Fire, earthquake claims hit hard Hannover Re Q2 profit

Big damage claims for wildfires, earthquakes and storms hit German reinsurer Hannover Re hard during the second quarter, contributing to a sharper than expected 15 percent decline in quarterly net profit and driving down its shares.

Quarterly net profit of 215 million euros ($240 million) was below the average forecast of 239 million euros in a Reuters poll of banks and brokerages.

Hannover Re shares fell 3.7 percent to 87.76 euros by 0715 GMT, lagging a 1.6 percent gain in the STOXX Europe 600 insurance index.

Nevertheless, the world’s third largest reinsurer said low losses earlier in the year meant it was well on track to reach its goal of earning at least 950 million euros in net profit this year.

“Losses incurred by Hannover Re in the second quarter were significantly higher than expected,” the reinsurer said, with claims of nearly 300 million euros exceeding its notional quarterly budget by 130 million euros.

Claims in the second quarter included 132 million euros for wildfires in Canada in April and May as well as big claims for earthquakes in Ecuador and Japan and storms in Germany.

Chief Financial Officer Roland Vogel said his company still had a substantial buffer to pay claims before the full year target would be threatened.

“If claims were clearly above 1 billion euros, then that would certainly have an effect on our profit goals at some point,” he told journalists in a conference call.

Hannover Re has seen 353 million euros in big claims so far this year.

Despite the higher claims reported by a number of reinsurers and their insurance company clients so far this year, prices for reinsurance remain under pressure.

An excess of capital available to cover insurance losses and weak demand from insurance companies, who have preferred to keep risk on their books rather than pay reinsurers to shoulder that risk, mean that property and casualty reinsurance prices are still falling. Hannover Re reported a 10 percent decline in gross premiums in that segment in the second quarter.

“We expect it will become increasingly visible that the company cannot escape from the cycle,” Baader Helvea analysts wrote in a research note, adding that they see the stock as overvalued and sticking with their “sell” recommendation.

Hannover Re repeated that it did see some signs that price declines were starting to bottom out, however.

“Premiums and prices will react slowly, not quickly,” Vogel said.

Source: Reuters