Aon Appoints Bob Reville to Advance Growth Opportunities in Casualty Reinsurance
AON, a leading global professional services firm, announced the appointment of Bob Reville as senior managing director, casualty catastrophe market leader for Aon’s Risk Capital, effective July 15th.
Reville’s expertise in casualty modelling and predictive analytics will help Aon’s insurer clients navigate emerging and established risks across product and environmental lines. As a market-facing leader for casualty, he will support companies in capturing growth opportunities as client needs evolve, from PFAS contamination to the impact of social inflation.
Reporting to Amanda Lyons, global product leader for Reinsurance Solutions, Reville joins Aon from Moody’s. He previously co-founded and led casualty analytics organization Praedicat as CEO.
Lyons said: “Bob brings deep expertise in extreme liability risk and advanced analytics that will help our clients better understand and respond to exposures driven by large-scale liability events. This is an exciting step forward in strengthening how we bring together casualty expertise, analytics and market innovation to solve increasingly complex client challenges.”
Reville said: “We are building a casualty catastrophe market for latent risk that can match the property catastrophe market, expanding coverage and opening new opportunities across the insurance and capital markets. Aon’s ability to connect capital to risk supports this ambition, and I’m excited to work alongside such entrepreneurial, client-focused colleagues.”
Aon Names Nick Nudo as Reinsurance U.S. Casualty Leader
AON, a leading global professional services firm, named Nick Nudo as U.S. casualty segment leader for Reinsurance Solutions.
In this role, Nudo will be responsible for shaping Aon’s casualty reinsurance strategy, driving product innovation and aligning market insights with client needs across the casualty line of business. Having previously served as a Reinsurance Solutions senior managing director, Nudo brings more than 20 years’ re/insurance industry experience, across broking, underwriting and product development.
Steve Hofmann, Americas CEO for Reinsurance Solutions at Aon, said: “Nick has a proven track record at our firm for guiding strategic initiatives and driving product innovation. In his new role, his leadership skills and depth of experience will be instrumental in strengthening our market position, delivering exceptional value and shaping better decisions for our clients.”
Prior to joining Aon, Nudo spent nearly 15 years at reinsurer SCOR, where he held several leadership positions, including Chief Underwriting Officer of Reinsurance North America, and Chief Underwriting Officer of U.S. Treaty Operations.
E+S Rück expects further improvements in prices and conditions for property and casualty reinsurance in Germany due to sustained high inflation and claims expenditure
E+S Rückversicherung AG, the Hannover Re subsidiary responsible for the Group’s German business, expects further price increases and improved conditions in the 1 January 2024 renewals in property and casualty reinsurance.
Natural disasters and persistently high inflation have again taken a toll on the German insurance industry in the current year. The resulting ongoing rise in reconstruction and repair costs continues to adversely impact the insurance sector’s profitability.
“We must assume that the multi-year trend towards higher claim payments will continue. Adequate prices are indispensable if we are to be able to offer our clients the best possible reinsurance capacity in the future, as we have in the past,” said Dr. Michael Pickel, Chief Executive Officer of E+S Rück, at this year’s reinsurance gathering in Baden-Baden. “Particularly at a time of many different interrelated challenges, it is therefore vital for us as a reinsurer to tackle these issues and design solutions jointly with our partners. Moving forward, then, we shall continue to stand by our clients as their partner in managing losses caused by climate change and natural catastrophe risks – just as E+S Rück has done for 100 years.”
The insurance industry around the world increasingly finds itself faced with the effects of extreme weather phenomena. In Germany, too, the issue of coverage for impacts from heavy rain, flood, windstorm or hail as well as the associated costs remains very much front of mind. After all, it is equally relevant to private households and commercial / industrial clients alike.
At the same time, E+S Rück expects motor insurance in Germany – the largest line of property and casualty insurance by volume – to close heavily in the red this year. Furthermore, persistently high inflation is pushing up claims expenditures in property insurance, leading to pressure for further adjustments.
Average claims in motor insurance have again surged significantly in the current year, while at the same time the tariff adjustments made so far have failed to achieve the desired effects.
“Sharply above-average increases in the costs of spare parts and repairs as well as higher claims frequencies are causing massive losses and remain a heavy drag on motor insurers’ profitability,” said Dr. Michael Pickel. “Against this backdrop, we take the view that adjustments to prices in motor insurance are unavoidable in the coming years to move out of the red and restore business to a profitable footing over the long term. We expect to see gradual progress in this respect.”
While losses under natural catastrophe covers were, if anything, below average in the first six months with summer storms “Lambert” and “Kay”, considerable claims expenditure was incurred in August from a series of storms centred on southern Germany. With this in mind, 2023 is again expected to see substantial losses overall from catastrophe covers.
