Hannover RE Exceeds Estimates, P&C Re Fuels Growth

Hannover Rueck SE has reported strong results for the second quarter, driven primarily by its property and casualty reinsurance division. According to analysts from RBC Capital Markets, the company’s performance exceeded expectations, particularly in P&C Re underwriting, while overall FY guidance remained unchanged.

The financial services provider surpassed forecasts across all key metrics, showing improvement in its combined ratio from the previous quarter. Both the property and casualty reinsurance and life and health reinsurance segments demonstrated positive performance.

Hannover Rück achieved a net income of €603 million, which was 13% higher than consensus estimates, translating to a robust return on equity of 22.4% for the first half of the year. Investment income also slightly exceeded expectations at €511 million.

Within the P&C Re division, EBIT reached €532 million, exceeding consensus estimates, with a combined ratio reported at 87.6%, which improved to 85.1% when adjusted for large loss variance. Meanwhile, the life and health reinsurance segment performed significantly well, with EBIT hitting €320 million. The company’s solvency ratio rose to 276%, well above its target range.

Despite facing unexpectedly high large losses during the quarter, Hannover Rück has chosen to maintain its full-year guidance, demonstrating confidence in its growth outlook. The company anticipates a P&C combined ratio below 89% and expects at least €850 million from its L&H reinsurance services.

The P&C Re segment exhibited notable revenue growth, surpassing consensus estimates by 9%. Although large losses exceeded the quarter’s budget, Hannover Rück adhered to its policy of fully reserving for the budget. The L&H Re segment continued to benefit from positive experience variance as well.

Renewal volumes showed healthy growth, with risk-adjusted rates increasing by 1.3%, and earlier renewals also indicated strong performance.

RBC Capital Markets has assigned Hannover Rück a valuation of €283 per share and an ‘outperform’ rating, based on a sum-of-the-parts analysis, implying a price-to-earnings ratio of 14x.

However, potential risks for the company include exposure to natural catastrophe losses, significant exceptional losses, fluctuations in the P&C rating cycle, inflationary pressures, and the potential impacts of an economic recession.