Global reinsurance company Hannover Re shared a much larger proportion of its large natural catastrophe losses with insurance-linked securities (ILS) capital sources in the final quarter of 2024, as the company ceded out more than half of its losses from hurricane Milton, with retrocessional arrangements seemingly playing a key role.
Hannover Re reported its full-year 2024 results this morning, revealing a 28% increase in group net income, return on equity of 21.2% for the year, strong growth as reinsurance revenue rose by 7.6% across the business to EUR 26.4 billion and by almost 11% in P&C to EUR 18.7 billion, with impressive property and casualty reinsurance operating profit of EUR 2.4 billion.“We can look back on a very successful 2024 financial year, in which we grew steadily and generated a very pleasing Group profit. With the planned dividend increase, we are living up to our commitment to continuously grow the ordinary dividend over our current strategy cycle and underscoring our positioning as an attractive dividend stock,” Jean-Jacques Henchoz, Chief Executive Officer explained.
“In the past financial year we further increased our shareholders’ equity. We thereby boosted Hannover Re’s resilience and strengthened what clients consider to be a crucial factor in Hannover Re’s reliability,” further explained Clemens Jungsthöfel, Chief Financial Officer of Hannover Re. “At the same time, we continue to set the pace with our return on equity, which is significantly higher than our strategic target.”
Hannover Re’s reinsurance service result, that reflects the profitability of underwriting business less business ceded (which is primarily through retrocessions and to insurance-linked securities (ILS) investors), rose significantly to EUR 3.0 billion, up from 2023’s EUR 1.7 billion.
The P&C reinsurance combined ratio improved to 86.6% (94.0%), easily beating the target of less than 89%.
But, large losses were as ever prevalent, with Hannover Re reporting net large man-made and natural catastrophe losses of EUR 1.6 billion, which was flat with the prior year but importantly below budget.
Hurricane Milton was the largest net retained catastrophe loss of the year, but here Hannover Re has seemingly benefitted from retrocessional reinsurance support and likely sharing of some of this loss with its insurance-linked securities (ILS) investor partners, given the gross impact was much higher at EUR 596.1 million.
Hannover Re reports a measure of the losses that the company shares with the ILS investors the reinsurer works with through its ILS fronting and collateralised reinsurance activities.
Those cat bond and ILS fronting activities have continued to grow strongly for Hannover Re, but in recent quarters the proportion of losses that get ceded to them had significantly declined.
After the third-quarter 2024 results, Hannover Re had reported sharing only EUR 18 million in large natural catastrophe and man-made losses with ILS capital sources through the first nine months of 2024.
But, the fourth-quarter of 2024 saw far more in natural catastrophe losses being shared with Hannover Re’s ILS investor partners, as the company saw a further EUR 346 million ceded, taking the full-year 2024 total for nat cat losses shared with ILS capital to EUR 364 million for the company.
It seems that hurricane Milton and the large gap between gross and net loss, indicating a significant proportion of almost 62% of that hurricane loss being ceded, may be where the large increase in loss shared with ILS came from.
Hannover Re’s retrocessional reinsurance program will also have taken its share of the hurricane Milton loss from Q4 we assume.
Over the full-year 2024, Hannover Re reported EUR 1.91 billion of gross natural catastrophe losses, which were reduced to just over EUR 1.26 billion on a net basis, indicating retrocessional support for larger losses such as hurricane Milton, hurricane Helene, and other catastrophe events throughout the year.
Man-made losses totalled EUR 595.5 million for the year gross, which fell to EUR 365.4 million net.
Finally, of relevance for our readership, Hannover Re noted in its results today that the structured reinsurance and ILS business remains a key growth driver for the company, with revenues rising almost 58% for that segment.
It was one of the main drivers of reinsurance revenue growth for Hannover Re in 2024, and also supported new business contractual service margin for the company, a key predictor of future profit potential.
Overall, Hannover Re’s business continues to benefit from the use of and facilitation of ILS capital, both for protection and as an additional lever for growth while earning fee income for the various services provided to ILS market participants and investors.
Hannover Re started 2025 strongly, reporting 7.6% growth in its January reinsurance renewal portfolio.
The company also renewed its retrocession arrangements for 2025, increasing its natural catastrophe retrocessional protections by EUR 100 million to a little more than EUR 1.2 billion, with growth in the aggregate excess of loss and whole account excess of loss covers more than offsetting a reduced K-Cessions sidecar for the year.
Finally, Hannover Re’s CEO Jean-Jacques Henchoz previously said that an industry loss ranging between $30 billion and $40 billion from the Los Angeles, California wildfires, could result in a net loss of €500 million to €700 million for the reinsurer, which would be above its first-quarter large loss budget of €435 million. No update on that estimate was provided today.
