Growing retentions and ILS pressure reinsurers: Hannover Re
Increased retentions by cedants and the growing inflow of capital into alternative risk transfer structures such as ILS combined to create a competitive and highly pressured renewals, according to Hannover Re.
The reinsurer reported rate decreases of up to 25 percent in US natural-catastrophe business, the biggest target of ILS deals, while many cedants again tool the decision to retain more risk on their own books.
As a result of these pressures, Hannover Re said it cancelled or modified some €520 million of non-life reinsurance treaties.
“Aside from the absence of market-changing major losses, increased retentions by ceding companies and the inflow of capital from ILS were a key factor in premium decline,” the German reinsurer said.
But the reinsurer said it was also able to replace this business and it reported “adequate” margins for the period overall across all lines of business.
Roughly two-thirds of its non-life reinsurance treaties were up for renewal amounting to some €3.9 billion. Treaties worth €520 million were either cancelled or renewed in modified form. Some €401 million from new or modified treaties and improved prices brought the total renewed premium volume to €3.8 billion.
“Although the rate level in non-life reinsurance was broadly lower than in the previous year, we achieved adequate margins thanks to our systematic underwriting discipline. We are satisfied with the rate level of our renewed portfolio; profitability is likely to remain largely stable relative to 2013. In areas where risks were not commensurately priced we reduced our shares – sometimes markedly so,” said Hannover Re's chief executive officer Ulrich Wallin.
Despite the 2 percent decrease in premiums, the reinsurer said that it was still on target to reach its €850 million estimate for 2014.
“Thanks to our comparatively low expense ratio and good market positioning we are well placed to achieve our 2014 profit target despite challenging conditions in non-life reinsurance.” said Wallin. “Going forward, as in the past, we shall not make any concessions to our proven strategy of selective underwriting.”
