Hannover Re ups growth targets as inflation drives hard market

Hannover Re sprang from stronger-than-expected renewal seasons April through July to confidence it can beat its initial 2022 premium volume growth targets by half, in part as the spectre of inflation is pushing at pricing while curbing ceding commissions.

“Given higher than expected growth during P&C renewals and continued strong demand for structured reinsurance business, we have increased our volume guidance from ‘at least 5%’ to ‘at least 7.5%’ across P&C and life and health,” CEO Jean-Jacques Henchoz told his company’s Q2 earnings call.

Inflation stepped up to keep the market hardening on pace. “In P&C Re, inflation will clearly be one of the key topics” in renewal negotiations ahead of 2023, Henchoz said.

Renewal seasons from April through July delivered €500 million in new premium vs the prior year, a 20% increase, split nearly evenly between the net on new business and the impact of price & volume for existing accounts.

For that set of Q2-Q3 renewals,  Hannover Re claims a 4% risk-adjusted price increase, net of inflation trend, including 5.5% increase on non-proportional treaty.

“The recent renewals show that we are in a position to act for higher rates and we were able to integrate this higher inflation expectation in our pricing,” the CEO said.

Hannover Re claimed “significant” premium growth in the Americas on a market hardening in excess of inflation trend. American property “remains attractive” as underlying price increases and improved terms for loss-affected programs firm the margin outlook.  Australia delivered “substantial” premium growth on new business and price gains, management said.

Beyond pricing,  Hannover Re claims a myriad of inflation hedges directly in its underwriting. About a quarter of treaty business is value-indexed against inflation and sliding scales are additionally used for an unspecified portion of the book.

Additionally, proportional business allows reinsurer participation in rate gains taken by primary carriers where Henchoz sees “sustained improvement” of late.

Hannover had added to reserves in Q4 on account of inflation in what it calls a “precautionary measure” that hasn’t been consumed yet. “To date we have not observed any significant inflation effects in the run-off of our reserves,” Henchoz noted.

Inflation has likewise served to curb trends in ceding commissions, bord member for P&C Sven Althoff added.  Commissions in property are “stable or improving” for reinsurers while longer-tail lines are “a bit more mixed.”

Prior upward moves in ceding commissions, still visible at the 1.1 2022 renewals, “has died away at mid-year renewals as the inflation issue became more prevalent,” Althoff said.

Confidence on premium volumes comes as  Hannover Re laid claim to nearly 20% annual growth in gross written premiums in the first half of 2022. The sum included 26% growth in P&C reinsurance premium or 18% after adjustment for FX rates.

P&C reinsurance suffered a rise in the combine d ratio to an above-target 99.0% from 96.0% in the prior year period on a rise in large losses to €850 million net after €121 million in retro recoveries. IN Q2 alone,  Hannover Re went over-budget in APAC chiefly on Australian floods and Japanese earthquake perils, in aviation and marine on Ukraine IBNR provisions and in agriculture on reserve adjustments for Brazilian drought.

Management claimed a re-reading excluding €316 million in Ukraine war-related IBNR reserves, including a notable Q2 top-up, would have fallen within budget.

P&C combined ratio guidance should fall back to the 96% target for the second half of the year, management assured. With a bump to investment outlook, Group net income guidance for €1.4 to 1.5 billion remains firmly in place.

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