No major impact to Hannover Re’s reinsurance renewals from ILS

German reinsurer Hannover Re, the third largest reinsurance firm in the world, said in its latest quarterly results that it felt no significant impact from the inflow of capital from institutional investors in insurance-linked securities in its reinsurance renewals.

Hannover Re said that it was satisfied with the results of its treaty renewals in January, despite an increasingly competitive and over-capitalised reinsurance market.

CEO Ulrich Wallin commented on the renewals; “Although the rate level in non-life reinsurance was broadly lower than in the previous year, we achieved adequate margins thanks to our systematic underwriting discipline. We are satisfied with the rate level of our renewed portfolio; profitability is likely to remain largely stable relative to 2013. In areas where risks were not commensurately priced we reduced our shares – sometimes markedly so.”

Hannover Re pulled back slightly, reducing its premium volume by 2% due to a more selective approach to underwriting. As well as the fact that it was more selective in the reinsurance business it chose to underwrite, Hannover Re also cited a lack of major losses and higher retention levels as factors affecting the premium decline.

Wallin cited a well-capitalised reinsurance market, more alternative capital flowing into the space bringing higher competition. However, overall pricing was largely at a sufficient level, said Wallin.

The reinsurer specifically mentioned insurance-linked securities (ILS), saying that while the inflow of capital from the ILS market caused a sharp rate decrease in U.S. natural catastrophe business, this did not result in a significant share reduction for Hannover Re.

That is an interesting statement though, as it might suggest that Hannover Re maintained the majority of its share of U.S. property catastrophe reinsurance business despite the greatly reduced rates. The reinsurer did say that it maintained a restrained risk appetite and that its premium volume contracted as a result.

The reinsurance market continues to be attractive to the capital markets, said Wallin, but he said that as cedents have retained more risk it tends to result in renewal panels being reduced which can favour the large reinsurers such as itself.

Interestingly Wallin also discussed reinsurance brokers attempts to change terms on renewal treaties but said that these attempts were largely unsuccessful and that it did not significantly adjust terms itself.

Wallin said that Hannover Re did cancel some large treaties, where it felt that prices were not attractive anymore, but did not write that many new treaties preferring instead to increase shares on existing treaties where it felt profitability could be maintained or even bettered.

Juergen Graeber, coordinator of non-life reinsurance at Hannover Re, commented on alternative capital saying that Hannover Re’s excellent rating helped it to avoid the rate pressures being applied by inflows of alternative capital, as it found large cedents attracted to its secure capital.

Hannover Re also benefitted from the current market conditions by securing its own retrocessional reinsurance programme with some cost savings and increased coverage, which also has the potential to enhance its profitability through 2014. Wallin said that Hannover Re saved over 10% on its retrocession programme expenses, which equates to a mid-double digit million Euro figure, but secured additional coverage anyway.

Looking ahead, Hannover Re said that it anticipates a good financial year in non-life reinsurance, with growth opportunities in Asia-Pacific markets, Latin America, Central and Eastern Europe and in marine reinsurance business.

“Thanks to our comparatively low expense ratio and good market positioning we are well placed to achieve our 2014 profit target despite challenging conditions in non-life reinsurance. Going forward, as in the past, we shall not make any concessions to our proven strategy of selective underwriting,” commented Wallin.

Hannover Re’s CEO Ulrich Wallin said recently that he expects reinsurance premiums to fall in 2014.