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Hannover Rueck SE Call Transcript 2021
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Conference Call on Q1/2021 financial results
Hannover, 5 May 2021
Group overview
Outlook 2021
Group overview
Investments
Target Matrix
Outlook 2021
Appendix
Group net income in line with full-year guidance Strong premium growth of 12%; RoE well above target
Very strong operating cash flow driven by profitable premium growth AuM +6.7%, cash flow and f/x effects more than offset lower asset valuation
Shareholders' equity slightly up by 0.4%
Net income and positive currency translation offset decreased valuation reserves
Group overview
Investments
Outlook 2021
Continued strong growth in an improving market environment Underwriting result in line with expectation, Covid-19 net loss estimate unchanged
| Property & Casualty R/I in m. EUR | Q1/2020 | Q1/2021 | Δ |
|---|---|---|---|
| Gross written premium | 4,986 | 5,693 | +14.2% |
| Net premium earned | 3,338 | 3,863 | +15.7% |
| Net underwriting result incl. funds withheld |
7 | 147 | - |
| Combined ratio incl. interest on funds withheld |
99.8% | 96.2% | - |
| Net investment income from assets under own management |
286 | 268 | -6.3% |
| Other income and expenses | 11 | (91) | - |
| Operating profit/loss (EBIT) | 305 | 324 | +6.3% |
| Tax ratio | 29.4% | 12.9% | - |
| Group net income | 207 | 269 | +29.9% |
| Earnings per share (in EUR) | 1.72 | 2.23 | +29.9% |
- YTD
- GWP f/x-adjusted +20.1%, diversified growth from traditional and Structured Reinsurance business; growth supported by strong premium run-off from U/Y 2020
- NPE f/x-adjusted +21.5%
- Major losses of EUR 193 m. (5.0% of NPE) below budget of EUR 214 m. for Q1/2021; Covid-19 net loss estimates unchanged vs. year-end 2020
- Unchanged conservative reserving approach
- Net investment income decreased primarily due to lower realised gains
- Other income and expenses mainly impacted by negative currency effects (Q1/2021: EUR -82 m.)
- Lower tax ratio predominantly due to favourable earnings contribution from lower-tax subsidiaries
Large losses of EUR 193 m. within budget of EUR 214 m. for Q1/2021
Natural and man-made catastrophe losses1) in m. EUR
9 Conference Call on Q1/2021 financial results
Q1/2021 mainly impacted by Texas winter storm and man-made losses
| Q1/2021 mainly impacted by Texas winter storm and man-made losses | |||
|---|---|---|---|
| Catastrophe losses1 ) in m. EUR |
Date | Gross | Net |
| Storm "Filomena", Spain | 7 - 8 Jan | 10.1 | 10.1 |
| Texas winter storm/freeze, USA | 11 - 21 Feb | 135.4 | 75.4 |
| Floods, Australia | 18 - 23 Mar | 19.5 | 19.5 |
| 3 Natural catastrophes | 164.9 | 105.0 | |
| 1 Aviation loss | 13.5 | 13.5 | |
| 4 Property losses | 74.6 | 74.6 | |
| 5 Man-made losses | 88.2 | 88.2 | |
| 8 Major losses | 253.1 | 193.2 |
1) Natural catastrophes and other major losses in excess of EUR 10 m. gross Large loss budget 2021: EUR 1,100 m. thereof EUR 225 m. man-made and EUR 875 m. NatCat
Combined ratios in line with expectations
Q1/2021: Combined Ratio vs. target combined ratios
1) All lines of Property & Casualty reinsurance except those stated separately; EMEA incl. CIS
Group overview
Outlook 2021
Favourable premium growth
Results impacted by Covid-19 pandemic; partly offset by one-off effect of EUR 129 m.
