Hannover Re cedes few losses to ILS in Q2, cites “modest price declines” at mid-year renewal

Global reinsurance firm Hannover Re remained over its large loss budget after the first-half of 2025, but the second-quarter was a far less impactful period than Q1 which resulted in the company only ceding EUR 21 million of natural catastrophe losses with insurance-linked securities (ILS) capital sources.

Earlier this year, Hannover Re had reported going meaningfully over its loss budget for the first-quarter as the California wildfires drove significant impacts, that resulted in the reinsurance firm ceding EUR 438 million of its large natural catastrophe losses with insurance-linked securities (ILS) capital sources in Q1.

After the second-quarter, the amount of losses ceded to insurance-linked securities (ILS) investors by Hannover Re has only risen to EUR 459 million for the first-half, suggesting a far smaller nat cat burden for the company.

The reinsurers use of insurance-linked securities (ILS) capital as a risk partner, as well as its important retrocessional protection, continues to be a benefit in moderating losses for the company in 2025.

Hannover Re’s net loss for the California wildfires is now reported as just EUR 615.1 million, which is a reduction on the post-Q1 disclosure of a net wildfire loss of EUR 631.4 million.

On which basis, given the slight reduction in the Q1 loss, suggests that perhaps Hannover Re ceded slightly more than the EUR 21 million figure to ILS investors through Q2, still a far lower figure.

Hannover Re’s gross loss from the wildfires is now pegged at EUR 1.3 billion, showing a meaningful amount of the overall was ceded to ILS investors and other sources of retrocession.

Recall that, Hannover Re had said it expected around EUR 230 million of retrocessional reinsurance recoveries to support its losses from the Los Angeles wildfires, most of which was anticipated to come from the proportional K-Cessions quota share sidecar structure.

Across the full first-half of the year, the gross natural catastrophe loss burden was EUR 1.4415 billion, of which only EUR 744.7 million has been retained by the company, further reflecting the fact Hannover Re’s ILS partnerships and retrocession arrangements took their shares and helped to moderate its overall loss experience for H1 2025.

Hannover Re has reported 13% growth in net income and a 23% return on equity for the first-half of 2025, while gross reinsurance revenues rose 3.3% to EUR 13.3 billion.

Clemens Jungsthöfel, Chief Executive Officer of Hannover Re commented, “After the considerable expenditures for losses in the first quarter, large losses were far more moderate in the second quarter. Overall, we can look back on a good business performance in the first half-year. Prices and conditions on the reinsurance market remain on an adequate level. At the same time, we have further strengthened Hannover Re’s resilience and continue to invest in our efficient positioning and capacity for innovation. Even in volatile times, we are thus able to offer our clients high-quality risk protection.”

The combined ratio of 88.4% was slightly higher than budgeted, but Hannover Re has taken the opportunity to further strengthen its property and casualty reserves in the first-half of 2025.

“On the basis of the good business performance of the past six months and the positive currency result, we further strengthened our balance sheet. In concrete terms, we have further increased the level of reserves in property and casualty reinsurance,” added Christian Hermelingmeier, Chief Financial Officer of Hannover Re. “This measure not only prepares us better for future loss events, but also enables us to continue to minimise earnings volatility in the future.”

Operating profit for the Hannover Re property and casualty reinsurance business rose by 11.6% in the first-half of the year, to EUR 1.3 billion.

Hannover Re also commented on the mid-year reinsurance renewals, saying it experienced “modest price declines.”

The reinsurer said that the inflation- and risk-adjusted price change experienced across the mid-year renewed book of business was -2.9%.

Overall mid-year renewal volumes fell by -2.1%, but this was primarily due to the reduction of a large contract. Had it not been for that, growth of 4.5% would have been booked at the June and July renewal season, Hannover Re explained.

The reinsurance company has confirmed its guidance target for the full-year, with group net income of around EUR 2.4 billion still anticipated.

Gross property and casualty reinsurance revenues are expected to grow by more than 7% for the full-year, adjusted for exchange rate effects, while the combined ratio remains targeted to come in below 88%.

“Our lean, partnership-based business model, our pragmatic corporate culture and our resilience remain as indispensable for sustainable reinsurance protection as adequate prices and conditions on the market,” CEO Jungsthöfel further stated. “Based on the numbers for the first six months, I am confident of our ability to generate further profitable growth in the second half of the year and achieve our full-year targets.”

As we reported earlier this year, Hannover Re’s insurance-linked securities (ILS) market facilitation activities continued to expand in 2024, with the number of collateralised reinsurance participations fronted for investors rising, while its catastrophe bond fronting also grew to a new record level.