Hannover Re anticipates stable prices and conditions for 2019 following last year’s large loss events

The market environment in worldwide property and casualty reinsurance remains challenging. Hannover Re expects to see stability in prices and conditions overall for the treaty renewals as at 1 January 2019.

Monte Carlo, 10 September 2018: The market environment in worldwide property and casualty reinsurance remains challenging. The enormous natural catastrophe losses of the past year led to an increase of reinsurance rates in affected regions and programmes, which however were lower than expected. At loss-free programmes, rates tend to stabilise.

Competition continues to be intense and is clearly shaping the pricing situation. At the same time, the capital resources available to most insurers can be described as good, as is also reflected in retention levels. These are still high, suppressing demand for reinsurance coverage. The ILS (insurance-linked securities) market also continues to provide considerable capacities, adding to the pressure on prices and conditions.

A gradual shift in sentiment can nevertheless be discerned in the industry. The results posted by some companies deteriorated sharply in 2017. Some reinsurers’ results in 2018 were also impacted by follow-up losses from natural disasters. Furthermore, diminished run-off profits must be expected. Rising inflation – fuelled in part by new trade barriers – is pressuring the industry to increasingly implement rate adjustments in some segments.

Merely moderate rate increases overall have so far emerged out of the price negotiations within the year. In the case of natural catastrophe business, which had been hard hit in the previous year, more appreciable mark-ups were nevertheless recorded for loss-impacted treaties. All in all, the rate quality in the reinsurance market is slightly improved year-on-year, albeit remaining on a low while still adequate level.

"The further development of the loss amounts from last year's hurricanes as well as the minimal large losses incurred in the current year to date will be crucial in determining prices in property and casualty reinsurance", CEO Ulrich Wallin commented during a press conference in Monte Carlo. "The lower the strains from catastrophe losses turn out to be this year, the more difficult it will be to push through requisite additional price increases in the coming year. Nevertheless, we are seeing strong demand and hence rather favourable opportunities for growth in certain segments."

Hannover Re anticipates increasing demand in, among other areas, covers for cyber risks as well as solutions designed to provide solvency relief under structured reinsurance.

For the treaty renewals as at 1 January 2019 the Group therefore expects – despite the overabundance of reinsurance capacity – stable prices and conditions for the most part. Similarly, an industry-wide softening in profitability as well as a higher burden of attritional losses point to a need for improved market conditions.

For the three pillars of its property and casualty reinsurance – namely target markets, specialty lines and global reinsurance – Hannover Re anticipates the following developments in the treaty renewals as at 1 January 2019:

I. Target markets: North America

The economy and the North American primary insurance market continue to develop favourably. The rate level remains stable overall and further steady growth can therefore be anticipated. Markets are still fiercely competitive, with both property and casualty business seeing vigorous competition despite the ongoing trend of mid-sized losses.

The hurricanes and Californian wildfires of the previous year caused very significant losses on both the insurance and reinsurance side. Capacity in the market nevertheless remains unaffected, as a consequence of which the price adjustments even under loss-impacted programmes were moderate. While appreciable increases were recorded, the similarly anticipated impact on loss-free programmes failed to materialise.

The market is currently preoccupied with the issue of sustainable coverage concepts for flood and terrorism risks.

In the case of proportional reinsurance covers Hannover Re expects to see – especially in property insurance – a slight reduction in commissions and stable treaty conditions, which will continue to be driven by losses from forest fires and windstorm events. Non-proportional reinsurance is in a robust state that promises risk-appropriate treaty conditions for the upcoming renewals as well, with further modest price adjustments anticipated in property insurance overall. Interest in covers offering solvency relief is picking up again, with the result that here too Hannover Re expects to see stronger demand.

Continental Europe

The markets of Northern, Eastern and Central Europe are grouped together under Continental Europe. The largest single market is Germany.

Germany: Hannover Re expects to see continued growth on the German property and casualty primary insurance market. It is open to question, however, whether the previous year's level can be matched, in part because of the increasing competition emerging on the motor insurance market. Homeowners' comprehensive insurance is still in need of remedial action. As things currently stand, the strains caused by events such as winter storm Friederike in January of this year and various heavy rainfall events are likely to have reinsurance implications only in isolated instances because in many cases they remained within the retention run by primary insurers.

In motor insurance the earnings situation is clouded by the onset of more lively competition. For 2019 Hannover Re currently anticipates growth of just under two percent for the total market in terms of policy numbers, with at most a break-even result. Average claim amounts in motor third party liability insurance are continuing to rise. Claims frequency continues to decline, though less pronounced than in the previous years. Against this backdrop Hannover Re sees a need for adjustments with respect to some customer accounts depending on the performance of motor reinsurance cessions. The influence of telematics tariffs and developments relating to self-driving vehicles on the market as a whole continues to be assessed as relatively slight.