It can be anticipated that sustained high rates of inflation as well as the trend towards adding natural perils covers to existing contracts will drive claims expenditures for the industry even higher in the future. Parallel to this, capacities on the reinsurance market remain tight overall, while at the same time demand for natural perils coverage is on the rise. All in all, then, prices for catastrophe covers look set to increase further.
High inflation has kept up the pressure for adjustments in industrial and commercial business, even though business interruptions due to supply chain bottlenecks have normalised somewhat of late. At the same time, claims numbers and expenditures in connection with large fire losses have increased. These developments should be reflected accordingly in modified scopes of coverage and conditions. In the liability line, discussions among market players will likely be similarly dominated in the year ahead by the issue of inflation as well as by the insurability of risks associated with so-called forever chemicals (PFAS).
After the sharp price increases seen in past years, the capacities offered by existing and new market players for cyber covers should result in price stabilisation on a higher level. In view of rising claims expenditures, however, the pressure to make adjustments remains. Controlling and limiting cyber accumulation scenarios have taken on added relevance, as is also evident in contract terms and conditions.
“Despite the challenging market environment, I am confident about the upcoming renewal round, because our customer relationships and thus also the upcoming negotiations are always characterized by a cooperative partnership with all market participants,” said Dr. Michael Pickel.
Hannover Re sees continuing trend towards rising prices in property and casualty reinsurance
Market climate necessitates further price increases and improvements in conditions for the 2022 renewals
Low interest rate environment, pandemic impacts, inflation expectations and large losses prompt disciplined underwriting approach by insurers and reinsurers
Focus on long-term partnership with clients even in challenging market situations
Sustained demand for coverage from reinsurers with a particularly robust financial base
Hannover Re anticipates a continuing trend towards higher prices and improved conditions in property and casualty reinsurance for the various rounds of renewals in 2022.
Along with the sometimes far above-average large losses recorded in past years, the recent flooding seen in Europe – a natural disaster on a historic scale – and the considerable losses caused by Hurricane Ida have further increased the need for action on the part of reinsurers. Pandemic-related costs and the low interest rate environment are an additional strain on the results generated by primary insurers and reinsurers. Inflation rates have also been rising of late in some regions. This has further heightened risk awareness among primary insurers and given an added boost to demand for high-quality reinsurance protection.
“In property and casualty reinsurance there is a need for further rate increases. Only in this way will reinsurers be able to provide reliable risk protection in an increasingly challenging environment,” said Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re. “Particularly where natural catastrophe risks are concerned, adjustments are unavoidable. While the pace of price increases has slowed somewhat of late in the renewals during the year, this was primarily the case in areas where substantial increases had already been recorded in prior years.”
In the past rounds of renewals throughout 2021 Hannover Re has already been able to secure improved conditions and higher prices; nevertheless, further adjustments are needed against the backdrop of the multi-layered challenges posed by large losses, pandemic expenditures and the low interest rate level as well as the increasingly intense pressure on margins.
For the treaty renewals as at 1 January 2022 in property and casualty reinsurance Hannover Re expects the positive pricing trend to continue, especially in loss-affected lines and regions. At the same time, conditions are also likely to show further improvement on account of the considerable uncertainties, most notably in relation to future pandemics and cyber attacks.
Profitability in proportional reinsurance is satisfactory in light of sometimes marked price increases in the original market. In non-proportional reinsurance the available capacities continue to be adequate. Rates are holding steady or moving slightly higher worldwide.
Given the uncertainties prevailing on the markets, insurers continue to seek primarily high-quality reinsurance protection. This is where first and foremost reinsurers with a top-notch rating and particularly extensive risk-carrying capacity have a pivotal role to play. Thanks to its business model geared to partnership-based client relationships, its extremely robust capitalisation with a capital adequacy ratio under Solvency II of 250% (as at 30 June 2021) and its excellent ratings (“AA- ” from Standard & Poor’s and “A+” from A.M. Best), Hannover Re is able to participate disproportionately strongly in the market opportunities that are currently opening up.
“In addition to our customer-centricity focused on long-term partnerships, we offer a broad range of products and tailored solutions that encourage our clients to grow with us worldwide and across multiple lines of business,” said Sven Althoff, member of Hannover Re’s Executive Board with responsibility for property and casualty reinsurance. “In the current year and beyond this will be reflected in further profitable growth in the gross premium booked in property and casualty reinsurance.”
