Forecast
The state of global Reinsurance markets continues to be shaped by intense competition and surplus capacities. An additional factor of late has been the renewed drop in interest rates in Europe and the United States, with implications for the investment income generated by the industry. Although the general environment remains challenging, it is our assessment that even against this backdrop we are still well placed to be able to continue operating profitably on a sustained basis; for the current 2019 financial year we anticipate a good overall result and we expect to achieve the goals that we have set ourselves. Excluding the positive one-off effect from the Viridium participation in an amount of EUR 99.5 million, we are well on track to generate Group net income in the order of EUR 1.1 billion for 2019. This is subject to the premise, as always, that major loss expenditure does not significantly exceed the budgeted level of EUR 875 million (2018: EUR 825 million) and that there are no unforeseen distortions on capital markets.
For the current financial year we expect to grow gross premium for the Group – based on constant exchange Rates – by a single-digit percentage.
In property and casualty reinsurance, based on the outcome of the treaty renewals as at 1 January and 1 April, we are looking to book substantial currency-adjusted growth at broadly stable conditions. In this context we shall adhere to our selective underwriting policy, under which for the most part we only write business that meets our margin requirements.
This expectation was confirmed by the treaty renewals as at 1 June and 1 July, which passed off favourably for Hannover Re. Parts of the North American Portfolio are traditionally renegotiated at this time of the year, especially natural catastrophe risks, along with business in Australia and New Zealand as well as in the credit and surety lines. The renewals in Florida, where hurricane Irma had caused considerable reinsured losses in 2017 with late reported claims in some instances on a significant level, proved particularly successful for Hannover Re.
For 2019, as already announced, we have raised our Net major loss budget to EUR 875 million after EUR 825 million in the previous years. This adjustment reflects the growth in the underlying business. We are targeting a combined ratio here of no more than 97%.
In life and health reinsurance we anticipate moderate premium growth – adjusted for exchange Rate effects – in the current financial year. Due to the elimination of the previous year’s strain from the termination of loss-making treaties in US mortality business, the EBIT generated in life and health reinsurance should increase sharply in the 2019 financial year and comfortably surpass our strategic target of at least 5% EBIT growth. Our minimum target of EUR 220 million per year for the value of new business remains unchanged.
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 the asset Portfolio. 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 2019 we are targeting a minimum return on investment of 2.8%.
Hannover Re envisages a payout ratio for the ordinary dividend in the range of 35% to 45% of its IFRS Group Net income. The ordinary dividend will be supplemented by payment of a special dividend subject to an unchanged comfortable level of capitalisation and Group net income in line with expectations.