Hannover:
Germany major Hannover Re expects to see significant price increases spanning the various lines of property and casualty reinsurance in the treaty renewals as at 1 January 2021.
The key drivers here are the strains incurred by primary insurers and reinsurers in connection with the Covid-19 pandemic, a further drop in interest rate levels and the large losses recorded over the past three years.
"We stand shoulder-to-shoulder with our customers and emphasise sustained, partnership-based relationships. Our business model and our capital resources are geared to managing extreme scenarios. Low interest rates are here to stay for a long time. This necessitates considerable pricing discipline, because technical profitability will have to do even more to offset declines in investment income. With this in mind, price increases on both the insurance and reinsurance side are absolutely essential in January and beyond."Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re, said.
Outlook for 2021
For both insurers and reinsurers, 2020 remains dominated by the ongoing Covid-19 pandemic and the associated losses as well as by the sustained low interest rate environment and resulting impacts on profits. In both the primary and the reinsurance market, therefore, technical profitability will move centre stage on a lasting basis – also with a view to preserving the industry's future risk-bearing capacity. Against this backdrop, rate increases are absolutely essential.
"From our perspective, Covid-19 is a market-changing event that can be compared with the terrorist attacks of 11 September 2001 or hurricanes Katrina, Rita and Wilma in 2005," Sven Althoff, a member of Hannover Re's Executive Board responsible for property and casualty reinsurance, commented.
"The true scale of the losses caused by the pandemic will only become clear over the long term. We see the Covid-19 pandemic as a catalyst for fundamental adjustments to prices and conditions at insurers and reinsurers alike. Just how these manifest themselves will, however, vary by region and line of business."
It is Hannover Re's expectation that the growing momentum of the price increases recorded in past rounds of treaty renewals will be sustained in the year ahead. Sharply rising prices across the various segments can be expected as at 1 January 2021. Appreciable improvements in conditions are similarly likely in view of the effects of the pandemic and the associated considerable uncertainties.
"The Covid-19 pandemic confronts us with a systemic, worldwide risk. Simply given its capital resources, the insurance industry alone cannot shoulder such an accumulation risk," Jean-Jacques Henchoz said.
"Partnership-based approaches between governments and the insurance sector are needed to create promising solutions for the coverage of systemic risks such as cyber attacks or pandemics. We are optimally placed to support the development and realisation of such coverage concepts and hence to ensure that a larger share of the costs resulting from future pandemics are covered at premiums commensurate with the risk," he said.
Due to the restrictions on physical contact adopted to contain the pandemic, digital working has gained in acceptance and significance. Cyber covers, digital services and products will therefore continue to make headway and innovative insurtechs will enjoy a surge in demand. In this context, Hannover Re is committed to partnership-based cooperation with its clients on the development of digital solutions as well as to supporting insurtechs with know-how and reinsurance backing.
In the second half of the year, a series of major loss events has occurred. The massive explosion in the port of the Lebanese capital Beirut at the beginning of August claimed numerous lives and caused severe devastation. Together with losses from natural catastrophes in the United States and Asia, large loss expenditure for the third quarter (excluding Covid-19) is therefore likely to remain at the anticipated level.
Asia-Pacific
The APAC region is the highest-growth economic region in the world and it 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.
Hannover Re has continuously grown its footprint in the region in recent years and now has an efficient network of local subsidiaries, branches and representative offices. It is thus already very well placed to take advantage of business opportunities and to further extend and reinforce its market positioning through targeted measures in specific subsegments.
In this growth region Hannover Re supports its customers in their development and in facing up to the challenges of the coming years, whether through concepts designed to provide capital relief or by optimising the distribution and structuring of their products. In part with an eye to the increasing urban densification of Asia's metropolitan centres, it is imperative to design suitable insurance solutions as protection against natural disasters and to further boost insurance density. Narrowing these protection gaps opens up opportunities for insurers and reinsurers alike to underscore their social relevance.
Furthermore, Hannover Re has launched a strategic initiative intended to maximise even more intensively the growth potential offered by its business in the APAC region.
Hannover Re is looking ahead with optimism to the upcoming renewals as at 1 January 2021 and 1 April 2021 in the Asia-Pacific markets, even though price movements will likely vary from region to region depending on the burden of losses. The impacts of the Covid-19 pandemic must be kept in mind here as an element of uncertainty.
Business in the area of structured reinsurance continues to develop in line with expectations in the current year. Going forward, too, Hannover Re expects to see further growth in demand for innovative and tailor-made reinsurance solutions.
In this context new business opportunities are opening up first and foremost in North America, Europe and Asia. The purchasing habits of many clients have changed in recent years, reflecting a move towards holistic reinsurance solutions. This trend shows no sign of abating, with more and more customers seeking structured reinsurance solutions. The exceptional market circumstances associated with the Covid-19 pandemic are supporting a further shift towards a provider's market in this segment on a virtually global basis.
The planned implementation of IFRS 17 will cause demand for bespoke reinsurance solutions to trend higher, driven by the further increase in the complexity of capital and risk management faced by customers.