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Hannover:September 13:
Hannover Re,the third largest global reinsurer, anticipates a continuing trend towards higher prices and improved conditions in property and casualty reinsurance for the various rounds of renewals in 2022.
Along with the sometimes far above-average large losses recorded in past years, the recent flooding seen in Europe – a natural disaster on a historic scale – and the considerable losses caused by Hurricane Ida have further increased the need for action on the part of reinsurers.
Pandemic-related costs and the low interest rate environment are an additional strain on the results generated by primary insurers and reinsurers. Inflation rates have also been rising of late in some regions. This has further heightened risk awareness among primary insurers and given an added boost to demand for high-quality reinsurance protection.
"In property and casualty reinsurance there is a need for further rate increases. Only in this way will reinsurers be able to provide reliable risk protection in an increasingly challenging environment," said Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re. "Particularly where natural catastrophe risks are concerned, adjustments are unavoidable. While the pace of price increases has slowed somewhat of late in the renewals during the year, this was primarily the case in areas where substantial increases had already been recorded in prior years."
In the past rounds of renewals throughout 2021 Hannover Re has already been able to secure improved conditions and higher prices; nevertheless, further adjustments are needed against the backdrop of the multi-layered challenges posed by large losses, pandemic expenditures and the low interest rate level as well as the increasingly intense pressure on margins.
For the treaty renewals as at 1 January 2022 in property and casualty reinsurance Hannover Re expects the positive pricing trend to continue, especially in loss-affected lines and regions. At the same time, conditions are also likely to show further improvement on account of the considerable uncertainties, most notably in relation to future pandemics and cyber attacks.
Profitability in proportional reinsurance is satisfactory in light of sometimes marked price increases in the original market. In non-proportional reinsurance the available capacities continue to be adequate. Rates are holding steady or moving slightly higher worldwide.
Given the uncertainties prevailing on the markets, insurers continue to seek primarily high-quality reinsurance protection. This is where first and foremost reinsurers with a top-notch rating and particularly extensive risk-carrying capacity have a pivotal role to play. Thanks to its business model geared to partnership-based client relationships, its extremely robust capitalisation with a capital adequacy ratio under Solvency II of 250% (as at 30 June 2021) and its excellent ratings ("AA- " from Standard & Poor's and "A+" from A.M. Best), Hannover Re is able to participate disproportionately strongly in the market opportunities that are currently opening up.
"In addition to our customer-centricity focused on long-term partnerships, we offer a broad range of products and tailored solutions that encourage our clients to grow with us worldwide and across multiple lines of business," said Sven Althoff, member of Hannover Re's Executive Board with responsibility for property and casualty reinsurance. "In the current year and beyond this will be reflected in further profitable growth in the gross premium booked in property and casualty reinsurance."
Hannover Re anticipates the following developments in the treaty renewals as at 1 January 2022:
Asia-Pacific
The Asia-Pacific region is evolving into one of the largest global insurance markets. This growth holds the promise of further significant business opportunities, in part because the insurance density here is still lower than in more mature markets. Not only in property and casualty reinsurance but also in the health and provision sector, appreciable growth rates can be anticipated over the medium to long term, which will also benefit reinsurers.
Building on its good position in the market, Hannover Re has continuously grown its footprint in the region over the past years. In the Asia-Pacific strategic growth initiative, special emphasis was placed on innovative and customer-centric concepts as well as the expansion of efficient decision paths on a local basis. Two years after the initiative was launched, Hannover Re has successfully achieved and in some instances outperformed the initial profit targets.
For the upcoming rounds of renewals in the Asia-Pacific region on 1 January 2022 and 1 April 2022, Hannover Re anticipates stable reinsurance conditions and prices with more pronounced positive changes for treaties that were affected by the pandemic or other losses.
Japan: The series of typhoons that impacted Japan in the years 2018 and 2019 prompted a gradual raising of rates for catastrophe reinsurance in recent rounds of renewals. On the whole, Hannover Re anticipates further moderate hardening for Japanese catastrophe business in 2022.
Australia/New Zealand: In Australia the significant and frequent large losses of recent years will keep up the pressure on the rate level until 2022. Reinsurers are aware of the fact that Australia and New Zealand are particularly vulnerable to major climate change-driven weather anomalies that can cause hail, flooding, droughts or wildfires.
urope
Natural catastrophe losses have taken a considerable toll on insurance business in Germany in the current year. According to the latest estimates, the disastrous flooding in July caused by the low-pressure weather system "Bernd" alone caused insured market losses of at least EUR 7.5 billion in Germany and the neighbouring countries. Added to this are further hail and severe rainfall events, with the result that even at this stage of the year the heaviest burden of catastrophe losses ever recorded in Germany can already be anticipated.
In cyber business, progressive digitalisation and continued growth combined with more widespread cyber attacks are prompting greater risk awareness and adjustments in conditions. There is a need to clarify the handling of silent cyber risks as well as accumulation scenarios, which can be insured only to a limited extent. All in all, against the backdrop of heavy claims expenditures, Hannover Re expects to see appreciable adjustments to conditions for property business in Germany, especially for catastrophe covers.
Further rate increases can be seen on the primary insurance market in the United Kingdom and Ireland, although on the whole they are not as marked as in prior years and vary according to the line of business. Rate increases and improved conditions are especially evident in the market for liability covers. Additionally, the international cyber market is posting significant rate increases that will have a positive effect on the proportional portfolio. This development is driven largely by the rise in the frequency and amount of ransomware losses. The international property business written by Lloyd's syndicates has already hardened in recent years owing to worldwide natural catastrophe losses. This trend is set to continue in slightly more muted form.
In UK motor business, which Hannover Re writes solely on a non-proportional basis in traditional business, the past few years have already seen substantial price increases; for the upcoming renewals a stable environment is therefore anticipated.
North America
The primary insurance market in North America continues to see rate increases in virtually all lines. Furthermore, the impacts of Covid-19 appear to have affected the economic climate less severely than initially anticipated. Despite the improved state of motor insurance business, the level of claims expenditure nevertheless remains precarious overall due to the unusually early start to wildfire and hurricane season. Further improvements in conditions and rates are again likely for the year ahead in response to this growing threat and the resulting increase in the claims burden.
In view of the continuing economic recovery combined with the challenges presented by the pandemic, rising inflation and a steadily growing potential for losses from various lines, further rate increases and clarifications in the scope of coverage are essential. The focus here continues to be on the capital resources of reinsurers, thereby further strengthening Hannover Re's position in this market.
Specialty lines
The ongoing pandemic and associated plunge in passenger numbers in the airline industry continues to influence the aviation sector. While the insurance market is consequently benefiting from a sharply lower loss burden, it is at the same time scarcely possible for the premium to grow in absolute terms despite rate increases owing to the reduced exposures. On the reinsurance side, the trend towards higher prices continues – especially in non-proportional business. With surplus capacities still available, however, initial indications can be detected of a flattening in this trend. Even in this dynamic market phase Hannover Re is keeping unchanged its disciplined underwriting approach geared to the long term. Particularly thanks to the company's good positioning in the market, it has been successful here in maintaining or even expanding shares in profitable business.
New business opportunities are emerging on virtually all continents. In general terms, the purchasing habits of many clients have shifted in recent years towards holistic reinsurance solutions in response to the increasingly complex requirements placed on capital and risk management. This trend continues, prompting growing demand among customers for structured reinsurance solutions.