Hannover Re has intensified efforts to fix the large block of U.S. life business that caused its life insurance division to miss operating profit expectations for 2017, CEO Ulrich Wallin said March 13.
He added that the fixing efforts would continue to be a drag on Hannover Re's life and health reinsurance profits in 2018 and were in part what prompted the company's "more cautious" operating profit expectation of around €200 million from that business.
Hannover Re's groupwide 2017 net profit of €958.6 million beat its forecast of €800 million, despite the reinsurer paying a €1.13 billion claims bill from the natural catastrophes that hit in the 2017 second half. But the life and health reinsurance business's operating profit fell "short of expectations," the reinsurer said, as it dropped 28.6% to €245.5 million from 2016's €343.3 million.
Hannover Re's share price fell 4.18% in trading on March 13, closing at €110.10.
The drop in life and health reinsurance profit was attributable to higher-than-expected claims on U.S. mortality business, in turn almost exclusively down to a block of ING business that Hannover Re bought from Scottish Re in the first quarter of 2009, Wallin told analysts at a conference for Hannover Re's 2017 results. The company also took a charge of €45 million as it exited unprofitable business in the book and pushed up prices.
The company had said the action on the life book would continue into 2019, but Wallin told analysts: "We have brought forward the timeline on the in-force management action. We will be acting more swiftly and earlier than originally expected.
"Therefore the majority of effects from the in-force management should occur in 2018 and not drag over into 2019. We have accelerated our efforts there because, as you can probably appreciate, we would like to solve this problem sooner rather than later."
Wallin said the ING book's operating loss had been "a low three-digit-million dollar amount," which had been offset by good performance elsewhere in the U.S. life and health business, particularly financial products.
As a result of the continued "aggressive" remedial action on the book, Wallin said, more business would fall by the wayside, which "could produce losses in 2018." He added that the company would not shy away from letting the business go because it "would reduce the outstanding liabilities on this rather problematic book that we bought in the first quarter of 2009 which, in hindsight, did not turn out to be our best decision."
Although the old ING business was loss-making, Wallin said the action already being taken had been working.
"We improved the still negative results on the ING portfolio by a run-rate of €80 million per annum by rate increases that we have applied and the reduction of collateral costs, which we have almost eradicated completely," he said. But he added: "We have done a lot of work on it. Unfortunately it is still a work in progress."
