HANNOVER Re expects to see greater stability overall in both prices and conditions fopr the January renewal season
Along with the growing area of cyber risks, the company anticipates opportunities primarily in the property and casualty sector in the United States, in credit and surety business and in connection with the adoption of risk-based solvency systems.
Competition remains intense and primary insurers are still running high retentions thanks to their healthy capital resources. At the same time, the flow of capital from the further expanding ILS market (i. a. catastrophe bonds and collateralised reinsurance) into the reinsurance market continues to increase for lack of higher-yield investment alternatives. Consequently, the supply of reinsurance capacity is still far in excess of demand.
As a further factor, declining interest rates and additional uncertainties on the capital and credit market are depressing potential returns. Despite this, profitability for insurers and reinsurers was generally good. This was, however, facilitated in part by the fact that losses from natural catastrophes in recent years were below the longer-term average. The marked price reductions and softer conditions have therefore impacted underwriting results to only a modest extent. Furthermore, with interest rates still falling, it has been possible to offset the lower reinvestment returns through realised gains. On the other hand, it is becoming increasingly clear that elevated loss expenditures can no longer be so easily absorbed. In some cases this has also been reflected in the results posted by reinsurers.
"It is evident that reinsurers strive to prevent any further drop in the price level. This was already reflected in a considerably more muted price decline for the renewals in the first half of 2016. What is crucial for us in this situation is to only write business that satisfies our margin requirements, even if this leads to lower premium income", commented Chief Executive Officer Ulrich WALLIN during a press conference in Monte Carlo.
For the treaty renewals as at 1 January 2017 HANNOVER Re expects to see greater stability overall in both prices and conditions, not only due to the growing pressure on returns but also owing to the sharply increased burden of attritional losses. Opportunities are available here for rate increases, for example in Germany and Canada, following the heavy losses incurred in some instances as a consequence of natural catastrophe events.
The progressing digitisation also offers new opportunities for the insurance industry. With an eye to the rising risk potential, HANNOVER Re expects further growth in demand for products designed to protect against cyber risks, not only in the United States but also in other markets.
In view of the business development in the current financial year to date, HANNOVER Re considers itself well on track to achieve its 2016 year-end targets. The company expects to book a stable or slightly reduced gross premium volume - based on constant exchange rates - and net income after tax of at least EUR 950 million for 2016. This is subject to the proviso that major loss expenditure does not significantly exceed the budgeted level of EUR 825 million and assumes that there are no unforeseen distortions on capital markets.