Property and casualty reinsurance

• Gross premium grows by 18.4% at constant exchange rates
• Large losses higher than in the previous year but still well within budget
• Satisfactory outcome of renewals during the year
• Result remains stable despite intense competition and increased large losses

Global property and casualty reinsurance markets continue to be overshadowed by intense competition and a supply of reinsurance coverage that exceeds demand. Particularly in the area of natural catastrophe covers, capacities from the ILS (insurance-linked securities) market are putting prices and conditions under sustained pressure.

Despite the challenging general environment, the various rounds of treaty renewals in the first half of the year passed off satisfactorily for Hannover Re – prompting us to look ahead with optimism to the full year. In contrast to the situation just one year ago, alternative providers of capital for the transfer of insurance risks to the capital market took a more cautious approach in the renewal negotiations during the year. Reinsurance prices remained commensurate with the risks on the whole, and we secured modestly improved conditions. As one of the world’s leading reinsurers, we continued to benefit from our very robust financial strength as well as from resurgent demand among primary insurers. Attractive opportunities to expand the portfolio opened up in Asia, North America and Germany, among other markets.

Following the successful treaty renewals in property and casualty reinsurance as at 1 January 2019, the round of renewals on 1 April similarly passed off favourably for Hannover Re. This is the date on which business in Japan is traditionally renewed, along with treaty renegotiations on a more limited scale for Australia, New Zealand, Asian markets and North America. Rates in Japan improved markedly on the back of past natural catastrophe losses and we were able to boost our premium volume. In the Indian market, too, we substantially increased our premium income. The renewal of part of our North American portfolio proved highly satisfactory for our company, sustaining the trend seen in the 1 January renewals. In catastrophe business prices generally hardened, with increases running into double-digit percentages attainable under loss-impacted programmes. The total premium volume booked from the treaty renewals as at 1 April 2019 increased by 7%.

The gross written premium for our total portfolio in property and casualty reinsurance grew by 21.3% as at 30 June 2019 to EUR 7.8 billion (previous year: EUR 6.5 billion). This was again a reflection of sustained rising demand for reinsurance solutions offering solvency relief as well as in the area of traditional reinsurance covers. At constant exchange rates, gross written premium in property and casualty reinsurance would have grown by 18.4%. The level of retained premium was only marginally higher than in the corresponding period of the previous year at 91.5% (91.4%). Net premium earned climbed by 15.2% to EUR 6.0 billion (EUR 5.2 billion), or by 13.0% adjusted for exchange rate effects.

Net expenditure on large losses as at 30 June 2019 was higher than the figure for the comparable period at EUR 140.5 million (EUR 93.3 million). The largest losses in the first half of the year included the explosion at a refinery in Philadelphia in June, with an estimated net share for Hannover Re of EUR 45.7 million, the floods in Queensland, Australia, at the end of January in an amount of EUR 25.9 million as well as the crash of an Ethiopian Airlines Boeing 737 MAX in March at a cost of EUR 24.7 million. The total burden of large losses was well below our budgeted level of EUR 370 million for the first six months. In the category of large losses we include catastrophic events that are expected to result in gross loss payments of more than EUR 10 million for our company.

In addition to the large losses incurred in the current year, we also received belated loss advices from our customers in the course of the first six months for last year's typhoon Jebi in Japan in an amount of EUR 106 million for net account. Thanks to our retrocession programmes we are extensively protected going forward in the event that there is a need to set aside further additional reserves in connection with this loss. Despite the sharply negative run-off of certain prior-year losses, the run-off of our loss reserves for prior years was positive overall.

The underwriting result for total property and casualty reinsurance including interest on funds withheld and contract deposits deteriorated by 11.3% to EUR 195.9 million (EUR 220.9 million). The combined ratio of 96.7% (95.7%) was slightly higher than the previous year’s figure, but nevertheless remained in line with our planning in terms of our maximum target ratio of 97% for the full year.

The income from assets under own management booked for property and casualty reinsurance contracted by 2.3% to EUR 475.6 million (EUR 486.7 million).

The operating profit (EBIT) for the Property & Casualty reinsurance business group fell by 4.6% to EUR 656.9 million (EUR 688.8 million). The EBIT margin of 11.0% (13.3%) again surpassed our minimum target of 10%. The contribution made by property and casualty reinsurance to Group net income was virtually stable at EUR 431.3 million (EUR 434.4 million).