Specifically, Hannover Re anticipates the following developments in the treaty renewals as at 1 January 2022:
Europe
Natural catastrophe losses have taken a considerable toll on insurance business in Germany in the current year. According to the latest estimates, the disastrous flooding in July caused by the low-pressure weather system “Bernd” alone caused insured market losses of at least EUR 7.5 billion in Germany and the neighbouring countries. Added to this are further hail and severe rainfall events, with the result that even at this stage of the year the heaviest burden of catastrophe losses ever recorded in Germany can already be anticipated. The effects of protective measures taken against the pandemic were particularly evident in the first half of the year in the motor insurance sector as claims frequencies continued to decrease. As the year progressed, however, they climbed back towards pre-pandemic levels. At the same time, a sustained rise in the cost of spare parts and repairs can be observed. Bearing in mind the hail and flood events, results in the motor line are therefore likely to take a significant turn for the worse. Industrial insurance is seeing a rise in major claims compared to the previous year, hence keeping up the pressure for remedial action in this line. In cyber business, progressive digitalisation and continued growth combined with more widespread cyber attacks are prompting greater risk awareness and adjustments in conditions. There is a need to clarify the handling of silent cyber risks as well as accumulation scenarios, which can be insured only to a limited extent. All in all, against the backdrop of heavy claims expenditures, Hannover Re expects to see appreciable adjustments to conditions for property business in Germany, especially for catastrophe covers.
Further rate increases can be seen on the primary insurance market in the United Kingdom and Ireland, although on the whole they are not as marked as in prior years and vary according to the line of business. Rate increases and improved conditions are especially evident in the market for liability covers. Additionally, the international cyber market is posting significant rate increases that will have a positive effect on the proportional portfolio. This development is driven largely by the rise in the frequency and amount of ransomware losses. The international property business written by Lloyd’s syndicates has already hardened in recent years owing to worldwide natural catastrophe losses. This trend is set to continue in slightly more muted form. In UK motor business, which Hannover Re writes solely on a non-proportional basis in traditional business, the past few years have already seen substantial price increases; for the upcoming renewals a stable environment is therefore anticipated.
In France the price increases seen on the primary side are expected to slow somewhat. Among other things, this is due to the lockdown-related improvement in the claims frequency in motor business and the uncertainty surrounding the strength of the economic recovery. Declining income booked from investments continues to have a stabilising effect on prices, as does the sustained burden of loss expenditures – including from natural perils. Overall, this should also have a positive effect on movements in reinsurance prices.
In the markets of Central and Eastern Europe Hannover Re expects growth rates in primary insurance business to pick up over the medium to long term. Price increases are necessary in this region for loss-affected treaties and in natural catastrophe business.
North America
The primary insurance market in North America continues to see rate increases in virtually all lines. Furthermore, the impacts of Covid-19 appear to have affected the economic climate less severely than initially anticipated. Despite the improved state of motor insurance business, the level of claims expenditure nevertheless remains precarious overall due to the unusually early start to wildfire and hurricane season. Further improvements in conditions and rates are again likely for the year ahead in response to this growing threat and the resulting increase in the claims burden. In view of the continuing economic recovery combined with the challenges presented by the pandemic, rising inflation and a steadily growing potential for losses from various lines, further rate increases and clarifications in the scope of coverage are essential. The focus here continues to be on the capital resources of reinsurers, thereby further strengthening Hannover Re’s position in this market.
Latin America
The current challenges facing primary insurers due to the growing exposure to natural catastrophes and social unrest further reinforce the need for robust and well-structured reinsurance solutions. The latest rounds of renewals once again showed the increased demand among cedants and brokers for individual concepts and solutions. This growth trend should be sustained across multiple countries, albeit on a varying level. As an additional consideration, the exposure deriving from social unrest must be factored more heavily into the pricing.
Hannover Re’s engagement in cooperation with Global Communities and the United Nations Development Programme (UNDP) is driving lively interest in the development of coverage concepts for local communities and regions, especially in Argentina and Colombia.
Asia-Pacific
The Asia-Pacific region is evolving into one of the largest global insurance markets. This growth holds the promise of further significant business opportunities, in part because the insurance density here is still lower than in more mature markets. Not only in property and casualty reinsurance but also in the health and provision sector, appreciable growth rates can be anticipated over the medium to long term, which will also benefit reinsurers.
Building on its good position in the market, Hannover Re has continuously grown its footprint in the region over the past years. In the Asia-Pacific strategic growth initiative, special emphasis was placed on innovative and customer-centric concepts as well as the expansion of efficient decision paths on a local basis. Two years after the initiative was launched, Hannover Re has successfully achieved and in some instances outperformed the initial profit targets.
