After the impacts of major catastrophe loss events in 2017 the January 2018 reinsurance renewals and the associated increase in rates available have allowed German reinsurer Hannover Re to put in place, what the CEO terms, a “solid platform” for achieving its targets in 2018.
Hannover Re has reported that it now expects to beat its group net income target for 2017, expecting to report EUR 950 million of income, much stronger than the EUR 800 million it had forecast.
“Even though this result falls short of the previous year’s figure, it can nevertheless be considered satisfactory if we bear in mind that 2017 was dominated by natural catastrophe events which caused insured losses substantially in excess of USD 100 billion,” explained Ulrich Wallin, Chief Executive Officer of Hannover Re
Additionally, the firm expects to report a 9% increase in premiums for 2017 and an improved investment return as well, targeting 3.8% (up from its previous target of just 3%).
The reinsurer said that it is “highly satisfied with treaty renewals as at 1 January 2018,” saying that over all “the renewal season passed off successfully for Hannover Re.”
The company increased its premium volume in traditional property and casualty reinsurance by 12.7%, saying that the treaty renewals were shaped by the very heavy losses of 2017.
One the whole, reinsurers efforts to push prices higher were rewarded, Hannover Re explains, adding that even loss free accounts saw stability in their pricing at least and moderate premium increases were secured for some treaties that had not experienced losses.
In some cases Hannover Re reports double-digit rate increases, but warned that supply of capital dampened the outcome somewhat.
“Reinsurers and also the ILS markets did not scale back the available capacity in any area; quite the contrary, in many instances even more capacity was offered,” the reinsurer said.
As a result rate rises were moderated and in some cases Hannover Re notes that “it was still not always possible to secure prices that were commensurate with the risks.”
But overall the rate quality in the reinsurance market did improve and Hannover Re found itself in a position to capitalise on this, writing more business at 1/1 at generally improved rates.
“The outcome of the treaty renewals puts in place a solid platform for achieving the goals that we have set for 2018,” Wallin explained. “In the negotiations we were able to obtain the necessary price increases, expand strategic cooperations and enlarge our shares, thereby generating further growth in many lines of business.”
Hannover Re grew its premiums the most in areas like Asia and the United Kingdom, the company said, also finding attractive opportunities to grow its portfolio in North America, the Caribbean and Eastern Europe as well as in financial solutions and cyber risks.
However, the reinsurer noted that in property and casualty reinsurance, the profitability of treaties remains more important to it than pure premium growth, suggesting here it continues to tread more carefully.
Hannover Re saw EUR 4.654 billion of its traditional property and casualty reinsurance (excluding facultative business and structured reinsurance) book up for renewal at 1/1.
The company renewed EUR 4.29 billion of this book, cancelled or renewed in modified form some EUR 610 million, while adding EUR 711 million of new treaties and from changes in prices and treaty shares, giving a total renewed premium volume of EUR 5.247 billion.
So that’s a 12.7% increase in business underwritten at the renewal in traditional reinsurance. Add in the structured business and Hannover Re reports growth of 21.8% at the renewals, a significant increase and setting up 2018 to be more profitable.
North American premium volume rose by 5.9%, as pressure came off rates although rate rises were “more modest than had initially been anticipated.”
In Continental Europe, the reinsurer grew its book by 8.7%, citing stability in Germany and growth elsewhere, with “significant increases” in loss-affected covers in Central and Eastern Europe, as well as an “enlarged market share” in Western Europe.
Specialty lines premium volume grew, with some recovery in pricing seen in marine reinsurance, but largely things seen as stable, leading to 6.2% growth in marine lines. Aviation premiums declined by 3.3%, as the pace of rate erosion slowed but did not stop. Credit, surety and political risks saw premium growth of 4%.
The UK saw Hannover Re increase its market share significantly, with 14.4% premium income growth in the country with increases in rates seen in loss-affected property and liability lines. Hannover Re also grew in Asia Pacific, with premium income rising by a huge 57%.
The reinsurer saw pricing of natural catastrophe business rise, although not as high as it hoped they would. As a result the company increased its natural catastrophe business by 7% at the renewals.
Additionally, Hannover Re grew in structured reinsurance by 53% and overall its global reinsurance line of business was up 35.3% as a result.
Given the larger book of business underwritten at higher rates, Hannover Re is expecting a more profitable year in 2018.
The reinsurer expects to see price increases continue at the future renewals throughout 2018, which will further expand its book and increase the chances of profitability.
For 2018, the reinsurer forecasts gross premiums growth in the single-digit percentage range, thanks to more favourable renewals. It expects return on investment of 2.7% and at least EUR 1 billion of group net income, as long as major loss experience remains below EUR 825 million.
It will be key for Hannover Re and the other major reinsurers to extract as much profit as they can out of the enlarged books they have written at January 1st 2018.
With Munich Re, which reported yesterday, having also grown its book considerably, it now has to be asked who this growth at the major reinsurers has been secured from. There will have been both winners and losers at the Jan 2018 renewals it seems, as overall demand did not increase as much as would have been needed to support this kind of growth at larger players.
Smaller to mid-sized reinsurers may have found themselves marginalised even more at the renewals, which means 2018 could see some companies facing increased challenges as a result, while the larger players get a chance to increase their dominance while capitalising on higher rates.