German reinsurer Hannover Re has said that the market should expect rate hikes of double digits at the forthcoming renewal discussions after a series of losses eroded around 15 years of profitability.
Speaking at the Baden-Baden Reinsurance meeting, the group’s head of property and casualty reinsurance Michael Pickel warned that the combination of a surging loss burden with rising prices for materials due to inflation necessitated broad price increases.
Germany suffered historic flooding during the summer stemming from the Bernd low pressure system which caused widespread damage to property and loss of life, and the events have demonstrated the need for higher prices to compensate for increased exposure.
“Many clients have expressed the desire to experience less volatility in their results, and therefore they will lower the retentions by aggregate,” Pickel said.
“This together with the pandemic losses we suffered in the last year will certainly lead to significant, double-digit increases in the price of nat cat covers.
“To expect something which is flattish is absolutely off the table—it was already off the table in Monte Carlo.”
“To expect something which is flattish is absolutely off the table.”
Michael Pickel, Hannover Re
Pickel added that the combination of the flood losses as well as claims from hailstorms and other historically damaging natural catastrophes had dealt a significant blow to profitability over the longer term, impacting not only the catastrophe book but also motor third party liability and other segments.
“This shows that it is a very particular year, and when you add all these things together, it erodes profits from the last 15 years, which gives you the magnitude and the rationale behind why we have to talk about price increases in many segments of our business,” he explained.
“This is another reason for hardening markets and the need to keep the momentum we have seen in the July 1 renewals in the international field, which will be extended now to the German sector, which was for many years deemed to be loss-free.
“The year is not over—there are still winter storms possible, earthquakes are likely, and there could be high industrial losses. It has already reached a very significant loss burden, and this is the major focus which we want to convey with what we are doing.”
Aside from losses, Pickel highlighted the impact of persistently low interest rates, which in the German domestic market are negative even for retail banking.
“We have now seen for a longer period we will have negative interest rates, and this impacts particularly the long-term business, where we have claims development of more than 10 years,” he concluded.
Image courtsey of Shutterstock / cornfield
“The year is not over—there are still winter storms possible.”
