Lower layers and aggregates won’t be back anytime soon: Hannover Re
Aggregate nat cat reinsurance programmes and lower layers in event-triggered programmes are gone from the market for the foreseeable future as reinsurance market capacity isn’t rebuilding at any notable pace and cedents have to gear their limited budgets towards ever higher coverage limits, officials at global reinsurer Hannover Re believe.
“The supply-demand equation will not fundamentally change in our view,” CEO Jean-Jacques Henchoz (pictured) told his company’s second quarter earnings call. “I haven’t seen any significant pocket of capital coming into the system.”
The only moves in reinsurance capital to date look “very targeted”, often at specific US short-tail lines where the upwards price adjustment has been sharpest. Henchoz is kindling hopes the trend proves contagious for longer-tailed lines this year.
“We would expect continued price adjustment,” he said of the upshot.
That includes beyond the January 1, 2024 renewals, Henchoz further suggested. “2024 will continue to be a very successful year from our point of view and, depending on the line of business, from stable to improving terms going forward.”
With so much capacity shortfall, the market has a long way before lower layers and aggregates, slashed or cut entirely in 2023 renewals to date, could possibly be scratched back by cedents.
“Given how much [cedents] are willing to spend and how much they need to cover vertically, we are not expecting a reappearance,” Hannover Re’s chief for P&C Re, Sven Althoff said of lower layers in event XoL covers. “Nor would we see a major return of aggregate protection.”
Cedents would gladly rebuild lower layer and aggregate coverage, but have been walking into treaty renewals with budget caps and exposures driven higher by inflation even if not by appetite, he notes.
Despite the conclusion of all major renewal periods in 2023, Hannover Re will still manage to squeeze some top-line growth from 2023, officials believe.
CFO Clemens Jungsthöfel spoke to a “very healthy pipeline” in structures and facultative business to press the pace of annual revenue growth through the second half.
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