For the upcoming rounds of renewals in the Asia-Pacific region on 1 January 2022 and 1 April 2022, Hannover Re anticipates stable reinsurance conditions and prices with more pronounced positive changes for treaties that were affected by the pandemic or other losses.
Natural catastrophe business
Over the last five years the market has experienced a sustained high volume of natural catastrophe events. In response to the elevated loss experience, reinsurance markets have increasingly hardened around the world in previous years and again in 2021.
Despite the strong capital position enjoyed by the reinsurance market, the outlook for 2022 is promising; the pricing level looks set to continue its upward trajectory. Going into 2022, Hannover Re anticipates the following developments in key markets for natural catastrophe risks – based on the assumption of no further market-changing events until year-end:
North America: Although rates for US property catastrophe business increased last year, further price adjustments are necessary. One of the primary reasons here is the claims activity in the first half of 2021 as well as the devastation caused by Hurricane Ida and the subsequent flooding in New York and other parts of the country. Not only that, the US is still very much in the midst of hurricane season. Furthermore, the considerable losses caused by winter storm “Uri” in the United States highlighted the limits of the catastrophe models. The extreme weather anomalies triggered by climate change are leading to a permanent increase in claims frequencies and loss amounts.
Europe: Having been spared sizeable catastrophic events for many years, the situation in this region changed in 2020 and 2021. Losses and potential losses for programmes connected with Covid-19 were only minimally priced in for the 2021 renewals because the scale of losses and questions of coverage under the reinsurance treaties were unclear. The Covid-19-related losses for some customer relationships have continued to rise, with the result that further commensurate adjustments to the reinsurance treaties are expected for the 2022 renewals. The pricing of European catastrophe business in 2022 will additionally be driven by the considerable strains associated with the increase in natural disasters that have already made 2021 the costliest year ever for natural perils in Germany. Special mention should be made here of the expenditures incurred in connection with the storm front “Bernd”.
Japan: The series of typhoons that impacted Japan in the years 2018 and 2019 prompted a gradual raising of rates for catastrophe reinsurance in recent rounds of renewals. On the whole, Hannover Re anticipates further moderate hardening for Japanese catastrophe business in 2022.
Australia/New Zealand: In Australia the significant and frequent large losses of recent years will keep up the pressure on the rate level until 2022. Reinsurers are aware of the fact that Australia and New Zealand are particularly vulnerable to major climate change-driven weather anomalies that can cause hail, flooding, droughts or wildfires.
Specialty lines
The ongoing pandemic and associated plunge in passenger numbers in the airline industry continues to influence the aviation sector. While the insurance market is consequently benefiting from a sharply lower loss burden, it is at the same time scarcely possible for the premium to grow in absolute terms despite rate increases owing to the reduced exposures. On the reinsurance side, the trend towards higher prices continues – especially in non-proportional business. With surplus capacities still available, however, initial indications can be detected of a flattening in this trend. Even in this dynamic market phase Hannover Re is keeping unchanged its disciplined underwriting approach geared to the long term. Particularly thanks to the company’s good positioning in the market, it has been successful here in maintaining or even expanding shares in profitable business.
The marine market was notable for an appreciable upswing in 2020 and 2021. A significant but short-lived slump in world trade due to Covid-19 restrictions was followed by a revival in commercial shipping and the transport of goods, while the cruise ship industry continued to work towards a restart. This development, coupled with rehabilitation efforts made by insurers, was reflected in improved original conditions and prices. Improvements in prices and conditions were secured on the reinsurance market in all the various rounds of renewals.
In the offshore energy segment both the insurance and reinsurance markets were stable with slightly higher prices against the backdrop of another rather modest loss experience. Output levels remained constant despite rising oil prices, while surging interest among customers in products for the coverage of renewable energies continued to be evident.
The treaty renewals in the course of 2022 are expected once again to bring stable reinsurance conditions as well as modestly higher prices.
Loss ratios have held mostly steady in credit and surety insurance as well as in the area of political risks compared to previous years. On the back of the progressive phasing out of government economic supports intended to mitigate recessionary effects, loss expenditure is likely to rise in the coming months. With this in mind, prices in primary insurance and reinsurance should generally maintain the current elevated level.
When it comes to agricultural risks, demand for insurance and reinsurance solutions continues to grow. Hannover Re’s involvement here encompasses not only traditional reinsurance but also intensified cooperation with customers and various partners on the development of innovative insurance tools. Index-based products and parametric covers offer substantial growth potential and can also be used to mitigate the adverse effects of climate change as well as to reduce the protection gap.
