Outlook
For the current financial year we anticipate a very good overall result for the Hannover Re Group. In view of developments both in property and casualty and in life and health reinsurance, we expect to book growth of more than 10% in gross premium for our total business – based on constant exchange rates.
Following the successful treaty renewals in property and casualty reinsurance as at 1 January 2018, we are similarly satisfied with the outcome of the treaty renewals as at 1 April. It is at this time of the year that business in Japan is traditionally renewed and treaties also come up for renewal – albeit on a lesser scale – in Australia and New Zealand, Asian markets and North America. In Japan previous losses led to improved conditions for liability treaties. However, in view of the fact that we renewed a large-volume treaty – as planned – with a smaller written share, the premium declined slightly. The intensely competitive environment in Korea prompted us to reduce our shares. In the Indian market, too, the fierce competition is undiminished; we scaled back our involvement here in some instances, but were also able to acquire additional business relationships, as a consequence of which the premium volume in India remained stable overall. In the area of agricultural risks we enjoyed pleasing growth.
The renewal of part of our North American business passed off highly satisfactorily for our company. Conditions in property business were stable and we obtained rate increases under loss-impacted programmes, enabling us to modestly expand our portfolio. Casualty business was more competitive. In keeping with our conservative underwriting approach, we slightly reduced our exposure here.
The total premium volume booked from the treaty renewals as at 1 April 2018 increased by 10.3%.
Based on unchanged exchange rates, we expect to surpass our strategic growth target of 3% to 5% for our total property and casualty reinsurance business. This will be driven in part by stronger demand in structured reinsurance. In light of the prevailing market conditions in property and casualty reinsurance, we anticipate a good underwriting result. This is contingent on large loss expenditure remaining with the envisaged budget. We are aiming for a combined ratio of less than 96%. The targeted EBIT margin for property and casualty reinsurance is at least 10%.
In the Life & Health reinsurance business group we anticipate promising opportunities on the international markets. Gross premium income is expected to show average annual, currency- adjusted growth of between 3% and 5% over a three-year period. In this context large-volume treaties can have significant implications and substantially influence the business volume in a specific period. In terms of EBIT, we are forecasting an annual growth rate of at least 5%. It remains our expectation that the value of new business for the full financial year will be in excess of EUR 220 million.
With regard to our IVC targets – which we use to map economic value creation –, we are aiming for at least 2% xRoCA in property and casualty reinsurance and at least 2% xRoCA in life and health reinsurance.
The expected positive cash flow that we generate from the technical account and our investments should – subject to stable exchange rates and yield levels – lead to further growth in our asset portfolios. In the area of fixed-income securities we continue to emphasise the high quality and diversification of our portfolio. Overall, the primary focus will remain on stability while maintaining an adequate risk / return ratio that will enable us to respond flexibly to general developments and emerging opportunities. For 2018 we are targeting a return on investment of at least 2.7%.
Hannover Re expects to generate Group net income of more than EUR 1 billion in 2018. This is subject to the premise that the burden of major losses does not significantly exceed the budgeted level of EUR 825 million and that there are no exceptional distortions on capital markets.
As far as the dividend for the current financial year is concerned, Hannover Re envisages a payout ratio in the range of 35% to 40% of its IFRS Group net income. If the comfortable level of capitalisation remains unchanged, this ratio may increase in light of capital management considerations.