When it comes to reinsurance groups, the names of the two market leaders Munich Re and Swiss Re usually come up immediately. However, this may be too short-sighted. With a gross premium volume of more than EUR 27 billion, Hannover Rück, the world's third-largest reinsurer, actually outperformed its counterparts on the stock market recently. Over the course of a year, the Hannover Rück share has fallen slightly by around four percent, while Munich Re has lost almost twice as much and Swiss Re has even recorded double-digit percentage losses.
The subsidiary of the German insurance group Talanx is active in all lines of property/casualty and life/health reinsurance. Hannover Rück has recently scored particularly well in non-life reinsurance. Due to significantly improved prices and conditions, gross written premiums - from a regional perspective, North America sets the tone - increased by 14.8% to EUR 19.2 billion in the financial year 2021. Despite several major losses such as hurricane "Ida", the operating result (Ebit) soared by 84% to EUR 1.5 billion. In the area of life and health reinsurance, however, the pandemic struck again, resulting in charges of around half a billion. As a result, EBIT fell by 43% to EUR 223 million. However, Corona was not able to stop the growth in the Group: Net income improved by 39% to EUR 1.23 billion, reaching the upper end of the forecast range of EUR 1.15 billion to 1.25 billion.
Hannover Rück was unable to carry the positive trend over into the new year. In addition to burdens from natural catastrophes, the company was hit above all by the war in Ukraine. This caused the net profit of the world's third-largest reinsurer to fall by 13.8% to EUR 263.6 million in the first quarter. Compared to Swiss Re, however, the Germans are in a better position. At the domestic insurance group, provisions for the effects of war, natural catastrophes and Covid actually caused the earnings curve to turn into the red.
Since the losses Hannover Rück suffered in connection with the crises were limited, CEO Jean-Jacques Henchoz confirmed the annual forecast. For 2022, the Swiss-born CEO, who moved to the Lower Saxony-based capital from Swiss Re in 2019, expects a surplus of EUR 1.4 billion to 1.5 billion, or a growth of one-fifth in the middle of the range. Gross premiums are expected to grow by at least 5% at constant exchange rates. Here Hannover Rück is already well ahead of its target: growth from January to March was 12.4%. In addition, the company is receiving tailwind from the capital markets. Thanks in particular to positive earnings contributions from inflation-linked bonds. Income from self-managed investments improved from EUR 311 million in the previous year to EUR 429 million. This translates into an annualized return on investment of 3.1%, which would clearly exceed the full-year target of "at least 2.3%". At 9.3%, the annualized return on equity at the end of March also remained above the forecast which predicted it at 900 basis points above the risk-free interest rate.
The analyst guild has confidence in CEO Henchoz's positive statements and expects the reinsurer to maintain its growth trajectory in 2022. For the current year, the consensus expects a further increase in earnings per share of 17.9%; in 2023, the pace of growth should then accelerate to a fifth. This compares with a single-digit price/earnings ratio (P/E). The current favorable valuation is underlined by an above-average dividend yield of 4.2%. The valuation ratios of Swiss Re and Munich Re are also impressive. The leading reinsurance duo also has single-digit P/E ratios. And the dividend yields are even slightly higher than those of Hannover Rück.
While dividend chasers are exposed to a price risk that can have a strong impact on the yield, investors with structured products have a clear advantage. With the two new Softcallable Barrier Reverse Convertibles on Hannover Rück, firstly a higher yield is possible and secondly the securities have partial protection. The details at a glance: Both securities, which are offered in CHF and EUR, come with a risk buffer of 35%. This means that as long as the underlying does not touch the barrier at 65% of the initial fixing level, the BRC achieves the maximum return. This amounts to 6.00% with the CHF variant, the EUR counterpart even offers the prospect of a quarterly coupon payment of 6.60% p.a.. Even more profit is possible with the triple combination of Hannover Rück, Munich Re and Swiss Re. The new multi-BRC on the insurance trio has a coupon of 10.00% and a comfortable barrier distance of 41%. Due to the soft callable feature, the products can be redeemed early on the coupon payment dates, however earliest after six months.
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