Demand for cat cover rises as market’s risk appetite dips, says Hannover Re

Russia’s war in Ukraine and its impact on the global economy, especially inflation, has added to the numerous challenges in the re/insurance market, said Sven Althoff, a member of Hannover Re’s executive board with responsibility for property and casualty reinsurance. He highlighted the ongoing pandemic and climate change-related increases in natural catastrophes as among the big issues that re/insurers face.

The German reinsurer has seen a rise in demand for catastrophe protection, but Althoff said that this has been greeted by reduced capacity due to the challenge of managing the inherent volatility associated with catastrophe risk.

Speaking to Monte Carlo Today, Althoff said that a “lack of diversification has amplified this volatility”. Against the backdrop of climate change and the more pronounced impact from secondary perils, “the reinsurance market’s overall risk appetite appears to have been affected”, he said.

But the reinsurance executive stressed that Hannover Re would continue to offer catastrophe protection and he was clear that the reinsurer has “a stable risk appetite”.

He said that the reinsurer is “already seeing a higher frequency of specific natural disasters such as flooding, hailstorms, drought and heatwaves, where the link to climate change cannot be denied in many cases”.

Commenting further on the impacts of climate change, he said: “It is absolutely essential to have the right risk management in place and that we price the business correctly. Therefore, we are constantly validating our assumptions for pricing and managing this exposure—taking into account the latest loss trends and insights from science.”

In the first six months of 2022, Hannover Re absorbed a number of large losses. A precautionary provision of €316 million for possible losses from the war in Ukraine meant that the reinsurer’s net expenditure for large losses came to €850 million.

“That was considerably higher than our expectation of €611 million for the first six months,” Althoff said. “We also had €194 million of COVID-19 claims in our life and health book in the first half of 2022.

“Thanks to our excellent risk and capital management, we were still able to report net income of €649 million and double-digit premium growth as our reinsurance protection is highly sought-after among our clients during difficult times.”

The reinsurer continues to see a hardening market in a number of regions and lines of business that go beyond loss-affected areas, he said.

“There is a continuation of the positive price momentum and we expect that to remain the case for 2023,” he said. “Limit management and inflation are the most notable topics currently.”

During the mid-year renewals, Althoff said the company was able to increase the risk-adjusted price by about 4 percent across proportional and non-proportional business. “The recent renewals show that we are in a position to ask for higher rates to reflect the higher inflation expectation and the loss experience.”