Higher reinsurance pricing is seen as essential by Hannover Re and the firm sees a chance of rates increasing in Germany for all-important natural catastrophe risks, something that would be welcomed by the broader market and ILS capital providers.
European catastrophe reinsurance rates have dwindled over the last decade, falling to levels that have led many insurance-linked securities (ILS) funds and providers of alternative capacity to pull-back or exit some of these markets entirely.
With no really significant natural catastrophe losses in Europe for some years now, as the key peril of windstorm appears to have gone through a less impactful phase, while at the same time major re/insurers have sought to maximise on their market-share dominance, the European market has become increasingly less attractive.
For ILS funds it has become essential to have good relationships with cedants in Europe in order to ensure access to a reasonable amount of well-priced risk. But for many the pricing has been so low for so long that European perils make up an increasingly small proportion of their overall ILS portfolios.
But perhaps there are brighter prospects ahead, as one of Europe’s dominant players has called for price increases in the key market of Germany.
Hannover Re’s subsidiary in Germany E+S Rückversicherung AG hopes to see rising rates even across natural catastrophe risks in the country.
The reinsurer hopes for positive premium development across the German market.
“Bearing in mind the already strained state of technical profitability and the further decline in interest rates, higher reinsurance prices are essential in many segments,” explained Dr. Michael Pickel, Chief Executive Officer of E+S Rück.
“Along with loss-impacted natural catastrophe covers, we see a particularly pressing need for further adjustments in the motor and industrial fire insurance lines,” he continued.
The company believes that increased risk awareness among reinsurers will result in “slight rate increases in the German market for natural catastrophe risks.”
Hannover Re and E+S Ruck believe that storms such as windstorm Eberhard in March and convective storm Jörn in June this year will help to “underscore the importance of reinsurance as protection against natural disasters.”
E+S Rück also expects that the market will see increased demand from cedants in Germany and price adjustments under any loss-affected reinsurance programmes.
Whether there will be sufficient improvement in rates and terms at the renewals of Germany focused property catastrophe reinsurance programs, to encourage greater interest from ILS funds and other collateralised players, remains to be seen though.
While brokers push for efficient pricing for their clients, the largest reinsurers are also pushing for market share dominance in these European regions, meaning any price increases are likely to be minimal.
That might be sufficient to encourage some more quoting from ILS funds, but it’s unlikely to put pricing back at a level where everyone believes their loss costs and expenses are likely to be covered by the underwriting returns.