Hannover Re has said that it expects next year to be one of price increases and improved conditions in property and casualty reinsurance.
The firm said in a statement that the first half of 2022 proved challenging for primary insurers and reinsurers alike. Soaring inflation, major losses and an accumulation of mid-sized frequency losses were as much a factor in property and casualty reinsurance as pandemic-related expenditures were in life and health reinsurance.
These challenges, it said, were dwarfed by Russia’s invasion of Ukraine, the impact of which was too soon for the insurance industry to calculate its losses from.
Jean-Jacques Henchoz, chief executive officer of Hannover Re, said: “The inflation rates in many regions are higher than they have been in decades. Combined with the war in Ukraine and given that the pandemic has still not been overcome, this is fuelling the long-standing trend towards ever-higher loss burdens for insurers and reinsurers.”
He added: “Further risk-adjusted rate increases in property and casualty reinsurance are therefore unavoidable. This is the only way for us, as a reinsurer, to continue to offer our clients reliable risk protection in an increasingly challenging market. In this context, an underwriting policy that emphasises quality is more important than ever if we are to preserve the profitability of our business.”
The firm said that the current environment of high inflation was persisting due to the war against Ukraine, meaning additional adjustments will have to be made for future renewals.
It said: “While the effects of inflation could already be felt in the previous year in connection with natural catastrophe losses, appreciable impacts are likely to be seen in other lines too going forward. When it comes to business interruption insurance, disruptions in supply chains are adversely affecting the availability of raw materials and construction materials, leading to longer repair times.”
Around treaty renewals, Hannover Re said that the beginning of next year should see further price increases and improvement in conditions in more than the lines and regions affected by losses. The firm said it saw several reasons for rising primary insurance rates including inflation and loss experiences and proportional reinsurance should benefit from that. It added that there is considerably more ground to catch up in non-proportional reinsurance, and corresponding improvements of prices and conditions are therefore needed.
It also said that its capital adequacy ratio in accordance with Solvency II amounted to 235.1% at the end of June. The company is rated “AA-” by Standard & Poor’s and “A+” by A.M. Best, with both ratings having a stable outlook.
Sven Althoff, a member of Hannover Re’s executive board with responsibility for property and casualty reinsurance, said: “Thanks to our excellent risk and capital management, Hannover Re offers reliably high-quality risk protection that is highly sought-after by our customers, especially in uncertain times. Hannover Re is optimally positioned for the current market phase. Now as before, the redundancy level of our reserves is very robust. In order to ensure that this remains the case going forward and in light of the increasingly challenging conditions, we shall continue to put great emphasis on the quality of the business written.”