| Life & Health R/I in m. EUR | Q1/2020 | Q1/2021 | Δ |
|---|---|---|---|
| Gross written premium | 1,989 | 2,110 | +6.1% |
| Net premium earned | 1,753 | 1,824 | +4.0% |
| Net underwriting result incl. funds withheld |
(52) | (125) | +140.2% |
| Net investment income from assets under own management |
99 | 45 | -54.7% |
| Other income and expenses | 77 | 160 | +108.2% |
| Operating profit/loss (EBIT) | 124 | 80 | -35.6% |
| EBIT margin | 7.1% | 4.4% | - |
| Tax ratio | 10.5% | 37.9% | - |
| Group net income | 110 | 49 | -55.7% |
| Earnings per share (in EUR) | 0.91 | 0.40 | -55.7% |
YTD
- GWP f/x-adjusted +8.6%, mainly from APAC and Longevity
- NPE f/x-adjusted growth +6.7%
- Technical result impacted by Covid-19 losses of EUR 151 m. (thereof US: EUR 105 m.), positive one-off from restructuring within US mortality portfolio (EUR 86 m.)
- Net investment income decreased primarily due to negative impact from fair value of derivatives and negative one-off effect from restructuring within US mortality portfolio (EUR -14 m.)
- Other income and expenses increased due to positive one-off effect from restructuring within US mortality portfolio (EUR 58 m.) and strong contribution from deposit accounted treaties of EUR 90 m. (Q1/2020: EUR 85 m.)
- High tax ratio driven by extraordinary effect and relatively low relief from subsidiaries in countries with lower tax ratios
Promising new business pipeline for 2021 Q1/2021 new and pipeline business1)
Group overview
Investments
Outlook 2021
Return on Investment slightly above expectations
NII mainly decreased due to lower realised gains and negative derivative valuation
| in m. EUR | Q1/2020 | Q1/2021 | RoI |
|---|---|---|---|
| Ordinary investment income1) | 333 | 325 | 2.6% |
| Realised gains/losses | 102 | 90 | 0.7% |
| Impairments/appreciation & depreciation | (29) | (21) | -0.2% |
| Change in fair value of financial instruments (through P&L) | 12 | (50) | -0.4% |
| Investment expenses | (32) | (31) | -0.2% |
| NII from assets under own management | 386 | 313 | 2.5% |
| NII from funds withheld | 86 | 131 | |
| Total net investment income | 472 | 444 | |
| Unrealised gains/losses on investments | 31 Dec 20 | 31 Mar 21 |
|---|---|---|
| On-balance sheet | 3,019 | 2,154 |
| thereof Fixed income AFS | 2,347 | 1,364 |
| Off-balance sheet | 557 | 645 |
| thereof Fixed income HTM, L&R | 217 | 163 |
| Total | 3,576 | 2,799 |
YTD
- Returns from alternative investments almost compensate for lower ordinary income from fixed-income securities (partially from inflationlinked bonds due to lower inflation)
- Realised gains include disposal of parts of listed-equity portfolio as well as some reallocations due to regular portfolio adjustments
- Stable depreciation of direct real estate investments; impairments of private equity and high yield funds as well as real estate funds slightly higher, but on very moderate level
- Decrease in valuation reserves due to significantly higher minimal-risk yield curves, credit spreads on corporates rather stable; higher valuations in alternative investments
1) Incl. results from associated companies
Ordinary return continuously supported by alternative assets Slightly higher share of corporates, partial disposal of listed equities
1)
| Investment category | 2017 | 2018 | 2019 | 2020 | Q1/2021 |
|---|---|---|---|---|---|
| Fixed-income securities | 87% | 87% | 87% | 85% | 85% |
| - Governments | 30% | 35% | 35% | 34% | 33% |
| - Semi-governments | 17% | 16% | 15% | 15% | 14% |
| - Corporates | 32% | 29% | 31% | 30% | 32% |
| Investment grade | 27% | 25% | 26% | 25% | 27% |
| Non-investment grade | 5% | 4% | 4% | 5% | 5% |
| - Pfandbriefe, Covered bonds, ABS | 8% | 7% | 7% | 6% | 2) 6% |
| Equities | 2% | 2% | 3% | 3% | 3% |
| - Listed equity | <1% | <1% | <1% | 1% | 1% |
| - Private equity | 2% | 2% | 2% | 3% | 3% |
| Real Assets | 5% | 6% | 5% | 5% | 5% |
| Others | 1% | 1% | 2% | 3% | 3% |
| Short-term investments & cash | 4% | 4% | 3% | 3% | 4% |
| Total market values in bn. EUR | 40.5 | 42.7 | 48.2 | 49.8 | 53.2 |
Asset allocation Ordinary income split
1) Economic view based on market values without outstanding commitments for Private Equity and Alternative Real Estate as well as fixed-income investments of EUR 1,343.3 m. (EUR 1,275.6 m.) as at 31 March 2021
