The heavy natural catastrophe losses incurred in 2017 caused prices to move higher again or at least remain stable across the board for the first time after four years of declining reinsurance rates. The supply of reinsurance capacity – from both the traditional reinsurance sector and the ILS market – nevertheless still exceeded demand. Although the rate increases fell somewhat short of expectations, we are satisfied with the outcome of the treaty renewals in property and casualty reinsurance as at 1 January 2018. On this date 65% of our life and health reinsurance portfolio (excluding facultative business and structured reinsurance) was renegotiated. Our premium volume was boosted by altogether 12.7%, primarily from new business. The increases were particularly marked in Australia, Asia and in the United Kingdom. In addition, we were thoroughly satisfied with the treaty renewals in North America as well as in Western and Eastern Europe. In the area of cyber covers, too, attractive opportunities opened up to expand the portfolio. We noted another sharp rise in demand among customers for reinsurance solutions designed to provide solvency relief, enabling us to book further good gains in the structured reinsurance segment. Including this business, the growth booked from the treaty renewals in property and casualty reinsurance totalled 21.8%.
The pleasing growth achieved in the treaty renewals as at 1 January 2018 was made possible by the higher prices that could be obtained, increases in shares and the expansion of strategic cooperation arrangements. The outcome of the renewals constitutes a solid basis for attainment of our targets in the current financial year.
Expectations for the development of individual markets and lines in property and casualty reinsurance are described in greater detail below, broken down into the areas of Board responsibility.
|Property & Casualty reinsurance: Forecast development for 2018|
|Specialty lines worldwide|
|Credit, surety and political risks||+|
|UK, Ireland, London market and direct business||+/-|
|Worldwide treaty reinsurance3||+/-|
|Catastrophe XL (Cat XL)||+/-|
|Structured reinsurance and insurance-linked securities||+/-|
|1 In EUR|
2 ++ = significantly above the cost of capital
+ = above the cost of capital
+/– = on a par with the cost of capital
– = below the cost of capital
3 All lines with the exception of those reported separately
In North America we expect to see further mergers and acquisitions, both in the insurance and reinsurance market. This does not, however, in any way have adverse implications for our market position. On the contrary, we anticipate further business opportunities based on our long-standing, close customer relationships and financial strength.
The rate situation turned around sharply for the better on account of the heavy losses from the three hurricanes in the year under review: overall, rates increased as at 1 January 2018 as expected; this is especially true of hurricane-exposed business, although price gains were also recorded under loss-free programmes. In addition, modest rate improvements were booked for casualty business. Against this backdrop we enlarged our business volume in these lines. We see further scope for selective growth in the area of cyber covers, where demand is rising due to heightened awareness in the market of potential loss events. In view of our successful treaty renewals as at 1 January 2018 we expect to book moderately higher growth for our North American portfolio in the current year. Our focus on existing customer relationships remains unchanged.
In Germany, the largest single market within our Continental Europe segment, we were able to assert our prominent position in the treaty renewals as at 1 January 2018. Rates and conditions improved slightly for the most part. Although improved conditions were obtained in industrial fire insurance – which had suffered heavy losses – in the treaty renewals, these are still not adequate in view of the losses. We therefore maintained our selective underwriting policy in this segment. In motor business, our most important single line, we expect to further grow our premium income.
When it comes to covers for cyber risks and extended natural hazards, we expect to see a further rise in demand. A modest premium contraction is anticipated for our domestic market in 2018.
In the other markets of Continental Europathe picture was a mixed one. Generally speaking, prices and conditions improved in the treaty renewals as at 1 January 2018. Pleasing growth was booked in Italy and we enlarged our market share in Western Europe. A stabilisation in prices was observed in Eastern Europe; the price increases under loss-affected programmes were very substantial.
For Continental Europe as a whole we expect to book a higher premium volume.
In marine reinsurance we enjoyed satisfactory renewals as at 1 January 2018. The rate increases were most pronounced in the important London Market, especially under loss-impacted programmes. Rates for programmes in Asia and Continental Europe, on the other hand, were largely unchanged. Given these shifts in the market environment compared to last year, we expect a stable premium volume for 2018.