Growth opportunities can be discerned in the area of cyber insurance. It is Hannover Re's expectation that insurers will focus more closely on commercial customers and small and mid-sized enterprises in this segment over the coming year.

Central and Eastern Europe: In primary insurance the market in Europe continues to be shaped by surplus capacities. Reinsurance markets consequently also remain fiercely competitive, even though prices are more stable than in the previous year. Most notably, covers for risks in the fire, industrial and motor insurance lines are seeing sustained intense competition.

In France the rivalry among primary insurers in motor business remains focused primarily on the pricing side, while at the same time the claims incidence is high. Industrial risks are seeing continued price erosion. Many insurers are therefore concentrating on SMEs, thereby increasing the pressure on prices in this area too. As a further factor, rising inflation rates are adding to the cost of settling claims, as is also true of other markets. Thanks to the improved state of the economy, modest growth can nevertheless be observed in primary insurance business. The upturn in construction activity noted in the previous year has been sustained, which Hannover Re should continue to benefit from in view of its leading position in builder's risk insurance.

Competition on the reinsurance side remains fierce, just as it is on the primary market, not least given the absence of extraordinary losses in the first half of the year. The frequency of more minor natural catastrophe events was, however, on an unchanged high level.

Growth rates in the countries of Eastern Europe, on the whole, continue to be higher than the overall European average. This is true of both the primary and reinsurance market. New rules governing compensation for relatives will lead to further premium hikes in motor insurance. The brisk demand for top-quality reinsurance solutions remains undiminished across the entire region. Key drivers here include tighter requirements placed on insurers' capital resources by Solvency II as well as more rigorous regulatory oversight and anticipated changes in accounting principles. Despite intense competition, sizeable growth opportunities can be expected in Eastern Europe over the medium to long term – against a backdrop of continuing broadly adequate reinsurance prices and conditions.

In view of its robust position in the market, it is Hannover Re's assumption that the company will be able to further expand its customer relationships. Demand for high-grade reinsurance solutions remains strong.

II. Specialty lines: Aviation

The stabilising tendencies that could already be discerned on the primary market for aviation insurance last year have been sustained. In certain segments, such as the market for small planes and corporate jets, it was possible to secure rate increases in some cases. At the same time, the capacity available on the primary market was lower than in the previous year due to the discontinuation of business activities by some players, especially on the London Market.

On the reinsurance side capacity remains unchanged, although here too a trend towards stabilisation can be detected thanks to the disciplined underwriting approach adopted by some market participants. Very much as in the original market, therefore, Hannover Re anticipates a longer-term and piecemeal improvement in the market environment.

Particularly when it comes to globally operating airlines, initial indications can be observed on the primary insurance market of a stabilisation in prices. Over the short to medium term, however, Hannover Re does not expect to see any significant change in the overall situation owing to the continued abundant supply of insurance and reinsurance capacity. The pricing level in the space segment remains under pressure due to an excess of capacity and the consistent success of proven space launch systems.


The losses incurred from natural catastrophe events in the second half of 2017 brought about some stabilisation in marine business. Moderate and in some instances appreciable price increases were obtained on the particularly hard-hit London Market in the renewals during the first half of 2018. It remains to be seen, however, whether this trend will be sustained in 2019. While overall results for the marine insurance segment continue to be inadequate on the primary side, the very low loss experience to date in 2018 may further ease the pressure for additional price increases in the short term.

In the offshore energy sector the upswing in the price of oil in 2017 and 2018 prompted a slow resurgence in demand for primary insurance covers. Nevertheless, the premium volume for this sub-segment of marine insurance is still well below the highs of 2014. Unlike in 2015 and 2016, large losses were absent in 2017 and also thus far in the first half of 2018, hence enabling primary insurers and reinsurers to report at least good results. Hannover Re only expects to see a sustained improvement in the premium and rate trend in this segment over the medium term.

Credit and surety

Compared to prior years, the loss ratios in credit and surety insurance as well as political risks business are slightly higher. The loss experience is characterised by a stable claims frequency on a good level and modestly rising loss amounts in individual cases. The elevated claim costs witnessed in emerging markets in previous years have now retreated again, although they are still on the high side viewed from a multi-year perspective. With this in mind, prices for insurance and reinsurance should remain stable; demand for reinsurance covers in the area of credit, surety and political risks is either stable or trending slightly higher.

