Posted on Mar 11, 2011 by Sergio Ulloa
Hannover Re, one of the world's leading reinsurers, has announced stronger than expect financial results for 2010, with net income after tax totaling €748.9 million (US$1.05 billion); this beat the Company's previous record level of profitability achieved in 2009 with €734 million (US$1.03 billion).
Hannover's operational business was adversely affected by losses recorded during 2010 as a result of claims from natural disasters offset by strong investment returns and a one-off rebate of €112 million (US$157 million) relating to a tax issue.
The German reinsurer saw premiums grow by 11.2 percent during 2010 to reach €11.4 billion (US$15.7 billion), combined with investment income rising to €1.3 billion (US$1.8 billion). An improvement in the financial return from property and casualty reinsurance over-shadowed weaker results from Hannover's life and health reinsurance operations.
The income generated from Hannover's investments more than compensated for losses incurred from the payments arising from catastrophe claims during 2010; the expenditure on claims amounting to €661.9 million (US$913.4) for the year, compared to €239.7 million (US$330.7 million) in 2009.
The significant costs incurred by Frankfurt based Hannover Re in 2010 included the company's share of claims arising from the impact of natural disasters; primarily the floods in Australia, and the damage caused by the earthquakes in Chile and New Zealand. There were also costs relating to the man-made disaster in the Gulf of Mexico, with the sinking of Deepwater Horizon.
Hannover is confidently forecasting net profits of at least €650 million (US$897 million) for 2011, despite the large scale catastrophes which have already struck early in 2011. It is estimated that the insurer could face a maximum payout claim of €150 million (US$205 million) as a result of the devastating earthquake which struck Christchurch, New Zealand in February plus a substantial payout as a result of the floods in Australia in early 2011.
Although 2011 has started precariously for reinsurers, Hannover is predicting that premium growth will be around 3 percent with strong profits created by concentration on business lines which represent the best opportunities for future growth. There is also scope for Hannover to benefit from the implementation of Solvency II requirements, whereby insurers will need to hold increased financial reserves while operating within the European Union; the potential opportunities for reinsurers being driven by insurers seeking to transfer some associated risks to reinsurance companies.
Regarding other lines of business, Ulrich Wallin Hanover's Chief Executive Officer said "We again accomplished our growth targets in 2010.This was assisted by the very positive development of our business in the United Kingdom, most notably in the area of longevity risks. Particularly vigorous growth was also recorded in China, where Hannover Re was the first reinsurer to write liquidity-affecting financing contracts."
Reinsurers have been counting the cost of over exposure to natural catastrophes in 2010
, with the upshot being the attention to apply better risk management techniques for business being unwritten in 2011. Although Hannover Re was able to grow profits in 2010, when other reinsurer specialists have been hit by reductions in net income, the fine balance between achieving a satisfactory risk-reward ratio is clearly understood.
Hannover's competitors - such as multinational rivals Munich Re, Swiss Re, General Re and members of the Lloyd's of London syndicate such as Brit Insurance
, Hardy, Omega Insurance
- have experienced mixed results in 2010. In recent years, reinsurers have been adversely affected by some strange and difficult to predict environmental events which have taken their toll on the reinsurers bottom line. However, reinsurer's should be able to benefit from these events by factoring in the profile of the latest disasters in achieving an appropriate risk-reward business model.
Insurance Company Mentioned:
Hannover Re is the third-largest reinsurer in the world, with a gross premium of around EUR 10 billion. It transacts all lines of non-life and life and health reinsurance and maintains business relations with more than 5,000 insurance companies in about 150 countries. Its worldwide network consists of more than 100 subsidiaries, branch and representative offices on all five continents with a total staff of roughly 2,100.