2) Of which Pfandbriefe and Covered Bonds = 64.8%
3) Before real estate-specific costs. Economic view based on market values as at 31 March 2021
Group overview
- Property & Casualty reinsurance
- Life & Health reinsurance
- Investments
- Target Matrix
- Outlook 2021
- Appendix
Target Matrix: Q1/2021 Strategy cycle 2021 - 2023
| Business group | Key figures | Strategic targets | Q1/2021 |
|---|---|---|---|
| Group | Return on equity1 ) |
900 bps above risk-free | 11.1% |
| Solvency ratio2 ) |
≥ 200% | 252% | |
| Property & Casualty reinsurance | Gross premium growth3 ) |
≥ 5% | +20.1% |
| EBIT growth4 ) |
≥ 5% | +6.3% | |
| Combined ratio | ≤ 96% | 96.2% | |
| xRoCA5 ) |
≥ 2% | n.a. yet | |
| Life & Health reinsurance | Gross premium growth3 ) |
≥ 3% | +8.6% |
| EBIT growth4 ) |
≥ 5% | -35.6% | |
| Value of New Business (VNB)6 ) |
≥ EUR 250 m. | n.a. yet | |
| xRoCA5 ) |
≥ 2% | n.a. yet |
1) After tax; risk-free: 5-year average return of 10-year German government bonds 2) According to our internal capital model and Solvency II requirements
3) Average annual growth at constant f/x rates 4) Average annual growth
5) Excess return (one-year economic profit in excess of the cost of capital) on allocated economic capital 6) Based on Solvency II principles; pre-tax reporting
Group overview
Outlook 2021
Positive renewal trends lead to continued premium growth Risk-adjusted price increase of 9.0% in non-proportional business
2 Jan - 1 Apr 2021
1) Excluding specialty business mentioned separately
Americas1)
- Double-digit increase in premium in North America
- Strong (double-digit) primary rate movement continues in targeted segments (Excess & Surplus lines, large accounts, engineered risks)
- Reinsurers' margin on proportional business has improved as underlying rate trends outweigh loss cost and commission developments
- Stable to improved conditions in the Caribbean
Japan
- Successful renewal in line with our expectations. Portfolio has been renewed with a singledigit growth rate
- We were able to continue and partially increase our participation on business that has seen 3 successive rounds of rate increases
Aviation & Marine
- Aviation: Positive price momentum continued with risk-adjusted price increases averaging around 25% and in line with 1/1 renewals
- Marine: Single-digit price increases on loss-free and higher on loss-affected business. Cyber and Communicable Disease exclusionary language incorporated successfully
Agricultural Risks
Underwriting year figures at unchanged f/x rates (31 December 2020) • Renewals still underway; premium growth expected from new accounts
| 1 | 2 | 3 | 4 | 5 | 6 Outlook 2021 | 7 |
Growing Property & Casualty portfolio at attractive profitability Financial year 2021
| Reporting categories | Volume1) | Profitability2) | |
|---|---|---|---|
| Regional markets |
EMEA3) | + | |
| Americas3) | + | ||
| APAC3) | +/- | ||
| Worldwide markets |
Structured Reinsurance and ILS | ++ | |
| Credit, Surety and Political Risks | +/- | ||
| Facultative Reinsurance | + | ||
| Aviation and Marine | + | ||
| Agricultural Risks | + | ||
1) In EUR, development in original currencies can be different
2) ++ = well above CoC; + = above CoC; +/- = CoC earned; - = below Cost of Capital (CoC)
3) All lines of business except those stated separately; EMEA incl. CIS
Profitability in Life & Health still impacted by Covid-19 Financial year 2021
| Reporting categories | Volume1) | Profitability2) |
|---|---|---|
| Financial solutions | 3) | ++ |
| Longevity | + | |
| Mortality | - | |
| Morbidity | +/- |
1) In EUR, development in original currencies can be different
2) ++ = well above CoC; + = above CoC; +/- = CoC earned; - = below Cost of Capital (CoC)
3) Business volume including contracts not reflected in premium income
Guidance for 2021
Hannover Re Group
| • | Gross written premium1) | high single-digit growth |
|---|---|---|
| • | Return on investment2) 3) | ~ 2.4% |
| • | Group net income2) | EUR 1.15 - 1.25 bn. |
| • | Ordinary dividend pay-out ratio4) | 35% - 45% |
• Special dividend additional pay-out if profit target is reached and capitalisation is comfortable
1) At unchanged f/x rates
2) Subject to no major distortions in capital markets and/or major losses in 2021 not exceeding the large loss budget of EUR 1.1 bn.
