Reinsurance capacity to remain high at 1/1, rates to stabilise: Hannover Re

Global reinsurance giant Hannover Re expects to witness greater stability in pricing and terms and conditions at the upcoming January 1^st 2017 renewal season, but does expect the volume of reinsurance capital available to remain high.

Despite a recent slowdown in the entry of alternative reinsurance capital and persistent rate declines in the global reinsurance sector, Hannover Re expects there to be ample capacity available at the key January 1^st 2017 renewals, suggesting a continuation of the supply/demand imbalance that has engrossed the industry during its softening cycle.

However, a recent trend of stabilisation in pricing and terms and conditions, as reinsurers continue to push back against falling prices and search for a bottom in the pricing floor, is expected to persist into the new-year, explains the German domiciled reinsurer.

“Looking ahead to the upcoming treaty renewals in property and casualty reinsurance as at 1 January 2017, Hannover Re generally expects to see greater stability in prices and conditions than a year ago, even though the supply of reinsurance still clearly outstrips demand,” said Hannover Re, in its quarterly statement for the first nine months of 2016.

The message from other global reinsurers has been similar, with reinsurer Munich Re stating in its third-quarter earnings release that it expects further rate and terms and conditions stability at 1/1, despite the market remaining challenging.

Despite the challenging operating environment, Hannover Re expressed confidence in finding the scope to write attractive business, something that is likely helped by its size and scale when compared to some other players in the space.

Opportunities for new business appear scarce in the global reinsurance market, and in recent times it has seemed that a growing number of traditional and alternative sources are fighting over a shrinking market size. But Hannover Re feels that the continued transformation towards a truly digital world is opening up new opportunities for insurers and reinsurers.

“Furthermore, in view of the increasing exposure potential, products designed to protect against cyber risks are likely to grow in importance – also in markets outside the United States.

“Hannover Re additionally sees growth possibilities in the area of credit and surety and in U.S. property and casualty business,” said Hannover Re.

Emerging, large scale risks such as cyber and terrorism are seen as huge growth opportunities for reinsurers, but limitations with modelling and the complex nature of cyber exposures has mitigated the development of adequate and effective solutions.

With technology advancing all the time and insurers and reinsurers across the globe becoming more and more aware of the importance of developing the right solutions to tackle the vast cyber protection gap, the coming months could see greater headway made in this area, which should result in more of an opportunity for reinsurers to create solutions and provide capacity.

The wealth of alternative reinsurance capital is now widely viewed as a permanent part of the global reinsurance industry, and while its entry has slowed in more recent times it continues to expand its footprint across the international reinsurance industry.

“All in all, the company will maintain its focus on its existing business. Life and health reinsurance will likely show a stable development relative to the previous year, both in terms of premium and results.

“For the 2017 financial year Hannover Re again anticipates stable or slightly lower gross premium based on constant exchange rates,” said Hannover Re.

Discipline and efficiency are likely to remain key focuses of reinsurers at the upcoming January 1^st renewal season, and with capacity levels expected to remain high it will be interesting to see if companies are treated to additional rate stabilisation and more favourable terms and conditions than have been witnessed in previous periods of the softening cycle.