Company FAQ
8. Non-life reinsurance: Can this business segment be underwritten profitably?
Profitability before volume
The scope of non-life reinsurance
Non-life reinsurance comprises the traditional reinsurance of property and casualty risks as well as structured reinsurance, i.e. this term subsumes the reinsurance of all risks which do not derive from the life, health or personal accident sectors. In terms of gross premium volume, non-life business constitutes the largest segment in reinsurance; due to its cyclical nature, however, it is also the most difficult.
Cyclical market developments
A reinsurance market cycle may take the following course: prompted by one or more financial years with high losses, some reinsurers withdraw from the market because they no longer see any possibility of operating this business profitably. This leads to a shortage in the reinsurance capacity offered market-wide, which in turn prompts a rise in the price of reinsurance protection. Those players who have remained in the market thus profit from this cyclical upswing (hard market). The now favourable market trend attracts new reinsurers, however, and as a result after a few years the available capacity once again exceeds demand. Consequently, this heralds a fall in prices and the onset of a cyclical downturn (soft market).
Major loss events
Yet it is not only cyclical market developments that make non-life reinsurance a difficult business segment to forecast. In particular, major loss events such as natural catastrophes and (very) large man-made losses can also significantly impact the success of this segment.
Focus on profitable business
Nevertheless, despite its cyclical nature, property and casualty reinsurance can be a highly profitable business segment – especially in a hard market. By means of our active cycle management we concentrate even more systematically on profitable market segments within the cyclical and volatile non-life reinsurance business group. Our sole concern is the profitability of the business: we do not consider premium volume or market share to be guiding strategic ratios. In property and casualty reinsurance we enlarge our market share only during upswings characterised by favourable market conditions (hard market), whereas we reduce our share again as the cycle turns downwards (soft market).
Consequent diversification
In order to limit as far as possible the negative impacts of the market cycle in non-life reinsurance on our overall business development, Hannover Re also pursues a systematic strategy of diversification.
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