The market for insurance-linked securities (ILS) posted renewed growth after modest declines in the previous years and is heading towards a volume of EUR 100 billion, in part also due to positive rate movements across the entire sector. New issues of catastrophe bonds in the full year will very likely exceed the old high of around USD 12 billion (excl. mortgage bonds). A further factor here is that over the past few years catastrophe bonds – unlike other ILS investments – have been impacted less heavily by losses such as Covid-19.
In 2021, for example, Hannover Re has so far brought four catastrophe bonds to the capital market for US clients with a total volume of around USD 1.4 billion. A particularly gratifying business development in recent years is the transfer of life and health reinsurance risks to the ILS market in a total amount of roughly USD 800 million including coverage of extreme mortality risks. Demand is expected to show moderate growth overall in the coming years. Hannover Re is also itself an investor in catastrophe bonds, thereby maximising all the opportunities offered by the ILS market.
Business in the area of structured reinsurance is beating expectations in the current year. The rising demand for innovative and tailor-made reinsurance solutions has not slowed.
New business opportunities are emerging on virtually all continents. In general terms, the purchasing habits of many clients have shifted in recent years towards holistic reinsurance solutions in response to the increasingly complex requirements placed on capital and risk management. This trend continues, prompting growing demand among customers for structured reinsurance solutions.
Hannover Re anticipates significant price increases in property and casualty reinsurance
Hannover Re expects to see significant price increases spanning the various lines of property and casualty reinsurance in the treaty renewals as at 1 January 2021. The key drivers here are the strains incurred by primary insurers and reinsurers in connection with the Covid-19 pandemic, a further drop in interest rate levels and the large losses recorded over the past three years.
“Our sympathies go out to everyone who has lost family or friends or been impacted by the virus in any other way,” Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re, said. “We stand shoulder-to-shoulder with our customers and emphasise sustained, partnership-based relationships. Our business model and our capital resources are geared to managing extreme scenarios. Low interest rates are here to stay for a long time. This necessitates considerable pricing discipline, because technical profitability will have to do even more to offset declines in investment income. With this in mind, price increases on both the insurance and reinsurance side are absolutely essential in January and beyond.”
Along with generally stronger demand for high-quality reinsurance protection, primary insurers are increasingly seeking tailor-made solutions offering solvency relief. This is where first and foremost reinsurers with a particularly large risk-carrying capacity and above-average ratings have a pivotal role to play.
In the various rounds of renewals held during 2020 Hannover Re secured improved conditions and price increases in some areas. Particularly for treaties that had suffered losses, price increases mostly running into double-digit percentages were obtained. Owing to the low level of interest rates, however, these are not always technically adequate and further price increases are therefore needed.
The effects of the Covid-19 pandemic on worldwide reinsurance markets vary in scale from region to region. The largest losses to date are anticipated from covers in the areas of business interruption, trade credit and event cancellation, although the spectrum of possible scenarios remains too broad for concrete forecasts. A further consideration is that many government assistance programmes are limited in duration. Against this backdrop, the level of risk awareness among primary insurers and hence the importance attached to high-quality risk protection have risen sharply over the past few months.
Specifically, Hannover Re anticipates the following developments in the treaty renewals as at 1 January 2021:
Europe
Business in Germany has been significantly shaped by Covid-19, among other factors, over the course of the year. The measures implemented to contain the pandemic and their impacts on many companies’ operations have been felt particularly acutely among small and mid-sized enterprises (SMEs). Appreciable losses have been seen here in business closure insurance. This is similarly true, albeit to a less marked extent, of event cancellation insurance.
For 2021 Hannover Re anticipates sharply lower growth in the primary insurance market compared to prior years. The repercussions of the pandemic-induced economic downturn will be felt especially keenly in the SME segment. On the other hand, the effects on business with private customers should be more limited in scope.
The need for remediation in commercial and industrial property lines continues to grow more pressing on account of the burden of losses. Reinsurance conditions are expected to improve, particularly under loss-affected programmes.
Overall, the consequences of a pandemic – which constitutes a systemic risk – can be borne only to a very limited extent by the insurance industry. Clarifications or exclusions in relation to coverage for the pandemic risk have therefore been adopted both in the primary insurance market and in the reinsurance market.
Motor insurance appears set to enjoy some relief in the current year due to the temporary reduction in traffic volumes and correspondingly lower losses. Given that this is rather a one-time effect and 2021 is likely to see normalised loss expenditure with continued rising costs for spare parts and repairs, insurers and reinsurers alike have little margin for further improvements in conditions.
In the United Kingdom and Ireland appreciable market hardening can be observed among primary insurers.
