Hannover Re says inflation plus loss trend equals rising rates at 1.1

Hannover Re believes large loss histories with an inflationary overlay will continue to deliver rising prices and tightened terms and conditions in property and casualty reinsurance.

"Soaring inflation, major losses and an accumulation of mid-sized frequency losses" plus a still-unquantifiable war in Ukraine made H1 2022 "challenging for primary insurers and reinsurers alike," Hannover Re has said.

"Further risk-adjusted rate increases in property and casualty reinsurance are therefore unavoidable," CEO Jean-Jacques Henchoz said.  "This is the only way for us, as a reinsurer, to continue to offer our clients reliable risk protection in an increasingly challenging market."

Going into the 1.1 renewals, Hannover Re expects reinsurers to participate fully in the primary rate increases enjoyed across regions and classes being driven by inflation and loss experience.

Upward pricing on nat cat exposures "looks set to continue," management added.

Specialty lines, crucially marine and aviation, have been caught in the tug between the post-pandemic normalization of business volumes and the rise of armed conflict in Europe. "Hannover Re anticipates rising prices as well as some restructuring of reinsurance programmes in both aviation and marine business."

Hannover Re brags of the capacity to take full part in the 1.1 renewals. "The redundancy level of our reserves is very robust," board member Sven Althoff said, but quality is coming well ahead of quantity.

In Europe, the early 2022 windstorms set the tone. Hannover Re expects "significant adjustments to conditions in property business in Germany," and claims conditions don't look much better in France. The UK may have only "limited" upside in "some liability lines" while others like cyber continue to look very robust. UK property and auto require Hannover Re's continued “conservative approach."

North America may have survived H1 without major catastrophe, but inflation stacked on top of a rise in frequency for mid-sized losses is doing its worst.  "Against this backdrop, most market segments in North America remain attractive from the reinsurance perspective" and Hannover Re has grown into that market.

"From Hannover Re's standpoint, the challenging market conditions make further rate increases and limitations on the scope of coverage absolutely essential. In this environment the capital resources of reinsurers remain a point of emphasis, with the result that Hannover Re's position in this market will continue to strengthen."

APAC is hailed as the "world's largest growth market" and the home of "significant opportunities." But Hannover Re also notes heavy nat cat loss trends and a focus of the world's supply chain stress.

"For the upcoming rounds of renewals in the APAC region on 1 January 2023 and 1 April 2023, Hannover Re expects that the global trend towards market hardening will also extend to the Chinese market."

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