Hannover Re can cover rising retro costs with new rate across markets

Hannover Re will seek to renew its own retrocession covers with little or no changes in structure versus the prior year and can more than cover the increased cost of coverage with its own reinsurance business gains, officials argued for the Q3 earnings call.

“We are looking to renew broadly similar retrocessional coverages compared to what we have purchased in 2022,” board member and P&C reinsurance leader Sven Althoff told the Q3 call. “Those will, of course, be challenged both from a pricing and a structural point of view.”

Hannover Re can beat that rising retro cost, focused rather closely on the stressed segment of property cat, as its own reinsurance revenue story will enjoy not only property cat, but more broad-based gains.

“We do expect the price increase ahead of us to not only happen on the property cat side, but across products, across regions,” Althoff said. “The additional spend we will have to meet on the retrocessional side will be more than outstripped by the additional pricing we will be able to achieve across all regions, all product lines.”

Comments come during a renewals season in which reinsurers are making stronger demands of their own cedants, insisting upon a series of structural changes in programmes, including increased retention and greater clarity or even separation of perils.

Hannover Re had tweaked its structures for 2022, including a reduced cession rate Hannover Re’s K-Cessions retrocessional quota share sidecar facility and a lower attachment on whole account event protection. Althoff cited a “gut feeling” that the impact on retrocessional balances on 2022 cat events was “not very significant” versus what the prior format would have rendered.

Asked if the group’s retrocessional costs came roughly in a price range of €300 to 400 million, Althoff largely agreed, calling the range “slightly lower” in terms of the group’s non-proportional coverages in property, aviation and marine where they buy XOL, but higher if counting in K-Cessions.

Hannover Re officials have previously indicated they have rather de minimis plans for retrocession and should be able to easily fill in the basic programme well ahead of the 1.1 deadline.

“The focus is very much on the platform of minimum protection and this will remain the case,” CEO Jean Jacques Henchoz told analysts during the group’s 2022 Investor Day in early October.

“By early November we should be good to go,” Henchoz said at the time.

After building that base, Hannover Re can remain opportunistic. “If there is more capacity than our minimum requirement, then, depending on the price and terms and conditions, we might get more protection because we see an opportunity to improve our performance.”

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