance business group rose by 12.5% to EUR 2.8 billion (EUR 2.5 billion). At constant exchange rates growth would have come in at 11.3%. The level of retained premium climbed to 88.6% (87.9%). Net premium earned increased by 10.4% to EUR 2.2 billion (EUR 2.0 billion); adjusted for exchange rate effects, it would have grown by 8.8%.
Losses in the first quarter were significantly heavier than in the corresponding quarter of the previous year. Net expenditure on major losses totalled EUR 133.7 million (EUR 55.5 million), a figure that was nevertheless still within the envisaged quarterly budget. The largest individual loss – at around EUR 50 million – was Cyclone Debbie, which caused severe damage and subsequent flooding in Australia.
The insurance industry was also impacted by the decision of the UK government to cut the discount rate for personal injury compensation payments ("Ogden rate") from 2.5% to -0.75% effective March 2017. This means that compensation amounts will rise sharply in cases where claimants receive a lump-sum payment to compensate claims that involve an ongoing, long-lasting financial burden – such as care costs. Severe personal injury claims, e. g. as a consequence of a car accident, may therefore become quite substantially more expensive, resulting in higher payments under liability insurance covers that will have particularly serious implications for non-proportional reinsurance. Given that this move not only affects future claims but also past claims that have still to be run off, it compels insurers and reinsurers to set aside substantial additional reserves. In the first quarter Hannover Re booked additional loss reserves of EUR 126 million for this purpose. In view of the very adequate level of the IBNR reserves (for claims that have been incurred but not yet reported), however, this did not result in any run-off losses. It is to be anticipated that the change in the Ogden rate will require further additional reserves to be set aside in the course of the year. Nevertheless, these should also be absorbed by the IBNR reserves that have been constituted.
The underwriting result for total property and casualty reinsurance fell short of the previous year’s very good quarter on account of higher losses; it amounted to EUR 90.7 million (EUR 100.3 million) as at 31 March 2017. The combined ratio stood at 95.6% (94.7%) and is thus in line with our goal of staying below 96% for the full year.
The investment income booked for property and casualty reinsurance from assets under own management grew by 17.3% to EUR 238.2 million (EUR 203.1 million).
The operating profit (EBIT) for property and casualty reinsurance as at 31 March 2017 improved again slightly on the already very good level of the previous year’s quarter to reach EUR 309.8 million (EUR 299.7 million). The EBIT margin stood at 14.3% (15.3%) and thus again beat our minimum target of 10%. Group net income rose by 5.4% to EUR 215.4 million (EUR 204.3 million). Earnings per share amounted to EUR 1.79 (EUR 1.69).