Inflation, losses and demand for additional nat cat capacity in the German market alone will see rates rise substantially
German cedants are demanding at least an additional €1 billion in natural catastrophe reinsurance limit for the 1 January 2023 renewals.
This is according to Dr Michael Pickel, chief executive officer of Hannover Re subsidiary E+S Rück, speaking at the reinsurer’s Baden Baden press briefing.
The demand is being driven by a combination of factors, including the impact of inflation on underlying insured values, as well as loss activity over the past couple of years and increased modelled exposures.
But the non-life reinsurer revealed it was far from achieving firm order terms as it approaches the critical year-end renewals.
This is not because it wants to ‘keep the powder dry’, insisted Pickel, but because there are still more questions than answers as far as the reinsurer is concerned.
One factor hindering renewal discussions is that cedants have not been able to adequately quantify the impact of inflation on their portfolios, and/or to demonstrate what measures they are taking as a result.
Few firm orders
“We can grow but we are running into some limitations on the client side which could limit our growth more than anything else,” said Pickel. “We are out in the market, definitely quoting, but we are some way off from firm orders.”
There is an obvious ‘call to action’ against the backdrop of macroeconomic and geopolitical turmoil.
The firm noted that severe weather events, including winter storms (including Ylenia, Zeynep, and Antonia in the early part of the year), had once again surpassed the multi-year average.
It follows on from Storm Bernd, which caused record flooding in Germany and neighbouring countries in July 2021.
“While the images of last year’s devastating flooding still remain very much in all our minds, the winter storms, droughts and wildfires experienced this year show that Europe is seeing an increased prevalence of natural disasters,” said Pickel.
“All this makes further price rises in both original and reinsurance business indispensable.”
Russia’s invasion of Ukraine has exacerbated inflation, supply chain disruption and losses on the aviation side of the business (the extent of which is still somewhat uncertain).
“There is more need to adjust these covers to the new situation and inflationary environment,” said Pickel.
Significant price improvements
E+S Rück expects significant improvements in risk-adjusted prices and conditions in property and casualty reinsurance on the back of continued heavy claims expenditure and soaring inflation.
“Both insurers and reinsurers alike find themselves facing a sharp rise in inflation, which together with sustained high expenditures for major claims is adversely impacting the profitability of the entire industry,” said Pickel.
“While further adjustments to pricing and conditions are unavoidable both in original business and on the reinsurance side, at E+S Rück we remain committed to partnership-based negotiations with all market players and to long-term customer relationships,” he added.
“We can only meet the current and future challenges together. I am optimistic that we will be able to do this in the upcoming renewals.”
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Baden Baden: Cedants demand extra €1 billion in limit - Hannover Re