Property and casualty reinsurance

• Property and casualty reinsurance still highly competitive
• Moderate major losses in the first nine months
• Another good underwriting result

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Property and casualty reinsurance continues to be intensely competitive. The supply of reinsurance comfortably exceeds demand. This state of affairs was therefore also instrumental in shaping the treaty renewals as at 1 July 2014. Parts of the North American portfolio, most agricultural risks and business from Latin America traditionally come up for renewal on this date.

US business recorded rate decreases of between 5% and 10% under programmes that had been spared losses. For loss-impacted treaties, on the other hand, increases of up to 30% were achieved. Prices in US property catastrophe business remained under heavy pressure, particularly due to the absence of major losses and the inflow of capital from alternative markets. In certain segments and regions, however, there were isolated positive indications that a bottom might have been reached. Competition in the US casualty market was even fiercer than it had been in the renewals at the beginning of the year. Against the backdrop of our selective underwriting policy, we slightly reduced our premium volume for North America as at 1 July 2014.

Broadly speaking, we were satisfied with the outcome of the treaty renewals in Latin America. Growth here remains strong, even though modest rate decreases are also being seen in the markets of Central and South America. Parts of our business with agricultural risks were also up for renewal. Although an excess supply of reinsurance capacity also prevails in this segment, we nevertheless succeeded in preserving our good market position.

The premium volume for total property and casualty reinsurance remained stable despite our selective underwriting policy. The gross premium of EUR 6.1 billion was slightly higher than the previous year’s figure (EUR 6.0 billion). At constant exchange rates growth of 3.2% would have been booked. The level of retained premium was virtually unchanged at 89.6% (89.1%). Net premium earned was on a par with the previous year at EUR 5.1 billion (EUR 5.1 billion); adjusted for exchange rate effects, a gain of 1.5% would have been reported.

After lower-than-average major losses in the first half of 2014, major loss expenditure rose somewhat in the third quarter. The aviation line was particularly hard hit. The crash of the Malaysia Airlines plane over Ukraine resulted in a net strain of EUR 32.2 million. The largest single loss was caused by armed clashes in Libya, which left Tripoli airport heavily damaged. We have set aside reserves of EUR 50.0 million for this loss. The total net burden of major losses for the first nine months stood at EUR 242.2 million (EUR 446.7 million) – a figure well below our major loss budget for this period. The combined ratio of 95.3% (95.0%) was not only positive, it was also well below our targeted ceiling of 96%. The underwriting result for property and casualty reinsurance as at 30 September 2014 came in at a pleasing EUR 225.3 million (EUR 243.4 million).

Income from assets under own management rose to EUR 632.1 million (EUR 567.2 million) for property and casualty reinsurance. The normalised result from changes in the fair value of inflation swaps, which stood at -EUR 4.2 million after -EUR 27.4 million in the comparable period of the previous year, was a contributory factor here. Hannover Re uses inflation swaps to hedge inflation risks associated with part of the loss reserves in its technical account.

The operating profit (EBIT) for property and casualty reinsurance as at 30 September 2014 reached EUR 846.8 million, thereby surpassing the previous year’s figure (EUR 804.6 million) by 5.2%. The EBIT margin came in at 16.6% (15.8%), comfortably beating the minimum target of 10%. Group net income improved by 5.0% to EUR 560.8 million (EUR 534.4 million). Earnings per share increased to EUR 4.65 (EUR 4.43).