However, the picture is a mixed one as far as reinsurance prices are concerned, particularly in the area of casualty business in the United States, where the market continues to be relatively soft, and meaningful rate increases are necessary in order to reach risk-adequate price levels. In the case of catastrophe covers, too, not all expectations for rate increases were fulfilled. Given that
sufficient capacity is available and provided there are no major cat losses prior to the renewal season, Hannover Re anticipates a stable pricing environment at the January 1st renewals.
In some lines, for example worldwide credit and surety reinsurance or aviation business, further price increases and improvements in conditions are expected. These are mainly the result of increased loss activity necessitating upward price adjustments.
Structured reinsurance covers have also profited from the scarcity of capital in the primary sector. These products are designed to support primary insurers’ solvency position. In light of the
repercussions of the financial market crisis, demand for surplus relief contracts has consequently risen sharply.
All in all, Hannover Re expects rates to remain broadly stable in the upcoming January 2010 renewals in non-life reinsurance. Details of the current status of specific individual markets and Hannover's expectations for them going forward are provided as follows.
North American market
Property business: Rate stabilization in the primary market should continue. No further hardening of the market expected if hurricane season passes off without major events. Reinsurance terms and conditions in pro rata business stable and have generated the expected margins. General trend remains positive in non-property business.
Casualty business: pace of rate reductions in primary market is currently slowing, especially in commercial lines.
Outlook will remain mixed. Classes such as D&O for financial institutions may see another round of sharp rate increases driven by adverse loss experience. Other classes such as workers’ compensation are exhibiting a disciplined response to calls from rating agencies and information institutes recommending rate increases. Improvements in terms on the reinsurance market are mixed, depending very much upon line of business. Rate increases for workers’ compensation obtained in July 2009. Good security very much in demand. Outlook for casualty reinsurance should become more promising in the medium term. Underwriting result assuming greater importance as investment income dwindles. Reinsurers with good rating should benefit from flight to quality as insurers become
more security-conscious in response to financial crisis.
Specialty Lines
Aviation: After a string of losses market conditions for primary and non-prop. business are hardening, albeit from a low level. Further increases for primary and reinsurance
market to risk-adequate levels expected.
Marine: Depending on loss situation, stable to slightly increasing rates in the primary market in all lines of marine and offshore energy business expected; in non- proportional reinsurance stable rating environment expected; business well above pricing levels of 2005 still available in US and London markets.
Credit/Surety: Difficult situation currently in trade credit (re-)insurance in view of rising insolvencies; surety has performed well to date. Economic environment should improve slowly; frequency and severity risk still at increased level, but slowly diminishing; drastic price increases and very restrictive underwriting on the primary and reinsurance side should help to improve results in 2010; reinsurance capacity crunch expected for renewal
2010.
• Property Catastrophe Market
Property catastrophe business: 2009 started with European winter storm Klaus, followed by severe bushfires in Australia, floods in Eastern Europe and an earthquake in Italy. These events caused minor losses for the reinsurance markets and stayed mainly within the retention of primary companies.
USA: Capacity is tight but sufficient. Capital from financial markets is not moving back into the reinsurance sector to the full extent. Even with no major hurricane or earthquake losses in 2009 pricing level will stay at its current level. In the event of a moderate hurricane season ROLs will
increase by up to 10%. If capacity is available cedants will try to buy more limits to protect their balance sheets.
Europe: Only minor rate changes expected unless programs suffered a loss in 2009; large European
programs might see some price pressure due to demand for highly rated capacity. CEE primary market seeing stronger demand for catastrophe protection as a result of increased values; flood events of 2009 should lead to price increases.
Japan: Further rate increases for earthquake covers, rates for typhoon covers stable to slightly positive.
Asia/China: No drastic changes in cat pricing expected since most reinsurers still have more capacity available.
Australia: Due to the severe fire losses rate increases in excess of 10% can be expected for property cat protections.
Hannover Re’s Stance on Upcoming Renewals
Overall, Hannover Re views the current climate as offering opportunities in several segments. Whilst Hannover Re sees stable premiums in the German, US and Asian markets for its book of business, it expects solid growth rates in the specialty lines, particularly in aviation and credit/surety. For its facultative business as well as structured solutions Hannover also anticipates premium increases in 2010. Furthermore, it will strengthen its writings of agriculture reinsurance and in emerging markets. Hannover Re is currently observing an improvement in market conditions for insurance-linked securities and therefore expect more business in this area.
On the retrocession market Hannover Re anticipates conditions at the same level or slightly better.
Given the current profitability of the company, Hannover Re is well positioned with its strong capitalisation and ratings to benefit from the opportunities in the year ahead. It will most likely see a further expansion of its business in 2010. As in the past, brokers will remain Hannover's most important distribution channel.