Ian added more fuel to the inflation fire: Hannover Re

Before Hurricane Ian hit, the industry had been grappling with the issue of inflation, which had been a particularly hot topic. Now, Ian has made things worse, Axel Freiboth (pictured), managing director and chief underwriting officer of Hannover Re’s North American Treaty Division, told Intelligent Insurer.

“We have significant issues to tackle with inflation alone,” Freiboth said. “A lot of companies, including reinsurers, were hoping for a quiet 2022 and we were on a good track until hurricanes Fiona and Ian—and the hurricane season isn’t over yet, we still have a couple of months to go. There is pressure on the insurance and reinsurance markets.”

According to Freiboth, capital will be trapped for insurance-linked securities (ILS) investors and capacity will continue to be short, having already been scarce before Ian, adding yet more pressure. He said that the overall situation in the re/insurance market in North America has been driven by loss activity in areas that was not anticipated. This was especially true for secondary perils such as wildfires and winter storms.

Freiboth said that while Ian was an expected event, it came on the heels of an already active year. This will make some market participants look at future retention increases, given that more capacity will be needed to compensate for value increases.

“We don’t know how much capacity is available, among other possible adjustments to terms and conditions,” he said.

“Ian is, for some companies, not just an earnings event but a capital event,” Freiboth warned. “And the Florida market has its own challenges. It’s going to be interesting to see how claims develop over the next several months and even years.”

He said there was still some uncertainty, especially with possible further activity in the hurricane season. He stressed that with capacity short many market participants will be scrutinising terms and conditions carefully. The hard market will, in his view, continue for the immediate future.