Half-year Financial Report 2023: Hannover Re confirms full-year earnings target after good first six months

Hannover, 9 August 2023: Hannover Re increased its Group net income in the first half of 2023 by 18% and confirms its full-year earnings target.

"We closed the first half with a good result and are thus still on track to achieve our year-end targets," said Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re. "In the recent renewals we were also able to secure further – sometimes appreciable – improvements in prices and conditions, as reflected in another increase in the new business value. A selective underwriting approach remains the order of the day for us, in part because experience shows that the more eventful months of the year are still ahead of us. This prudence is exactly what sets us apart as a financially strong and reliable reinsurance partner."

Group net income rises to EUR 960 million

With effect from 1 January 2023 Hannover Re is reporting its results on the basis of the new accounting standards IFRS 17 and IFRS 9.

Reinsurance revenue (gross) increased by 3.9% to EUR 12.3 billion (previous year: EUR 11.8 billion). Growth of 5.4% would have been booked at unchanged exchange rates.

The reinsurance service result, which reflects the profitability of underwriting activity less business ceded (primarily retrocessions and insurance-linked securities), surged by 56% to EUR 1.1 billion (EUR 694 million). The reinsurance finance result adjusted for exchange rate effects, which includes in particular the interest accretion on technical reserves discounted in prior years, amounted to EUR -342 million (EUR -205 million).

The operating result (EBIT) increased by 21% to EUR 1.4 billion (EUR 1.1 billion). Group net income rose to EUR 960 million (EUR 815 million). Earnings per share thus amounted to EUR 7.96 (EUR 6.76).

"Our investment income delivered another important contribution to the overall result. In a volatile capital market environment the resilience and earning power of our investment portfolio once again shone through," said Clemens Jungsthöfel, Chief Financial Officer of Hannover Re. "Despite a pleasing rise in ordinary investment income, we have allowed for valuation corrections in our earnings forecast for the second half of the year as a precautionary move."

Return on equity comfortably above minimum target at 21.0%; capital adequacy ratio remains extremely robust

The shareholders' equity of Hannover Re amounted to EUR 9.3 billion as at 30 June 2023 (31 December 2022: EUR 9.1 billion). The annualised return on equity reached 21.0% (previous year: 16.4%) and exceeded the minimum target of 1,000 basis points above the risk-free interest rate. The book value per share stood at EUR 76.76 (31 December 2022: EUR 75.12).

The contractual service margin (net) increased by 11% to EUR 7.3 billion (31 December 2022: EUR 6.6 billion). The rise can be attributed largely to new business written. The risk adjustment (net) decreased slightly to EUR 3.7 billion (31 December 2022: EUR 3.7 billion).

The capital adequacy ratio under Solvency II, which measures Hannover Re's risk-carrying capacity, amounted to 269.8% at the end of June and thus remained comfortably above the limit of 180% and the internal threshold of 200%.

Large losses in property and casualty reinsurance within the budgeted expectations

The renewals in property and casualty reinsurance within the year brought improved risk-adjusted prices and conditions for Hannover Re. Thanks to a quality-focused underwriting approach, the new business CSM (net) rose by 45% to EUR 1.8 billion (EUR 1.3 billion). The new business loss component (net) decreased to EUR 35 million (EUR 235 million).

Reinsurance revenue (gross) in property and casualty reinsurance increased by 6.6% to EUR 8.4 billion (EUR 7.9 billion). Growth would have reached 7.8% at unchanged exchange rates.

Expenditures from large losses in the first six months of the year totalled EUR 607 million (EUR 850 million) and thus came in within the budgeted expectations of EUR 751 million for that period.

The largest individual losses in the first half of 2023 included the earthquake in Türkiye and Syria at the beginning of the year with expenditure of EUR 257 million as well as extensive flooding in January and Tropical Cyclone Gabrielle in February that impacted New Zealand at a cost of EUR 45 million and EUR 65 million respectively. Further expenditures of EUR 42 million were incurred from severe storms in Italy in May together with EUR 36 million for losses caused by tornados in the southern United States in March. In addition, Hannover Re anticipates losses of EUR 50 million from the recent riots in France.