Lloyd’s of London continues to adopt a more restrictive approach for selected lines as well as for syndicates that do not deliver profitable results. This, in turn, has led to an ongoing supply shortage. Most notably, the market for contingency covers is showing significant rate increases despite pandemic exclusions. Driven by, among other things, the uncertainty surrounding the scale of Covid-19 losses, liability business is also seeing sharp reactions on the pricing side and improved conditions. The international property business written by Lloyd’s syndicates had already recorded price increases in recent years on the back of worldwide natural catastrophe losses. This trend is continuing and is additionally being driven by current issues surrounding the coverage of Covid-19 losses as a consequence of business interruption without associated property damage.
These changes in the original business are analogously reflected – and sometimes even more accentuated – in the book of non-proportional reinsurance written by Hannover Re.
UK motor business, which Hannover Re writes on a non-proportional basis, has seen substantial price increases. Last year’s adjustment to the Ogden rates, which fell short of the expectations of insurers and reinsurers, triggered price corrections. Significant price increases are similarly anticipated for UK motor business in the coming year.
Based on its good business relationships with long-standing customers, Hannover Re is able to defend its market position and is enjoying very healthy demand.
In France price increases are to be anticipated on the primary insurance side. This can be attributed, among other things, to the continued decline in income from investments as well as the sustained level of claims expenditure. At the same time, rising demand for industrial insurance covers is a further supportive factor. This should also have positive implications for movements in reinsurance prices, not least in view of the additional strain here from large losses in prior years caused by run-off results that fell short of expectations.
In the markets of Central and Eastern Europe the Covid-19 pandemic has, as in many other regions, had an added adverse impact on what was already a challenging economic situation, even though no or only minimal Covid-19-related losses are to be expected from this region. Price increases can be anticipated under loss-affected treaties and for programmes that were not adequately priced to reflect the risks. Over the medium to long term Hannover Re is looking for the economy here to bounce back and for stronger growth rates in primary business so as to close the protection gap.
North America
The primary insurance market in North America continues to develop favourably, notwithstanding the uncertainties associated with Covid-19 and the resulting economic constraints. All lines of business with the exception of workers’ compensation are showing appreciable rate increases. The damage inflicted by tornados, hailstorms and hurricanes in the course of the year has led to a relatively large number of claims. Following on from the fire losses seen in California in recent years, this means that other parts of North America will see adjustments to rates and conditions.
The challenges associated with the Covid-19 crisis – when it comes to scope of coverage and the potential losses from various lines of business – have prompted many primary insurance customers to take a closer look at the financial strength of their reinsurance partners. A clear focus on excellent capital resources and long-term reinsurance relationships can be observed. Appreciable price increases or more precisely defined coverage restrictions are the norm in both the property and liability lines.
Latin America
The growth trend in demand for primary insurance covers in Central and South America is set to continue, even against the backdrop of the current pandemic. Natural catastrophe risks and social unrest have caused a surge in demand for high-quality risk protection in Latin America. The underlying growth in some countries combined with the withdrawal of other market players is currently leading to harder insurance and reinsurance conditions.
Individual markets in Latin America continue to see brisk growth in demand for insurance products, especially in areas associated with coverage for motor vehicles, production facilities and real estate.
Hannover Re is similarly recording sustained strong interest in the development of coverage concepts based on parametric indices. Most recently, for example, the company supported coverage for coral reefs in Mexico in partnership with Global Parametrics. Parametric covers are especially suited to countries with a low insurance density. Governments are able to improve protection for their population against catastrophic events with the aid of these solutions.
Asia-Pacific
The APAC region is the highest-growth economic region in the world and it is evolving into one of the largest global insurance markets. This growth holds the promise of further significant business opportunities, in part because the insurance density here is still lower than in more mature markets. Not only in property and casualty reinsurance but also in the health and provision sector appreciable growth rates can be anticipated over the medium to long term, which will also benefit reinsurers.
Hannover Re has continuously grown its footprint in the region in recent years and now has an efficient network of local subsidiaries, branches and representative offices. It is thus already very well placed to take advantage of business opportunities and to further extend and reinforce its market positioning through targeted measures in specific subsegments. In this growth region Hannover Re supports its customers in their development and in facing up to the challenges of the coming years, whether through concepts designed to provide capital relief or by optimising the distribution and structuring of their products. In part with an eye to the increasing urban densification of Asia’s metropolitan centres, it is imperative to design suitable insurance solutions as protection against natural disasters and to further boost insurance density. Narrowing these protection gaps opens up opportunities for insurers and reinsurers alike to underscore their social relevance.
Furthermore, Hannover Re has launched a strategic initiative intended to maximise even more intensively the growth potential offered by its business in the APAC region.
