Even compared to 2013, competition is intensifying appreciably in the non-life reinsurance market in the current financial year. This is being driven by a number of factors: along with the absence of market-changing major losses, ceding companies are retaining more risks for net account due to their healthy capital resources. Not only that, the inflow of capital from the ILS market – especially in the area of US natural catastrophe business – is causing marked price erosion. For Hannover Re, however, this aspect has not prompted any significant share reductions. On the whole, it may be stated that there is currently an oversupply of reinsurance capacity. This development was already becoming apparent in the course of the year under review and overshadowed the treaty renewals as at 1 January 2014. On this date we renegotiated around 65% of our treaties in non-life reinsurance (excluding facultative business and structured reinsurance).

Despite the fiercer competition, we were satisfied with the outcome of the renewals. Thanks to our selective underwriting policy we were able to generate adequate margins. We expect the profitability of the new business written to remain broadly stable relative to 2013.

Even though the rate erosion was appreciable in some areas, prices were obtained on a level commensurate with the risks. The rate reductions in non-proportional business amounted to 3.8%. Despite various efforts in the market to bring about softening, we were able to write our business at broadly unchanged conditions.

Under loss-impacted programmes it was possible to push through rate increases; this was particularly true of catastrophe covers in Germany and Canada. In marine business further increases were booked as a consequence of negative loss experiences from prior years.

Overall, Hannover Re again benefited in the treaty renewals from its durable customer relationships and its position as one of the leading and most financially robust reinsurance groups.

We see further growth potential in North America, the Asia-Pacific markets, the countries of Central and Eastern Europe, marine business and facultative reinsurance and in structured reinsurance.

Non-life reinsurance: Forecast development for 2014
	Volume1	Profitability2
Target markets
Germany3		+/-
North America3		+
Specialty lines
Marine		++
Aviation		+/-
Credit and surety		+
Structured reinsurance/ILS		+/-
UK, London market & direct business		+/-
Global reinsurance
Worldwide treaty reinsurance		+
Global catastrophe business		+
Facultative reinsurance		+
1 In EUR, development in original currency may vary 2 ++ = significantly above the cost of capital; + = above the cost of capital; + / – = on a par with the cost of capital; – = below the cost of capital 3 All lines with the exception of those reported separately

The development of our business is described in greater detail below.

Our domestic market was similarly notable for marked competition in the treaty renewals. Although demand for natural catastrophe XL covers rose in Germany on account of heavy losses from the severe flood and hail events of 2013, not all expectations were fulfilled. In both proportional motor own damage insurance and homeowners insurance we profited from further premium increases in the original business. The rate level for covers in non-proportional motor liability was also sharply improved. The fierce competition observed in commercial and industrial business is likely to be sustained in 2014. The trend towards higher retentions – observable for some time now – principally through the reduction of proportional cessions is continuing in the current year. With this in mind, we anticipate a discernible premium decline in industrial fire business. All in all, our portfolio in our domestic market should remain stable.

The treaty renewals as at 1 January 2014 for business in North America passed off satisfactorily for our company; we generated premium growth of around 5%. Although rates for US property business came under pressure due to a year of relatively low losses, the rate reductions proved to be smaller than anticipated; the level is still adequate. Broadly stable rates and conditions were obtained in US casualty business, prompting us to selectively expand our portfolio here. Appreciable rate increases were booked in Canadian property business owing to heavy losses from the 2013 flood events. Rates in the casualty lines were for the most part unchanged. We expect to see further price erosion in the renewals as at 1 June and 1 July 2014 – the date when, most notably, catastrophe XL covers are renegotiated. This is not likely to be the case with loss-impacted programmes in Canada.

When it comes to the development of our premium income, we expect to see growth overall for 2014.

In marine reinsurance we expect to see further rate increases in 2014 for Protection & Indemnity (P&I) covers owing to the deterioration of the liability claims associated with the challenging salvage of the “Costa Concordia” cruise ship. The price level for non-proportional reinsurance of business with offshore exposure should remain stable on both the property and casualty side. As far as the other lines are concerned, such as hull, cargo and marine liability, the rate environment is likely to remain broadly stable. Hannover Re anticipates more intense competition and hence pressure on prices under marine programmes that do not cover worldwide exposures. These include, in particular, the European and Asian markets.

In view of the very good underwriting results booked in aviation reinsurance in recent years, prices on both the primary and reinsurance markets are continuing to decline. With this in mind, our focus remains firmly on disciplined underwriting so as to preserve the profitability of our portfolio. Reflecting our selective underwriting approach in the treaty renewals as at 1 January 2014, our premium volume contracted. For the year as a whole, too, we anticipate an appreciable drop in our premium income.

