Hannover Re warns of sharp rate increases in 2021

Hannover Re expects widespread price rises in both reinsurance and insurance markets in 2020 as the industry reacts to the coronavirus outbreak, an event it puts on a par with the World Trade Center attacks on 11 September 2001. On Monday, Hannover Re said it expects to see “significant price increases” spanning various lines of property and casualty reinsurance in the treaty renewals as at 1 January 2021. It also expects primary markets across Europe, the US and Asia to continue to harden. The German reinsurer said the current environment supports the trend towards higher prices. In particular, it cited Covid-19 “strains” on primary insurers and reinsurers, a further drop in interest rate levels and the large losses recorded during the past three years, as key drivers for price increases. Against the backdrop of Covid-19 losses and the low interest rate environment, premium rate increases are “absolutely essential”, Hannover Re said. Covid-19 is a “market-changing event” comparable to other major market-turning events, the reinsurer said in a trading statement. “From our perspective, Covid-19 is a market-changing event that can be compared with the terrorist attacks of 11 September 2001 or Hurricanes Katrina, Rita and Wilma in 2005," said Sven Althoff, a member of Hannover Re's executive board responsible for property and casualty reinsurance. “The true scale of the losses caused by the pandemic will only become clear over the long term. We see the Covid-19 pandemic as a catalyst for fundamental adjustments to prices and conditions at insurers and reinsurers alike,” he said. Hannover Re said the growing momentum of the price increases recorded in past rounds of treaty renewals will be sustained in the year ahead. “Sharply rising prices across the various segments can be expected as at 1 January 2021. Appreciable improvements in conditions are similarly likely in view of the effects of the pandemic and the associated considerable uncertainties,” it said. In Europe, Hannover Re noted that primary markets continue to harden. In Germany, large losses will drive price increases for commercial and industrial property lines, while in France the reinsurer anticipates price increases due to the decline in income from investments and sustained level of claims expenditure. In the UK, there had already been “appreciable market hardening” among primary insurers, it said. “The need for remediation in commercial and industrial property lines continues to grow more pressing on account of the burden of losses. Reinsurance conditions are expected to improve, particularly under loss-affected programmes,” Hannover Re said. However, insurers’ premium income is likely to come under pressure as the pandemic hits the economy. For 2021, Hannover Re anticipates “sharply lower growth” in the primary insurance market in Germany, mainly due to the impact of Covid-19 on small businesses. In France, Hannover Re sees rising demand for industrial insurance, albeit at a higher cost. “This should also have positive implications for movements in reinsurance prices, not least in view of the additional strain here from large losses in prior years caused by run-off results that fell short of expectations,” the reinsurer said. Specialty lines are also in need of further pricing correction, with increased cost of reinsurance on the cards for a range of lines of business, including marine, political risk and credit. In aviation, premium contraction caused by the pandemic is being offset by the trend towards rising rates – which has continued undiminished and even gained added impetus in some areas, Hannover Re said. “Despite this favourable development, it is nevertheless important to remember that the reinsurance market is only at the beginning of a correction phase – which is why Hannover Re is maintaining unchanged its disciplined underwriting approach geared to the long term,” the reinsurer said. Despite the worldwide recession, only modest rises in loss ratios have been recorded in credit and political risks so far. However, increased loss expenditure is anticipated, given the state of the economy. “With this mind, prices in primary insurance and reinsurance should move appreciably higher,” according to Hannover Re. Covid-19, combined with increased frequency of natural catastrophe losses, continues to support rate increases across most lines of business in the US. “All lines of business with the exception of workers' compensation are showing appreciable rate increases. The damage inflicted by tornadoes, hailstorms and hurricanes in the course of the year has led to a relatively large number of claims. Following on from the fire losses seen in California in recent years, this means that other parts of North America will see adjustments to rates and conditions,” said Hannover Re. Hannover Re expects continued upward pressure on rates for US property and catastrophe business, although pricing has reached a satisfactory level. “The combination of losses and restricted capacities brought the market as a whole to a price inflection point in 2019. The environment is expected to show further improvement in 2021,” it said. Japan and Australia are also expected to see further price increases, having already experienced rate hikes following a string of natural catastrophes in recent years. “In Japan, reinsurers have used the recent events to update their risk models, which is expected to lead to further substantial price increases in 2021,” Hannover Re said. The reinsurance market has experienced three successive years of major natural catastrophe losses from 2017 through 2019. This has impacted both traditional reinsurers as well as capacity providers from the insurance-linked securities market, Hannover Re said. “Covid-19 pandemic is adding further challenges to an already distressed reinsurance market. When it comes to property catastrophe business, this has resulted in an overall favourable trading environment for reinsurers throughout all renewals in 2020 so far. Pricing momentum was particularly pronounced in territories and programmes that had sustained significant losses recently, such as the US, Japan and the Caribbean,” it said.

Hannover Re warns of sharp rate increases in 2021

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