Cat bonds are only new capital. Retro recovery likely for Baltimore Bridge: Hannover Re

Executives from global reinsurance firm Hannover Re said today that there is no sign of new capital in the reinsurance market aside from through the catastrophe bond sector and some unlocked trapped collateral, and also discussed the Baltimore Bridge collapse saying that retrocession recoveries are anticipated.

Speaking during the firm’s first-quarter earnings call, Hannover Re CEO Jean-Jacques Henchoz said that reinsurance remains in a stable market environment.

“Generally, there is a stable environment as you’ve seen. We’re very happy with rate adequacies. We will see that programmes are being filled, but there is more of an equilibrium in supply and demand at this stage,” Henchoz said.

He went on to say that there are, “No significant new entrants in the P&C reinsurance space, so, the outlook is for more of the same with a stable perspective in the P&C market and my sense is that the same is true at this stage for the outlook for 2025.”

Also speaking during the earnings call, Sven Althoff, Member of the Executive Board for P&C at Hannover Re discussed the state of the reinsurance market.

“I mean, we are still not seeing new capital entering the market with maybe the exception of the cat bond space.

“So, the increase in capacity we are observing in the market is coming from net retained earnings, or collateral that becomes un-trapped,” Althoff said.

Adding that, “From the existing market players all the macro drivers are still there, with climate change, geopolitical uncertainty, and still above the long-term average inflationary environment.

“So, that would imply that the existing market players will continue to look for similar levels of profitability compared to where we are today from a pricing point of view. And then, of course, a lot will depend on what 2024 will produce as far as losses. And I would expect that the markets will continue to react to significant loss development, wherever it may arise.”

Asked about Hannover Re’s major losses from the first-quarter, Althoff went on to discuss the Baltimore Bridge ship collision that resulted in the collapse of the main span.

As we reported earlier, the reinsurer reported net large losses for Q1 of EUR 52 million.

However, the company has booked its full loss budget for the quarter anyway, of EUR 378 million, but has not yet supplied a loss estimate for the Baltimore Bridge collapse.

But Hannover Re said it expects the net impact will be contained within that budget amount, which suggests the net maximum could be as much as EUR 326 million, after any retrocessional effects.

Althoff commented this morning that, “There are still uncertainties given the complexity of the claim, the root cause of the claim. So, therefore, we have not allocated any reserves to specific segments or contracts at this stage.

“But your assumption is correct, that we do expect retro recoveries on the marine side where we have significant retrocessional protection, further down the line. We’ll be able to share more details in Q2.”

It’s possible therefore that Hannover Re could share some percentage of the Baltimore Bridge collapse loss with third-party capital backing its K-Cession quota share sidecar like structure, as that has historically contained some specialty lines risks, such as marine.