United Kingdom / Ireland

The climate on the primary insurance market in the United Kingdom and Ireland continues to be intensely competitive. Thanks also in part to the initiative launched by Lloyd’s to take a critical look at the business results reported by syndicates, Hannover Re expects at least a stable environment in this market.

In property reinsurance, too, Hannover Re was able to secure double-digit price increases on business impacted by hurricanes Harvey, Irma and Maria. Stable rates and conditions were negotiated in all other lines of reinsurance.

Further price increases on liability reinsurance business covering private customer portfolios – and hence affected by the 2017 cut in the Ogden rate – are unlikely in 2019. The rate improvements obtained in the various rounds of renewals since the spring of 2017 were well into the double-digit percentage range.

III. Global reinsurance: Catastrophe business

Even after what can certainly be described as the historic hurricane losses of the past year, there has been no change in the prevailing oversupply of reinsurance capacity shaping worldwide natural catastrophe business. As a further factor, the considerable capacities originating from the ILS market remain undiminished. Overall, this led to a merely modest increase in prices for property catastrophe business that was driven by loss-impacted programmes, although here too the rate increases came in below market expectations.

Hannover Re anticipates the following developments on individual markets for natural catastrophe risks:

North America: The recent mid-year treaty renewals brought modest rate rises. In Florida increases of around 20 percent were generated under loss-affected programmes, with improvements otherwise in the low single digits. If there are no appreciable losses in the current year, it will likely be difficult to push through further rate increases for the coming year. Growing demand for reinsurance coverage can be observed from state-backed programmes offering protection against flood risks. Subject to commensurate prices, Hannover Re would be prepared to make capacity available for such covers.

Europe: European reinsurance markets have seen less change in the sustained pressure on prices. The protracted soft market is most striking in United Kingdom but is also evident for Germany, where there are currently no grounds to anticipate a shift in market conditions. The losses caused by the forest fires in Sweden are unlikely to be reflected on the pricing side.

Japan: Modest price reductions for catastrophe covers were observed here in the current year. The flood losses in Hiroshima prefecture will probably have no appreciable effect on demand for reinsurance capacity or prices. In the next round of treaty renewals for Japan on 1 April 2019 the price level is therefore expected to remain roughly stable.

Australia / New Zealand: The earthquake losses in New Zealand from 2016 have stabilised rates there; negative run-offs are still being seen, however, prompting some providers to take a rather cautious approach. In Australia, on the other hand, prices remain under pressure – although the pain threshold for further price reductions has now been reached. Reinsurers with a very good rating, long-standing expertise and excellent business relationships – such as Hannover Re – have opportunities to secure more attractive prices than the market as a whole, especially in Australia.

Latin America: The markets of Central and South America continue to post above-growth rates, albeit with substantial differences from country to country. Most markets are still seeing elevated demand for high-quality reinsurance protection, enabling financially robust reinsurers to book business at adequate prices. Recent acquisitions of sizeable portfolios by primary insurers in Latin America have generated a greater need for reinsurance capacity, a development from which Hannover Re is also benefiting.

Caribbean: Caribbean nations were hit hard by the hurricane losses of the past year. The renewals as at 1 July consequently saw price increases of up to 40 percent under loss-affected programmes, while the figure was around 10 percent for programmes that had escaped unscathed. Hannover Re is a well-established market player in this region. Further price increases after the sharp rises seen in the current year are, however, rather unlikely if no additional losses are incurred.

Worldwide treaty business

Developments in worldwide treaty business varied across markets and regions.

Asia-Pacific: In what is a very mixed region from a reinsurance standpoint, Hannover Re continues to trust in its strategy of diversification – both in terms of the coverage offered and its regional positioning. Through special extensions of the book of business written with selected target customers Hannover Re is able to secure profitability and growth for the medium term. This is backed by further strengthening of the local network.

Latin America: Larger ceding companies, in particular, prefer to work with only a limited number of reinsurers, primarily the major providers. One reason here is the significant natural disasters of 2017, which showed which reinsurers were in a position to promptly meet their payment obligations. Consequently, Hannover Re benefited considerably from an increased demand for natural catastrophe coverage in Latin America.

Agricultural risks: The growing need for agricultural commodities and foodstuffs as well as the increased prevalence of extreme weather events continue to stimulate demand for insurance and reinsurance solutions, especially in emerging and developing countries. The "InsuResilience" initiative launched by the G7 countries has, for example, set itself the goal of improving access to insurance coverage against climate risks for millions of particularly poor and vulnerable people in developing countries by 2020.

