Following Hannover Re’s recent investor day in London, analysts have reported that they remain confident the reinsurer is “well positioned” to benefit from an increasingly hard pricing environment next year.
JP Morgan said it remains positive on Hannover Re due to its stable and high returns versus reinsurance peers, clear evidence of earnings buffers and conservatism.
“In addition, we believe that the company is well positioned to benefit from what will clearly be a stronger pricing environment in reinsurance in 2023 with prudent buffers limiting any near term downside,” analysts stated.
Goldman Sachs took a similar stance, forecasting a prolonged hard pricing environment as demand remains strong due to climate change protection, high inflation and demographic uncertainties.
This should strengthen pricing in particular for natural catastrophe lines over the next two years, although all lines of business will likely see increases in risk-adjusted rates to compensate for inflation.
“We believe Hannover is well positioned and has the capital to take advantage of the hard market in property cat reinsurance, and with a low beta, conservative investment portfolio, limited market risks and a track record of delivering even in difficult environments,” analysts at Goldman Sachs concurred.
With attractive rates, Hnanover Re said at its investor day that it will continue to write nat cat business, albeit not at a significant increase in exposure.
But the group does still expect reinsurance to see strong growth, supported by long-term trends of higher demand, due to climate change protection, the uncertain geopolitical environment, economic growth and increasing insurance penetration in EM markets.
JP Morgan considers Hannover Re to be sufficiently “nimble, innovative and able to react to opportunities with a lean operating model” to react to changing market conditions and focus on profitable growth backed by strong underwriting capabilities.
“Risk management capabilities are strong with defined risk appetites, hedging, and retrocession all in place,” JP Morgan surmised.
While the retrocession market has proved challenging in 2022, Hannover Re assured that around 85% of its retrocessionaires had a more than 10 year relationship with the company meaning that even if capacity were more difficult/costly to obtain, Hannover Re would have a relative advantage compared to peers.
Additional pressure will be placed on this market following Hurricane Ian, but again Hannover Re highlighted that it should fare better than peers on the loss front due to its below market share in Florida versus the wider US.
On the life and health reinsurance side of the business, analysts also noted that Hannover Re was well prepared for the pandemic with extreme mortality protection in place ahead of the event.
Other parts of the L&H business performed strongly including financial solutions and longevity and helped to offset pandemic effects in the mortality business despite paying more than €1 billion of COVID-19 claims.