In view of the unchanged strained state of the aviation insurance market, and also as a consequence of developments following the hurricane events in the United States and the Caribbean, prices on the reinsurance market stabilised on their low level. In non-proportional business we enlarged our shares in programmes which in our assessment offer profit potential. However, based on our continued selective underwriting approach, especially in relation to proportional acceptances, we anticipate a marginally reduced premium volume for the 2018 financial year.
The anticipated upturn in the global economy should have favourable effects on the credit and surety lines as well as political risks business. We expect the level of insolvencies to stabilise. Premiums in credit reinsurance will likely rise on the back of higher shares in selected programmes. In surety reinsurance the stabilisation in developing markets should generate positive stimuli and result in organic growth. In the area of political risks we anticipate growing demand and rising premiums in view of the elevated risk situation around the world. All in all, we are looking for a stable market environment in the current 2018 financial year. Against this backdrop, we expect to book modestly increased premium income and a good result.
Rates here were higher in the treaty renewals as at 1 January 2018 on account of the loss experience in the year just ended. Most notably, we achieved appreciable price increases in the motor liability line in the United Kingdom and – depending on how impacted the business was by the hurricane events – for property reinsurance programmes in the London Market. We expect to see the same effect, albeit less marked, on the primary insurance side. New business opportunities for our company are particularly likely to open up with start-up syndicates at Lloyd’s. Although we had already substantially boosted the reinsurance premium from cyber treaties in 2017, we expect to further expand our position here in 2018.
The current financial year is expected to bring increased demand for facultative reinsurance. This is due to the above-average loss incidence in the previous year and also reflects the changed risk appetite of our clients. Our strong customer focus should enable us to benefit disproportionately from the potential market opportunities. We enlarged our reinsurance portfolio in those regions and lines where we were able to push through higher prices. Particularly healthy premium growth is anticipated in North America, Latin America, the Caribbean and Australia. Overall, we expect to see a slight contraction in premium income for our facultative business in the current financial year with sustained healthy results.
A rising premium volume and continued good results are anticipated for our specialty lines in 2018.
Insurance markets in the Asia-Pacific region should stay on their growth track in 2018. We see attractive opportunities here to enlarge our portfolio.
Our organisational set-up with decentralised underwriting at our local branches – under strategic management from Hannover Home Office – is very well received by our customers and will enable us to put our Group capital efficiently on risk going forward, as it has in the past. The extent to which the significant natural catastrophe losses of 2017 will influence local reinsurance capacities and prices in Asia remains to be seen.
As far as our Japanese portfolio is concerned, we expect to maintain a stable market position with opportunities to write specific additional treaties or increase our shares. Given the high degree of market concentration, however, we do not include Japan among our growth markets in Asia. At the main renewal date on 1 April 2018 we expect conditions for most lines to at least remain stable; a trend towards rehabilitation should set in for natural catastrophe covers, which will favour Reinsurers.
China continues to be the focus of our activities in Asia. Particularly against the backdrop of rapid digitalisation in this country, we are seeking new business opportunities with existing and new partners. In traditional reinsurance business we anticipate a continued oversupply of capacity, which means that a greater emphasis on innovation will play an important strategic role in the cultivation of new business.
The markets of South and Southeast Asia offer a broad spectrum of growth opportunities. We are concentrating on expanding our product development activities in retail business. In this way we want to support our customers in the early stages of their development.
The renewal season in India as at 1 April 2018 will see efforts to bring about a qualitative improvement in conditions as well as to further expand the business plan pursued by our branch in Mumbai.
In Australia and New Zealand the market players expect to see clear improvements in conditions in the run-up to the 1 July renewals. With demand for natural catastrophe capacity sharply higher, a global hardening of the reinsurance market will undoubtedly have clear implications for pricing in Australia and New Zealand too.
