Hannover Re sees ‘equilibrium’ in 1/1 treaty P&C Re renewals

Equilibrium—the word that aptly captures the state of the global reinsurance market as we approach 2025, with prices and conditions stabilising after several years of fluctuations, according to top officials at Hannover Re.

“We’ve reached a point where the risks are in line with our expectations in terms of pricing and modelling,” Jean-Jacques Henchoz, chief executive officer of Hannover Re told attendees at a Rendez-Vous de Septembre briefing on September 9.

“There’s a general sense of equilibrium in the terms of rates in reinsurance at generally adequate levels. This allows us to grow with our clients and continue to offer them the best possible coverage,” Henchoz said, noting that Hannover expects this balance of supply and demand to continue in most markets heading into the 1/1 2025 treaty renewals.

The reinsurer is confident in its ability to capitalise on the strong demand which, Henchoz explained, is driven by continued global challenges such as climate change, increasing insured losses, and the proliferation of cyber risks.

“We feel that market conditions will continue to be balanced in 2025 as we see increasing demand. Insurance companies want to manage their volatility. They also see the climate risks becoming more prominent, and the demand is increasing,” he said.

“Reliable reinsurance protection is indispensable.”

“This is very much a market driven by the main incumbents. But there is some equilibrium, which we feel is needed considering the rising exposures.”

Henchoz pointed out that even though the reinsurance industry has seen price reductions in certain primary markets, there are still areas—particularly non-proportional reinsurance—where prices and conditions remain attractive. 

“In view of the various challenges facing the industry, reliable reinsurance protection is indispensable,” he commented. 

Emerging risks

Sven Althoff, a member of Hannover Re’s executive board, highlighted that in addition to traditional risks, the firm is focusing on emerging risks, particularly those related to cyber threats and climate change. He said cyber-related losses are increasing due to digital transformation and technological advances. 

To tap into additional non-traditional capital for cyber risks coverage, in April 2024 Hannover Re brought the world’s first catastrophe bond to protect against risks resulting from cloud outages.

“While there is still a need for action on cyber risks, climate change is and will remain one of the greatest challenges of our time,” Althoff said.

“We saw sharply higher large catastrophe capacity in the year 2024 and prices remain broadly unchanged on an attractive level. According to predictions, the Atlantic hurricane season in 2024 will exceed the average activity seen over the past 30 years, so this will have an effect on pricing going forward,” he noted. 

Althoff added that climate change is leading to an increase in extreme weather events and rising demand for catastrophe covers. “We are happy to support our partners, our clients, with more natural catastrophe reinsurance capacity at this current price level. Reinsurance capacity is needed globally to reduce the growing protection gap,” he stated.

Henchoz highlighted the rising significance of secondary perils—such as floods and wildfires—which are becoming more frequent and costly. “The notion of secondary perils is becoming somewhat odd because they are so permanent in our business,” he said. “We need to devote significant attention to understanding these exposures and pricing them adequately.”

Hannover Re expects stable prices and conditions in Europe for the 2025 renewals, with “no room” for rate reductions despite a relatively quiet year for extreme weather. In Germany, motor insurance remains unprofitable, necessitating further rate increases, while moderate price hikes were seen in the UK and Ireland. Central and Eastern Europe continues to maintain solid pricing, and demand remains high in Northern Europe amid tightening capacity.

In North America, the reinsurance market has stabilised, “on an adequate level in short-tail lines”, with property business benefiting from higher primary insurance premiums although extreme weather events, such as windstorms in the Midwest and Caribbean, are pushing prices higher, even in loss-free treaties. Social inflation continues to challenge the US liability market, forcing further price adjustments.

In Latin America, inflation is under control, allowing for growth, but losses from Hurricane Otis in Mexico and severe flooding in Brazil have driven rate increases in the region’s largest markets.

Hannover Re predicts that cedants in most Asia-Pacific markets, aside from China and India, may increase retentions to counter rising reinsurance costs. In China and India, profitability is under pressure from escalating natural catastrophe losses. Meanwhile, Australia and New Zealand have had a relatively quiet year, providing opportunities for growth in loss mitigation.

In specialty lines, aviation reinsurance prices and conditions have stabilised after several years of improvement. Marine is stable but faces ongoing challenges from geopolitical tensions, sanctions, and loss events such the Baltimore bridge collapse in March. 

Hannover Re sees continued global demand for facultative reinsurance, with steady risk appetite and capacity. Growth is expected in property and casualty reinsurance, as well as in the renewables segment.

For more news from the Rendez-Vous de Septembre (RVS) click here.

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