Hannover Re comments on January 1 Renewals
Argenta Comment: European reinsurer and Lloyd's competitor, Hannover Re has today released data relating to its experience in the January renewal season. More than 65% of its reinsurance contracts, which in turn accounts for more than 50% of its overall book of business, are renewed in January. Hannover wrote US$15.6 billion of gross premiums in 2011.
Overall premiums have increased by around 1%, although rate increases were reported at just 0.5%. This average masks a wide range of outcomes, with prices said to be down by 2.7% for aviation reinsurance and down by 3.1% for credit and surety, but up by 1% for North American business and by 5% for marine reinsurance. Contracts that have been impacted by Superstorm Sandy were subject to rate rises of up to 30%. Although Hannover pronounced itself happy with the overall outcome, Hannover noted that abundant capacity prevented significant increases and that reinsurers were squeezed by insurance company buyers being prepared to retain more risk.
In the light of thin investment returns, the group has reduced its target combined ratio* from 98% to 96.1% (in other words it is seeking to improve underwriting performance). This is the combined ratio at which the business should achieve its target return on capital, which is set at 750 basis points in excess of the risk free rate (which is currently 9.7%).
Hannover Re publishes its year end results on 7 March.
The renewal season presentation can be found here.
Also on the Hannover website is a presentation made by CEO Ulrich Wallin to the New York office of investment bank Commerzbank last month, that can be found here.
* a measure of profitability, calculated as claims and expenses as a percentage of net premiums, a ratio of less than 100% being an underwriting profit