Hannover Re, the world’s third-biggest reinsurer, said rates may decline in 2011 as this year’s claims weren’t severe enough to turn the market.
“Our expectation for reinsurance rates in property and casualty reinsurance to fall a bit in 2011 has been confirmed so far in our renewal talks,” said Juergen Graeber, the management board member responsible for specialty lines such as aviation and space, offshore energy as well as credit, surety and political risks. “We are still on a technically adequate level that allows us to earn our costs of capital.”
Hannover Re last month raised its 2010 profit target to more than 700 million euros ($925 million) and aims to post net income of about 650 million euros in 2011. The biggest claim for the insurance industry this year was the Chile earthquake in February with estimated insured losses of $8 billion, according to Munich Re, the world’s largest reinsurer.
“At year-end 2010 reinsurer capital has grown to record high levels,” reinsurance broker Aon Benfield said in a Dec. 16 statement. “Reinsurance supply will continue to outpace demand, putting further downward pressure on rates.”
Hannover Re, which expanded credit and surety reinsurance when primary trade-credit insurers such as Euler Hermes SA or Coface SA were hit by a rise in bankruptcies during the economic slump, seeks to expand the unit at “a high single-digit or low double-digit” rate in 2011, Graeber said in the interview.
Trade-credit insurers, which protect payments to sellers when buyers can’t meet obligations, help cover more than $2 trillion of receivables worldwide, according to the International Credit Insurance & Surety Association. In turn, they seek protection by passing some of the business on to reinsurers such as Hannover Re or Munich Re.
Credit and Surety
Hannover Re, based in Hanover, Germany, expects premium income in its credit and surety division to rise to about 600 million euros this year from 480 million euros in 2009.
“Customers won’t withdraw the capacity we gave them in times of need even as the market has moved from a 40 percent capacity to about 150 percent by now,” Graeber said.
The reinsurer is closely watching developments in U.S. casualty reinsurance, according to Graeber, who said that rates in the segment, which includes directors’ and officers’ insurance, workers’ compensation and product liability coverage, aren’t fully factoring in the anticipated rise in inflation and the low interest rates. “Therefore, the market will be loss-making in about two years, which should lead to a turnaround in prices and generate fresh opportunities.”
Hannover Re reduced premiums in U.S. casualty reinsurance to about 500 million euros from 1.2 billion euros at the peak in 2003 and 2004, according to the manager. The reinsurer also sees “huge potential” in a new form of insurance for energy savings guarantees in the U.S., which Hannover Re developed with Delaware-based Energi Holdings, to help cover energy-improving upgrades to buildings, Graeber said.