Company Reports

Hannover is probably one of the most efficiently run reinsurers in our European reinsurance coverage. The business is based in a low-cost location, and the number of employees that support the business is more efficient than at large peers. We believe that the combination of its low-cost location, lean and flat structure, organic growth over acquisitions, and homogenous technology make the group the most expense-efficient European reinsurer we cover. Versus larger peers, we think Hannover is a more agile and nimbler organization, and its focus on brokers as its primary channel would support this claim. Through these brokers, Hannover supports insurance companies, mutuals, and governments as clients.

Hannover Re's full-year financial results for 2023 were slightly ahead of expectations, delivering net income of EUR 1.828 billion versus our estimate of EUR 1.811 billion. Consensus estimates, as collected by the company, were for net income of EUR 1.802 billion. The business is proposing a total EUR 7.20 dividend per share, made up of EUR 6.00 in ordinary dividend and an EUR 1.20 special dividend. Our forecasts were for a total dividend of EUR 7.23 per share, ahead of the EUR 6.90 total dividend per share as per the company-collected consensus. Not much has changed in terms of the outlook for the business, with guidance for this year of a net income figure greater than EUR 2.100 billion. That guidance is subject to large losses not exceeding the 2024 budget of EUR 1.825 billion. Large losses last year came in at EUR 1.621 billion, within the budget of EUR 1.725 billion. Hannover’s balance sheet remains strong, with a 269% solvency ratio that is above the 200% minimum target. We maintain our EUR 225 per share fair value estimate and our no-moat rating.

Hannover is probably one of the most efficiently run reinsurers in our European reinsurance coverage. The business is based in a low-cost location, and the number of employees that support the business is more efficient than at large peers. We believe that the combination of its low-cost location, lean and flat structure, organic growth over acquisitions, and homogenous technology make the group the most expense-efficient European reinsurer we cover. Versus larger peers, we think Hannover is a more agile, nimbler organization, and its focus on brokers as its primary channel would support this claim. Through these brokers, Hannover supports insurance companies, mutuals, and governments as clients.

Hannover Re reported another good round of January renewals, with price increases ahead of inflation by low single digits.

Hannover is probably one of the most efficiently run reinsurers in our European reinsurance coverage. The business is based in a low-cost location, and the number of employees that support the business is more efficient than at large peers. We believe that the combination of its low-cost location, lean and flat structure, organic growth over acquisitions, and homogenous technology make the group the most expense-efficient European reinsurer we cover. Versus larger peers, we think Hannover is a more agile, nimbler organization, and its focus on brokers as its primary channel would support this claim. Through these brokers, Hannover supports insurance companies, mutuals, and governments as clients.

Hannover Re has reported a strong set of earnings for the first 9 months as net income has risen to EUR 1.4 billion, leaving Hannover Re slightly ahead of our EUR 1.6 billion full-year forecast. Risk-adjusted price rises that the business has achieved in property and casualty renewals over the year, along with lighter major losses of EUR 1.2 billion versus the EUR 1.3 billion budget, have helped. However, so has a double-digit rise in investment income, leaving the business on track to achieve its guidance for full-year operating profit of EUR 1.6 billion. Group investment income looks to be below our full-year forecast. In life and health reinsurance it has mainly been the financial solutions business, as well as some longevity, that has driven a better result. A life and health reinsurance operating profit of EUR 730 million leaves the business well on track versus our EUR 808 million full-year forecast.

Hannover is probably one of the most efficiently run reinsurers in our European reinsurance coverage. The business is based in a low-cost location and the number of employees that support the business is more efficient than at large peers. We believe that the combination of its low-cost location, lean and flat structure, organic growth over acquisitions, and homogenous technology make it the most expense-efficient European reinsurer we cover. Versus larger peers, we think Hannover is a more agile, nimbler organization, and its focus on brokers as its primary channel would support this claim. Through these brokers, Hannover supports insurance companies, mutuals, and governments as clients.

Hannover Re delivered good first-half results, with net income amounting to EUR 960 million. We think this leaves the business relatively well placed against our full-year net income forecast of EUR 1.6 billion, or EUR 13.64 in earnings per share. Hannover operates with a full-year net income target of equal to or greater than EUR 1.7 billion. First-half earnings of EUR 7.96 per share probably leaves the business a little light versus the full-year forecast of EUR 14.65 per share as per Refinitiv-collected consensus. We surmise that is the reason behind the fall in the share price after the earnings report, which we believe creates a buying opportunity for investors. We maintain our fair value estimate of EUR 220 per share. That equates to fair value/earnings for 2023 of around 16.5 times.

