Hannover Re sees insurance rate bonanza, but won’t chase every line

Capacity shortfalls have given reinsurers the upper hand in renewal bargaining and risk-adjusted rate will grow in excess of inflation across lines and markets, top officials at  Hannover Re have indicated, but the group will not be easily tempted outside its current appetites.

“Bargaining power has changed” and reinsurer demands vis-à-vis inflation will be taken seriously to secure risk-adjusted profitability in 2023 renewals underwriting, CEO Jean-Jacques Henchoz told analysts during an Investor Day presentation.

“I have an expectation that we will see inflation fully covered in the price of business,” Henchoz said, “hopefully more.” The beat to inflation should come “more or less across all product lines and all regions,” Hannover Re’s board member for P&C Re, Sven Althoff, added.

Cedents that don’t fall in line might not have a chair when the music stops. “If, in individual cases, this will not be in line with our expectations, … we will keep powder dry and not renew or only partially renew some of that business.”

Some of the strongest rate gains are likely in property cat. Pricing should accelerate into the current renewal season, Althoff added. “The trajectory will be a bit steeper than what we have seen over the past five years.”

Property cat rate for Hannover Re will likely mimic the market, ending up “not too dissimilar” from such market benchmarks as the GuyCarp rate-on-line index on account of Hannover Re’s reliance on broker channels, although “we do write some private layers,” Althoff said.

Over the medium-term, property cat pricing will continue to adjust to both inflation and climate challenges. “You adapt models and pricing to those two trends – climate and inflation – means mid-term the need to adjust pricing is a topic that will stay with us for the foreseeable future,” Althoff said.

As the hard market has developed, Hannover Re shifted into more non-proportional covers “and we expect that to continue going into the future,” Althoff said.

Line by line, Hannover Re claims it won’t target portfolio structure, but watch individual margins. That may mean limited nat cat, a freeze on cyber, growth in APAC, and a mixed view to specialty.

“We are not working towards any ideal portfolio split,” Althoff said. “Our main criteria in deciding if we want to write business is the strict adherence to our minimum margin requirement.” Together with covers which have been grandfathered into the books and have not raised flags to date, Althoff considers Hannover Re books “relatively stable” despite the dynamic view to risk analysis.

Any growth nat cat, should such come at all, will continue to result more from diversification or support of existing clients than as a simple add-on. Growth to date, which only took off in the past two years and remains below overall portfolio growth, takes on a grander appearance at the net level only on account of reduced retrocession.

“This is something you can also expect to see from us for the next year to come: despite all the opportunities we may find on the pricing side, there is no real desire to take much larger business in nat cat,” Althoff said. Hannover Re may take property cat to support an existing relationship, but the group has “very little appetite to take on cat on a stand-alone basis.”

In US casualty, Hannover Re retains a rather “bespoke risk appetite for the dos and don’ts of US casualty” and limits are “actively managed” to keep social inflation at arm’s length, Althoff noted. Nor is long-tail casualty free of economic inflation-fears, given the length of the exposure period.

Cyber is on hold for the time being after the portfolio hit €600 million, “a level which is good enough,” despite what Althoff considers a dramatic improvement in bottom-up risk assessment. “We may grow again in the medium term, but in the immediate term that is the level we want to have.”

Marine and aviation are poised for gains and investors are told to expect “very good underwriting for the next couple of renewal seasons,” Althoff said.  Elsewhere in specialty, the outlook for agriculture is “stable” while Hannover Re market share in surety and credit is already strong and the segment is not ripe for further expansion ahead of economic slowdown.

No guidance for eventual underwriting margins, but Althoff signals a certain commitment to stability in combined ratio targets: the 96% of late is built to hold.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.