EUR 850.00 For Business Accounts Only

Morningstar | Hannover Re Reports Full-Year 2018; Life and Health Back on Track, but Shares Still Overvalued

Hannover Re reported net income of EUR 1.06 billion for full-year 2018, slightly below our estimate of EUR 1.30 billion. However, this included a EUR 185 million charge within the life and health business for U.S. mortality recapture. We are maintaining our EUR 110 fair value estimate and narrow moat rating.

Dividends announced for the full year came in at EUR 3.75 (normal) and EUR 1.50 (special) per share, which combined gives the business a roughly 60% payout ratio that we maintain for the business. This is a substitute for share buybacks.

For the life and health reinsurance business, operating profit for the full year was again low at around EUR 275 million. And the property and casualty result came in at EUR 1.30 billion. When we account for the EUR 270 million of life and health recapture one-time charge, which nets to EUR 185 million with the release of expense reserves, the life and health reinsurance division looks like it is back on track to normal levels of operating profit, above EUR 400 million. We have also made some adjustments to combined ratios following January renewals marine pricing and outlook for aviation, considering recent high-profile plane crashes. Large losses for the year came in at EUR 850 million, marginally worse than EUR 825 million budgeted. But we don't see 2018 catastrophe and disaster events as a pricing catalyst year.

We continue to believe that Hannover is one of the best, if not the best, reinsurance and insurance companies in the market. And any investors finding the business trading at a decent discount to our EUR 110 estimate of fair value should quickly pick up the stock. But the current market price of EUR 130 per share is not justified.