Hannover Re will ride market on nat cat, tweak for diversification

Hannover Re is free to grow its nat cat exposure, but won't be buying opportunistically into the hardened market and can tweak growth for improved diversification, top leaders argued Tuesday.  

Nat cat business going into 2024 looks well priced, with increases in retentions and risk-adjusted pricing still prevalent, Hannover Re board member for P&C Re, Sven Althoff, told his company’s investor day meeting. 

“Trading conditions going into 2024 remain at a high level," Althoff said. "we are seeing, will still catch increases on that business going into 2024." 

With gains in terms, conditions and pricing still coming through, especially in loss-affected lines after a “busy” accident year, Althoff calls terms “closer to risk-adjusted neutral” given inflation and underlying growth from cedants. 

“The early stages of the 2024 renewal are showing that we will be able to achieve retention increases and very significant risk adjusted rate increases in those loss affected areas,” Althoff said. Terms are "at very healthy levels." 

Appetite will continue to grow largely in line with the market as nat cat is treated as a part of broader long-term relationships than a stand-alone product. 

“We are much less looking at it as a stand-alone profit centre, but we are writing to support our client relationships,” Althoff said. 

But appetite can be tweaked to improve diversification. Hannover Re might still be deeper into Atlantic tropical storm than it likes, despite a more than 20 point reduction in its share in the group's tail value at risk in nat cat over recent years. 

“We will continue to work on diversification,” Althoff said. “At least in the short-term, we expect the relative value of the US to drop over time.”

The market now enjoys greeter balance of supply and demand, leading to a more orderly outlook for the 1.1 renewals, Althoff said.  But discipline is holding. 

“Compared to where the industry was a year ago, there is no shortage of supply, but at same time, we have a very disciplined approach from market participants,” Althoff said. “It's easier to fill placements than 12M ago, but at the right price.” 

Demand is up, if predominantly on the impact of inflation and rising underlying exposures, he indicated. “The industry should be able to deal with that demand.”

In the balance, pricing meets the mark. “We are well above the cost of capital on a forward-looking basis and that will apply for the 2024 underwriting year,” Althoff said. 

Comments came part and parcel with a fresh set of three year financial targets from the major German reinsurer.  Hannover Re wants to achieve a return on equity of more than 14% annually on average over the upcoming strategy cycle and growth of more than 5% in operating profit.

For the 2024 financial year Hannover Re anticipates group net income to rise 24% to EUR 2.1 billion on reinsurance revenue growth of more than 5%, led by P&C reinsurance.

For the broader P&C reinsurance divisions, growth will focus on non-US nat cat, specialty lines and facultative, take a boost from structured and facultative solutions and diversify geographically with above-par gains in LatAm and Asia.

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