Hannover Re anticipates reinsurance prices and conditions to remain on a sustained stable level for the treaty renewals in property and casualty reinsurance as at 1 January 2025 and anticipates a balance of supply and demand in most markets.
In the various rounds of treaty renewals during 2024, prices and conditions continued to improve in some areas, while in others they stabilized on the previous year’s level.
Given the continued favorable state of the market, Hannover Re took advantage of growth opportunities, both expanding its portfolio with long-standing clients and writing new business.
After the significant increases recorded in prior years, some primary insurance markets are seeing modest price reductions. Hannover Re therefore still considers it appropriate to place an emphasis on non-proportional reinsurance covers.
We want to grow with our clients and continue to offer them the best possible coverage and capacity. To do this, rate levels must remain adequate. Insured losses are still trending higher
Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re
“In view of the various challenges facing the industry, reliable reinsurance protection is indispensable. In line with our strategy, we remain well positioned for profitable growth and a preferred business partner with our clear focus on reinsurance, our excellent underwriting expertise and our very strong capital base.” Jean-Jacques Henchoz said.
With a reinsurance capital adequacy ratio under Solvency II of 276% at the end of June, Hannover Re’s capitalization is extremely robust. The rating agencies similarly confirm its very good financial strength with ratings of AA- from Standard & Poor’s and A+ from A.M. Best, both with a stable outlook.
Hannover Re continues to focus on identifying emerging risks in partnership with its business partners and developing both traditional and innovative coverage for them. An example of this is the world’s first cloud outage catastrophe bond.
Losses associated with cyber risks are increasing substantially owing to digital transformation and technological advances.
To tap into additional non-traditional capital for cyber risks coverage, in April 2024 Hannover Re brought to the capital market the world’s first catastrophe bond to protect against risks resulting from cloud outages.
While there is still a need for action on cyber risks, climate change is and will remain one of the greatest challenges of our time. Recent floods and heatwaves have once again highlighted the continued dramatic proliferation of extreme weather events
Sven Althoff, member of Hannover Re’s Executive Board
“This is a strain on the economy and is increasingly putting insurers to the test after 2024 reinsurance renewals. At the same time, the protection gap is widening as losses rise, especially in emerging countries. This is where innovative concepts such as parametric covers can help to cover climate-related risks and offer more insurance protection,” said Sven Althoff.
Developments for individual regions and reinsurance lines
Hannover Re anticipates the following developments for individual regions and lines in the treaty renewals as at 1 January 2025.
Europe
After the extreme weather events of the previous year, 2024 has passed off more benignly so far. Losses for the insurance industry consequently remained within expectations. With extreme weather events tending to increase, however, there is no room for rate reductions from Hannover Re’s perspective. On the whole, prices and conditions in Europe have stabilized on an improved level.
In Germany, car insurance – the highest-volume line of property and casualty primary insurance – remains unprofitable.
The rate increases implemented in the previous year in response to higher vehicle repair costs and rising claims frequencies were not sufficient to return to profitability. Against this backdrop, Hannover Re assumes to see further adjustments. In addition, floods in 2024 negatively impacted natural catastrophe covers. Further expenditures arose in connection with the settlement of claims from hail events in 2023.
The primary insurance markets in the United Kingdom and Ireland recorded further rate increases in the course of the year, albeit on a more modest scale than in 2023. While prices in some liability lines, such as Directors’ and Officers’ insurance, broadly settled on the level of the previous year, significant rate increases were still recorded in motor business.
Central and Eastern Europe continues to see solid price levels. Following sharp increases in the previous year, rates in Türkiye stabilised and remained on a high level due to the earthquake losses. In France, the year largely passed off quietly on the natural catastrophe front. Most notably, the serious unrest in New Caledonia resulted in significant losses in May.
Demand for high-quality reinsurance protection remains undiminished in Northern European markets, while at the same time the supply of capacity is growing increasingly tight. Hannover Re anticipates improvements in prices and conditions against the backdrop of a continued heavy burden of losses.