3) Excluding effects from ModCo derivatives
4) Relative to Group net income according to IFRS
Group overview
- Property & Casualty reinsurance
- Life & Health reinsurance
- Investments
- Target Matrix
- Outlook 2021
- Appendix
Strong capital generation despite Covid-19 impacts Solvency II ratio declines but remains at high level
Solvency II movement analysis
Figures in m. EUR. SCR – Solvency Capital Requirements according to Solvency II internal model
1) Model changes (pre-tax) in terms of own funds relate to the calculation of technical provisions. A number of minor model changes, with each of them having a rather small impact, affect the SCR.
2) Operating earnings and assumption changes (pre-tax). The own funds increase includes the L&H new business value of EUR 778 m. The SCR increases due to strong business growth.
3) Changes due to movements in foreign exchange rates, in particular the depreciation of the US Dollar, lower interest rates, increased credit spreads and changes in other financial market indicators (pre-tax).
4) Incl. tax payments and changes in deferred taxes
5) Incl. dividend payments and changes in foreseeable dividends. The hybrid bond with call date in 2020 has been replaced.
Our strategic business groups at a glance Q1/2021 vs. Q1/2020
| Property & Casualty R/I | Life & Health R/I | Total | ||||
|---|---|---|---|---|---|---|
| in m. EUR | Q1/2020 | Q1/2021 | Q1/2020 | Q1/2021 | Q1/2020 | Q1/2021 |
| Gross written premium | 4,986 | 5,693 | 1,989 | 2,110 | 6,975 | 7,803 |
| Net premium earned | 3,338 | 3,863 | 1,753 | 1,824 | 5,091 | 5,687 |
| Net underwriting result | (3) | 144 | (127) | (252) | (130) | (108) |
| Net underwriting result incl. funds withheld | 7 | 147 | (52) | (125) | (45) | 22 |
| Net investment income | 296 | 271 | 175 | 172 | 472 | 444 |
| From assets under own management | 286 | 268 | 99 | 45 | 386 | 313 |
| From funds withheld | 10 | 4 | 75 | 127 | 86 | 131 |
| Other income and expenses | 11 | (91) | 77 | 160 | 85 | 68 |
| Operating profit/loss (EBIT) | 305 | 324 | 124 | 80 | 427 | 404 |
| Financing costs | (1) | (1) | (0) | (0) | (23) | (19) |
| Net income before taxes | 304 | 323 | 124 | 80 | 403 | 385 |
| Taxes | (89) | (42) | (13) | (30) | (94) | (66) |
| Net income | 215 | 282 | 111 | 49 | 309 | 319 |
| Non-controlling interest | 8 | 13 | 1 | 1 | 8 | 13 |
| Group net income | 207 | 269 | 110 | 49 | 301 | 306 |
| Retention | 91.7% | 92.6% | 89.4% | 88.6% | 91.1% | 91.5% |
| Combined ratio (incl. interest on funds withheld) | 99.8% | 96.2% | - | - | - | - |
| EBIT margin (EBIT / Net premium earned) | 9.1% | 8.4% | 7.1% | 4.4% | 8.4% | 7.1% |
| Tax ratio | 29.4% | 12.9% | 10.5% | 37.9% | 23.4% | 17.1% |
| Earnings per share (in EUR) | 1.72 | 2.23 | 0.91 | 0.40 | 2.49 | 2.54 |
Stress tests on assets under own management
Focus still on credit exposures with ambitious spread tightenings
| Portfolio | Scenario | Change in market value in m. EUR |
Change in OCI before tax in m. EUR |
|---|---|---|---|
| -10% | -170 | -170 | |
| Equity (listed and private equity) | -20% | -341 | -341 |
