Hannover Re: Risk-adjusted rate increases in P&C reinsurance are “unavoidable”

Further price increases and improved conditions in P&C reinsurance can be expected in 2023 as a result of more expansive large losses and rising inflation, said Hannover Re’s leadership team at this year’s Rendez-Vous in Monte Carlo.

With the impacts of inflation already felt in 2021 regarding nat cat losses, Hannover Re noted that impacts will likely be seen in other lines going forward.

The reinsurer added that it cannot yet make any “reasonable estimate” for losses related to the Russia-Ukraine war but said that the conflict exacerbated the inflationary environment and would likely lead to additional pricing adjustments at upcoming renewals.

Commenting on the current market environment, Jean-Jacques Henchoz, CEO of Hannover Re, said: “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 (re)insurers.

“Further risk-adjusted rate increases in P&C reinsurance are therefore unavoidable,” Henchoz added.

“This is the only way for us, as a reinsurer, to continue to offer our clients reliable risk protection in an increasingly challenging market.”

Hannover Re noted success in its ILS business in 2022, having transferred cat bonds worth more than $2.7bn to the capital markets across 11 issuances.

With business boosted year-on-year in collateralised reinsurance and the ILS market volume appearing to hold steady overall, Hannover Re said it expected to be able to continue the expansion of its collateralised reinsurance business.

Turning to the upcoming property treaty renewals in more detail, Hannover Re said there was ground to catch up in non-proportional reinsurance.

In Europe, Hannover Re noted that it expects to see significant adjustments to conditions in property business following strains to insurance businesses in 2022.

The reinsurer said that high losses from catastrophe events in France coupled with rising inflation will be negatively reflected in the underwriting profitability of P&C reinsurance – with significant price improvement in reinsurance prices and conditions needed.

In its marine book, supply chain disruption as a result of the normalisation of global trade flows is not expected to cause significant expenditure for Hannover Re – although the reinsurer added that the market may be affected by Ukraine.

This includes potential losses from detained merchant vessels and political violence covers, which have the potential to adversely affect the performance of Hannover Re’s book of business.

The firm said it has agreed far-reaching exclusions in treaties during aviation and marine renewals, with an expectation of rising prices and some restructuring of programmes in both of these classes of businesses.

Elsewhere, in North America Hannover Re noted that the future profitability of P&C lines is under pressure owing to sustained high levels of inflation and higher frequency of mid-sized losses.

Therefore, most North American market segments remain attractive from a reinsurance perspective, the carrier said, noting higher price increases at renewals this year in cyber and nat cat covers.

“Inflation will play a major role in the renewals in 2023,” Hannover Re commented.

“This applies not only to the costs of losses that have to be settled. The anticipated sustained rise in inflation will also necessitate an expansion of the limits of liability.

“This is happening at a time when some providers are restricting their reinsurance capacity, especially for catastrophe covers. With this in mind, Hannover Re anticipates a robust suppliers’ market and is looking for double-digit rate increases in 2023,” the reinsurer concluded.