Property and casualty reinsurance
| Key figures for property and casualty reinsurance | |||||||
|---|---|---|---|---|---|---|---|
| in EUR million | 2018 | 2017 | |||||
| 1.1. – 30.6. | 1.7. – 30.9. |
+/– previous year |
1.1. – 30.9. | +/– previous year |
1.7. – 30.9. | 1.1. – 30.9. | |
| Gross written premium | 6,467.1 | 3,190.4 | +15.1% | 9,657.5 | +17.8% | 2,771.9 | 8,199.3 |
| Net premium earned | 5,174.8 | 2,842.0 | +16.5% | 8,016.8 | +18.7% | 2,439.9 | 6,752.6 |
| Underwriting result | 204.7 | 27.9 | -106.1% | 232.6 | (458.1) | (309.1) | |
| Net investment income | 503.0 | 281.0 | -40.4% | 783.9 | -17.2% | 471.2 | 946.7 |
| Operating result (EBIT) | 688.8 | 314.8 | 1,003.6 | +66.8% | (32.6) | 601.7 | |
| Group net income | 434.4 | 237.9 | 672.4 | +49.8% | 4.8 | 448.7 | |
| Earnings per share in EUR | 3.60 | 1.97 | 5.58 | +49.8% | 0.04 | 3.72 | |
| EBIT margin1 | 13.3% | 11.1% | 12.5% | -1.3% | 8.9% | ||
| Combined ratio2 | 95.7% | 98.7% | 96.8% | 118.3% | 104.4% | ||
| Retention | 91.4% | 89.9% | 90.9% | 88.8% | 89.2% | ||
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Property and casualty reinsurance markets around the world continue to see an oversupply of capital for the coverage of risks. The heavy windstorm losses of the past year did little to change this situation. At the same time, the additional capacities originating from the ILS market are putting prices and conditions under sustained pressure. The environment in which Hannover Re is operating thus remains challenging.
Increased demand can nevertheless still be observed in certain regions of Asia and North America as well as in areas such as the reinsurance of cyber risks, parts of specialty business and for covers in the area of structured reinsurance designed to optimise capital management.
The treaty renewals in property and casualty reinsurance as at 1 June and 1 July 2018 saw undiminished fierce competition. This is the time of year when parts of the North American portfolio, natural catastrophe risks and some areas of credit and surety business are renegotiated. The main renewals also took place for business in Australia and New Zealand: during the 1 July renewal season here we were able to prevent further price erosion and secured significant rate increases in some instances under loss-impacted programmes. This should boost the profitability of the business written. Broadly speaking, we are satisfied with the treaty renewals for the North American market; we boosted our premium volume by roughly another 15% compared to the previous year. In so doing, we were able to grow our business with certain selected clients. We maintained our profit-oriented underwriting approach to catastrophe covers, as a consequence of which our exposure remained comfortably within our risk appetite – which was unchanged from the previous year. We significantly improved our position in relation to a number of sizeable customer accounts, especially in North America and Europe. Altogether, the premium volume booked for the portfolio up for renewal on 1 June and 1 July rose by 16%.
The gross written premium for our total portfolio as at 30 September 2018 surged by an appreciable 17.8% to EUR 9.7 billion (EUR 8.2 billion). At constant exchange rates growth would have reached 24.0%. The level of retained premium was higher than in the previous year’s corresponding period at 90.9% (89.2%). Net premium earned improved by 18.7% to EUR 8.0 billion (EUR 6.8 billion); adjusted for exchange rate effects, growth would have been as high as 24.9%.
After the very moderate major loss experience seen in the first half of the year, the loss incidence recorded in the third quarter was largely in line with quarterly expectations. The largest losses incurred in the third quarter included Typhoon Jebi in Japan, for which we anticipate net expenditure of EUR 103 million, as well as Typhoons Prapiroon and Trami with loss expenditure of EUR 54 million and EUR 22 million respectively. As far as Hurricane Florence is concerned, we expect a net strain in the order of EUR 40 million. Man-made large losses in the third quarter amounted to just under EUR 30 million. Our net expenditure on major losses for the first nine months thus totalled EUR 364.6 million (EUR 894.3 million). The net burden of major losses incurred in the first nine months thus remained comfortably within our envisaged large loss budget of EUR 630 million.
The underwriting result for total property and casualty reinsurance improved to EUR 232.6 million (-EUR 309.1 million) on the back of the reduced strain from large losses. The combined ratio consequently improved to 96.8% (104.4%), although it is still slightly above our full-year target of 96% or better. This can be attributed not only to the robust growth in structured reinsurance business, which operates with slimmer margins, but also to an increasing frequency of smaller and mid-sized losses. Viewed in isolation, the combined ratio for the third quarter stood at 98.7% (118.3%).
The investment income booked for property and casualty reinsurance from assets under own management contracted to EUR 757.3 million (EUR 933.3 million). The decline was due primarily to the non-recurrence of the positive effect associated with disposal of the portfolio of listed equities in the previous year.
The operating profit (EBIT) for the Property & Casualty reinsurance business group came in at EUR 1,003.6 million (EUR 601.7 million), equivalent to an increase of 66.8%. The EBIT margin of 12.5% (8.9%) surpassed our minimum target of 10%. Group net income for property and casualty reinsurance increased by 49.8% to EUR 672.4 million (EUR 448.7 million).