Hannover Re sees continued strong demand for high-quality reinsurance protection

• Strong market demand for high-quality reinsurance protection
• Reinsurance prices and conditions have stabilised
• Terms and conditions continue to be attractive, particularly in non-proportional reinsurance
• Hannover Re well positioned for profitable growth as preferred business partner

Monte Carlo, 9 September 2024: Hannover Re anticipates prices and conditions to remain on a sustained stable level for the treaty renewals in property and casualty reinsurance as at 1 January 2025 and anticipates a balance of supply and demand in most markets.

In the various rounds of treaty renewals during 2024, prices and conditions continued to improve in some areas, while in others they stabilised on the previous year’s level. Given the continued favourable state of the market, Hannover Re took advantage of growth opportunities, both expanding its portfolio with long-standing clients and writing new business. After the significant increases recorded in prior years, some primary insurance markets are seeing modest price reductions. Hannover Re therefore still considers it appropriate to place an emphasis on non-proportional reinsurance covers.

"We want to grow with our clients and continue to offer them the best possible coverage and capacity. To do this, rate levels must remain adequate," said Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re. "Insured losses are still trending higher. In view of the various challenges facing the industry, reliable reinsurance protection is indispensable. In line with our strategy, we remain well positioned for profitable growth and a preferred business partner with our clear focus on reinsurance, our excellent underwriting expertise and our very strong capital base."

With a capital adequacy ratio under Solvency II of 276% at the end of June, Hannover Re’s capitalisation is extremely robust. The rating agencies similarly confirm its very good financial strength with ratings of AA- from Standard & Poor's and A+ from A.M. Best, both with a stable outlook.

Hannover Re continues to focus on identifying emerging risks in partnership with its business partners and developing both traditional and innovative coverage for them. An example of this is the world’s first cloud outage catastrophe bond. Losses associated with cyber risks are increasing substantially owing to digital transformation and technological advances. To tap into additional non-traditional capital for cyber risks coverage, in April 2024 Hannover Re brought to the capital market the world's first catastrophe bond to protect against risks resulting from cloud outages.

"While there is still a need for action on cyber risks, climate change is and will remain one of the greatest challenges of our time. Recent floods and heatwaves have once again highlighted the continued dramatic proliferation of extreme weather events. This is a strain on the economy and is increasingly putting insurers to the test," said Sven Althoff, member of Hannover Re's Executive Board. "At the same time, the protection gap is widening as losses rise, especially in emerging countries. This is where innovative concepts such as parametric covers can help to cover climate-related risks and offer more insurance protection."

Hannover Re anticipates the following developments for individual regions and lines in the treaty renewals as at 1 January 2025:

Europe

After the extreme weather events of the previous year, 2024 has passed off more benignly so far. Losses for the insurance industry consequently remained within expectations. With extreme weather events tending to increase, however, there is no room for rate reductions from Hannover Re's perspective. On the whole, prices and conditions in Europe have stabilised on an improved level.

In Germany, car insurance – the highest-volume line of property and casualty primary insurance – remains unprofitable. The rate increases implemented in the previous year in response to higher vehicle repair costs and rising claims frequencies were not sufficient to return to profitability. Against this backdrop, Hannover Re assumes to see further adjustments. In addition, floods in 2024 negatively impacted natural catastrophe covers. Further expenditures arose in connection with the settlement of claims from hail events in 2023.

The primary insurance markets in the United Kingdom and Ireland recorded further rate increases in the course of the year, albeit on a more modest scale than in 2023. While prices in some liability lines, such as Directors' and Officers' insurance, broadly settled on the level of the previous year, significant rate increases were still recorded in motor business.

Central and Eastern Europe continues to see solid price levels. Following sharp increases in the previous year, rates in Türkiye stabilised and remained on a high level due to the earthquake losses. In France, the year largely passed off quietly on the natural catastrophe front. Most notably, the serious unrest in New Caledonia resulted in significant losses in May.

Demand for high-quality reinsurance protection remains undiminished in Northern European markets, while at the same time the supply of capacity is growing increasingly tight. Hannover Re anticipates improvements in prices and conditions against the backdrop of a continued heavy burden of losses.

