3 February 2016 News

Hannover Re satisfied with treaty renewals, despite competition

Hannover Re says it is largely satisfied with the outcome of its treaty renewals as of January 1, despite sustained significant competition in most areas of property and casualty reinsurance.

In keeping with its systematic policy of selective underwriting, the company reduced its premium volume by a modest 1.5 percent in this round of treaty renewals.

The situation on worldwide property and casualty reinsurance markets was essentially unchanged year-on-year. With market-changing large losses again absent in 2015 and clients carrying more risks in their retention, the supply of reinsurance coverage continues to exceed demand, according to Hannover Re. There are, however, indications that the decline in rates is bottoming out. Signs of this trend had already begun to emerge last year for the US market.

Of the total premium volume booked in the previous year in property and casualty reinsurance (excluding facultative business and structured reinsurance) amounting to €6,777 million, nearly two-thirds of the treaties with a volume of altogether €4,422 million were up for renewal as at 1 January 2016. Of this, a premium volume of €4,003 million was renewed, while treaties worth €419 million were either cancelled or renewed in modified form.

Including increases of €318 million from new treaties and - to a more limited extent - from changes in prices and treaty shares, the total renewed premium volume came in at €4,355 million; this is equivalent to a modest decrease of 1.5 percent at unchanged exchange rates.

Hannover Re said it is satisfied with the treaty renewals in North American business. The pressure driving rate reductions has eased somewhat, according to the firm.

In Germany, the largest single market within the segment of Continental Europe, Hannover Re further consolidated its leading position through its subsidiary E+S Rück.

Despite substantial large losses, the most costly of which was the series of explosions at the Port of Tianjin, rates in marine reinsurance declined across virtually all lines and regions. Significant rate reductions were also recorded in the energy sector on account of abundant surplus capacities, even though claims activity in 2015 had been lively.

The aviation line was also extremely competitive. Given the unchanged ample supply of insurance capacity, rates fell by between 10 percent and 15 percent. Hannover Re responded by cutting back its exposure to aviation business and reduced its market share.

The picture in Hannover Re's worldwide treaty reinsurance segment was a mixed one, Business with agricultural risks proved to be relatively isolated from the otherwise soft market prevailing in property and casualty reinsurance. Although competition is making itself felt here too in certain regions or lines, for the most part stable rates and conditions were booked.

Despite the soft market conditions overall in property and casualty reinsurance, Hannover Re expects to achieve its profit targets for the current year: based on its very good positioning in the reinsurance market and the high quality of its loss reserves, the company said it should be able - depending on the major loss expenditure in property and casualty einsurance - to generate another good underwriting result in 2016, irrespective of the fact that the rate quality in the reinsurance market has deteriorated in some areas.

Hannover Re continues to target a combined ratio of less than 96 percent. In view of its selective underwriting policy, the company expects the premium volume in property and casualty reinsurance to come in slightly lower.

For its total portfolio, including life and health reinsurance, the company expects to book a stable or slightly reduced gross premium volume. In life and health reinsurance Hannover Re anticipates a further rise in profitability. The return on investment is likely to be around 2.9 percent, with group net income anticipated in the order of €950 million.

"Even though the price decline in some markets was considerable, our broad diversification enabled us to secure a level of profitability for our portfolio that can still be described as good,” said Ulrich Wallin, chief executive officer of Hannover Re.

“We do not therefore anticipate any negative impacts on our profit targets for 2016. Once again, our long-standing customer relationships and very good ratings had a stabilising effect on the treaty renewals.”

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