14 September 2015 News

Overcapacity slows but discipline remains key

The amount of reinsurance capacity entering the market has slowed compared with previous years, Ulrich Wallin, CEO of Hannover Re, said at a press conference in Monte Carlo yesterday (Monday September 14).

He added that positives signs are coming out of the US, the world’s largest reinsurance market, in terms of the premium trend in developed markets.

However, Hannover Re will continue to adhere to its selective underwriting policy, according to Wallin.

“We are concentrating on treaties under which, according to our assessment, an adequate price level can be achieved,” he said.

He said the reduced investment income available to reinsurers, because of low interest rates, means that pricing discipline remains important.

The global property/casualty reinsurance market continues to be highly competitive due to the absence of large losses and the healthy levels of capitalisation enjoyed by primary insurers, which has led them to increase their retentions. The supply of reinsurance capacity consequently still exceeds demand, said a report released by the company at the press conference.

For the treaty renewals at January 1, 2016, Hannover Re expects the general environment to remain largely unchanged in the absence of any market-transforming major loss events.

Against this backdrop and given the increased frequency of manmade losses, Hannover Re anticipates that reinsurance prices will stabilise in some areas, with certain lines and markets even offering scope for rate increases.

The company expects good growth potential in the Asian and Latin American markets as well as for business associated with agricultural risks.

Furthermore, the company noted, a constantly changing risk landscape in re/insurance business is prompting the development of new products.

The report also gave details of its expectations around certain markets.

It said natural catastrophe business is still witnessing an oversupply of reinsurance capacity; with the exception of the US market, demand has remained constant. As a further factor, the absence of major losses continues to add to the pressure on prices.

A moderation in price reductions has, however, become evident over the course of 2015.

These market conditions led to expected consolidation activities in the form of mergers and acquisitions.

Developments in worldwide treaty business varied across markets and regions, it said.

Intense competition continues to be the hallmark of these markets in Asia, causing rates to decline overall. In Central and South America, markets continue to grow, albeit at a varying pace.

The existing surplus capacity has prompted rate decreases, the extent of which depends upon the line of business and type of cover.

The North American primary insurance market has stabilised, as a consequence of which rates are now moving sideways. The continued absence of sizeable natural catastrophe events and other large losses is, however, making its mark on the reinsurance side, with the result that a certain pressure can be felt on rates in property and, to a lesser extent, casualty business.

In Continental Europe, it specifically said in relation to Germany that market conditions are under less pressure in some lines than in other countries owing to heavy losses incurred in prior years. Most notably, motor insurance has seen a pleasing trend since 2014. For the coming year it is to be expected that premiums in motor business—the most important single line—will continue to rise, Hannover Re said.

In terms of speciality lines, it said that in aviation, contrary to original expectations, the losses incurred in 2014 and 2015 have not brought about long-term stabilisation of the rate level in airline business. As such, it expects the prevailing soft market phase to persist on the back of historically low accident rates and the unchanged abundant supply of insurance and reinsurance capacities.

In marine reinsurance, it said the market now finds itself experiencing a soft market phase.

As a consequence of low loss expenditure and the resulting surplus capacity, Hannover Re expects rates for the reinsurance of pure marine portfolios to undergo further slight softening.

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