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Hannover Re CFO warns on Ecuador quake loss


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Hannover Re CFO warns on Ecuador quake loss

CFO Roland Vogel expectsthe company to suffer a larger loss than peers as a result of the magnitude 7.8earthquake that struck the coast of Ecuador on April 16.

Vogeltold analysts during the reinsurer's first-quarter earnings presentation that earlyreports about the mid-April earthquakes in Japan are "quite encouraging. Thelosses might not be that large for our book. [But] in Ecuador we have the largestmarket share of all the reinsurers, which of course means that we might have anover-proportionally large loss there."

Vogelalso said the company would "really have to wait" to know more about itsexposures to losses arising from the wildfires raging in Alberta.

HannoverRe reported first-quartergroup net income of €271.2 million, down 3.1% from the year-ago quarter. Gross writtenpremiums declined year over year to €4.26 billion from €4.40 billion, while netpremium earned increased to €3.54 billion from €3.43 billion.

Net incomefrom investments under own management fell to €282.7 million from €316.6 millionover the period, causing net investment income to fall to €366.2 million from €415.7million.

Vogelsaid the decrease in gross written premiums was in line with the company's own estimatesfor 2016, while CEO Ulrich Wallin told analysts: "The overall profitabilityof the business so far in 2016 is still good and certainly above our margin requirements.

"Inthe second quarter we continued to see good business opportunities, in particularin the U.S. but also in parts of Asia. On the other hand, we also saw some declinein the premium income. This particularly refers to Chinese motor quota share business.With a combined ratio of 94.7%, we achieved an increased underwriting result ascompared to last year."

However,Wallin warned that low losses on the P&C side of the business made competitionfor business intense, continuing a several yearslong trend.

"Followingfour consecutive years of low major natural catastrophe losses and very good results,the property-casualty reinsurance business continues to be fiercely competitive,"he said. "As a result, we continue to write our business highly selectively… which is also reflected with slightly reduced premium volume."

HannoverRe reiterated its guidance of full-year post-ax net profit of at least €950 million,saying it expects "further improvement in the development of its life and healthreinsurance business. This should be especially evident in emerging markets and— following the implementation of Solvency II — in Europe as well as in the areaof longevity risks."

KamranHossain, an analyst with RBC Capital Markets, said in a note to investors shortlyafter the publication of the results that Hannover Re's predictions are likely tobe beaten.

"Wecontinue to believe that management has built in a level of conservatism withinits guidance as the large losses budget of €825 million exceeds the yearly largeloss levels since 2012, and large losses reported within the first-quarter 2016results are €55 million. Overall this supports our 2016 estimates of €1.04 billionnet income and 38% dividend payout ratio."

SociétéGénérale analyst Rotger Franz warned that the company should beware of expandingits business in the current tough environment.

"Weare generally skeptical of growth in a softening reinsurance market, but so farHannover Re has been able to find pockets of profitable business while applyingstrong underwriting discipline in the softest lines," he wrote.

HannoverRe reported that its group Solvency II capital adequacy ratio was 221% as of Dec.31, 2015, equal to the level at the end of the third quarter of 2015.