Hurricane losses may stop softening, says Wallin as he mulls new Lloyd’s launch
A more active than usual 2017 hurricane season with hurricanes Harvey and Irma hitting North America could prevent further declines in rates, Hannover Re CEO Ulrich Wallin, told Monte Carlo Today.
Prices in the P&C market have declined steadily for five years, driven by overcapacity and the absence of big losses, but recent losses could help check this trend. Wallin expects prices and conditions to remain stable in the upcoming January renewals—even for programmes that have not experienced any claims.
“Harvey may well affect pricing and conditions in the P&C reinsurance market because the potential losses are likely to reach the reinsurance segment,” Wallin said.
“Flood risk is often not insured, or reinsured, but commercial risks, particularly business interruption, may trigger some substantial claims.”
Negotiations may be somewhat tougher in some lines of business, however, including in directors’ and officers’ (D&O) liability insurance where profitability levels are a bit higher for reinsurers, Wallin noted.
The CEO said that Hannover Re is looking to adjust its own portfolio based on whether it deems rates to be at acceptable levels.
In the aviation and property surplus treaties markets, Hannover Re plans to reduce its exposure due to unattractive rates.
The situation looks better in the UK motor market after changes to the Ogden rate, the formula used to calculate personal injury claims. While the initial change to the rate forced companies to increase reserves, it also triggered “substantial” rate increases in the sector, Wallin said.
In addition, the reinsurer is facing growing demand in its tailored transactions business—a trend he expects will continue into 2018.
Another growth driver for Hannover Re remains the North American market, where the reinsurer has more than 650 clients and sees potential to expand its market share. For Asia, Wallin is particularly optimistic in the south-eastern region.
As profitable growth opportunities remain relatively scarce in P&C, the life & health reinsurance market may appear increasingly attractive.
“We are increasing our business exposure to life & health reinsurance particularly in the area of what we call financial solutions, which we deem as extremely profitable,” Wallin said.
“We have also in place a few growth initiatives in life & health over digital, automated underwriting technology that we offer primary insurers,” he added.
While such initiatives may be generating new business, this will take time to become a significant operation for Hannover Re, Wallin noted. He is, however, “very satisfied” with Hannover Re’s cooperation with the Vitality brand in South Africa, which offers life or health insurance clients benefits such as lower rates if they live a healthy life.
For Argenta, the Lloyd’s syndicate holding that Hannover Re acquired in March, Wallin said he will take a “wait and see” approach.
Argenta’s growth potential in 2017 is governed by its participation in the underwriting capacity of Syndicate 2121, which gives a 30 percent share of underwriting capacity to Hannover Re and 70 percent to third parties.
“At the moment, we are satisfied with the business as it is, also because Lloyd’s operations face similar challenges to those of the reinsurance business,” Wallin said.
This may well change in the future. “We have the option to more than double our underwriting share with Argenta,” he said.
“In addition, we have the option to create a Hannover Re syndicate which would be managed by Argenta. These are possibilities in case trading conditions improve in the Lloyd’s market,” he noted.
Lloyd’s is affected by the soft market and the costs are relatively high. Premiums are trending down and broker fees are trending up, Wallin said. But Lloyd’s also has the capacity to react to current trends and Hannover Re may decide to deliver on its plans to create a Hannover Re syndicate, Wallin noted.
“Lloyd’s has the advantage of a strong brand and the advantage of owning numerous licences. In addition, it is a flexible platform that allows us to both expand and shrink the underwriting capacity,” Wallin explained.
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