Posted on 05 Feb 2013 by Neilson
Hannover Re expressed satisfaction with the prices obtained in the treaty renewals as at 1 January 2013. "Although the environment is considerably more competitive than in the previous year, our selective underwriting approach enabled us to achieve a price level at least on a par with the quality of the good 2012 financial year", Chief Executive Officer Ulrich Wallin stated.
Hurricane Sandy, which caused significant strains for the (re)insurance industry in 2012, had a stabilising effect on prices. Rate increases were recorded in loss-impacted programmes; these were especially pronounced in marine business. In UK motor business, too, prices for non-proportional reinsurance covers climbed sharply, prompting Hannover Re to further extend its involvement here. "The development of our business in North America was also very pleasing. We grew by 14% here", Mr. Wallin emphasised.
Of the total premium volume booked in the previous year in non-life reinsurance (excluding facultative business and structured reinsurance) amounting to EUR 5,826 million, roughly two-thirds of the treaties with a volume of altogether EUR 3,785 million were up for renewal on 1 January 2013. Of this, a premium volume of EUR 3,476 million was renewed, while treaties worth EUR 308 million were either cancelled or renewed in modified form. Including increases of EUR 348 million from new or modified treaties and thanks to improved prices, the total renewed premium volume came in at EUR 3,824 million - equivalent to growth of 1%. The fact that the increase is on the moderate side overall can be attributed in particular to significantly more intense competition, which at least in some lines and regions served to curtail rate movements. It was also noticeable that large primary insurance groups carried more risks in their retentions. Against this backdrop Hannover Re was again able to generate gratifying growth of 6% in the higher-margin non-proportional sector. Proportional business, on the other hand, contracted slightly.
The treaty renewals again demonstrated the considerable importance that clients continue to attach to financial strength in the reinsurance industry. Hannover Re is superbly positioned with its excellent ratings ("AA-", "Very Strong" from Standard & Poor's and "A+", "Superior" from A.M. Best) and as a financially robust reinsurer it is offered and awarded the entire spectrum of business. Most notably, the upgrading of our A.M. Best rating in September 2012 was a positive factor in the treaty renewals in the United States.
The treaty renewals in North America passed off favourably. Demand for high-quality reinsurance protection continued to rise, even though certain clients raised their retentions appreciably. It was therefore possible to further expand the portfolio of US property business. Loss-impacted programmes, above all those affected by Hurricane Sandy, achieved price increases ranging between 10% and 30%. Premiums in US casualty business are trending higher. All in all, North American business grew by 14%.
The renewal phase in Germany was similarly notable for brisk competition, not least because large primary insurance groups ceded less business to reinsurers. The situation in motor insurance, first and foremost on the liability side, showed further improvement. The total premium volume for German business contracted slightly.
In view of the record major loss expenditure incurred in marine business as a consequence of the "Costa Concordia" cruise ship incident and Hurricane Sandy, rates surged sharply higher. Under loss-impacted programmes the increases ranged from 25% to 40%. Even under treaties that had been spared major losses Hannover Re was able to achieve premium increases averaging 10%. The premium volume for marine business was enlarged.
On the back of the good underwriting results posted in aviation reinsurance in recent years further rate erosion was observed on both the primary and the reinsurance side. The business nevertheless remains profitable; Hannover Re further expanded its portfolio here by entering into strategic partnerships.
Hannover Re is satisfied with the outcome of its treaty renewals in credit and surety reinsurance, where more than two-thirds of the portfolio was renewed. Loss ratios rose slightly on account of the troubled general economic trend. Rates and conditions held largely stable despite the availability of considerable capacity in the market. Hannover Re maintained its premium volume roughly unchanged.
In property catastrophe business the strains resulting from Hurricane Sandy served to substantially alleviate the pressure on prices. Loss-impacted programmes and those faring poorly as a consequence of earlier losses saw rate increases of 15%. Further positive effects should be possible in the rounds of renewals during the year. Our premium volume from worldwide catastrophe business grew by 11%. In this context it should be noted that a mere 40% of Hannover Re's portfolio was up for renewal on 1 January 2013.
Outlook for 2013
In view of the satisfactory outcome of the treaty renewals as at 1 January 2013 Hannover Re anticipates a good financial year in non-life reinsurance. All in all, the prospects on the underwriting side should be roughly comparable with those of 2012. "With an eye to increasingly competitive conditions in non-life reinsurance, we consider ourselves well positioned thanks to our low expense ratio", Mr. Wallin noted. Hannover Re sees further growth potential in business with agricultural risks, in Latin America and in the markets of Central and Eastern Europe.
As already announced, Hannover Re expects to be able to raise its total gross premium volume for the 2013 financial year by around 5% based on constant exchange rates. Premium growth is forecast to be in the range of 3% to 5% in non-life reinsurance and 5% to 7% in life/health reinsurance. "As far as non-life reinsurance is concerned, however, it is even more the case in the current market situation that the quality of the business counts for more than the volume - even if this means that we do not achieve our targeted premium growth", Mr. Wallin stressed.
The company is aiming for a return on investment of 3.4%.
Hannover Re has budgeted an amount of EUR 625 million for major losses incurred in the current financial year; last year's figure was EUR 560 million. The increase reflects, among other things, the enlarged premium volume in non-life reinsurance, and also allows for adjustments to risk models for certain countries.
Assuming that the burden of major losses does not significantly exceed this expected level and barring any unforeseen downturns on capital markets, Hannover Re anticipates Group net income in the order of EUR 800 million for the 2013 financial year.