Reinsurer ‘satisfied’ with non-life treaty renewals
Hannover Re is highly satisfied with this year's treaty renewals in non-life reinsurance and now anticipates a very good financial year in 2009, according to a statement from the company.
"We can look back on a successful round of treaty renewals. The bottom has been reached and premium erosion halted,” said The capital lost by insurers as a consequence of the financial market crisis has prompted the expected stronger demand for reinsurance", Chief Executive Officer Wilhelm Zeller explained. As a result, premium increases were secured in many markets, sometimes even running into double-digit percentages – this applies especially to catastrophe business impacted by losses in 2008 and to worldwide credit and surety reinsurance. German business continued to be attractive.
The treaty renewals also demonstrated that with every passing year ceding companies are attaching even greater importance to the financial strength of reinsurers; given the repercussions of the financial market crisis this is hardly surprising. In view of its excellent ratings ("AA-" from Standard & Poor's and "A" from A.M. Best) Hannover Re was once again a sought-after business partner in this renewal season.
A statement from Hannover Re, announcing results and expectations for 2009, stressed the following key messages:
- Growing demand for reinsurance
- Enlarged premium volume
- US property business records significant rate increases
- Attractive market environment in Germany
- Rate increases in catastrophe business
- Credit and surety business enjoys unusually strong price rise
- Return on equity target for 2009: in excess of 15%
Of the total premium volume of €3,716m written in non-life reinsurance in 2008 (excluding facultative business and structured covers), a good two-thirds of the treaties worth altogether €2,564m (69%) were up for renewal as at 1 January 2009. Of this, a premium volume of €2,304m was renewed, while treaties worth €260m were either cancelled or renewed in modified form.
Including increases of €372m from new or modified treaties and thanks to improved prices in some areas, the total renewed premium volume thus came in at €2,676m. Making allowance for treaties with a later renewal date, gross premium in non-life reinsurance is likely to comfortably surpass the previous year's level at €3,886m (+4.6%).
In US property business a hardening of market conditions was evident – both with regard to rates and conditions. Rate increases of up to 20% could thus be obtained. In US casualty business further premium erosion was avoided; rate increases could only be pushed through for directors' and officers' (D&O) and professional indemnity covers. Given the continuing reverberations of the crisis on financial markets, Hannover Re anticipates further price increases mid-year.
The development of business in Germany was also gratifying. In the motor liability sector, an important line for Hannover Re, rate increases of up to 20% were secured in non-proportional business. Prices for catastrophe covers also rose on the back of heavy losses from natural disasters in the past year. "We slightly enlarged our high market share in Germany thanks to new client relationships and increased treaty shares under existing accounts, thereby cementing our position as one of the leading reinsurers in the profitable German market", Mr. Zeller emphasised.
Rate increases in worldwide catastrophe business were attainable. However, prices were only partly risk adequate. As a consequence, Hannover Re slightly reduced its business.
Developments in worldwide credit and surety reinsurance were most pleasing. The market environment hardened appreciably across the board, with rate increases running well into double-digit percentages as well as significant improvements in conditions. Promising new business opportunities combined with increased shares under existing client relationships served to boost the premium volume by around one-third. "Thanks to attractive terms and conditions we were able to further expand this segment and hence reinforce our market position", Mr. Zeller explained.
Outlook for 2009
Given the successful treaty renewals as at 1 January and against the backdrop of a hardening market, a very good financial year is anticipated in 2009. "The general scarcity of capital in the insurance industry associated with the crisis on financial markets as well as the tightly limited capacity available on the retrocession market will continue to favourably influence market conditions", Mr. Zeller noted. Hannover Re therefore anticipates net premium growth of around 5% in non-life reinsurance. Making allowance for the recent acquisition in life and health reinsurance, an increase of 17% is expected for the Group as a whole.
"Our company has weathered the storm on financial markets. We are building directly on the profit targets set back at the beginning of 2008", Mr. Zeller added. Assuming that the burden of major losses remains within the expected bounds and that there are no further severe upheavals on the investment side, a return on equity in excess of 15% should be attainable in the current year – disregarding the one-off effect of the latest acquisition in life and health reinsurance. Earnings per share – again disregarding the one-off effect in life and health reinsurance – are expected to come in between 4.75 euro and 5.25 euro. With regard to the dividend, the company envisages a distribution of 35% to 40% in this scenario.