Forecast
Outlook
Forecast
The general business climate in the international (re)insurance industry remains challenging. On the one hand, the protracted low level of interest rates is making it difficult to generate attractive investment returns. At the same time, reinsurers are facing a significantly more competitive environment than in previous years. Hannover Re is nevertheless optimally placed to handle these conditions thanks to its selective underwriting policy in property and casualty reinsurance, broadly diversified investment strategy and prudent reserving approach.
Despite the pressure of competition in property and casualty reinsurance, opportunities for growth are still available to our company as a financially robust reinsurer with a very good rating. This is especially true of the Asia-Pacific markets and Latin America, where increasing insurance density and the rising concentration of values in urban population centres are key factors. Along with traditional reinsurance protection we assist our clients on an individual basis with an eye to the implementation of risk-based solvency systems as well as the analysis and evaluation of insurance risks.
For the current financial year we expect to book – at constant exchange rates – largely stable or slightly higher gross premium volume in total property and casualty reinsurance. We will not make any concessions to our systematic underwriting policy and we shall continue to exercise discipline in ensuring that treaty conditions are commensurate with the risks. We are targeting a combined ratio of less than 96%; in terms of the EBIT margin, our goal of at least 10% remains unchanged. As things currently stand, we can expect to achieve these targets for the current financial year.
Looking ahead to the 1 January 2015 treaty renewals, we see signs of reinsurance rates stabilising – aside from certain exceptions – because the scope to make further rate cuts without neglecting the return on equity required by reinsurers is ultimately limited. This was also the tone of discussions at the industry gatherings in September in Monte Carlo and in October in Baden-Baden and the United States.
Looking ahead to the 1 January 2015 treaty renewals, we see signs of reinsurance rates stabilising – aside from certain exceptions – because the scope to make further rate cuts without neglecting the return on equity required by reinsurers is ultimately limited. This was also the tone of discussions at the industry gatherings in September in Monte Carlo and in October in Baden-Baden and the United States.
The favourable development of business in life and health reinsurance should be sustained. Despite intense competition, we anticipate promising opportunities and are confident that here too we are well placed as an expert partner to assist our clients with the fulfilment of extensive regulatory requirements such as those of Solvency II. In particular, reinsurance structures offering capital relief and solvency optimisation will be of growing significance in this context. With this in mind, we expect to see further growth in demand in the area of Financial Solutions.
Increased demand for reinsurance solutions to cover longevity risks is also evident – not only in the United Kingdom but also in other markets such as Continental Europe. In emerging economies we see further growth potential on account of rising affluence in society and the resulting need for greater protection. No changes are expected in the intensely competitive climate currently prevailing in Germany.
Our 2014 guidance for life and health reinsurance of currency-adjusted organic gross premium growth in the low single-digit percentage range remains unchanged. The performance of our Australian disability portfolio, in particular, is expected to further stabilise and improve. Overall, we anticipate increased profitability in life and health reinsurance. The targeted EBIT margin for our Financial Solutions and Longevity business remains unchanged at 2%. In the reporting categories of Mortality and Morbidity we continue to target an EBIT margin of 6%.
In both property/casualty and life/health reinsurance it is our expectation that we will achieve our internal return targets.
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 growth in our asset portfolio. In the area of fixed-income securities we continue to emphasise the high quality and diversification of our portfolio. We are not currently planning to make any significant changes to the allocation of our investments to individual asset classes. The focus here is primarily on stability while maintaining an adequate risk/return ratio, thereby enabling us to respond flexibly to general developments and opportunities that may present themselves. We are targeting a return on investment of 3.2% for 2014.
We expect to book stable or slightly higher premium income – based on constant exchange rates – for the Hannover Re Group in the current financial year.
Assuming that the burden of major losses does not significantly exceed the expected level of EUR 670 million and that there are no extraordinary movements on capital markets, Hannover Re expects at this point in time to achieve its forecast Group net income of EUR 850 million for the 2014 financial year.
Our envisaged payout ratio for the dividend remains unchanged in the range of 35% to 40% of Group net income.
For the 2015 financial year we currently anticipate – adjusted for currency translation effects – stable or slightly higher gross premium volume for the Group as a whole. The return on investment will likely be around 3.0%, while Group net income should be in the order of EUR 875 million. As usual, these statements are subject to the proviso that major losses remain within the expected bounds and that there are no unforeseen adverse movements on capital markets.