All in all, the markets of the Asia-Pacific region offer favourable prospects for further profitable growth. Special mention should also be made here of projects with large customers, some of which have already reach fruition while others are still in the development phase. In the context of our updated strategy cycle for the years 2018 to 2020 this region will play a major part in growing our volume and profit.
Rates in South Africa are expected to see continued appreciable hardening in light of the loss situation in the previous year. Having taken a cautious stance in the soft market as part of our cycle management, we shall leverage our good position in order act on business opportunities and further enlarge our portfolio. We therefore anticipate premium growth in the order of 10% for our reinsurance and specialty business in the current year. We also expect to see the business launch of some of our insurtech initiatives.
The market and the placement of reinsurance cessions are just as fiercely competitive in Latin America as they are in other insurance markets. In view of the considerable large losses in the year under review, however, original rates and treaty conditions improved appreciably in the renewals as at 1 January 2018. Based on our good market position and superb financial strength, we profited from the easing pressure on prices in the renewals. In addition, we are paying closer attention to an adequate level of primary insurance rates and making our capacity available accordingly. By adhering to our selective underwriting policy, and reflecting the improvement in primary insurance conditions, it is our assumption that we shall be able to profitably expand our portfolio in Latin American markets and the Caribbean in the current financial year.
Hannover Re expects demand for the coverage of agricultural risks to continue rising: the increasing need for agricultural commodities and foodstuffs as well as the growing prevalence of extreme weather events are generating stronger demand for reinsurance covers, particularly in emerging and developing markets. At Hannover Re we engage both in traditional reinsurance and in intensified cooperation with our customers and partners on the development of new original insurance tools. In this regard, we see further growth potential for index-linked products as part of direct and indirect insurance concepts in emerging and developing economies. The more widespread implementation of public-private partnerships offers us new opportunities to write profitable business in markets that have still to establish themselves.
In our retakaful business we anticipate a predominantly soft rate level on account of the competition-induced excess supply of capacity as well as a comparatively low oil price. Risk selection and good customer relations will therefore play a pivotal role in our underwriting of profitable business. Our focus in 2018 will be on our specialty lines. We are also planning a cautious entry into proportional motor business so as to participate in the available rate increases here. Prices for catastrophe XL business have risen owing to the numerous large losses in 2017. All in all, we expect the premium volume to remain stable.
In natural catastrophe (Cat XL) business we expect to see a continued inflow of cash from the capital markets in the current year as well as capacity growth at traditional insurers. Larger companies will continue to buy worldwide covers, hence reducing the number of reinsurers for such programmes. A further increase in the pressure for mergers & acquisitions is also anticipated. All in all, we do not anticipate a significant increase in demand for natural catastrophe covers. It is only because of the considerable losses caused by the forest fires in California that some primary insurers in this market are likely to buy additional covers. Rate increases were pushed through across a broad front on the back of the significant natural catastrophe losses. Programmes in the United States that been spared losses saw limited increases in the single-digit percentage range; in other countries the rate increases were in the order of 5%. Rate improvements of 20% to 40%, in some cases even higher, were achieved under loss-impacted programmes.
Owing to the implementation of risk-based models for calculating solvency requirements not only within but also outside the European Union, the surge in demand for structured reinsurance products is likely to remain undiminished. The key driver here continues to be the growing integration of reinsurance into insurers’ risk management as a means of offsetting the increasingly exacting capital requirements placed upon them. In addition, the increasing pressure on the profit margins of our customers around the world is creating a greater need for tailor-made reinsurance solutions that can optimise the cost of capital. For the current year we are expecting further significant growth in the premium volume.
In the area of insurance-linked securities (ILS) we expect to see continued growth in demand. Investors are seeking a negative or minimal correlation with other financial investments and hence the diversification that this brings. We are responding to this market situation with a strong emphasis on service, offering individually tailored products – from collateralised reinsurance to catastrophe bonds – for property and life reinsurance risks. Over the coming years we expect our ILS activities to deliver a positive and consistently rising profit contribution. The capital market remains an important factor in the protection covers taken out by our company.