Hannover Re is a property-casualty and life and health reinsurer with P&C contributing a little over two thirds of the company's profits to shareholders. Hannover Re has slightly less than double-digit market share in both these divisions. This is a business that is characterized by underwriting and carving out deep expertise in niche areas. While this may sound a bit woolly, our sense is that some of this underwriting difference comes from the overall ownership of the underwriting process by Hannover Re’s underwriters. We conceptualize this through lenses of decision-making and responsibility. Whereas in other reinsurance firms, underwriters may need to defer to a head of risk or perhaps even the C-suite, underwriters at Hannover Re have more authority and a better line of sight. Furthermore, we anticipate this leads to stronger client relationships because underwriters are client-facing and thus renewals a reiterative negotiation, with Hannover Re's underwriters in the position to directly negotiate and discuss client needs without the need for constant deferral. This drives stronger retention rates, thereby lowering commissions and acquisition costs.

Hannover Re is a property-casualty and life and health reinsurer with P&C contributing a little over two thirds of the company's profits to shareholders. Hannover Re has slightly less than double-digit market share in both these divisions. This is a business that is characterized by underwriting and carving out deep expertise in niche areas. While this may sound a bit woolly, our sense is that some of this underwriting difference comes from the overall ownership of the underwriting process by Hannover Re’s underwriters. We conceptualize this through lenses of decision-making and responsibility. Whereas in other reinsurance firms, underwriters may need to defer to a head of risk or perhaps even the C-suite, underwriters at Hannover Re have more authority and a better line of sight. Furthermore, we anticipate this leads to stronger client relationships because underwriters are client-facing and thus renewals a reiterative negotiation, with Hannover Re's underwriters in the position to directly negotiate and discuss client needs without the need for constant deferral. This drives stronger retention rates, thereby lowering commissions and acquisition costs.

We believe balance sheets have been an underappreciated element in insurance and that prior accounting rules and economic conditions have left property and casualty-orientated insurers in unenviable positions. Even before the coronavirus pandemic, as interest rates remained low, traditional reinsurance capital became elevated as the fall in interest rates led to rises in the value of fixed-income assets. Couple this with the rise of alternative capital as pension funds and hedge funds sought to diversify their returns into an asset class with little correlation to financial markets, and reinsurance capital available for deployment increased to new heights. That meant the pressure on pricing increased as the number of claims related to climate change rose.

Hannover Re is a property-casualty and life and health reinsurer with P&C contributing a little over two thirds of the company's profits to shareholders. Hannover Re has slightly less than double-digit market share in both these divisions. This is a business that is characterized by underwriting and carving out deep expertise in niche areas. While this may sound a bit woolly, our sense is that some of this underwriting difference comes from the overall ownership of the underwriting process by Hannover Re’s underwriters. We conceptualize this through lenses of decision-making and responsibility. Whereas in other reinsurance firms, underwriters may need to defer to a head of risk or perhaps even the C-suite, underwriters at Hannover Re have more authority and a better line of sight. Furthermore, we anticipate this leads to stronger client relationships because underwriters are client-facing and thus renewals a reiterative negotiation, with Hannover Re's underwriters in the position to directly negotiate and discuss client needs without the need for constant deferral. This drives stronger retention rates, thereby lowering commissions and acquisition costs.

Hannover Re has reported a good start to the year, reporting net income of EUR 484 million over the first quarter. At the moment, that places the business well in terms of its full-year EUR 1.7 billion net income target. However, there is a lot further to travel this year. We maintain our fair value estimate of EUR 180 per share and our rating of a narrow economic moat.

When looking at the exposure of insurers to the unfolding banking crisis, we believe this is limited. The main impact of the crisis currently seems to be contagion, so investors are selling shares cheaply. However, exposure to United States bonds is either in government bond securities, or exposure to Credit Suisse, Silicon Valley Bank, and other U.S. regional banks is immaterial, which is 50 basis points or less of their investment portfolio. Some do hold larger bank debt holdings of up to 5.5% of shareholder investments, but nearly all that debt ranks as senior. AT1 debt tends to be very minimal or there is no exposure as a policy with board-level approval. The vast majority of corporate debt held is investment-grade. We maintain our fair value estimates and moat ratings across our European insurance coverage. Allianz remains our Best Idea. Admiral is one of our top picks.

