Group Net Income: EUR480 million for Q1 2025. P&C Revenue Growth: Increased by 5.1% adjusted for FX; underlying growth in double digits. Combined Ratio: 93.9%, exceeding large loss budget by EUR330 million. Life and Health Revenue: Decreased by 4.1% adjusted for currency effects. New Business CSM: EUR1.5 billion for P&C; EUR232 million for Life and Health. Return on Investment: 3.5%, above the target of 3.2%. Solvency Ratio: 273%. Shareholders' Equity: Increased by 2.4%. CSM Increase: 8.4% due to new business. Risk Adjustment Increase: 3.3% driven by new business in P&C and assumption changes in Life and Health. EBIT Contribution from Life and Health: EUR253 million in Q1 2025. Reserve Adequacy: EUR2.53 billion as per Willis Towers Watson review. Premium Volume Growth: 10.4% in April renewals. Risk Adjusted Price Decrease: 2.4% in April renewals.

Warning! GuruFocus has detected 4 Warning Sign with HVRRF.

Release Date: May 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Hannover Rueck SE (HVRRF) reported a solid start to 2025 with a group net income of EUR480 million, maintaining their full-year target of EUR2.4 billion. The company demonstrated strong underlying profitability in its P&C portfolio, with a combined ratio of 93.9%, despite large losses from the LA wildfires. Investment performance was robust, with a return on investment of 3.5%, exceeding the target of 3.2%. The solvency ratio remains strong at 273%, allowing the company to redeem a EUR500 million hybrid bond without refinancing. The company achieved double-digit growth in P&C reinsurance revenue when adjusted for accounting changes, supporting their target of more than 7% growth for the year.

Negative Points

Hannover Rueck SE (HVRRF) faced significant large losses in Q1 2025, particularly from the LA wildfires, impacting their quarterly results. Life and health reinsurance revenue decreased by 4.1%, primarily due to a reduction in the US mortality book. The combined ratio exceeded the large loss budget by EUR330 million, indicating higher-than-expected claims. Currency translation effects partially diminished the positive contribution from Q1 earnings. The company observed a 2.4% risk-adjusted price decrease in their portfolio, reflecting some pricing pressure in the market.

Q & A Highlights

Q: Can you explain the factors behind the higher-than-expected solvency ratio of 273%, and why didn't you change your investment return guidance given the strong Q1 performance? A: The solvency ratio, adjusted for a quarterly accrued ordinary dividend, is 265%, up from last year due to positive new business and favorable life and health experience. The SCR decreased slightly due to FX exposure. As for the investment return, it's too early to change guidance due to potential volatility in private equity and real estate portfolios. We are pleased with the 3.5% ROI but will reassess later in the year. - Christian Hermelingmeier, CFO

Story Continues

Q: With the US dollar weakening, do you still expect to achieve the PNC reinsurance revenue target of over 7% after FX adjustments? A: We are confident in achieving the 7% target, including FX, due to double-digit growth in structured reinsurance at both January and April renewals. - Sven Althoff, Member of the Executive Board

Q: Why did you add to reserve prudency in a quarter with heavy cat losses, and what are your views on mid-year pricing renewals? A: We built reserve resiliency due to strong underlying profitability and currency tailwinds. For mid-year renewals, we expect property pricing to soften due to strong supply, but US wildfires may dampen this effect. Other classes should remain stable. - Sven Althoff, Member of the Executive Board

Q: Can you discuss the impact of the California wildfires on your retro protection and expectations for currency results? A: The wildfires resulted in a gross loss of EUR868 million, with EUR230 million recoverable from retrocession. There's minimal impact on non-proportional covers, leaving significant limits for the year. Currency results reflect accounting mismatches and disciplined asset-liability matching, with some volatility expected. - Sven Althoff, Member of the Executive Board and Christian Hermelingmeier, CFO

Q: How do you view the relationship between building reserve redundancies and the softening cycle? A: Building reserve resiliency is part of our strategy to provide stability over the cycle. We aim for stable results and are prepared to utilize resiliency in years with large loss burdens or through the cycle to maintain guidance. - Clemens Jungsthofel, CEO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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