Hannover Re’s German property and casualty (P&C) reinsurance business, E+S Rückversicherung AG, anticipates “further strong demand” for high-quality reinsurance protection at the upcoming January 1 renewals in the German market.
At Baden-Baden, the reinsurer emphasised that despite moderate catastrophe loss expenditure in recent years, underlying risks have continued to rise while competition is intensifying in certain market segments.
Thorsten Steinmann, CEO, E+S Rück and Member of Hannover Re’s Executive Board responsible for P&C reinsurance in Continental Europe, Latin America and North Africa, commented, “The moderate catastrophe losses of the past few years should not obscure what remains a demanding and highly uncertain risk landscape.
“Natural perils, inflation, cyber risks and geopolitical instabilities are adding to the potential for losses and confronting insurers and reinsurers alike with increasingly complex challenges.”
He continued, “At the same time, many primary insurers have significantly strengthened their earnings and capital position. This builds stability and establishes a good foundation for the upcoming renewals. With certain segments becoming increasingly competitive, we continue to view a disciplined underwriting policy as well as risk-adequate prices and conditions as essential for ensuring the long-term availability and viability of reinsurance protection.”
In the P&C segment, inflation and costs have continued to rise as the market grapples with new and more complex risk areas, for example, in the cyber business, where increasing demand is putting pressure on risk management, said the reinsurer’s analysis.
A deeper dive into cyber insurance shows that economic dependence on digital infrastructure and IT systems is growing faster than capacities available to cover these risks. Simultaneously, fierce competition and higher costs of capital are pressuring results across many market players.
Meanwhile, new growth opportunities and potential risks are driven by the increased digitalisation and growth of artificial intelligence; however, how these market changes affect liability, cyber and operational risks is yet to be definitively quantified. However, it can be assumed that the impacts of these developments on specific areas of business vary across individual market segments.
The largest line in the P&C segment by volume, German motor insurance, has broadly stabilised; however, E+S Rück warns that the trend remains fragile. The reinsurer explained that tariff adjustments made in recent years are having an effect, as technical results have moved marginally back into positive territory and profitability is improving appreciably. However, costs for spare parts and repairs continue to outpace the general rate of inflation by far, and therefore remain the most significant drivers of claims inflation in the motor market.
Steinmann continued, “We are seeing a market that is well placed overall. Some clients are using their improved earnings position to deploy reinsurance selectively. It is particularly in this environment that reinsurance remains a key tool for reducing volatility, enabling growth and securing financial stability. We work together with our clients to develop sustainable solutions that meet these needs and offer planning reliability across the entire cycle.”
E+S Rück said that in the natural catastrophe business many clients’ programmes are now adequately priced to reflect the risks, as additional capacity is driving intense competition and adding pressure on prices and conditions.
The reinsurer stated, “The recent increased expenditures caused by hail events in Switzerland, southern Germany, northern Italy and the neighbouring Alpine regions show that the underlying risks remain high. In the upcoming renewals, therefore, the individual claims experience, the quality of the programmes as well as risk-appropriate prices and conditions will continue to be decisive factors for E+S Rück.”
Meanwhile, results for industrial and commercial lines have been good. Additional capacity is available, most notably in the industrial fire business, which is again driving intense competition. E+S Rück believes that prices and conditions in some segments of industrial insurance are consequently coming under pressure.
As a general theme continues, geopolitical uncertainties, global claims experience, and extra capacity are affecting the marine and aviation lines. Based on E+S Rück’s observations, treaty conditions are holding stable, as the firm considers individual clients’ portfolio quality and business performance to be crucial for risk-adequate pricing.
As catastrophe risks increase, alternative risk transfer solutions continue to gain in importance. The impacts of climate change, rising value concentrations, and persistent widespread protection gaps in areas have pushed demand in insurance-linked securities (ILS) to complement traditional reinsurance by providing additional capital market capacity.
