Hannover Re anticipates rising demand in treaty renewals at Jan. 1, 2016

Property and casualty reinsurance worldwide is seeing a reduction in the oversupply of reinsurance capacity compared to the previous year despite the continuing highly competitive environment, Hannover Re CEO Ulrich Wallin said Monday during a press conference in Monte Carlo.

“Most significantly, the resurgent economy in the United States, the world’s largest reinsurance market, is sending out positive signals for the premium trend in developed markets,” Wallin told reporters at Monte Carlo Rendez-vous 2015.

He cited a number of factors contributing to the competition, including the absence of large losses, the tendency of primary insurers towards higher retentions, capacity exceeding demand and that the supply of reinsurance is being boosted by continued growth of the insurance-linked securities market.

For the treaty renewals as at Jan. 1, 2016, the world’s third-largest reinsurer reported it “expects the general environment to remain largely unchanged – insofar as the current year once again does not bring any market-transforming major loss events. Against this backdrop and given the increased frequency of man-made losses, Hannover Re anticipates that reinsurance prices will stabilize in some areas, with certain lines and markets even offering scope for rate increases.”

The reinsurer expects particularly good growth potential in Asian and Latin American markets, as well as for business with agricultural risks.

Looking at the North America market, Hannover Re notes that the primary insurance market has stabilized. “The continued absence of sizeable natural catastrophe events and other large losses is, however, making a mark on the reinsurance side, with the result that a certain pressure can be felt on rates in property and to a lesser extent casualty business,” the company statement notes. “Conditions in proportional reinsurance should remain adequate, although here, too, they are coming under increasing pressure,” it adds.

A moderation in the natural catastrophe price reductions has become evident over the course of 2015, Hannover Re reports, adding that these conditions “led to the expected consolidation activities in the form of mergers and acquisitions.”

With regard to pricing, the reinsurer anticipates that in North America, the “future price development in the U.S. will be significantly influenced by the course of this year’s hurricane season,” although there were indications at June 1/July 1 renewals that reinsurers are “not prepared to accept any further price reductions.”

For other markets, Hannover Re reports, among other things:

• in Europe, programs that have remained loss-free in recent years will likely see further rate cuts in the coming year;
• in Japan, additional significant rate reductions in the renewals as at Apr. 1 have resulted in a level being reached that, from an underwriting
• standpoint, leaves no room for further price erosion; and
• in Australia/New Zealand, the continued uncertainty surrounding the run-off of losses from the New Zealand earthquakes of 2010 and 2011 has had a stabilizing effect on rates in New Zealand and Australia.

With the development of new products to meet the constantly changing risk landscape in (re)insurance, the company “sees an elevated risk potential on account of increasingly widespread digitalization and, hence, anticipates rising demand for products to protect against cyber risks. Demand for solutions designed to provide coverage against extremes of weather is also likely to continue growing in the future,” Hannover Re reports.

“The increasingly widespread implementation of public-private partnerships coupled with a continuously expanding range of products is opening up more opportunities to generate profitable business,” the company points out.

In view of the reduced investment income associated with low interest rates on capital markets, pricing discipline continues to be of central importance.

Looking forward, “Hannover Re expects the pressure on prices and conditions to ease in the round of treaty renewals as at 1 Jan. 2016. Rising demand for reinsurance protection should have a favourable effect overall on the market development,” the company adds.

In view of the favourable development of the current 2015 financial year,

Hannover Re has revised its expectations upwards and now expects the gross premium volume for the Group – based on constant exchange rates – to grow by about 5% to 10%, and Group net income in the order of 950 million euros.

This, of course, is subject to the proviso that major loss expenditure does not significantly exceed the expected level of 690 million euros and provided there are no unforeseen adverse movements on capital markets.