Property and casualty reinsurance

• Earnings and premium growth amid sustained intense competition
• Large losses lower than in the similarly lightly impacted comparable period
• Significant increase in the underwriting result

Even after the previous year’s heavy windstorm losses, worldwide property and casualty reinsurance remains fiercely competitive; the supply of reinsurance coverage continues to far outstrip demand. Although the business results posted by insurers have come under pressure in some areas, the capital resources of most market players are still adequate. Nevertheless, we are seeing rising demand for reinsurance because primary insurers are making increasing use of reinsurance solutions to limit the volatility of their results.

The additional capacities originating from the insurance-linked securities (ILS) market are a further factor in the sustained pressure on prices and conditions – especially in US natural catastrophe business. In the wake of the recent large losses it was notable that most investors remained loyal to the ILS market with a view to profiting from rising prices as a consequence of the high loss expenditure. Owing to the additional capacity, however, the price increases failed to materialise in the expected amount.

This general business environment shaped the various rounds of treaty renewals in the first half of the year. The renewal season for Japan took place as at 1 April, together with more modest treaty renegotiations – in terms of volume – for the markets of Australia, New Zealand, Korea and North America. The total premium volume booked from these treaty renewals increased by 10.3%. The part of our North American treaty business up for renegotiation was renewed at adequate prices. We modestly expanded the property portfolio in response to advantageous conditions, especially under programmes that had suffered losses.

In Japan rates for casualty business improved on the back of prior losses. The premium contracted slightly, however, in view of a planned share reduction in a large-volume treaty. We similarly chose not to renew shares of some business in South Korea; prices and conditions were not sufficiently attractive owing to the competition prevailing in this market. Hannover Re did, however, book pleasing growth in the area of agricultural risks.

The gross written premium for our total portfolio in property and casualty reinsurance rose by 19.2% as at 30 June 2018 to EUR 6.5 billion (EUR 5.4 billion). This was again a reflection of the sustained surge in demand for reinsurance solutions offering solvency relief, not only in Europe but also in North America. We were thus able to more than offset premium declines in other areas. At constant exchange rates, gross written premium in property and casualty reinsurance would have grown by as much as 27.6%. The level of retained premium was higher than in the corresponding period of the previous year at 91.4% (89.4%). Net premium earned increased by 20% to EUR 5.2 billion (EUR 4.3 billion); adjusted for exchange rate effects, the growth would have been 28.4%.

Net expenditure on large losses as at 30 June 2018 totalled EUR 93.3 million, a figure below the level of the similarly lightly impacted comparable period (EUR 122.9 million). The largest catastrophe losses included the European winter storm Friederike and an earthquake in Papua New Guinea. Altogether, major loss expenditure remained well below our budgeted amount of EUR 351 million for the first six months.

The underwriting result for total property and casualty reinsurance improved by 37.4% to EUR 204.7 million (EUR 149.0 million). The combined ratio of 95.7% (96.5%) is still within the bounds of our planning with an eye to our target ratio of 96% or lower for the full financial year.

Investment income was thoroughly gratifying at EUR 503.0 million (EUR 475.5 million). Driven by slightly higher realised gains, income from assets under own management grew by 2.7% to EUR 486.7 million (EUR 473.7 million). The income generated from investments held by ceding companies increased to EUR 16.3 million (EUR 1.8 million).

Overall, the operating profit (EBIT) for the Property & Casualty reinsurance business group increased by 8.6% as at 30 June 2018 to EUR 688.8 million (EUR 634.3 million). The EBIT margin of 13.3% (14.7%) was again well above our minimum target of 10%. Group net income for the segment contracted by 2.1% to EUR 434.4 million (EUR 444.0 million) owing to higher tax expenditure.