Hannover Re is looking ahead with optimism to the upcoming renewals as at 1 January 2021 and 1 April 2021 in the Asia-Pacific markets, even though price movements will likely vary from region to region depending on the burden of losses. The impacts of the Covid-19 pandemic must be kept in mind here as an element of uncertainty.
Natural catastrophe business
The reinsurance market has experienced three successive years of major natural catastrophe losses from 2017 through 2019. This has impacted both traditional reinsurers as well as capacity providers from the ILS market. Despite the absence of sizeable natural catastrophe losses in the first half of 2020 the global impact of the Covid-19 pandemic is adding further challenges to an already distressed reinsurance market. When it comes to property catastrophe business, this has resulted in an overall favourable trading environment for reinsurers throughout all renewals in 2020 so far. Pricing momentum was particularly pronounced in territories and programmes that had sustained significant losses recently such as the US, Japan and the Caribbean.
Going into 2021, Hannover Re anticipates the following developments in individual markets for natural catastrophe risks – based on the assumption of no further market-changing events:
North America: Overall, rates for US property catastrophe business have reached a satisfactory level. However, since the US is the peak zone for most reinsurers Hannover Re expects continued upward pressure on rates, particularly for loss-impacted programmes. The combination of losses and restricted capacities brought the market as a whole to a price inflection point in 2019. The environment is expected to show further improvement in 2021.
Europe: In 2020 Hannover Re noted a stable rating environment and in some instances improved pricing. With Europe currently being a centrepoint of the Covid-19 impact on the insurance and reinsurance market, material hardening is expected for 2021, particularly for those accounts that sustain significant losses from the pandemic.
Japan: Following the severe typhoons of 2018 and 2019 Hannover Re had already achieved significant price increases for Japanese wind and flood catastrophe reinsurance programmes in the 1 April 2020 renewals. Major reinsurers have used the recent events to update their risk models and hence their view of the Japanese typhoon risk and associated exposures. This is expected to lead to further substantial price increases in 2021 and should help bring about technical adequacy, the fundamental basis for reinsurers’ long-term support for this market.
Australia/New Zealand: With significant and repeated frequency losses in Australia in the last couple of years, there was considerable pressure to generate prices commensurate with the risks in order to improve terms in 2020, especially for aggregate covers and lower programme layers. For 2021 Hannover Re expects this trend to continue for all natural catastrophe covers.
Specialty lines
Activities in the global aviation sector have been heavily impacted by Covid-19, as reflected in a significant slump in passenger numbers. These developments also have implications for the associated insurance market. It should, however, be borne in mind here that part of the premium contraction is offset by the fact that the trend towards rising rates – which was already observed in previous years – has continued undiminished and even gained added impetus in some areas.
Hannover Re has consistently succeeded in improving treaty conditions in proportional business to its advantage and in substantially raising premiums for non-proportional reinsurance solutions. Despite this favourable development, it is nevertheless important to remember that the reinsurance market is only at the beginning of a correction phase – which is why Hannover Re is maintaining unchanged its disciplined underwriting approach geared to the long term.
The marine market suffered a sizeable number of frequency losses in 2019. Reflecting also the poor results of prior years, this development created a further need for insurers to raise prices. This trend gained added momentum in the first half of 2020 owing to the effects of Covid-19.
An appreciable hardening of the reinsurance market was already perceptible in the renewals during the year.
Rates in the offshore energy line remain stable on both the insurance and reinsurance side. This is particularly noteworthy against the backdrop of declining volume flows, attributable to reduced air and maritime traffic in connection with the Covid-19 crisis, as well as the absence of large loss events. Hannover Re is seeing stronger interest among its customers in becoming more heavily involved in insurance solutions for renewable energies and in purchasing specific reinsurance covers for this purpose.
For the 2021 round of renewals Hannover Re anticipates stable reinsurance conditions and an improved pricing structure.
Despite the worldwide recession, merely modest rises in loss ratios compared to previous years have been recorded in credit and surety insurance as well as in the area of political risks. Increased loss expenditure must nevertheless be anticipated over the coming months on account of the general state of the economy. With this mind, prices in primary insurance and reinsurance should move appreciably higher.
In the area of agricultural risks the growing need for agricultural commodities and foodstuffs as well as the increased prevalence of extreme weather events continue to stimulate greater demand for appropriate reinsurance solutions, especially in emerging and developing countries. Hannover Re’s involvement here encompasses not only traditional reinsurance but increasingly also cooperation with customers and various partners on the development of innovative insurance tools. Potential areas for growth include index-based products and parametric covers as well as public-private partnerships.
