Annual report: Hannover Re beats full-year earnings target and raises dividend

  • Group net income improves to EUR 1.8 billion
  • Return on equity of 19.0% comfortably above minimum target
  • Reinsurance revenue climbs to EUR 24.5 billion
  • Contractual service margin (net) increases by 17.4% to EUR 7.7 billion
  • Substantially improved risk-adjusted prices and conditions in property and casualty reinsurance
  • Result in life and health reinsurance significantly better than anticipated
  • Return on investment of 2.8% higher than target
  • Proposed dividend distribution of EUR 7.20 per share including special dividend
  • Guidance for 2024 confirmed: Group net income of at least EUR 2.1 billion

Hannover, 18 March 2024: Hannover Re generated Group net income of EUR 1.8 billion for the 2023 financial year (previous year: EUR 0.8 billion) and thus beat its guidance of at least EUR 1.7 billion.

In view of the good business development, a further increase in the dividend is also envisaged. The Executive Board and Supervisory Board will propose to the Annual General Meeting a dividend distribution of altogether EUR 7.20 (EUR 6.00) per share. This is comprised of an ordinary dividend of EUR 6.00 (EUR 5.00) per share and a special dividend of EUR 1.20 (EUR 1.00) per share.

"We achieved a great deal in 2023: Our two business groups and our investments performed very well. We were able to beat our earnings target and significantly increase the dividend. At the same time, we further strengthened Hannover Re's resilience," said Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re. "Despite the continued challenging environment, we have further improved the profitability of our business and cemented our role as a reliable partner and robustly capitalised reinsurer."

Group profit: Group net income rises to EUR 1.8 billion

Since 1 January 2023 Hannover Re has reported its results on the basis of the new accounting standards IFRS 17 and IFRS 9.

The reinsurance revenue (gross) increased slightly by 1.8% to EUR 24.5 billion (EUR 24.0 billion). Growth of 4.9% would have been booked at unchanged exchange rates, almost reaching the set target of at least 5%.

The reinsurance service result (net), which reflects the profitability of underwriting activity less business ceded (primarily retrocessions and insurance-linked securities), rose sharply by 24.1% to EUR 1.7 billion (EUR 1.3 billion). The reinsurance finance result (net) adjusted for exchange rate effects, which is structurally negative and includes the interest accretion on technical reserves discounted in prior years, fell to EUR -880 million (EUR -583 million).

The operating result (EBIT) amounted to EUR 2.0 billion (EUR 1.5 billion).

Group net income increased to EUR 1.8 billion (EUR 781 million). Earnings per share thus reached EUR 15.13 (EUR 6.47). Exceptionally low tax expenditure of EUR 26 million (EUR 526 million) was incurred in the 2023 financial year, primarily due to a one-time tax effect connected with the implementation of global minimum taxation.

"This special tax effect provided additional room to further increase our resilience," said Clemens Jungsthöfel, Chief Financial Officer of Hannover Re. "We used this opportunity to additionally strengthen our loss reserves in property and casualty reinsurance, thereby significantly increasing the confidence level of our reserves."

Return on equity of 19.0% comfortably above minimum target

The shareholders' equity amounted to EUR 10.1 billion (EUR 9.1 billion) as at 31 December 2023. The increase in shareholders' equity is primarily a reflection of the retained earnings in the financial year. The book value per share reached EUR 83.97 (EUR 75.12). The return on equity stood at 19.0% (8.2%) and thus comfortably surpassed the minimum target of 1,000 basis points above the risk-free interest rate.

The contractual service margin (net) increased by 17.4% to EUR 7.7 billion (EUR 6.6 billion). The rise can be attributed largely to the profitable new business written. The risk adjustment for non-financial risk (net) was on the level of the previous year at EUR 3.7 billion (EUR 3.7 billion).

The capital adequacy ratio under Solvency II, which measures Hannover Re's risk-carrying capacity, stood at 269.5% (251.9%) as at 31 December 2023 and thus remained clearly above the minimum target of 200%.

Property and casualty reinsurance: Substantially improved risk-adjusted prices and conditions

The renewals in property and casualty reinsurance over the course of the year brought substantial improvements in risk-adjusted prices and conditions for Hannover Re. This was evident in the new business CSM (net), which reflects the earnings expectations from the business written in 2023. Thanks to a quality-focused underwriting approach, the new business CSM (net) increased by a substantial 30% to EUR 2.4 billion (EUR 1.8 billion). The new business LC (net) decreased to EUR 40 million (EUR 236 million).

Reinsurance revenue (gross) in property and casualty reinsurance was up by 3.4% to EUR 16.8 billion (EUR 16.3 billion). Growth would have reached 6.5% at unchanged exchange rates.

The 2023 financial year was notable for a high frequency of mid-sized catastrophe losses. Payments to customers for large losses totalled EUR 1.6 billion (EUR 1.7 billion) in the financial year, a figure within the budgeted expectation of EUR 1.725 billion for this period.

The largest individual losses incurred by Hannover Re included the severe July storms in Italy with net expenditure of EUR 313 million. Other notable losses were the devastating earthquake in Türkiye and Syria at the beginning of the year at a cost of EUR 270 million, Hurricane Otis in Mexico in an amount of EUR 142 million and the wildfires in Hawaii at EUR 97 million. Further losses of EUR 74 million resulted from the severe earthquake in Morocco. Tropical Cyclone Gabrielle in New Zealand, the floods in New Zealand at the start of the year and losses caused by severe storms and flooding in Australia at year-end took an additional toll of EUR 67 million, EUR 47 million and EUR 44 million respectively.

