– Good rate quality preserved in competitive environment
– Selective underwriting led to 2% contraction in premium volume
– Price increases in loss-impacted areas
– Solid prospects for 2014 despite softer market conditions
Hannover Re expressed satisfaction with the results of the treaty renewals as at 1 January 2014 despite an even more competitive climate. ‘Although the rate level in non-life reinsurance was broadly lower than in the previous year, we achieved adequate margins thanks to our systematic underwriting discipline. We are satisfied with the rate level of our renewed portfolio; profitability is likely to remain largely stable relative to 2013. In areas where risks were not commensurately priced we reduced our shares – sometimes markedly so’, Hannover Re’s Chief Executive Officer Ulrich Wallin stated. Against this backdrop the premium volume contracted by 2%.
Aside from the absence of market-changing major losses, increased retentions carried by ceding companies were a key factor in the premium decline. The inflow of capital from the ILS market led to particularly sharp rate decrease in US natural catastrophe business; this did not, however, give rise to any significant share reductions for Hannover Re. Rate increases were obtained under loss-impacted programmes. This was true, for example, of catastrophe covers in Germany and Canada. Increases were recorded in marine business on the back of adverse claims experiences in prior years. Overall, Hannover Re benefited once again from its enduring client relationships and its position as one of the leading and financially robust reinsurance groups.
Of the total premium volume booked in the previous year in non-life reinsurance (excluding facultative business and structured reinsurance) amounting to EUR 6,028 million, roughly two-thirds of the treaties with a volume of altogether EUR 3,913 million were up for renewal as at 1 January 2014. Of this, a premium volume of EUR 3,393 million was renewed, while treaties worth EUR 520 million were either cancelled or renewed in modified form. Including increases of EUR 401 million from new or modified treaties and thanks to improved prices, the total renewed premium volume thus came in at EUR 3,832 million – equivalent to a decrease of 2%. Despite various moves by the market to induce softening, Hannover Re was able to write its business at broadly unchanged conditions.
The treaty renewals in North American business passed off favourably; roughly 50% of Hannover Re’s portfolio was up for renewal. Although rates for US property business came under pressure owing to a year of relatively light losses – leaving aside the Canadian market – the rate reductions provided to be smaller than anticipated; the level is still adequate. Stable rates and conditions were for the most part obtained in US casualty business. The company selectively expanded its portfolio here, as a consequence of which North American business – having already increased in the previous year – posted further growth of around 5% as at the 1 January renewal date.
The renewals in Germany were also highly competitive: although the considerable losses from various extreme weather events prompted price increases for natural catastrophe covers, expectations for premium growth were not met in all areas. In both proportional motor own damage insurance and in homeowners’ insurance Hannover Re benefited from further premium increases in original business. The rate level for non-proportional motor liability covers also showed significant improvement. All in all, a premium decrease of 1% was recorded.
In marine reinsurance the deterioration in the loss experience for the wrecked cruise ship ‘Costa Concordia’ resulted, as expected, in appreciable rate increases for P&I (Protection & Indemnity) covers. Hannover Re’s premium volume grew by 5% overall.
On the back of very good underwriting results in aviation reinsurance in recent years further rate reductions ensued on the primary and reinsurance side. With this in mind, Hannover Re wrote its business very selectively and consciously relinquished some shares, as a consequence of which the premium volume contracted as at 1 January 2014.
Hannover Re is satisfied with the outcome of its renewals in credit and surety reinsurance and maintained its leading position. While loss ratios in credit business already showed a slow recovery, they moved slightly higher in the surety line owing to the continuing troubled macroeconomic situation in parts of the construction industry, prompting the company to relinquish business. On the other hand, in the area of political risks – a highly profitable segment – Hannover Re enlarged its exposure by a double-digit margin. Overall, the premium volume remained slightly below the previous year’s level.
As anticipated, property catastrophe business experienced further rate declines owing to the absence of market-changing major losses in 2013. The effect on US catastrophe business was particularly marked, with prices falling by 10% to 25% under some loss-free programmes. In markets impacted by heavy losses from extreme weather events in Europe and Canada, on the other hand, rate increases of up to 10% were pushed through. In the face of this situation Hannover Re’s risk appetite was restrained; the premium volume consequently contracted.
The picture in Hannover Re’s global reinsurance segment was a mixed one: while established markets showed a reduced premium volume, developing markets continued to deliver strong growth. The company’s treaty renewals in Central and Eastern Europe and in the Asia-Pacific region were very pleasing. In both areas Hannover Re enlarged its premium volume and also acquired new clients. Particularly vigorous premium growth was recorded in Thailand and Russia. In the latter case increased demand for insurance protection for large infrastructure projects – along with a major loss – led to rate improvements. In Latin American markets rates remained stable or moved slightly higher.
Outlook for 2014
In view of the broadly satisfactory results of the treaty renewals as at 1 January 2014 Hannover Re anticipates a good financial year in non-life reinsurance. The company sees growth potential in Asian-Pacific markets, Latin America, the countries of Central and Eastern Europe and in marine business.
Hannover Re expects for its whole book of business to generate a stable or slightly higher gross premium volume in the 2014 financial year based on constant exchange rates.
The company has budgeted an amount of EUR 670 million for major losses incurred in 2014. Assuming that major loss expenditure does not significantly exceed this expectation and provided there are no unforeseen downturns on capital markets, Hannover Re is looking to generate Group net income of around EUR 850 million for the 2014 financial year.
The company is targeting a return on investment of 3.2%.
‘Thanks to our comparatively low expense ratio and good market positioning we are well placed to achieve our 2014 profit target despite challenging conditions in non-life reinsurance. Going forward, as in the past, we shall not make any concessions to our proven strategy of selective underwriting’, Mr. Wallin emphasised.
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