Baden Baden: Hannover Re expects German floods to lead to price gains

E+S Rück, the Hannover Re subsidiary responsible for the group’s German business, expects “further price increases and improved terms and conditions” in the 1 January 2025 renewals in property and casualty reinsurance.

Severe flooding experienced in central Europe – a repeat of previous years – was central to the German reinsurer’s prediction for a hard market renewal, rather than gradual softening seen over the past year internationally.

Michael Pickel, E+S Rück’s CEO, delivered his comments at this year’s reinsurance meeting in Baden-Baden.

“For a number of years now, the insurance industry in Germany has been faced with numerous natural catastrophes causing considerable losses and damage,” said Pickel.

“Once again this year, we have already seen devastating floods, following extraordinary severe weather events of previous years with hail and heavy rain, as well as flash floods and winter storms.

 “At the same time, motor insurance remains in deficit for structural reasons. We are also concerned about increased loss advices from our clients for prior-year claims.

“As a reliable partner for our clients, we always offer them the best possible reinsurance capacities and support them actively in managing claims. Adequate prices, terms and conditions are absolutely essential for this.”

Motor in the red

E+S Rück also said expects that motor insurance, the largest line of property and casualty insurance by volume, “will likely remain in deficit”.

Tariff adjustments made by primary insurers have “so far failed to achieve the desired effect”, owing to persistently high claims inflation, the reinsurer said.

Sharp increases in the costs of repairs and spare parts have led to a further rise overall in claims expenditure for physical damage, according to E+S Rück.

Higher costs were also observed in connection with major bodily injury claims due to increased care expenses, the reinsurer noted.

“Claims frequency is not diminishing, while the increase in spare parts and workshop costs is well above inflation,” Pickel said.

This is taking a heavy toll on the results posted by motor insurers,” he continued.

“Over the coming years, primary insurers will have no alternative other than to make further significant price increases in motor insurance. This is the only way they can move out of the loss-making zone and restore motor business to a profitable footing for the long term,” Pickel added.

E+S Rück said from its perspective, the need for adjustments to prices and terms and conditions “is more marked for non-proportional covers” featuring relatively low retentions, as well as for proportional reinsurance treaties.

For natural catastrophe covers, the claims trend seen in prior years has reportedly been sustained.

Following the hail events of 2023, the claims picture for insurers in the current financial year has been especially notable for multiple flood events, the company said.

All in all, 2024 is again expected to see “considerable losses” from natural disasters.

For the coming year, E+S Rück anticipates growing demand overall for natural catastrophe covers, combined with a sharp increase in purchased capacities, while at the same time prices and terms and conditions “will show further risk-adjusted improvements”.

After an increased frequency of large fire losses in 2023, industrial and commercial business is reporting continued poor market numbers in property insurance for 2024 as well, E+S Rück said.

Adjustments are “still needed”, despite inflation rates normalising in 2024, the firm warned.

The focus is increasingly turning to “new exposures”such as SRCC risks, Hannover Re warned. Emerging risks, including for example the insurability of forever chemicals (PFAS), are also growing in significance in the liability line.

The market for cyber covers had already levelled off in 2023 due to softening prices and increased competition, according to E+S Rück.

At the same time, there is pressure to make adjustments as losses caused by cyber-attacks are rising. The aggregation risk is also taking on added relevance.

“Particularly given the current state of the market, we aim to be a reliable partner for our clients and continuity will remain a key factor in our future success,” said Thorsten Steinmann, a member of the E+S Rück executive board, and set to take over as CEO of E+S Rück from 1 January 2025.

“Going forward, as in the past, we see a wide range of opportunities to profitably grow our business together with our clients. I am convinced that we will achieve this by building on our proven strengths and continuing to evolve, Steinmann added.