Nat cats, loss costs may test reinsurers but Hannover Re eyes growth in renewals

A continued high frequency of natural catastrophes in Europe combined with concerns over escalating loss costs on the casualty side make for a challenging environment for reinsurers operating in Europe. This means long-term partnerships and give and take between reinsurers and cedants are more important than ever.

That is the view of Thorsten Steinmann, a member of the executive board of Hannover Re and E+S Rück since September 1, 2024. He takes over as chief executive officer of E+S Rück on January 1, 2025.

“Partnership is our core message in Baden-Baden,” he told Baden-Baden Today. “It has become even more important, especially in view of the challenges. We want to stand by our clients and partners for the long term and grow with them.”

Steinmann noted that insurers and their reinsurers in Europe face specific challenges related to the high frequency of natural catastrophes. Devastating floods in Central and Eastern Europe this year were followed by exceptional storms with hail and heavy rainfall. There have also been flash floods and winter storms in previous years—he notes that some hailstorms which occurred last year are still impacting industry results in 2024.

In addition, he notes, repair costs—particularly in motor insurance—are rising significantly, leading to higher claims costs. These challenges are on top of emerging risks in areas such as cyber and liability as well as geopolitics with strikes, riots and civil commotion risks increasingly coming to the fore.

“In an environment of heightened and unprecedented exposures and risks, reinsurers need to carefully manage and assess the capacity they provide,” Steinmann said.

On the casualty side, he said, the landscape remains dynamic with a lot of debate about loss trends and whether current pricing is allowing for an adequate risk:return.

“While trends such as nuclear verdicts and rising social inflation are more pronounced in the US, they remain of concern for our clients in the EU, especially if they have US exposures,” he said.

“We will help our clients by supporting them with traditional or structured solutions.”

Light and tunnels

There are reasons for optimism, Steinmann said. Prices and terms and conditions in Europe have stabilised at an improved level—and demand is up. “Not everything is doom and gloom. We see opportunities to grow together with our clients at this upcoming renewal if rates are adequate,” he said.

“We expect that significantly more capacity will be bought at 1/1 and we will help our clients by supporting them with traditional or structured solutions.”

He said that supply and demand is driving market conditions. While some areas have reached an “equilibrium” and a level of adequate prices, terms, and conditions, that is not the case in all parts of the market.

“In some areas such as natural catastrophe business, motor, and commercial lines there is still a need for further adjustments. Ultimately, the market will have to defend its profitability,” he said. “In the previous soft market cycle, reinsurers struggled to earn their cost of capital and consequently failed to meet investor expectations.

“For 2025, we expect supply and demand will match, and reinsurers’ improved returns will allow them to gradually increase capacity to meet client demand.”

On the property side specifically, Steinmann said that supply is broadly matching demand, but there has been no real inflow of new capital. “For me, this is an indication that the market has not yet fully returned to a healthy state. Overall, we are still dealing with the impact from catastrophes caused by climate change—particularly side perils such as floods and hailstorms as well as wildfires.

“We should not underestimate the impact these perils have on the overall profitability of this line of business. We are observing an increase of bigger manmade losses including large fires. These are further intensified by even higher business interruption losses driven by challenged supply chains and the impact of inflation.

“We need to make sure we price those risks adequately and invest in risk mitigation and prevention.”

He added that for some time there has been an increase in losses from secondary perils such as floods, hailstorms, and wildfires. He believes many of these are linked to climate change, and the trend is not yet fully reflected in the market.

“I would expect flood claims to have an impact on negotiations as we head into the January renewals. There has hardly been a year in recent memory without a major flood event somewhere in Europe. We are very concerned about this trend and can only emphasise the importance of preventive measures—in addition to adequate rates and reinsurance structures—to keep it under control,” he said.

Returning to casualty and concerns over rising loss costs, Steinmann said the most important thing is to exchange information with clients regularly and monitor the trends to ensure a thorough understanding.

“These trends have been taken into account in our underwriting strategy, pricing and reserving approach. Our underwriters are focused on risk selection and making wise use of our capacity. We have adjusted our risk appetite and strategy where we think that the current rate and overall market environment is not allowing us to earn a margin. D&O is such an area where we are currently seeing a downward pressure on rates.”

Growth and appetite

All this makes for a nuanced picture for Hannover Re—but the firm aims to grow with clients if it can get the right return for its capital. Steinmann said property and some specialty markets provide that, although he stresses that some parts of casualty can also be attractive.

“Especially in Europe we have very broad participations with our clients, which means that we support the majority of a client’s placement. It is now time to deepen these participations in line with our appetite,” he said.

“This commitment includes always providing our clients with the best possible reinsurance capacity.”

He can see growth opportunities in Hannover Re’s structured reinsurance business and insurance-linked securities—areas in which, he argues, the reinsurer has played an important role in innovation. He notes that this year it has set up a dedicated business unit for cyber and digital and, in April, it brought to the capital markets the world’s first cloud outage catastrophe bond—Cumulus Re—to protect against losses resulting from cloud outages.

“We have built a market-leading position in this space, and we have not yet reached the end of our journey. Innovation does not stop at this level—we are also open to bringing our clients’ innovative ideas to fruition; success lies often in these collaborations.

“This commitment includes always providing our clients with the best possible reinsurance capacity and actively supporting them in coping with losses. At the same time, it is true that this is not possible without adequate terms and conditions, as our clients want to benefit from our strong balance sheet in the long term.”

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