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Investing.com -- UBS in a note dated Friday upgraded Hannover Re (OTC:HVRRY) to "buy” from “neutral,” setting a 12-month price target of €280.
Shares of the German reinsurance company were up 3.2% at 04:40 ET (08:40 GMT).
The upgrade came after a period of share price underperformance, with Hannover Re’s stock flat year to date compared with peers that gained an average of 10%.
The company now trades at a 6% discount to the European insurance sector, its lowest relative multiple in five years, despite historically trading at a 7% premium.
It is also valued at just a 5% premium to Munich Re, versus its five-year average of 19%. UBS said Hannover Re is well positioned for the softening reinsurance cycle because of its reserve buffers and its use of retrocession protection.
The broker expects these factors to provide more stable earnings compared with peers, particularly as pricing continues to weaken.
Hannover Re cedes about 15% of gross revenue to retrocession partners, a higher share than larger European rivals, which typically cede 4% to 7%. This allows it to offset part of the impact from falling reinsurance prices.
The brokerage highlighted that Hannover Re has continued to build reserves during the hard market, giving it flexibility to support earnings in softer conditions.
UBS forecast earnings per share of €21.24 in 2025, rising to €21.60 in 2026 and €22.03 in 2027. The company’s dividend payout ratio is about 50%, with a net dividend yield projected at 4.5% in 2026.
UBS noted that Hannover Re’s resilience could reduce the risk of earnings downgrades that may emerge among larger peers if pricing pressure accelerates further.
The analysts said the market backdrop makes Hannover Re’s lower-volatility model more attractive, justifying the upgrade to “buy.”