Hannover Re's latest results may look a touch less profitable than they really are, according to analysts at Berenberg. The reason: the reinsurer has been deliberately setting aside money into a so-called resiliency reserve, a buffer that could help it ride out a softening market.
In a note, Berenberg highlighted that Hannover Re's combined ratio for the first nine months of 2025 came in at 83.7%. That figure, which measures claims and expenses against premiums, is already strong—anything below 100% means the company is underwriting profitably. But Berenberg argues it actually understates the company's true profitability, because Hannover Re has added roughly EUR0.6 billion to its resiliency reserve so far this year.
What is a resiliency reserve?
A resiliency reserve is essentially a rainy-day fund that a reinsurer builds up during good times. Instead of booking all underwriting profit immediately, the company sets aside a portion to absorb future shocks—whether that's a spike in natural catastrophe claims, a downturn in investment markets, or a period of weaker pricing.
For everyday investors, think of it like a household putting extra money into savings when income is high, rather than spending every euro. It makes reported profits look lower today, but it strengthens the balance sheet for tomorrow.
Hannover Re has been adding to this reserve at a time when reinsurance pricing is starting to cool. After several years of hard market conditions—where premiums rose sharply following heavy catastrophe losses—prices are now softening. That means the company may earn less per unit of risk going forward, so having a cushion can help smooth earnings over the cycle.
Why the combined ratio matters
The combined ratio is a key metric for insurers and reinsurers. It adds together claims paid and operating expenses, then divides by premiums earned. A ratio below 100% indicates an underwriting profit; above 100% means the company is paying out more than it takes in.
Hannover Re's 83.7% ratio for the first nine months is comfortably profitable. But because the resiliency reserve additions are treated as an expense, they push the ratio higher than it would otherwise be. Without those additions, the underlying profitability would look even better.
Berenberg's point is that investors shouldn't read too much into the headline number. The reserve build is a sign of prudence, not weakness. It also suggests management is preparing for a period when pricing may not be as favourable as it has been.
What it means for investors
For shareholders, the resiliency reserve is a double-edged sword. On one hand, it reduces current reported earnings, which could weigh on short-term sentiment. On the other, it provides a buffer that can protect dividends and earnings if the market turns sour.
Reinsurers like Hannover Re are cyclical. When prices are high, they earn fat profits; when prices fall, profits compress. A reserve built during the good times can be released in the bad times, helping to keep results steadier than they might otherwise be.
Berenberg's view is that this reserve build may help smooth a softer cycle. That could make Hannover Re's earnings less volatile than some rivals, which might appeal to investors looking for stability in a sector known for swings.
It's worth noting that Hannover Re has already beaten third-quarter estimates and held its 2026 profit target, according to earlier reporting. That suggests the company is confident in its outlook despite the softening market.
Investors should also keep an eye on how the reserve is used. If Hannover Re releases some of it in future quarters, that could boost reported profits. If it continues to add, that signals management remains cautious.
Berenberg's note is part of a broader pattern of analysts looking at how companies are positioning for a changing market. For example, the broker has also suggested Allianz may lift its profit outlook, and has downgraded Amrize on roofing margin concerns. Each story reflects the same theme: insurers and reinsurers are navigating a transition from a hard to a softer pricing environment.
The bigger picture
Reinsurance pricing has been elevated for several years, driven by catastrophic losses from hurricanes, wildfires, and other natural disasters. That attracted capital and encouraged more competition, which is now pushing prices down. Hannover Re's reserve build is a prudent response to that shift.
For everyday investors, the key takeaway is that a combined ratio of 83.7% is still very strong, even if it flatters the underlying picture. The resiliency reserve is a sign of financial strength, not a red flag. It may mean reported profits are temporarily lower, but it also means the company is better equipped to handle whatever comes next.
As always, no single metric tells the whole story. Investors should look at the full picture—including reserve levels, pricing trends, and management guidance—before making decisions.
