Hannover Re Says Year Ahead Looks Very Good

Hannover, Germany-based Hannover Re released a buoyant report today saying Jan. 1 non-life reinsurance renewal volume was nearly 5 percent and it expects 17 premium volume for all lines in the year ahead.

Wilhelm Zeller, Hannover chief executive officer, said, “We can look back on a successful round of treaty renewals. The bottom has been reached and premium erosion halted.”

He explained, “The capital lost by insurers as a consequence of the financial market crisis has prompted the expected stronger demand for reinsurance.

“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,” he added.

Hannover said the 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.”

The company said of the total premium volume of EUR3.72 billion ($4.83 billion) written in non-life reinsurance in 2008 (excluding facultative business and structured covers), a good two-thirds of the treaties worth altogether (69 percent ) EUR2.56 billion ($3.33 billion) were up for renewal at Jan. 1, 2009. Of this, a premium volume of EUR2.30 billion ($2.99 billion) was renewed, while treaties worth EUR260 million ($338 million) were either cancelled or renewed in modified form.

Including increases of EUR372 million ($483 million) from new or modified treaties and thanks to improved prices in some areas, the total renewed premium volume thus came in at EUR2.68 billion ($3.48 billion). 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 EUR3.89 billion ($5.01 billion) or plus 4.6 percent.

In U.S. property business, the company found a hardening of market conditions was evident and it was able to obtain rate increases of up to 20 percent.

In U.S. casualty business, it said, further premium erosion was avoided, but rate increases could only be pushed through for directors' and officers' and professional indemnity covers.

Given continuing reverberations from the crisis on financial markets, Hannover Re said it anticipates further price increases midyear.

In its German motor liability sector, the company said it secured rate increases of up to 20 percent in nonproportional business.

Prices for catastrophe covers also rose on the back of heavy losses from natural disasters in the past year, Hannover reported.

Mr. Zeller said the company “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.”

Hannover said prices for worldwide catastrophe business were only partly risk adequate, so the company slightly reduced its business.

For worldwide credit and surety reinsurance Hannover said rate increases ran well into double-digits and premium volume increased by around one-third.

The reinsurer said “a very good financial year is anticipated in 2009.”

Mr. Zeller commented, “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 favorably influence market conditions.”

Hannover said as a result it anticipates net premium growth of around 5 percent in non-life reinsurance. Making allowance for the recent acquisition in life and health reinsurance, an increase of 17 percent is expected for the group as a whole, the company said.

“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 percent 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 EUR4.75 euro and EUR5.25 euro. With regard to the dividend, the company envisages a distribution of 35-to-40 percent in this scenario.