| +50 bps | -1,306 | -1,243 | |
| Fixed-income securities | +100 bps | -2,538 | -2,417 |
| Credit spreads | +50% | -753 | -738 |
High-quality fixed-income book well balanced
| High-quality fixed-income book well balanced Geographical allocation mainly in accordance with our broad business diversification |
||||||
|---|---|---|---|---|---|---|
| Governments | Semi governments |
Corporates | Pfandbriefe, Covered bonds, ABS |
Short-term investments, cash |
Total | |
| AAA | 75% | 60% | 1 % |
59% | - | 44% |
| A A |
8 % |
24% | 12% | 17% | - | 13% |
| A | 11% | 7 % |
33% | 13% | - | 19% |
| BBB | 4 % |
2 % |
45% | 8 % |
- | 19% |
| <BBB | 2 % |
8 % |
11% | 2 % |
- | 6 % |
| Total | 100% | 100% | 100% | 100% | - | 100% |
| Germany | 18% | 32% | 4 % |
18% | 22% | 16% |
| UK | 6 % |
2 % |
7 % |
8 % |
16% | 6 % |
| France | 1 % |
1 % |
7 % |
7 % |
1 % |
4 % |
| GIIPS | 1 % |
1 % |
4 % |
5 % |
0 % |
2 % |
| Rest of Europe | 4 % |
18% | 14% | 25% | 3 % |
11% |
| USA | 48% | 14% | 32% | 14% | 16% | 33% |
| Australia | 5 % |
6 % |
6 % |
11% | 10% | 6 % |
| Asia | 13% | 9 % |
10% | 1 % |
22% | 11% |
| Rest of World | 4 % |
16% | 15% | 11% | 9 % |
11% |
| Total | 100% | 100% | 100% | 100% | 100% | 100% |
| Total b/s values in m. EUR | 17,284 | 7,605 | 16,318 | 3,182 | 2,045 | 46,433 |
IFRS figures as at 31 March 2021
Currency allocation matches modelled liability profile Strict duration-neutral strategy continued
Currency split of investments
- Modified duration of fixed-income mainly congruent with liabilities and currencies
- GBP's higher modified duration predominantly due to life business; EUR driven by hybrid bond issuance
| Modified duration | |
|---|---|
| Q1/2021 | 5.7 |
| 2020 | 5.8 |
| 2019 | 5.7 |
| 2018 | 4.8 |
| 2017 | 4.8 |
Disclaimer
This presentation does not address the investment objectives or financial situation of any particular person or legal entity. Investors should seek independent professional advice and perform their own analysis regarding the appropriateness of investing in any of our securities.
While Hannover Re has endeavoured to include in this presentation information it believes to be reliable, complete and up-todate, the company does not make any representation or warranty, express or implied, as to the accuracy, completeness or updated status of such information.
Some of the statements in this presentation may be forward-looking statements or statements of future expectations based on currently available information. Such statements naturally are subject to risks and uncertainties. Factors such as the development of general economic conditions, future market conditions, unusual catastrophic loss events, changes in the capital markets and other circumstances may cause the actual events or results to be materially different from those anticipated by such statements.
This presentation serves information purposes only and does not constitute or form part of an offer or solicitation to acquire, subscribe to or dispose of, any of the securities of Hannover Re.
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