Outlook for the full 2016 financial year

 
 
 

In the current financial year, despite a challenging environment in reinsurance business and on the capital market, we anticipate a good overall result for the Hannover Re Group. Bearing in mind developments both in property and casualty and in life and health reinsurance, we expect to book a stable or slightly reduced gross premium volume – based on constant exchange rates – for our total portfolio in the current financial year.

The premium volume in property and casualty reinsurance is expected to contract slightly based on constant exchange rates. This assumption is based firstly on our selective underwriting policy, according to which in large part we only write business that satisfies our margin requirements. It also reflects our expectation that high-volume quota share arrangements which still enjoyed strong demand among Chinese cedants in the year under review will be discontinued in 2016. The treaty renewals during the year are nevertheless anticipated to pass off favourably again thanks to our good ratings and long-standing stable customer relationships.

Even though market conditions in property and casualty reinsurance are likely to remain soft, the underwriting result should come in roughly on the level of the 2015 financial year – provided the major loss incidence remains within the bounds of our expectations. In terms of our targeted combined ratio, we continue to aim for a figure under 96%. The EBIT margin for property and casualty reinsurance should amount to at least 10%.

In life and health reinsurance we see further good business opportunities in the current year. We shall continue to strive to offer our customers not only traditional risk transfer but also comprehensive reinsurance service. Adjusted for exchange rate effects, we expect to book slightly higher gross premium in life and health reinsurance. It should, however, be borne in mind that changes affecting certain very high-premium treaties have significant implications for the business volume – and that these can be either positive or volume-reducing. The Value of New Business (VNB) should be in excess of EUR 220 million. Our target EBIT margins remain unchanged at 2% for financial solutions and longevity business and 6% for mortality and morbidity business.

With regard to the IVC targets that we use to map economic value creation, we anticipate a minimum 2% xRoCA for property and casualty reinsurance and at least 3% xRoCA for life and health reinsurance.

The expected positive cash flow that we generate from the technical account and our investments should – based on stable exchange rates – lead to further growth in our asset portfolio. We are looking to deliver a return on investment of 2.9%.

For 2016 we anticipate Group net income in the order of EUR 950 million. This is subject to the proviso that the burden of major losses does not significantly exceed the budgeted level of EUR 825 million and that there are no exceptional distortions on capital markets.

In terms of the dividend for the current financial year, Hannover Re envisages a payout ratio in the range of 35% to 40% of its IFRS Group net income. This ratio may increase in light of capital management considerations if the present comfortable level of capitalisation remains unchanged.

 

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