- Demand for reinsurance stable
- Treaty renewals see modest premium growth
- Sharp rate increases in offshore energy and European motor liability business
- Rate softening in catastrophe business
- Profit target for 2011 confirmed
Hannover, 2 February 2011:
Hannover Re is satisfied with the outcome of the treaty renewals in non-life reinsurance as at 1 January. "The renewals passed off better than expected for our company. Despite softening tendencies in the market, we achieved broadly stable rates and conditions and are therefore thoroughly satisfied with the outcome. In certain segments, such as offshore energy business and European motor liability, we were even able to push through price increases", Chief Executive Officer Ulrich Wallin explained.
Of the previous year's total premium volume in non-life reinsurance (excluding facultative business and structured reinsurance) amounting to EUR 4,867 million, a good two-thirds of the treaties worth altogether EUR 3,282 million (67%) were up for renewal as at 1 January 2011. Of this, a premium volume of EUR 2,993 million was renewed, while treaties worth EUR 284 million were either cancelled or restructured. "Against the backdrop of more intense competition, we set particularly great store by selective underwriting of treaties. We were thus again able to generate profitable growth in this year's renewal phase", Mr. Wallin emphasised.
Including increases of EUR 348 million from new or restructured treaties and thanks to improved prices in some areas, the total renewed premium volume thus came in at EUR 3,346 million. Making allowance for treaties with a later renewal date and assuming constant exchange rates, gross premium in non-life reinsurance (excluding facultative business and structured reinsurance) is likely to surpass the previous year's level at EUR 4,954 million (+1.8%).
The treaty renewals again demonstrated the considerable importance that ceding companies continue to attach to a reinsurer's financial strength. A very good rating is a prerequisite for a reinsurer if it is to be offered and awarded the entire spectrum of business. With its excellent ratings ("AA-" from Standard & Poor's and "A" from A.M. Best), Hannover Re is one of the reinsurers that meets this requirement.
In its domestic German market Hannover Re – through its subsidiary E+S Rück – was able to further cement its position as one of the leading reinsurers. While prices for loss-impacted programs rose, programs that had been spared losses saw rate declines. The development of motor liability business was very pleasing. "In this important line for our company we were again able to obtain rate increases averaging 5% in non-proportional business", Mr. Wallin noted.
The treaty renewals in North America were satisfactory overall; the portfolio remained virtually stable. In property business modest rate reductions were observed in some instances, but prices were still commensurate with the risks. The picture in casualty business was a mixed one; rates for standard casualty business, an important segment for Hannover Re, were stable. Unchanged or slightly lower rates were recorded in the professional indemnity lines.
The situation in marine business, especially the offshore energy sector, was very pleasing. As anticipated, rates surged sharply on the back of the "Deepwater Horizon" drilling rig accident and the premium volume consequently grew by 20%.
Hannover Re was also satisfied with the development of aviation business. The written premium volume increased by 14%. Despite softening tendencies attributable to excess capacities in the market, prices for the most part remained stable.
Following above-average rate increases over the past two years in credit and surety reinsurance, the treaty renewals as at 1 January 2011 were shaped by a considerably more competitive climate. Against this backdrop, prices in credit reinsurance declined. Given the company's selective underwriting policy, the volume contracted by 11%. Nevertheless, the prices obtained were still on a good level. Rates in surety reinsurance remained stable.
The volume in global treaty business increased by 3%, although the picture was a mixed one: rates in the developed markets were broadly stable, while vigorous growth was the hallmark of emerging markets.
In worldwide catastrophe business prices for reinsurance covers for the most part retreated. Rate reductions were particularly marked for US risks. Hannover Re responded accordingly by scaling back its business in areas where the price situation was not adequate. Overall, Hannover Re reduced its volume in this segment by 15%. Appreciable double-digit price increases were booked under loss-impacted programs. In Chile, for example, prices climbed by up to 40% following the devastating earthquake in February 2010.
Outlook for 2011
In view of the satisfactory treaty renewals as at 1 January, Hannover Re anticipates a good financial year in non-life reinsurance. "For 2011 we see sufficient opportunities for selective profitable growth. In this context we shall concentrate on segments where prices are rising or where they adequately reflect the risks", Mr. Wallin stated. The company expects net premium earned from its total non-life reinsurance portfolio to remain stable or show modest growth of up to 3% in 2011 combined with healthy profitability.
Hannover Re expects net premium in life and health reinsurance to record an increase in the range of 10% to 12% in the current financial year.
For total business Hannover Re anticipates net premium growth of approximately 5% at constant exchange rates.
The return on investment should be in the region of 3.5%.
Assuming that the burden of major losses remains within the expected bounds and as long as there are no sharp downturns on capital markets, Hannover Re is looking to generate Group net income in the order of EUR 650 million. As to the dividend, the company still anticipates a payout in the range of 35% to 40% of its IFRS consolidated net income after tax.