Hannover Re shares only €18m in large losses with ILS through first nine months of 2024

Hannover Re has continued to share a reduced proportion of its large natural catastrophe losses with insurance-linked securities (ILS) capital sources through the first nine months of this year, with just €18 million shared up to the end of September.

Recall that, in full-year 2022, Hannover Re had shared more than one billion Euros of large natural catastrophe and man-made losses with insurance-linked securities (ILS) investors.

The figure fell by a significant 94% in 2023, with just €62 million of large loss experience shared with sources of insurance-linked securities (ILS) capital.

Now, the amount of losses shared has continued to be low in 2024, despite a reasonably elevated level of natural catastrophe losses around the globe.

By the end of September, Hannover Re had shared only €18 million in large natural catastrophe losses with ILS investors and zero man-made losses.

The figure is a measure of the losses that Hannover Re has shared with the ILS investors the reinsurance company works with through its ILS fronting and collateralised reinsurance activities.

While those cat bond and ILS fronting activities have continued to grow strongly for Hannover Re, the proportion of losses that get ceded to them have significantly declined.

The timing of the decline suggests it is, at least in in part, related to the major changes to attachment points that occurred for the 2023 underwriting year and were retained for 2024.

Notably, in the third-quarter of 2024, Hannover Re did not share any of its gross hurricane Helene loss with ILS investors or to its retrocession partners either. The same goes for the European flooding in September, which was the reinsurers second largest gross natural catastrophe loss of the year to-date.

Over the first nine months of 2024, Hannover Re experienced over €1.2 billion in gross large natural catastrophe losses, but after cessions the net catastrophe loss fell to almost €1.014 billion, suggesting relatively low retrocession support over the year to-date.

More of the man-made catastrophe loss burden does appear to have been shared with retrocession partners, as Hannover Re reported €507.3 million in gross man-made cat losses, but only €290.3 million net.

It’s interesting to note what appears to be reduced retrocession usage, as Hannover Re has planned to potentially reduce its retrocession rate further.

As we reported right back in September, Hannover Re is assessing its risk management need in relation to the K-Cessions quota share sidecar and its retro arrangements, with a potential reduction possible.

That could affect the gross to net mix further in 2025, but with Hannover Re expanding its portfolios fast in recent years, while inward pricing remains strong, the company feels well-able to bear the losses that come its way, even in this environment of higher attachments.

For the first nine months of this year, Hannover Re said its large losses came in within budget expectations.

The company saw its group net income for the year so far rise by 30.4% to EUR 1.8 billion, while reinsurance revenue grew by 7.0% adjusted for exchange rate effects to EUR 19.7 billion.

Jean-Jacques Henchoz, the Chief Executive Officer of Hannover Re who was recently announced to be departing the company next year, commented, “In the first nine months of the year Hannover Re continued to chart its successful course. Thanks to the adequate pricing level in property and casualty reinsurance, we are able to achieve a satisfactory level of earnings that puts us in a position to offer reliable reinsurance protection going forward, as we have in the past. The destruction left behind by Hurricanes Helene and Milton serves as a reminder that hurricane season is not yet over. Nevertheless, we are still very much on the right track and feel optimally positioned for the remaining months, and we are therefore raising our full-year profit target.”

Return on equity reached almost 23%, helped by the EUR 1.3 billion of large losses for the first nine months falling within the booked budget of EUR 1.4 billion, while the P&C reinsurance combined ratio improved to 87.9%.

Against all this, Hannover Re said it is raising its full-year profit target to around EUR 2.3 billion from the original guidance level of at least EUR 2.1 billion, with an 89% combined ratio in property and casualty reinsurance forecast due to the “sustained positive market climate.”

“Demand for the kind of high-quality reinsurance protection offered by Hannover Re will be sustained,” said Henchoz. “In this attractive market environment, we see profitable growth opportunities in both business groups. For the 2025 financial year we are looking to increase earnings and revenue. Hannover Re’s long-term earnings stability and resilience remain our focus.”

Hannover Re’s results once again show the highly-profitable nature of reinsurance, even in an environment of still elevated losses.

Even with less support from ILS arrangements and retrocession, Hannover Re is still well-able to manage the loss environment and deliver strong profits.