Against the backdrop of ongoing COVID-19 losses and a low interest rate environment, Hannover Re has argued that continued reinsurance rate increases are “absolutely essential” next year.
In a new release that was planned for this year’s cancelled Monte Carlo meet-up, Hannover Re says it anticipates “significant price increases” spanning the various lines of property and casualty reinsurance in the treaty renewals at January 1, 2021.
According to the reinsurer, key drivers include the strain on re/insurers due to the COVID-19 pandemic, a further drop in interest rate levels, and the large losses recorded over the past three ears.
In both the primary and reinsurance market, therefore, technical profitability will move centre stage for the foreseeable future, Hannover Re said, also with a view to preserving the industry’s risk-bearing capacity.
“Low interest rates are here to stay for a long time,” commented Hannover Re CEO Jean-Jacques Henchoz.
“This necessitates considerable pricing discipline, because technical profitability will have to do even more to offset declines in investment income,” he explained. “With this in mind, price increases on both the insurance and reinsurance side are absolutely essential in January and beyond.”
“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,” added Sven Althoff, a member of Hannover Re’s Executive Board responsible for property and casualty reinsurance.
“The true scale of the losses caused by the pandemic will only become clear over the long term,” Althoff went on. “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.”
In the various rounds of renewals held during 2020, Hannover Re secured improved conditions and price increases in some areas, with double-digit increases for most treaties that had suffered losses.
However, owing to the low level of interest rates, the company feels that these improvements were still not always technically adequate and that further price increases are therefore needed.
It is Hannover Re’s expectation that the growing momentum of price increases will be sustained in the year ahead, with sharply rising prices across various segments forecast for January 1.
Appreciable improvements in conditions are similarly likely in view of the effects of the pandemic and its associated uncertainties, it said.
“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,” Henchoz continued.
“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.”
Henchoz further stated: “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.”
Given the ongoing uncertainty about how the COVID-19 pandemic will pan out, as well as the unknown extent of government support measures, Hannover Re feels that it is too early to provide any reliable profit guidance for the group.
Hannover Re’s commentary echoes the sentiments of the other large European reinsurers, who have all now released statements on the state of the market as part of their planned Monte Carlo content.
Swiss Re, for instance, has argued that this year’s “timid” price increases are not enough to cover heightened reinsurance exposure, and is expecting rate hardening to continue into next year.
Munich Re similarly believes that the “undisputed” market firming trend will continue for “probably the next two years, or even a bit longer.”
And SCOR also sees current P&C market conditions as very positive, with growth and solid pricing dynamics anticipated as the company heads into 2021.