‘Balanced Book’ strategy pays dividends for HDI Global in soft market

HDI Global SE, the industrial insurance arm of German group Talanx, has reported a significant improvement in underwriting results, combined ratio and profits for 2016 despite continued soft markets and the low interest rate environment. The insurer has also promised to continue its push into international markets this year. Deputy chairman of the board of management at Talanx and CEO of HDI Global, Dr Christian Hinsch, said the positive results were largely based on the insurer’s decision to restructure its underwriting portfolio away from high severity to medium severity risks. HDI Global calls this its “Balanced Book” strategy. This move was accompanied by decent growth in the US, Brazil, Switzerland and UK, which helped maintain premium volumes in the soft market. Gross written premiums fell just 1%. Dr Hinsch also reported positive results for its mid-market growth strategy in the UK, Italy and France, as well as continued “internationalisation” of the German group’s business mix, notably through further expansion in Asia. HDI Global’s book now comprises 61% international business versus 31% German business. Gross written premiums written by HDI Global were down 1% in 2016 to €4.3bn, while net earned premiums also rose 1% to €2.2bn. The group reported an underwriting result of €73m for full year 2016, compared with a loss of €18m in 2015. The combined ratio improved to 96.8% against 99.2% in 2015. HDI Global said that the burden of large losses remained below its target. This led to an increase in operating profit of 42% to €296m, compared with a loss of €208m in 2015. Group net income increased by 86% to reach €236m. The result was helped by a further minor reserve releases, but less than in 2015. HDI Global did not have to post a reserve addition as others have done in this latest round of results. The Hannover-based group described the result as “very satisfactory”. “This result reflects a number of factors including the successes of portfolio optimisation. At the same time, the company is consistently driving forward digitalisation measures and its mid-market strategy in order to generate further growth,” stated HDI Global. Dr Hinsch said: “Last year, we achieved a very gratifying result in underwriting and non-underwriting business in spite of ongoing very intense price competition on international industrial insurance markets and the sustained low-interest environment.” “The aim of the ‘Balanced Book’ measures was to improve the ratio of premiums to assumed risks in domestic fire, marine and motor fleet insurance. The underwriting scope for very severe risks was partly reduced and in some cases the terms and conditions of insurance and prices were also adjusted. At the same time, HDI increased the underwriting scope for risks of medium severity,” explained the insurer. “As a result of these measures, the combined ratio developed very gratifyingly,” added the group. HDI said it is “consistently pursuing” a mid-market strategy this financial year. This includes establishing additional locations in important European economic regions. Last year, the Italian HDI branch opened an office in Genoa, the hub of the marine insurance business. The French HDI unit established a sub-branch in Lyon, the second biggest insurance market in France. A team of experienced property and liability underwriters was set up in Lyon last October. In June, a new office was also established in Glasgow, Scotland to reinforce HDI’s UK and Ireland branch. Last year, HDI also expanded its presence in the Asia-Pacific region through the creation of a new unit in Labuan, Malaysia. “We are now generating around 61% of our gross written premiums abroad and 39% in our domestic market,” explained Dr Hinsch. “We will naturally continue on this route to internationalisation. In 2019, we are planning to generate two thirds of our gross premium volume abroad,” he added. HDI Global’s parent company Talanx also published its results this week and exceeded its 2016 profit forecast. It posted a 23.6% increase in net income to €907m, boosted by the jump in profits from industrial lines. Group operating profit was up by 5.4% to €2.3bn for the full year, but down 3.9% to €649m in the fourth quarter. “The period of low interest rates is continuing and geopolitical challenges such as Brexit are adding to the conditions in the underwriting market,” said Herbert Haas, chairman of the board of management of Talanx AG. “It is all the more pleasing that all divisions exceeded their expected result too and thus contributed to the best group net income yet in the company’s history,” he said. Group premiums were 2% lower at €31.1bn for 2016 and down 1.2% to €7.4bn in the fourth quarter. Growth in international markets offset “portfolio optimisation” actions in industrial lines, Talanx said. The group’s combined ratio for 2016 improved by 0.3 percentage points to 95.7%, affected by higher underwriting expenses attributable to the restructuring of its German retail business. “The effects of the portfolio optimisation were felt in particular [with industrial lines] as the loss burden in the restructured sub-portfolio in property insurance business was reduced by almost 20% in 2016. As a result, the [industrial lines] underwriting result increased to €73m following the previous year’s €18m,” Talanx said. The group result was also assisted by lower than expected large losses. At €833m, large losses in 2016 were under the €1.1bn budget and below the previous year loss of €922m. The largest losses were the wildfires in Canada in the second quarter, which cost Talanx €128m. Talanx’s attempts to diversify its business have seen the group write more primary insurance relative to reinsurance. Primary insurance accounted for more than 40% of business in 2016 compared with 33% in 2015. The company is targeting a fifty-fifty split of insurance to reinsurance by 2021. Talanx has revised its group profit outlook for 2017 to around €800m. It has also proposed an increased dividend.

‘Balanced Book’ strategy pays dividends for HDI Global in soft market

Want to read this article?

Read Next

Global insurers’ market capitalisation grows as results improve

MNK Group acquires Costa Rican insurer Oceánica de Seguros

Europe saw record extreme heat stress days last year, finds EU report

New chief underwriting officer for Markel’s Indian operations

Rates drive change in AM Best’s London market outlook to positive

Global insurers’ market capitalisation grows as results improve

MNK Group acquires Costa Rican insurer Oceánica de Seguros

Europe saw record extreme heat stress days last year, finds EU report

New chief underwriting officer for Markel’s Indian operations

Rates drive change in AM Best’s London market outlook to positive

Want to read this article?

Read Next

Global insurers’ market capitalisation grows as results improve

MNK Group acquires Costa Rican insurer Oceánica de Seguros

Europe saw record extreme heat stress days last year, finds EU report

New chief underwriting officer for Markel’s Indian operations

Rates drive change in AM Best’s London market outlook to positive

Related Articles