For the upcoming rounds of renewals in the APAC region on 1 January 2023 and 1 April 2023, Hannover Re expects that the global trend towards market hardening will also extend to the Chinese market, global reinsurance giant Hannover Re says in a statement.
In recent months, APAC markets have faced numerous challenges, notes Hannover Re. Along with pandemic-related problems affecting global supply chains, these included devastating natural disasters such as floods in Australia, earthquakes in Japan and typhoons. The historic scale of the destruction in Australia, combined with the growing inflationary trend, reinforces the need for further price increases across multiple lines of business.
The APAC region remains the world's largest growth market and thus offers significant business opportunities., Hannover Re adds.
Given the comparatively low insurance density still seen in many markets, this is especially true for insurers and reinsurers. Hannover Re, therefore, continues to profitably grow its portfolio in the region.
Global challenges
Globally, against the backdrop of a trend towards more expensive large losses, Hannover Re expects further price increases and improved conditions in property and casualty reinsurance.
The first half of 2022 proved challenging for primary insurers and reinsurers alike. Soaring inflation, major losses and an accumulation of mid-sized frequency losses were as much a factor in property and casualty reinsurance as pandemic-related expenditures were in life and health reinsurance. When it comes to new investments or reinvesting activities there will be a time delay before higher interest rates have a favourable impact.
Yet all these challenges are dwarfed by the war in Ukraine and the associated human suffering. It is still too soon to make any reasonable estimate of the extent to which this may result in losses for the insurance industry.
"The inflation rates in many regions are higher than they have been in decades. Combined with the war in Ukraine and given that the pandemic has still not been overcome, this is fuelling the long-standing trend towards ever-higher loss burdens for insurers and reinsurers," said Mr. Jean-Jacques Henchoz, CEO of Hannover Re. "Further risk-adjusted rate increases in property and casualty reinsurance are therefore unavoidable. This is the only way for us, as a reinsurer, to continue to offer our clients reliable risk protection in an increasingly challenging market. In this context, an underwriting policy that emphasizes quality is more important than ever if we are to preserve the profitability of our business."
Hannover Re continuously updates its inflation assumptions and includes these in its risk-adjusted pricing. Given that the inflationary environment is persisting longer than originally anticipated, due mainly to the war in Ukraine, additional adjustments will have to be made for future renewals. While the effects of inflation could already be felt in the previous year in connection with natural catastrophe losses, appreciable impacts are likely to be seen in other lines too going forward. When it comes to business interruption insurance, disruptions in supply chains are adversely affecting the availability of raw materials and construction materials, leading to longer repair times.
Jan 2023 renewals
For the treaty renewals as at 1 January 2023, Hannover Re expects further price increases and improvements in conditions, not only in loss-affected lines and regions. Hannover Re sees a number of reasons for rising primary insurance rates including inflation and loss experiences and proportional reinsurance should benefit from that. There is considerably more ground to catch up in non-proportional reinsurance, and corresponding improvements of prices and conditions are therefore needed.
Mr. Sven Althoff, member of Hannover Re's executive board with responsibility for property and casualty reinsurance, said, "Hannover Re is optimally positioned for the current market phase. Now as before, the redundancy level of our reserves is very robust. In order to ensure that this remains the case going forward and in light of the increasingly challenging conditions, we shall continue to put great emphasis on the quality of the business written."
The capital adequacy ratio of Hannover Re in accordance with Solvency II amounted to 235.1% as at 30 June. Furthermore, the rating agencies attest to Hannover Re's very good financial strength. The company is rated "AA-" by Standard & Poor's and "A+" by A.M. Best. Both ratings have a stable outlook.
Source: asiainsurancereview.com
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