The reinsurance service result improved substantially by 51% to EUR 598 million (EUR 397 million). The previous year's figure had included provisions for losses from the Ukraine war and for additional reserves established for prior-year losses. The combined ratio in property and casualty reinsurance improved to 91.7% (94.4%). The reinsurance finance result (net) amounted to EUR -285 million (EUR -149 million).

Net income from investments in property and casualty reinsurance grew by 14% to EUR 625 million (EUR 548 million).

The operating profit (EBIT) increased by 28% to EUR 829 million (EUR 648 million). This puts Hannover Re well on track to achieve the expected full-year EBIT of at least EUR 1.6 billion.

Result in life and health reinsurance beats expectations

The result in life and health reinsurance delivered a pleasing performance in the first half of the year. Sustained strong demand, especially in the areas of financial solutions, longevity covers and in traditional business, had a favourable effect on the business development. The new business CSM (net) amounted to EUR 151 million (EUR 229 million). The new business loss component (net) stood at EUR 4 million.

Reinsurance revenue (gross) contracted slightly to EUR 3.9 billion (EUR 4.0 billion). Growth of 0.8% would have been booked at unchanged exchange rates.

The reinsurance service result improved considerably by 62% to reach EUR 481 million (EUR 297 million), thanks in particular to a better result in business with mortality covers. The reinsurance finance result before exchange rate effects amounted to EUR -58 million (EUR -57 million).

Net income from investments in life and health reinsurance, which had benefited from two sizeable special effects in the previous year, normalised accordingly and fell by 19% to EUR 225 million (EUR 276 million).

The operating result (EBIT) in life and health reinsurance increased by 11% to EUR 525 million (EUR 471 million) and is thus very well on course to achieve the expected full-year EBIT of at least EUR 750 million.

Return on investment above target at 3.0%

The portfolio of investments totalled EUR 56.5 billion as at the end of June (31 December 2022: EUR 55.3 billion).

Net income from investments surpassed the level of the previous year's period at EUR 851 million (EUR 825 million). This can be attributed above all to strong earnings from the fixed-income portfolio and lower expenditure for expected credit losses, which more than offset the reduced income from fair value changes in the holdings measured at fair value through profit and loss. The resulting annualised return on investment amounted to 3.0% and was thus above the minimum 2.4% target set for the full year.

Outlook for 2023: Group net income of at least EUR 1.7 billion confirmed

The renewals in property and casualty reinsurance as at 1 July 2023, where the focus is on the Asia-Pacific region and North America as well as some speciality lines, brought further improvements in risk-adjusted prices and conditions. The renewed volume grew by a substantial 12.6%. The inflation- and risk-adjusted price increase on renewed business was 4.8%.

For the 2023 financial year Hannover Re expects to grow the reinsurance revenue in total business by at least 5% on the Group level assuming constant exchange rates. The currency-adjusted growth in reinsurance revenue should again be stronger in property and casualty reinsurance than in life and health reinsurance.

"The increasing losses from natural disasters and other severe events as well as persistently high inflation in some regions are driving stronger demand for reinsurance protection," said Henchoz. "With our focus on the long-term profitability of our portfolio I remain optimistic – despite all the challenges – that we can sustain the positive development of Hannover Re's business in the second half of the year and achieve the goals we have set.“

For 2023 Hannover Re anticipates a contribution of at least EUR 1.6 billion from property and casualty reinsurance to the operating result (EBIT), with life and health reinsurance expected to contribute at least EUR 750 million.

Group net income for the full year should reach at least EUR 1.7 billion. This assumes that large loss expenditure does not materially exceed the budgeted level of EUR 1.725 billion, no unforeseen distortions occur on capital markets and the Covid-19 pandemic does not have any further significant impact on the result in life and health reinsurance.

The investment portfolio should continue to show moderate growth – assuming stable exchange rates and interest rate levels. The return on investment from the asset portfolio should reach at least 2.4%.

Hannover Re's dividend policy remains unchanged. It is envisaged that the ordinary dividend will at least be on the level of the previous year. This will be supplemented by a special dividend provided the capitalisation exceeds the capital required for future growth and the profit target is achieved.