North America
The market in North America has now settled on an adequate level in short-tail lines. Property business continues to benefit from further increases in primary insurance premiums, while demand for insurance products remains strong. The Midwestern United States and the Caribbean were once again affected by windstorm events.
Extreme weather events are not only presenting challenges for coastal regions with rising insured values, they are now also making themselves felt in other geographies. Together with a high frequency of mid-sized losses, this is putting the future profitability of property and casualty lines under pressure. For this reason, prices continued to increase, even under reinsurance treaties that were loss-free.
Social inflation, which includes rising claims costs due to increased litigation, higher damages and broader definitions of liability, continues to challenge the insurance industry. It remains persistently higher than average, requiring insurers and reinsurers to continue to adjust prices and conditions in the liability segment from Hannover Re’s perspective. Furthermore, litigation funding also continues to influence the legal environment, which only adds to the pressure on terms and conditions.
Latin America
With inflation mostly contained, Latin American countries are back on a growth trajectory. Having escaped natural catastrophes largely unscathed in prior years, the region suffered very considerable losses caused by Hurricane Otis in Mexico in 2023 and the devastating floodings in Brazil. This led to stronger demand in Latin America’s two largest markets, hence driving rate increases.
Asia-Pacific
In China and India, the latest renewals confirmed Hannover Re’s solid client relationships and focus on partnership. Given the increasing frequency and severity of natural catastrophe events in the first half of the year, insurers’ profitability is expected to come under pressure. As in other markets, cedants could look to further raise their retentions to counter potential increases in reinsurance costs.
In South-East Asia, Japan and Korea, Hannover Re continues to grow with its business partners, especially in non-proportional business. Primary insurers will likely further increase their retentions in response to the higher costs of reinsurance coverage.
Australia and New Zealand have experienced a quiet 2024 so far compared to the previous year. Hannover Re will strive for further growth with its core clients and will look to support the market in its focus on loss mitigation and access to coverage.
Catastrophe reinsurance business
Demand for natural catastrophe capacity was higher in 2024. Prices remained broadly unchanged on an attractive level.
Predictions suggest that the Atlantic hurricane season in 2024 will clearly exceed the average activity seen over the past 30 years. It got off to an early start with Hurricane Beryl loss, which broke numerous meteorological records.
Fortunately, the losses and damage incurred remained on a comparatively minor scale.
The unrest in New Caledonia once again demonstrated – against the backdrop of a generally more dynamic geopolitical landscape – the potential for losses caused by strikes, riots and civil commotion.
Furthermore, climate change is leading to an increase in extreme weather events, which in turn is driving rising demand for catastrophe covers. A greater supply of reinsurance capacity will be needed globally to reduce a protection gap that has the potential to grow in the future.
For 2025, Hannover Re anticipates to see the following trends on the major markets for natural catastrophe business:
North America: In the United States, higher retentions over the past two years have led to satisfactory results for reinsurers. Nevertheless, the sustained heavy losses from convective storms on a record scale have taken a considerable toll on national and especially regional insurers.
Since inflation remains high and the average loss severity is increasing, Hannover Re anticipates rising demand for reinsurance capacity. Even though it is still too soon to fully assess the impacts of the 2024 hurricane season on the reinsurance market, the market environment should again remain attractive in 2025.
Europe: Many areas of Europe have been affected by natural disasters in recent years. The financial strain has been exacerbated by high inflation and supply chain disruptions. In view of the severe floods in Germany in 2024, further efforts are needed to support catastrophe business on a sustainable basis.
Japan: The reinsurance market in Japan showed considerable discipline in the 1 April renewals, with market demand holding stable. The earthquake risk in the region was once again evident in 2024, even though no appreciable reinsured losses were incurred. Substantial flood and typhoon losses as well as hail events in the past two years similarly underscored the need to factor all climate-related perils into the pricing of Japanese catastrophe business.
Australia and New Zealand: After many years of major natural catastrophe events, the region has escaped unscathed this year. Multi-peril risks remain, however, and insured values are rising, driven in part by inflation. This will likely continue to fuel demand for catastrophe coverage, while Hannover Re will concentrate on offering such protection at commensurate prices and with adequate retentions.
by Yana Keller
