Hannover Re says that an intensely competitive environment currently prevails across property/casualty reinsurance markets worldwide. The supply of reinsurance capacity continues to far exceed demand. A major driving factor here is the very healthy capitalisation of most insurers due to the absence of large losses in regions with a high risk potential. Ceding companies have responded by passing on fewer risks to reinsurers. The pressure on prices, especially in US natural catastrophe business, has been further exacerbated by the inflow of capital from alternative sources–the ILS market, which for its part is experiencing substantial cash inflows from pension and hedge funds.
As a further factor, the protracted low level of interest rates is putting a strain on reinsurers, with pricing discipline taking on particular significance in the face of diminished investment returns. These general conditions are in turn likely–provided the current year is once again spared market-changing major loss events–to shape the treaty renewals as at 1st January 2015. On the one hand, competitive pressure will therefore probably remain high. On the other hand, reinsurance prices should–leaving aside a few exceptions–stabilise relative to the business renewed for the 2014 underwriting year because scope for further rate reductions is limited in light of the return on equity required by reinsurers.
With its profit-oriented underwriting policy Hannover Re considers itself well-placed to handle the challenges posed by the soft market conditions. "What is vital in this climate is to keep a disciplined eye on ensuring that treaty conditions remain commensurate with the risks", CEO Ulrich Wallin emphasised during a press conference in Monte Carlo. "Our cedants can rely on high-quality coverage concepts for appropriate prices. In areas where adequate prices cannot be obtained, we are prepared to relinquish business going forward, as we have in the past."
Despite the soft market conditions in property/casualty reinsurance, Hannover Re sees growing demand for high-quality reinsurance protection in view of rising concentrations of values in urban population centres and the implementation of risk-based solvency schemes. Special mention may be made here of growth markets in Asia and Latin America as well as business with agricultural risks.
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