North America

The market in North America has now settled on an adequate level in short-tail lines. Property business continues to benefit from further increases in primary insurance premiums, while demand for insurance products remains strong. The Midwestern United States and the Caribbean were once again affected by windstorm events.

Extreme weather events are not only presenting challenges for coastal regions with rising insured values, they are now also making themselves felt in other geographies. Together with a high frequency of mid-sized losses, this is putting the future profitability of property and casualty lines under pressure. For this reason, prices continued to increase, even under reinsurance treaties that were loss-free.

Social inflation, which includes rising claims costs due to increased litigation, higher damages and broader definitions of liability, continues to challenge the insurance industry. It remains persistently higher than average, requiring insurers and reinsurers to continue to adjust prices and conditions in the liability segment from Hannover Re's perspective. Furthermore, litigation funding also continues to influence the legal environment, which only adds to the pressure on terms and conditions.

Latin America

With inflation mostly contained, Latin American countries are back on a growth trajectory. Having escaped natural catastrophes largely unscathed in prior years, the region suffered very considerable losses caused by Hurricane Otis in Mexico in 2023 and the devastating floodings in Brazil. This led to stronger demand in Latin America's two largest markets, hence driving rate increases.

Asia-Pacific

In China and India, the latest renewals confirmed Hannover Re’s solid client relationships and focus on partnership. Given the increasing frequency and severity of natural catastrophe events in the first half of the year, insurers’ profitability is expected to come under pressure. As in other markets, cedants could look to further raise their retentions to counter potential increases in reinsurance costs.

In South-East Asia, Japan and Korea, Hannover Re continues to grow with its business partners, especially in non-proportional business. Primary insurers will likely further increase their retentions in response to the higher costs of reinsurance coverage.

Australia and New Zealand have experienced a quiet 2024 so far compared to the previous year. Hannover Re will strive for further growth with its core clients and will look to support the market in its focus on loss mitigation and access to coverage.

Catastrophe business

Demand for natural catastrophe capacity was higher in 2024. Prices remained broadly unchanged on an attractive level.

Predictions suggest that the Atlantic hurricane season in 2024 will clearly exceed the average activity seen over the past 30 years. It got off to an early start with Hurricane Beryl, which broke numerous meteorological records. Fortunately, the losses and damage incurred remained on a comparatively minor scale.

The unrest in New Caledonia once again demonstrated – against the backdrop of a generally more dynamic geopolitical landscape – the potential for losses caused by strikes, riots and civil commotion.

Furthermore, climate change is leading to an increase in extreme weather events, which in turn is driving rising demand for catastrophe covers. A greater supply of reinsurance capacity will be needed globally to reduce a protection gap that has the potential to grow in the future.

For 2025, Hannover Re anticipates to see the following trends on the major markets for natural catastrophe business:

North America: In the United States, higher retentions over the past two years have led to satisfactory results for reinsurers. Nevertheless, the sustained heavy losses from convective storms on a record scale have taken a considerable toll on national and especially regional insurers.

Since inflation remains high and the average loss severity is increasing, Hannover Re anticipates rising demand for reinsurance capacity. Even though it is still too soon to fully assess the impacts of the 2024 hurricane season on the reinsurance market, the market environment should again remain attractive in 2025.

Europe: Many areas of Europe have been affected by natural disasters in recent years. The financial strain has been exacerbated by high inflation and supply chain disruptions. In view of the severe floods in Germany in 2024, further efforts are needed to support catastrophe business on a sustainable basis.

Japan: The reinsurance market in Japan showed considerable discipline in the 1 April renewals, with market demand holding stable. The earthquake risk in the region was once again evident in 2024, even though no appreciable reinsured losses were incurred. Substantial flood and typhoon losses as well as hail events in the past two years similarly underscored the need to factor all climate-related perils into the pricing of Japanese catastrophe business.

Australia and New Zealand: After many years of major natural catastrophe events, the region has escaped unscathed this year. Multi-peril risks remain, however, and insured values are rising, driven in part by inflation. This will likely continue to fuel demand for catastrophe coverage, while Hannover Re will concentrate on offering such protection at commensurate prices and with adequate retentions.

