Reinsurance demand to intensify, with added price impetus: Hannover Re

Global reinsurer Hannover Re reported its nine-month results this morning and gave a forecast for intensifying reinsurance demand, while price rises are expected to accelerate at the 2023 renewal rounds.

Hannover Re has been growing into the hardening reinsurance market, with overall gross premiums written up 21% so far in 2022.

The company said that even after hurricane Ian, it anticipates being able to hit its earnings guidance for the year, a factor that will have been helped by growth and higher prices for capital deployed.

“Even before the extensive devastation caused by Hurricane ‘Ian’, 2022 was a year of above-average large loss expenditure,” explained Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re. “What is more, high inflation rates are only adding to the costs of rebuilding. Our full-year earnings guidance nevertheless remains achievable. Among other things, this is possible thanks to healthy profit contributions from the investments as well as life and health reinsurance and it shows how important the interplay of diversification and risk management is.”

In fact, Hannover Re’s group net income of EUR 871 million after none months is roughly level with the prior year, while operating profit (EBIT) rose by 3.7% to EUR 1,328 million (EUR 1,281 million).

“Our good and stable earnings performance in an environment shaped by considerable natural catastrophe losses as well as our continued very robust capital adequacy ratio underscore Hannover Re’s risk- carrying capacity,” Chief Financial Officer Clemens Jungsthöfel explained. “This establishes the foundation for our positioning as a particularly reliable and financially sound reinsurer for our clients and shareholders.”

Property and casualty reinsurance underwriting is once again an area of particularly strong growth for Hannover Re, with premiums up by 28% to EUR 19.5 billion (EUR 15.3 billion).

Large losses rose to EUR 1,484 million as at the end of September due to the significant natural catastrophe losses suffered around the globe.

The largest individual loss was of course hurricane Ian, on which Hannover Re pegs a net burden of EUR 276 million.

Hannover Re has not disclosed its gross loss for hurricane Ian, but did say that it expects the actual gross loss to be higher after retrocessions and insurance-linked securities (ILS) related business is taken into account.

How much higher is very difficult to say, but there is good chance retrocession structures such as Hannover Re’s K-Cessions quota share sidecar structure play their part in the reduction of gross hurricane Ian losses down to the net Hannover Re has announced.

Hannover Re’s large loss budget was EUR 1,400 million for 2022, so the company has already gone above this, which may also suggest that any future major losses through the end of this year could see retro support playing an increasing role for the company.

In the end, Hannover Re reported a combined ratio of 99.2% for its P&C reinsurance business after the first nine months of 2022, which while above target is still reasonable given it has gone above its major loss budget for the year, which is another signal of an effective retrocession program.

Hannover Re said it still sees a chance of hitting its financial year targets, dependent on loss activity over the rest of 2022.

But the reinsurance company looks ahead and expects a burgeoning opportunity in 2023, due to market conditions.

“Despite all the challenges facing insurers and reinsurers, significant price increases across the various lines of business are absolutely essential. Only in this way can we respond to the changed risk landscape,” explained CEO Jean-Jacques Henchoz. “Over the coming months it is more important than ever to safeguard the profitability of our business. We are well positioned to do this thanks to our vast expertise and discipline in underwriting.”

The company also said that it expects the “brisk demand” for reinsurance protection to “further intensify” next year at the renewals.

Adding that it expects the improvements in both prices and terms and conditions will “gain added impetus” going into the 2023 reinsurance renewals.