The reinsurance service result improved by 5.9% to EUR 849 million (EUR 801 million). Despite the significantly strengthened confidence level of the loss reserves in 2023, the combined ratio improved to 94.0% (94.5%). Adjusted for exchange rate effects, the reinsurance finance result (net) amounted to EUR -722 million (EUR -475 million).

Net income from investments in property and casualty reinsurance came to EUR 1.2 billion (EUR 608 million). Net realised gains had been exceptionally low in the previous year as presented in accordance with IFRS 9, because the realisation of considerable gains from the private equity portfolio was not reflected in the IFRS 9 income statement.

The operating profit (EBIT) increased accordingly by 27% to EUR 1.1 billion (EUR 867 million) and therefore was below the targeted EBIT for property and casualty reinsurance of EUR 1.6 billion. A major factor influencing the EBIT – especially in the fourth quarter – was the aforementioned increase in the loss reserves, which caused the confidence level of the reserves to rise considerably more strongly than originally planned.

Life and health reinsurance: Result better than anticipated

Sustained demand was evident in life and health reinsurance across all segments. Hannover Re wrote significant new business in the area of financial solutions, primarily in the United States and China. Longevity covers also continued to be in demand. Traditional reinsurance business involving mortality and morbidity risks developed favourably, including in Latin America and countries such as Italy, France and Spain.

The new business CSM (net) decreased to EUR 359 million (EUR 545 million). In addition, treaty renewals and changes in the in-force portfolio caused the contractual service margin (net) to increase sharply to EUR 6.0 billion (EUR 5.5 billion). The new business LC (net) amounted to EUR 14.4 million (EUR 3.9 million).

Reinsurance revenue (gross) contracted slightly to EUR 7.6 billion (EUR 7.8 billion). Growth of 1.6% would have been recorded at unchanged exchange rates.

The reinsurance service result (net) improved to EUR 810 million (EUR 535 million). Adjusted for exchange rate effects, the reinsurance finance result (net) fell to EUR -158 million (EUR -108 million).

The investment result for the life and health reinsurance business group climbed by 16.2% to EUR 415 million (EUR 357 million). This includes income of EUR 13.5 million (EUR 87 million) from Hannover Re's extreme mortality cover.

The operating result (EBIT) increased by 34% to EUR 871 million (EUR 650 million) and thus exceeded the EBIT target of EUR 750 million in life and health reinsurance.

Investment result: Return on investment higher than target at 2.8%

The portfolio of investments grew to EUR 60.1 billion (EUR 55.3 billion) at the end of December.

The investment result came in at EUR 1.6 billion (EUR 965 million) owing to the aforementioned lower net realised gains under IFRS 9 in the comparable period. The annualised return on investment reached 2.8% and thus beat the full-year target of at least 2.4%. This is attributable above all to the ordinary income and the income booked from investments recognised at fair value through profit or loss, which in both cases proved to be higher than originally planned for the year under review.

Guidance 2024: Net income of at least EUR 2.1 billion

"Our clients continue to value and look for solid and reliable reinsurance protection. This was borne out once again by the 1 January 2024 renewals," Henchoz said. "With the successful treaty renewals and the further strengthening of our resilience in the 2023 financial year, we have laid vital groundwork that enables us to look ahead with confidence to the goals we have set ourselves for 2024."

For the 2024 financial year Hannover Re expects reinsurance revenue in total business to grow by more than 5% based on constant exchange rates, with growth in property and casualty reinsurance likely to be disproportionately stronger than in life and health reinsurance.

In view of the improved market environment, property and casualty reinsurance should achieve a combined ratio of below 89%. Life and health reinsurance is expected to generate a reinsurance service result of more than EUR 850 million in the current financial year.

Group net income for the full year should reach at least EUR 2.1 billion, equivalent to an increase of around 15% compared to the previous year.

The investment portfolio should continue to show moderate growth – assuming stable exchange rates and interest rate levels. The return on investment from the asset portfolios should reach at least 2.8%.

As usual, all statements regarding future targets are based on the assumption that there are no unforeseen distortions on capital markets and that large loss expenditure remains within the expectation of EUR 1.825 billion.

The ordinary dividend is expected to increase year-on-year over the 2024-2026 strategy cycle. The ordinary dividend will be supplemented by a special dividend provided the capitalisation exceeds the capital required for future growth and the profit target is achieved.

An overview of the terminology used in IFRS 17 accounting can be found online here

Hannover Re is one of the world’s leading reinsurers. It transacts all lines of property & casualty and life & health reinsurance and is present worldwide with more than 3,500 staff. German business of the Hannover Re Group is written by the subsidiary E+S Rück. Established in 1966, Hannover Re is recognised as a reliable partner for innovative risk solutions, exceptional customer intimacy and financial soundness. The rating agencies most relevant to the insurance industry have awarded both Hannover Re and E+S Rück outstanding financial strength ratings: Standard & Poor's AA- "Very Strong" and A.M. Best A+ "Superior".

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