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German reinsurer Hannover Re SE on Wednesday said it will see a “major loss” from the explosion in Beirut, Lebanon, as it reported net income fell 39.3% to €402 million ($478 million) for the first half of the year.
The reinsurer added €380 million to reserves in the second quarter for estimated losses related to COVID-19.
The reserve increase reflects that “the duration and the intensity of the pandemic cannot be foreseen,” Hannover Re said in a statement.
With the reserve increase, Hannover Re has absorbed €660 million pre-tax in the first half of 2020 in property/casualty reinsurance and its life/health segment from losses related to COVID-19.
The provision accounts for incurred but not reported losses affecting its business interruption, credit and surety, and event cancellation lines, the reinsurer’s top executives said during an earnings call Wednesday.
Hannover Re CEO Jean-Jacques Henchoz said during the call that June/July treaty renewals were successful for the company as it benefited from the improving property/casualty pricing environment.
“We used this to grow our business at increased rate and improved terms,” Mr. Henchoz said.
Hannover Re’s net earned premium for the first-half increased by 10.9% to €10.4 billion. In property/casualty reinsurance, net earned premium for the first six months rose by 15.2% to €6.9 billion.
Growth was driven by the U.S. market with improved pricing both on primary and reinsurance business. “On top of this we were able to increase our share on a number of profitable accounts generally,” Mr. Henchoz said.
Price increases ran into double-digit percentages, Hannover Re said in the statement.
The Beirut explosion Tuesday will have a “massive” impact on the city’s infrastructure, and its occurrence in an industrial area likely means there is a “good level of (insurance) penetration,” Mr. Henchoz said.
“That it will be a major loss for us I see as pretty certain, but whether low double-digit or high double-digit or even three- digit, it’s impossible for me to comment right now,” Mr. Henchoz said.
Ammonium nitrate stored in a warehouse in the port of Beirut was reported as the likely cause of the massive blast Tuesday that left at least 100 dead, thousands injured, and resulted in widespread property damage.
Overall, Hannover Re reported net major loss expenditure of €737 million, well in excess of the €414 million budgeted for the first six months of the year, it said in its statement.
In addition to losses from the ongoing pandemic, the company said it expects losses of €31.1 million for tornadoes in the U.S. and €26.3 million for bushfires in Australia.
“Overall, the €737 million net loss represents 80% of our €925 million large loss budget for the full year, and we still have peak hurricane season ahead of us,” Mr. Henchoz said.
Its property/casualty reinsurance combined ratio deteriorated to 102.3% in the first six months, and the segment’s contribution to group net income fell to €244.7 million, compared with €431.3 million in the same period of 2019.