Hannover Re still finding growth in property cat, expects price reductions to decelerate: Althoff

Hannover Re acknowledges reinsurance pricing is declining fastest in property catastrophe risks, but the company continues to find some growth opportunities here and expects price reductions will begin to decelerate now that rates have come down for two consecutive years, Sven Althoff said today.

Althoff, Hannover Re’s Executive Board Member for Property & Casualty business, also highlighted that capital over-supply in property catastrophe reinsurance remains largely constrained to the higher-layers of towers, where appetites are strongest.

But he also said that pricing is declining in lower-layers as well, just less meaningfully.

Speaking during the first-half earnings analyst call this morning, Althoff provided a lot of context on how Hannover Re views the state of the property catastrophe market at this time, as well as an outlook for the 2027 renewals.

First, CEO Clemens Jungsthöfel commented, “The successful conclusion of all major treaty renewals in 2026 is another reason to be positive about the future, based on our strong market position and the long-term client relationship. We were able to further expand our traditional treaty portfolio. Year-to-date premium growth, as you can see here, is plus 7.2% Despite increased competition and clearly pressure on pricing, reinsurance rates remained at least adequate on a broad basis. Hence, we are willingly providing capacity to our clients and programmes that do meet our margin requirements. The mid-year renewals, I’d say, fit well into this picture.”

The CEO added that, “Competition continued to centre around pricing, with moderate discussions on terms and conditions. The overall risk-adjusted price change for our diversified portfolio was minus 4.5 percent. Rate reductions were most significant for loss-free property cat business, as in previous renewals. Price pressure in other parts of the portfolio was less pronounced.”

Althoff then discussed the renewals, highlighting that the majority was from business relationships and programs Hannover Re already participated in, saying “we are obviously very comfortable pricing that business.”

Althoff went on, “It’s clear that, given how the market is developing, the pricing levels are not as attractive as they were last year, and last year was the deterioration on the year prior. But still, I mean, despite the fact that the attractiveness of margins has reduced, it’s still attractive in the sense that it’s making our hurdle rates and therefore growing in these lines of businesses is accretive also in a softening market environment. You also have to keep in mind that the extent of the softening is not happening to the same extent everywhere. Property cat is the area where we see most softening, and then many other parts of our portfolio are significantly more stable when it comes to the terms and conditions.”

Moving on to discuss natural catastrophe reinsurance business, Althoff said that growth opportunities are still being found.

“Still on the nat cat side, we are also growing a little bit, but we are doing that with strict profitability criteria. So whatever we wrote new, despite the rate reductions, is making our hurdle rates, and we were also prepared to write lesser positions on business where the pricing did not work so well any longer.

“The reason why we still find some new business in nat cat attractive has to be seen in the context that our relative market share in natural catastrophe business, is significantly lower compared to our average market share across all lines of business. We are prepared to engage a little more capital to to to write property catastrophe business.”

He continued, “We are comfortable in growing in this market environment, as we still see that as an attractive market environment, and you can also see that by the still very limited loss component we are showing after the first half of the year, which clearly demonstrates that the growth will be value creative over time when we release the CSM.”

These growth opportunities are likely being shared with third-party investors, as Hannover Re continues to be a meaningful player in both facilitation and fronting of risks for ILS investors.

Althoff later discussed his view on how conversations may go at the Monte Carlo event with a view out to 2027.

He explained, “Our experience with the softening of the market so far has been that it’s really concentrating on price only. There are very few discussions we have on terms and conditions in general, client-specific, so very bespoke discussion. It may be an hour’s clause here, it may be the reintroduction for riot and commotion coverage there, but not really individual cases.

“No trends, no general pressure that reinsurers are now supposed to cover something which they didn’t cover before in a very broad sense.

“So from that point of view, price-only retention levels are holding at nominal 2023 levels. Also, very little pressure here when it comes to the aggregate protections, yes, some clients are buying a little more than they did in the past, but it’s very often clients that have always purchased aggregate protections.

“So again, the market is not awash with this kind of product, and quite frankly, as we talk today, that’s the general picture we would expect also going into 2027.

“We would say, particularly on the property cat side, the base level from which we are starting in many cases is now through two renewal cycles with meaningful discounts. So, therefore, the room for further discounts is certainly no longer the healthy 2023 levels, and therefore, logic will tell you that we would see a certain deceleration.”

Althoff further explained during the call that prices are still coming down fastest in the higher layers of property cat towers where the over-supply of capital is greatest, while at lower layers prices are declining but more slowly and this has often been offset by the higher retentions, although inflation does erode those nominally over time.

Asked about whether some price stabilisation may eventually be seen, Althoff again highlighted an expectation that rate declines may now have peaked, in percentage terms with less headroom now in the market’s rate adequacy.

Althoff explained, “On the property cat side, we had two rounds of significant rate reductions over the last 24 months. So the base is significantly lower. Therefore, there is less room for further price reductions, and therefore we do expect a deceleration of the price reductions.

“Everywhere else, we would say, the softening has not started as early as on the property cat side. It’s significantly lower compared to what we have experienced on the property cat side, so therefore there’s no change in sight, and at the end of the day, it all depends on the loss experience of the client.

“I mean, if that is very positive, reinsurers will be minded to take that into account. If there have been losses, then even today we also see rate increases. So therefore, there’s less of a general trend outside property cat.”

Finally, during the call Althoff also discussed Hannover Re’s retrocession and noted that its per-occurrence retro tower remains only available for larger loss events, of which there haven’t been any this year.

But, the reinsurers K-Cessions quota share sidecar facility could see some effects from losses, which is to be expected in any year.

Althoff said, based on the loss experience in H1 and catastrophe losses that have already occurred in the third-quarter, “The main retro vehicle that will come into play is going to be our K facility.

But he qualified this with a reminder that K-Cessions is not exposed in every loss impacted region of the world, saying, “You will remember, K is not covering on a global basis, but it’s covering on a peak scenario basis. So the territories where we do have the protection from K is North America, it’s Europe, it’s Japan, is Australia. It’s not everywhere in the world.”

Given the quota share basis of the K-Cessions retrocessional reinsurance sidecar structure, some attrition can be expected after any major catastrophe loss in any of the covered regions. But, given the benign first-half of this year and how Q3 has started so far, it is unlikely the investors and reinsurers backing the sidecar would be taking anything meaningful and this would be far outweighed by the profitability of the business ceded to K-Cessions so far this year.

Also read: Hannover Re H1 income +7%, volumes up amid price declines. Only shares EUR 18m losses with ILS.

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