Research and development

As a reinsurer, Hannover Re does not have its own R&D department but it does develop products and solutions for its own benefit and that of its clients as part of day-to-day business operations. By way of example, our move to give capital market players access to insurance risks as far back as the mid-1990s through our “K” transactions puts us among the industry pioneers. The intervening years have seen the evolution of a market for so-called insurance-linked securities, which is one of the fastest-growing markets in the insurance sector. Another example of Hannover Re’s development activities is the creation of its own internal model for risk management under Solvency II that caters to the requirements of various stakeholders (regulators, rating agencies, capital providers). Although we do not conduct any basic research, we are very active in tracking the latest developments and publications in science and research. Not only that, through our active involvement and the provision of financial resources we support scientific initiatives geared to developing products, solutions or markets that will be crucial success factors in the viability of a reinsurance undertaking going forward.

When it comes to research into natural perils, Hannover Re sponsors a number of different initiatives. Particularly noteworthy here is the OECD’s “Global Earthquake Model” (GEM) initiative. Since 2009 we have been a sponsor and active supporter of the GEM Foundation (www.globalquakemodel.org), which works to develop models for earthquake risks around the world. The goal of this public/private partnership is to develop freely accessible worldwide earthquake risk models that will help to raise risk awareness and motivate preventive actions, e.g. by improving the earthquake safety of buildings. For Hannover Re, participation in this work not only facilitates expansion of the available risk assessment models but also opens up direct contacts with the scientific community.

Reinsurance business is founded on the comprehensive understanding and active management of risks. Our specialists therefore continuously analyse known risks with an eye to changes in their structure and probability of occurrence, while at the same time focusing on the early detection of newly emerging risks and working to provide our clients with appropriate solutions tailored to their needs (cf. here also the Opportunity report).

In 2013 Hannover Re developed, inter alia, innovative concepts for coverage of weather-related risks and renewable energies with its partner WetterProtect and subsequently launched them on the market in cooperation with primary insurance partners. In the former case, solutions targeting specific sectors were designed for a clientele heavily dependent on weather conditions. These products protect customers against the vagaries of nature and hence give them greater certainty for planning purposes. In addition, an insurance product was developed to protect providers of energy-efficient measures against a failure to deliver the promised level of energy savings. This solution can play a decisive part in promoting greater investment in energy-efficiency and hence make a meaningful contribution to reducing energy consumption.

After several delays the implementation of Solvency II, the new prudential regime for insurance undertakings, is now imminent and continues to preoccupy clients of Hannover Re with regard to the possible implications for their capital requirements. Within its structured reinsurance line (Advanced Solutions) Hannover Re designs bespoke solutions that are tailored to the individual needs of its clients. A simplified QIS 5 tool was developed, for example, to facilitate analysis of the effect of reinsurance solutions on the Solvency II capital requirements of insurers according to the standard formula.

“Development work” on the life and health reinsurance side has many facets. Given that the assessment of biometric risks is of fundamental and essential importance to our company, Hannover Re invests continuously in expanding the specialist expertise that produces new and enhanced reinsurance solutions. We have, for example, concentrated and refined our know-how in the area of longevity risks. We are able to offer novel derivative solutions for this type of risk that bring considerable capital relief to ceding clients and companies. Furthermore, we are currently working on a new version of our IT-based underwriting tool. We shall then make this improved software, which has undergone thorough conceptual reworking, available to our customers for their automated underwriting processes. The advantages of the new system are efficiency gains and expanded underwriting know-how. Our goal is to develop sustainable solutions for our clients that take adequate account of the latest trends. The focus of our development efforts is not only on innovative products, such as so-called lifestyle products; we also seek opportunities to assist our customers with the cultivation of new markets or sales channels.