Global reinsurance firm Hannover Re has increased its net major loss budget for 2023 to EUR 1.725 billion, citing growth in its P&C reinsurance book and an “increased loss expectation from natural catastrophes” as the drivers.
The reinsurer reported preliminary group net income of EUR 1.41 billion for 2022 today, with a 12.7% increase in gross premiums written during the year.
Premiums rose to EUR 33.3 billion (up from EUR 27.8 billion), but the underwriting result in property and casualty reinsurance was affected by a high claims burden, Hannover Re said.
The reinsurer is targeting additional growth in 2023 and has lifted its profit forecast to EUR 1.7 billion for the year, based on the continued favourable market environment in reinsurance.
But, “In order to take account of the growth in the property and casualty reinsurance portfolio and the increased loss expectation from natural catastrophes, Hannover Re has increased its net major-loss budget for 2023 to EUR 1.725 billion (EUR 1.4 billion),” the reinsurer explained.
“Thanks to our position as a profitable and sought-after business partner and in light of the attractive market environment, especially in property and casualty reinsurance, we again expect a satisfying Group net income for the current financial year,” Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re commented.
“After the high burdens from major losses in the past years, we will stick to our conservative reserving policy in the current business year.”
The move to increase the catastrophe budget for 2023 is likely driven by significant growth in property reinsurance business at the renewals, as well as a realisation that this growth trend could continue.
With catastrophe claims costs trending higher over recent years, with both loss occurrence and claims costs being key drivers, it makes sense to assume the major global reinsurers will require larger buffers.
In addition, we suspect Hannover Re’s retrocessional arrangements may have shrunk further around the 1/1 renewals, so the higher catastrophe budget could also be partially related to the need to retain more losses when major events occur.
Hannover Re’s retro arrangements shrank at the January 2022 renewals and with retro capacity still constrained, while pricing is much higher, it would be understandable if they have shrunk further for 2023.
It’s also notable, on that front, that Hannover Re claims on its retrocession in 2021 and 2022, including from hurricane Ian.