The increasingly widespread implementation of public-private partnerships is opening up new opportunities for Hannover Re to write profitable business in markets that have still to establish themselves. Furthermore, the growing availability of new technologies, including for example remote sensing by satellites, is enabling continuing expansion of this segment with innovative and efficient insurance products such as parametric covers.

In Germany the dry and arid conditions of the summer of 2018 have not as yet become an issue for the insurance industry because agricultural covers here are focused virtually exclusively on hail risks.

Insurance-Linked Securities: Hannover Re accesses the ILS market both to obtain protection for its own catastrophe risks and to transfer its clients' life & health and property & casualty risks to the capital market. The latter primarily takes the form of collateralised reinsurance, which is still the largest business segment within Hannover Re's ILS activities, but is also supplemented by the issuance of catastrophe bonds. In 2018, for example, the company has so far brought four catastrophe bonds to market for US clients with a total volume of around USD 1.4 billion. Over the coming years Hannover Re expects demand to show moderate growth overall. The company is also itself an investor in catastrophe bonds, thereby maximising all the opportunities offered by the ILS market.

Structured reinsurance/Advanced Solutions: This business delivered strong growth in the current year across all regions, especially in North and South America as well as in Europe. Not only did the average premium per contract increase, but also the number of contracts in absolute terms. Going forward, Hannover Re expects a further rise in demand for innovative and tailor-made reinsurance solutions.

Growth opportunities on a continuing high level are anticipated in North America, Europe and Asia. The purchasing habits of many clients have changed of late, reflecting a shift towards holistic reinsurance solutions. This trend shows no sign of abating and will mean that in the future, too, more and more customers will be calling for increasingly complex reinsurance solutions. It is still too early to foresee what effect the adoption of IFRS 17 will have on structured reinsurance business. Nevertheless, implementation should generate stronger demand for reinsurance solutions, driven by the further increase in the complexity of capital and risk management faced by customers.


Hannover Re expects to see stability in prices and conditions overall for the treaty renewals as at 1 January 2019. While improvements should be possible under loss-impacted programmes, covers that were spared any losses have reached the minimum level from a technical standpoint. Ultimately, though, when it comes to determining prices it still remains to be seen how the major loss situation for 2018 ends up, how large losses from the previous year continue to develop, how inflation turns out and whether the run-off results from reserves in the US casualty market deteriorate.

As has been apparent from the renewals over the course of the year, broadly diversified reinsurers with expertise and a very good rating are able to profit from the current state of the market. Hannover Re has thus been highly satisfied with the business renewed to date in 2018.

Looking ahead to 2019, further promising possibilities should open up. Along with the opportunities arising out of digitalisation, demand for coverage of cyber risks – not just from large corporations but now also from SMEs – is on the rise. Similarly, business in the Asian growth markets (China, India) should also present some openings. Structured reinsurance offers further scope for growth in covers taken out for capital relief as a consequence of the implementation of risk-based solvency systems.

In the present climate Hannover Re will stay focused on its core competence: traditional reinsurance, supplemented by individual coverage concepts such as product-oriented cooperation arrangements with primary insurance customers. As in the previous year, the company is concentrating on consistently growing its existing high-quality book of business, complemented by strategic partnerships. In addition, Hannover Re will take advantage of opportunities that arise in niche and specialty segments. As was true of earlier soft market phases, the guiding principle is to only write business that satisfies margin requirements; at the same time, though, it remains important to offer customers alternative solutions at an appropriate price level.

"The positive future prospects for the global reinsurance market are the cornerstone of our success over the medium and long term. With this in mind, we are concentrating quite deliberately on the products and services typically associated with a reinsurer", Mr. Wallin asserted. "We have no doubt that this is the right course to pursue when it comes to generating sustainable value for our clients, our shareholders and our employees."

In view of the business development so far in the current financial year and the company's very good positioning in the market, Hannover Re considers itself well on track to achieve its 2018 year-end targets. Based on constant exchange rates, the company anticipates an increase of more than 10% in its gross premium volume and net income in excess of EUR 1 billion for its total business. This is conditional upon major loss expenditure not significantly exceeding the budgeted level of EUR 825 million and assumes that there are no unforeseen distortions on capital markets.

Hannover Re is one of the world’s leading reinsurers. It transacts all lines of property & casualty and life & health reinsurance and is present worldwide with more than 3,500 staff. German business of the Hannover Re Group is written by the subsidiary E+S Rück. Established in 1966, Hannover Re is recognised as a reliable partner for innovative risk solutions, exceptional customer intimacy and financial soundness. The rating agencies most relevant to the insurance industry have awarded both Hannover Re and E+S Rück outstanding financial strength ratings: Standard & Poor's AA- "Very Strong" and A.M. Best A+ "Superior".

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