Morningstar | Hannover First Half: U.S. Mortality Still Issue, Second-Half Recapture Uncertain, Shares Overvalued
Hannover Re reported half-year results of EUR 555 million net income and just shy of 4% improvement on the prior year. This is very slightly below our estimates, but for the time being we are maintaining our EUR 110 per share fair value estimate and narrow moat rating.The period has been impacted, continually, from rising losses from U.S. mortality businesses. This problem just isn’t going away as we have written on this in several past quarters. The drag is improving, but it is still prevalent. The project launched last year to analyse this 2009 block underperformance is ongoing, but the business has triggered its right to implement consistent rate increases across the entire block. Resulting recapture of treaties in the third quarter is expected to be significant.
Based on the fact that any recapture will eliminate adverse development losses, Hannover management has reiterated its greater than EURÂ 1 billion net income target for the full year. This seems overly confident given the potential size of potential charges. The EURÂ 825 million major loss budget remains intact with hurricane season looming.
Return on investment is ahead of full-year expectations at 3.1%.
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