The market for insurance-linked securities (ILS) has contracted over the past two years by around 10% to a volume of currently roughly USD 90 billion. This decline can be attributed to dissatisfaction with the results and to trapped collateral for possible negative loss run-offs that at least temporarily is unavailable for new investments. Just as in the reinsurance market, conditions are improving and new record highs can be expected in the medium term.
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 2020, for example, Hannover Re has so far brought five catastrophe bonds to the capital market for US clients with a total volume of around USD 1.2 billion. Over the coming years the company expects demand to show moderate growth overall. Hannover Re is also itself an investor in catastrophe bonds, thereby maximising all the opportunities offered by the ILS market.
Business in the area of structured reinsurance continues to develop in line with expectations in the current year. Going forward, too, Hannover Re expects to see further growth in demand for innovative and tailor-made reinsurance solutions.
In this context new business opportunities are opening up first and foremost in North America, Europe and Asia. The purchasing habits of many clients have changed in recent years, reflecting a move towards holistic reinsurance solutions. This trend shows no sign of abating, with more and more customers seeking structured reinsurance solutions. The exceptional market circumstances associated with the Covid-19 pandemic are supporting a further shift towards a provider’s market in this segment on a virtually global basis.
The planned implementation of IFRS 17 will cause demand for bespoke reinsurance solutions to trend higher, driven by the further increase in the complexity of capital and risk management faced by customers.
Outlook
For both insurers and reinsurers, 2020 remains dominated by the ongoing Covid-19 pandemic and the associated losses as well as by the sustained low interest rate environment and resulting impacts on profits. In both the primary and the reinsurance market, therefore, technical profitability will move centre stage on a lasting basis – also with a view to preserving the industry’s future risk-bearing capacity. Against this backdrop, rate increases are absolutely essential.
“From our perspective, Covid-19 is a market-changing event that can be compared with the terrorist attacks of 11 September 2001 or hurricanes Katrina, Rita and Wilma in 2005,” Sven Althoff, a member of Hannover Re’s Executive Board responsible for property and casualty reinsurance, commented. “The true scale of the losses caused by the pandemic will only become clear over the long term. We see the Covid-19 pandemic as a catalyst for fundamental adjustments to prices and conditions at insurers and reinsurers alike. Just how these manifest themselves will, however, vary by region and line of business.”
It is Hannover Re’s expectation that the growing momentum of the price increases recorded in past rounds of treaty renewals will be sustained in the year ahead. Sharply rising prices across the various segments can be expected as at 1 January 2021. Appreciable improvements in conditions are similarly likely in view of the effects of the pandemic and the associated considerable uncertainties.
“The Covid-19 pandemic confronts us with a systemic, worldwide risk. Simply given its capital resources, the insurance industry alone cannot shoulder such an accumulation risk,” Jean-Jacques Henchoz said. “Partnership-based approaches between governments and the insurance sector are needed to create promising solutions for the coverage of systemic risks such as cyber attacks or pandemics. We are optimally placed to support the development and realisation of such coverage concepts and hence to ensure that a larger share of the costs resulting from future pandemics are covered at premiums commensurate with the risk.”
Due to the restrictions on physical contact adopted to contain the pandemic, digital working has gained in acceptance and significance. Cyber covers, digital services and products will therefore continue to make headway and innovative insurtechs will enjoy a surge in demand. In this context, Hannover Re is committed to partnership-based cooperation with its clients on the development of digital solutions as well as to supporting insurtechs with know-how and reinsurance backing.
In the second half of the year, a series of major loss events has occurred. The massive explosion in the port of the Lebanese capital Beirut at the beginning of August claimed numerous lives and caused severe devastation. Together with losses from natural catastrophes in the United States and Asia, large loss expenditure for the third quarter (excluding Covid-19) is therefore likely to remain at the anticipated level.
Bearing in mind the continuing considerable uncertainty surrounding the further course of the Covid-19 pandemic and the mechanisms through which government support measures make themselves felt, it is too early to provide any reliable profit guidance for the Group. Nor is it possible yet to precisely quantify the concrete effects of the pandemic on reinsurance markets and investments. Hannover Re makes the relevant scenario calculations on an ongoing basis as part of its risk management and will specify new earnings targets as soon as the underlying probabilities are sufficiently robust.
With its positioning as a reliable reinsurer with a long-term orientation, Hannover Re is a partner to its clients. The current market environment offers Hannover Re, with its consistent business approach and capital strength, attractive opportunities for further profitable growth and the continued expansion of business relationships. The company’s broad range of products, its willingness to support new approaches to digital solutions and its focus on the customer will continue to generate increasing business opportunities in the near term.