Hannover Re is a property and casualty and life and health reinsurer with P&C contributing a little over two thirds of the company's profits to shareholders. Hannover Re has slightly less than double-digit market share in both these divisions. This is a business that is characterised by underwriting and carving our deep expertise in niche areas. While this may sound a bit woolly, our sense is that some of this underwriting difference comes from the overall ownership of the underwriting process by Hannover Re’s underwriters. We conceptualise this through lenses of decision-making and responsibility. Whereas in other reinsurance firms, underwriters may need to defer back to a head of risk or perhaps even the C-suite, underwriters at Hannover Re have more authority and a better line of sight. Furthermore, we anticipate this leads to stronger client relationships because underwriters are client-facing and thus renewals a reiterative negotiation, with Hannover Re’s underwriters in the position to directly negotiate and discuss client needs without the need for constant deferral. This drives stronger retention rates, thereby lowering commissions and acquisition costs.

After Hannover Re prereleased its earnings for full-year 2022 in February, the business released its full results on March 9. As we wrote in February, final numbers are a little light compared with our forecasts. Our estimate was for EUR 1,692 million net income. It delivered EUR 1,406 million. We had already written in February that the business delivered strong growth; higher claims and commissions led to lower results. Management has grown the top line in property and casualty by 26.1%, 22% at constant currency. This has been well balanced across all lines of business, with structured reinsurance, agricultural risks, and credit and surety warranting special callouts. While not quite so dramatic, growth has also been buoyant in life and health. Here, management grew gross written premiums by 5.8%, 1.7% at constant currency, with North America, the U.K., and Asia warranting special callouts. Where the business has suffered is in incurred claims in its property and casualty division, but not so much in life and health.

Hannover Re has increased its prices by good single digits on a risk-adjusted basis in the January renewals.

Hannover Re is a property and casualty and life and health reinsurer with P&C contributing a little over two thirds of the company's profits to shareholders. Hannover Re has slightly less than double-digit market share in both these divisions. This is a business that is characterised by underwriting and carving our deep expertise in niche areas. While this may sound a bit woolly, our sense is that some of this underwriting difference comes from the overall ownership of the underwriting process by Hannover Re’s underwriters. We conceptualise this through lenses of decision-making and responsibility. Whereas in other reinsurance firms, underwriters may need to defer back to a head of risk or perhaps even the C-suite, underwriters at Hannover Re have more authority and a better line of sight. Furthermore, we anticipate this leads to stronger client relationships because underwriters are client-facing and thus renewals a reiterative negotiation, with Hannover Re’s underwriters in the position to directly negotiate and discuss client needs without the need for constant deferral. This drives stronger retention rates, thereby lowering commissions and acquisition costs.

Hannover Re reported full-year 2022 net income of EUR 1.41 billion, slightly ahead of guidance and below our estimate for the full year. Gross premium rose by 12.7%, adjusted for exchange rates, versus our 19.8% unadjusted prediction. We think the unadjusted growth rate is 19.9%. Return on assets under own-management came in at 3.2% for the full year. While we expect to adjust our fair value estimate when we roll our model after Hannover Re releases its annual report, we don’t think we will change it by much. Management is guiding to EUR 1.7 billion net income for 2023 and raising the large loss budget to EUR 1.725 billion given growth in the portfolio. That is an increase from EUR 1.4 billion that we think will have been exceeded this year. We maintain our narrow moat rating.

Hannover Re is a property and casualty and life and health reinsurer with P&C contributing a little over two thirds of the company's profits to shareholders. Hannover Re has slightly less than double-digit market share in both these divisions. This is a business that is characterised by underwriting and carving our deep expertise in niche areas. While this may sound a bit woolly, our sense is that some of this underwriting difference comes from the overall ownership of the underwriting process by Hannover Re’s underwriters. We conceptualise this through lenses of decision-making and responsibility. Whereas in other reinsurance firms, underwriters may need to defer back to a head of risk or perhaps even the C-suite, underwriters at Hannover Re have more authority and a better line of sight. Furthermore, we anticipate this leads to stronger client relationships because underwriters are client-facing and thus renewals a reiterative negotiation, with Hannover Re’s underwriters in the position to directly negotiate and discuss client needs without the need for constant deferral. This drives stronger retention rates, thereby lowering commissions and acquisition costs.