Hannover RE beats estimates, P&C Re drives growth

Investing.com --Hannover Rueck SE (ETR:HNRGn) reported strong second-quarter results, primarily fueled by its property&casualty reinsurance (P&C Re) division. 

“An all-round beat led by P&C Re underwriting while the FY guidance has been maintained as expected,” said analysts at RBC Capital Markets in a note. 

The financial services provider beat expectations across all metrics, showing improvement in its combined ratio compared to the previous quarter. Both the property&casualty and life&health reinsurance segments reported positive performance.

The company posted a net income of €603 million, exceeding consensus estimates by 13%. This translated to a strong return on equity of 22.4% for the first half of the year. Investment income came in at €511 million, slightly ahead of expectations, RBC said. 

The P&C Re segment delivered an EBIT of €532 million, surpassing consensus estimates. The combined ratio stood at 87.6%, improving to 85.1% when adjusted for large loss variance. 

The L&H Re segment significantly outperformed, with EBIT reaching €320 million. Hannover Rück's solvency ratio climbed to 276%, comfortably above its target range.

Despite higher-than-expected large losses in the quarter, Hannover Rück maintained its full-year guidance, reflecting confidence in its growth trajectory. 

The company expects a P&C combined ratio below 89% and an L&H reinsurance service result of at least €850 million.

The P&C Re segment showcased strong revenue growth, outpacing consensus by 9%. While large losses exceeded the quarter's budget, Hannover Rück maintained its practice of fully reserving the budget. 

The L&H Re segment continued to benefit from positive experience variance.

Renewal volumes demonstrated healthy growth, with risk-adjusted rates increasing by 1.3%. Earlier renewals also reflected solid performance.

RBC Capital Markets values Hannover Rück at €283 per share, with an ‘outperform rating’. This valuation is based on a sum-of-the-parts approach and implies a 14x P/E.

Potential risks include exposure to natural catastrophe losses, large exceptional losses, shifts in the P&C rating cycle, inflationary pressures, and the impact of a recession.