Specialty lines

After several years of improvements in prices and conditions in aviation reinsurance, stabilised terms have largely set in.

On the primary insurance market, further rate erosion was observed in the airline segment, attributable in part to relatively modest claims expenditure of late. At the same time, rates in general aviation business moved up slightly, while in product liability they remained stable. The higher prices seen recently for war risks on account of rising geopolitical tensions have now stabilised. All in all, Hannover Re anticipates a stable price development in aviation reinsurance for 2025.

The market for space covers has hardened significantly owing to considerable losses incurred in 2023 and 2024. This segment remains challenging due to the roll-out of new launch systems and satellites. Hannover Re has already scaled back its acceptances in 2024 and continues to review whether prices and conditions are sufficient to meet profitability requirements on a sustained basis.

Marine and offshore energy business continues to be affected by geopolitical challenges. In addition to losses from Russia's war of aggression against Ukraine, these include elevated risks in the Middle East and Red Sea region, coupled with strict sanctions regimes worldwide. Moderate expenditures are to be anticipated from the war events as well as from two losses in the construction sector, including a fire at a large German shipyard in July.

It is not yet possible to make a final assessment of possible expenditures resulting from the collapse of the Baltimore bridge owing to the complexity of this loss event. Hannover Re does, however, expect to incur a major loss.

Against the backdrop of the developments described above, Hannover Re obtained stable prices and conditions on an adequate level for marine and offshore energy risks in this year's renewals.

Loss ratios in credit and surety insurance as well as in the area of political risks were slightly higher than in previous years, but still below the multi-year average. Hannover Re anticipates prices on both the insurance and reinsurance side to hold steady on the current level or rise modestly.

As far as agricultural risks are concerned, demand for insurance and reinsurance solutions is expected to keep on growing, especially in view of efforts to reduce protection gaps. Profitability in the agricultural segment is on an adequate level overall, following Hannover Re’s move to realign its portfolio in past renewals, but this line of business remains vulnerable to climate risks.

The short period of vigorous premium growth in the market for cyber insurance covers is in the rear-view mirror. The market was already levelling off in 2023 owing to premium reductions and more intense competition. The latest cyber incidents underscore the scale of the aggregation risk. At the same time, the increase in sums insured and expansion of coverage elements in past soft market phases have elevated the accumulation risk.

By setting up a business unit with worldwide responsibility for cyber risks, Hannover Re is actively addressing the particular challenges and ongoing changes in this market and thereby strengthening its commitment to the development of sustainable reinsurance solutions.

In the insurance-linked securities (ILS) market, Hannover Re was once again able to transfer several catastrophe bonds to the capital market for its customers. Following on from ten transactions in 2023 with a total volume of USD 2.8 billion, ten transactions have already been successfully completed in the first six months of 2024 with a total volume of USD 3.4 billion. Covers were placed against losses from natural catastrophes including floods, windstorms and earthquakes. It was also possible to structure a parametric cloud outage cover, under which this risk was transferred to the capital market for the first time in the form of a bond.

Demand for structured reinsurance has remained strong for years now. This is especially beneficial for Hannover Re thanks to its leading position in the market for tailor-made solutions. The premium volume booked by Hannover Re in this segment has now reached approximately EUR 6 billion. Structured reinsurance solutions continue to offer significant and profitable growth potential and play a vital role in mitigating the earnings volatility of Hannover Re’s clients.

In facultative reinsurance, Hannover Re continues to see demand globally. Risk appetite and capacity remain unchanged. Growth is anticipated to come from property and casualty reinsurance business as well as the renewables segment.

Hannover Re is one of the world’s leading reinsurers. It transacts all lines of property & casualty and life & health reinsurance and is present worldwide with more than 3,500 staff. German business of the Hannover Re Group is written by the subsidiary E+S Rück. Established in 1966, Hannover Re is recognised as a reliable partner for innovative risk solutions, exceptional customer intimacy and financial soundness. The rating agencies most relevant to the insurance industry have awarded both Hannover Re and E+S Rück outstanding financial strength ratings: Standard & Poor's AA- "Very Strong" and A.M. Best A+ "Superior".

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