For the 2019 financial year we anticipate a good overall result for Hannover Re. Bearing in mind the developments in property and casualty as well as life and health reinsurance, we are looking to book single-digit percentage growth in gross premium – based on constant exchange rates.
In property and casualty reinsurance we expect significant growth at largely stable conditions based on the outcome of the treaty renewals as at 1 January 2019. We shall retain unchanged our selective underwriting policy, under which in large part we write only business that satisfies our margin requirements. Looking ahead to the subsequent rounds of renewals during the year, the situation is generally expected to be similar to the one at the start of the year. An exception here is likely to be the segments that have been particularly hard hit by natural disasters, such as covers for hurricanes in the United States, typhoons in Japan and forest fires in California; we anticipate stronger rate increases in these cases, because as the year progresses a clearer picture will emerge of the results achieved by reinsurers and hence the pressure on capital market investors will likely grow in light of market and interest rate factors.
Thanks to our good ratings, long-standing stable customer relationships and low expense ratio, a solid outcome should once again be attainable. We therefore anticipate a good underwriting result, provided the burden of large losses remains within our expectations. For 2019 we have raised our net large loss budget for the first time in three years; it now stands at EUR 875 million as against EUR 825 million in the previous years. This adjustment reflects the growth in the underlying business.
The EBIT margin for property and casualty reinsurance should amount to at least 10%. We are aiming for a combined ratio here of less than 97%.
In life and health reinsurance the current financial year is expected to deliver moderate premium growth. On the earnings side, the strains in US mortality business should decrease quite substantially. This should give rise to an unusually strong surge in profitability, with EBIT expected to be in the order of EUR 400 million. The targeted level for the value of new business remains unchanged at a minimum of EUR 220 million per year.
With regard to the IVC targets that we use to map economic value creation, it remains our expectation that a minimum xRoCA of 2% will be generated for property and casualty reinsurance and for life and health reinsurance.
In view of the expected positive cash flow that we generate from the technical account and the investments themselves, and assuming stable exchange rates and interest rate levels, our asset portfolios should continue to grow. We are looking to deliver a return on investment of at least 2.8% for 2019.
For the current financial year we anticipate Group Net income of EUR 1.1 billion. This is subject to the proviso that large loss expenditure does not significantly exceed the budgeted level of EUR 875 million – which has been adjusted to reflect the growth in the underlying business – and assumes that there are no unforeseen distortions on capital markets.
Hannover Re continues to anticipate a payout ratio for the ordinary dividend in the range of 35% to 45% of its IFRS Group Net income. The ordinary dividend will be supplemented by payment of a special dividend in light of capital management considerations if the comfortable level of capitalisation remains unchanged.