Non-proportional reinsurance terms remain attractive: Hannover Re
November 1 2024 by InsuranceAsia News
Demand for high-quality reinsurance protection remains strong in 2024, with reinsurance prices and conditions stabilising, said Sharon Ooi, member of the executive board – property & casualty for Hannover Re.
“What we expect is strong market demand still for high-quality reinsurance protection. Insurance and reinsurance is an important business, so the demand will be there,” she said.
Non-proportional remains attractive
Ooi noted that the terms and conditions continue to be attractive, especially in the non-proportional reinsurance market.
“We’re comfortable in both proportional and non-proportional reinsurance, although we do feel that on the proportional side, if we do give capacity, the underlying market rates need to be able to support that,” she said.
The non-proportional market terms and conditions are particularly attractive now due to higher deductibles and appropriate pricing for capacity, making the market sustainable.
“The deductibles are at a higher level at this point in time, and that’s really not shifting. The price for capacity is also at the right level. So I think that that level makes the market sustainable,” Ooi noted.
“As markets mature, there will be a shift towards non-proportional. Having said that, there’s still a number of mature markets such as Australia where you see proportional covers come about. It’s definitely market dependent,” she said.
Ooi attributed the shift in market dynamics to a number of unexpected losses, including events like Covid-19, secondary perils such as hail, floods, and droughts, and ongoing uncertainties from supply chain issues and geopolitical conflicts.
“For the past ten years, the reinsurance players didn’t really return their cost of capital on average. Things really had to change,” she said.
“The insurance and reinsurance markets have to be profitable, from an investor standpoint, that was a key driver in really ensuring that there was a shift, especially in the reinsurance sector,” Ooi emphasised.
Ooi does not expect significant price shifts in the retro market for the upcoming renewals, anticipating continued demand for Hannover Re’s capacity due to its strong ratings and capital base.
She highlighted Hannover Re’s long-term partnerships with retrocession partners, which have provided consistency in capacity.
Diverse APAC markets
Discussing the impact of recent events like typhoons and political violence, Ooi emphasised the diverse needs of clients in the APAC markets.
“I really love the APAC markets. Because it’s so diverse, there’s a lot of different countries and a lot of different needs of our clients,” she said.
“There has been an increase in frequency and severity of secondary peril type losses like floods, they’re becoming more and more frequent,” Ooi noted.
Managing renewals, pricing, and capacity in light of these challenges requires close collaboration with clients.
Political violence, including riots and strikes, remains a significant risk, and Hannover Re works with clients to understand and price these exposures correctly, Ooi said.
“As markets mature, there will be a shift towards non-proportional. Having said that, there’s still a number of mature markets such as Australia where you see proportional covers come about. It’s definitely market dependent. ” Sharon Ooi, Hannover Re
Ooi addressed the perception of market softening, particularly in the insurance market. She explained that while some markets, like Australia, have seen price increases due to inflation and secondary perils, the reinsurance market remains competitive.
“In some aspects, pricing is still going up, because inflation is an issue,” she said.
“Reinsurance is a competitive market. There are lots of insurance players. Singapore has a lot of players anyway, for a very small market. Competition will always be kind of a price competition as well,” she added.
Deductibles have risen in large markets such as the US, Europe and big Asian markets like Australia, Japan and Korea, and Hannover Re supports clients in managing costs through tailored treaty structures, Ooi noted.
Regarding aggregate covers, Ooi noted that their viability depends on the structure and pricing.
“The previous type of aggregate covers was still too low. At a certain level, the structure in itself is quite useful, but the correct price for the structure then becomes the discussion,” she explained.
She stressed the importance of aligning the price with the risk, which can be challenging from both buyer and seller perspectives. “From an aggregate perspective, it’s getting the right price more than the actual ‘do you sell aggregate covers or not?’ So it is price-dependent,” Ooi added.
The company’s focus on being a pure-play reinsurer, supporting clients’ growth, and investing in areas of credibility, such as catastrophe bonds and cyber insurance, is central to its strategy.
“We tend to grow and invest in areas where we feel we have a credibility. Definitely, in the cat space, we’re going with our clients in the ILS space, we’re a leader there. Less so in Asia, ILS is still new. Having said that, we’ve partnered with a few clients in Asia and supported their cat bonds in China,” she said.
Hannover Re decentralised its operations in APAC in 2021, building local teams in Shanghai, Sydney, Kuala Lumpur, and India to be closer to clients.
The company has also invested in data capabilities, using modelling and actuarial reviews to provide insights to clients.
“We’re very happy to create a positive loop in providing clients more information about the businesses and our insights into the business as well,” Ooi said.
Ooi discussed the growing interest in cyber insurance, noting that while the market in APAC is still small, there is potential for significant growth.
“What we’ve done is that we realised that it’s important for us to really have an understanding of cyber, but also the entire digital ecosystem,” she said.
Hannover Re has created a cyber and digital division to focus on this area, developing innovative products like cloud outage coverage.
“What we’re trying to do is be a bit innovative on a very small scale to show proof of concept first and ensure that the solution can be scalable,” Ooi explained.
The company aims to support clients globally with a comprehensive understanding of cyber risks.
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