With the economy slowly recovering, we are standing by our underwriting policy in credit and surety reinsurance. In the area of credit insurance we expect premium income to remain stable or decline slightly at constant claims rates. In surety reinsurance, on the other hand, loss expenditure is again likely to exceed the multi-year average, despite trending slightly lower. In business with political risks we enlarged our portfolio by a double-digit margin in the renewals as at 1 January 2014; we anticipate further premium growth coupled with good claims rates. For 2014 Hannover Re expects to see premium volume in its credit and surety business come in slightly lower than the previous year.

In our business with structured reinsurance products we anticipate further healthy demand for tailored reinsurance solutions in the current financial year. The key driver here is the increasing integration of reinsurance into companies’ risk management. This trend has been fostered by the rising capital requirements imposed on providers: with ever more countries implementing risk-based solvency systems and the adoption of Solvency II taking on increasingly concrete form, 2014 is again likely to see strong demand for contracts designed to provide solvency relief.

It is our assumption that demand in the area of insurance-linked securities will continue to grow. In addition to protecting our own peak exposures, we make the most of the attractive opportunities available in collateralised reinsurance business. The extent to which we step up our investments in catastrophe bonds will depend on price movements. For 2014 we are looking to a rising premium volume and pleasing results. We were able to renew our “K” quota share – a collateralised modelled quota share cession of non-proportional reinsurance treaties in the property catastrophe, aviation and marine (including offshore) lines that we have placed in the ILS market for almost 20 years – with a capacity of USD 320 million for 2014.

We do not anticipate premium growth for our reinsurance business in the United Kingdom in the current year. Although rates in non-proportional motor reinsurance are likely to flatten out somewhat after the increases in previous years, the price level is still high. In direct business the focus of our subsidiary Inter Hannover is on risk selection with a view to further enhancing the quality of its portfolio. In South Africa we expect our reinsurance business and specialty lines to deliver modest premium growth and improved profitability in 2014.

Treaty reinsurance worldwide

The premium volume for our portfolio of worldwide treaty reinsurance is expected to remain broadly stable.

The picture on European markets is again a mixed one for 2014: in Central and Eastern Europe demand for high-quality reinsurance protection remains unabated. In the treaty renewals as at 1 January 2014 we achieved largely stable rates and conditions. Developments in Russia, where we enjoyed stronger demand for reinsurance protection for large infrastructure projects, were especially pleasing. We therefore enlarged our portfolio. Modest premium erosion was recorded only under programmes that had been spared losses. Thanks to our positioning and selective underwriting policy we again expect to generate profitable growth for our portfolio in the markets of Central and Eastern Europe in the current year. In France, on the other hand, the market remains soft and no trend towards higher prices can currently be discerned. With this in mind, we do not intend to expand our business. In the countries of Northern Europe the volume should remain virtually stable. We anticipate a roughly unchanged premium volume for our portfolio in Spain and Portugal.

We were highly satisfied with the outcome of the treaty renewals in Latin America. In both Brazil and Mexico we booked slightly higher prices. A further positive upswing is anticipated in Brazil following the October elections, and this should deliver additional growth stimuli for the region. In view of the regulatory environment for cross-border reinsurance transactions, however, we expect to see a reduction in our premium income from Argentina in the middle of the year.

For the markets of the Asia-Pacific region we are looking at further premium growth. In Japan we expect stable demand for reinsurance covers; rates for natural catastrophe risks are likely to retreat in the April renewals, but should still remain on a good level. Overall, it is our assumption that our portfolio in Japan will deliver modest premium growth in the original currency. The region of South and Southeast Asia should prove to be an engine of growth in the current year and beyond. Consequently, we anticipate a further rise in premium volume for our portfolio in this region. Rates in most markets of South and Southeast Asia are likely to remain broadly stable. Given that 2013 was another relatively untroubled year on the claims side in Australia and New Zealand, the pressure here on prices intensified. Nevertheless, we are looking to profitably enlarge our portfolio in these markets (adjusted for exchange rate effects) based on our local presence and long-standing client relationships. Particularly in Australia, the prudential regime newly adopted in 2014 should further drive demand for reinsurance.

Retakaful business is developing well. In this area we shall continue to concentrate on expanding profitable business and it is our expectation that the licence granted in principle in 2013 for a branch of Hannover ReTakaful in Labuan will lead to further sustained growth in Malaysia.

We also see additional growth potential in traditional reinsurance in the Middle East. Particularly crucial here are major projects such as Expo 2020 in Dubai and the FIFA Football World Cup 2022 in Qatar. All in all, gross premium volume for the current financial year should show a double-digit increase.

In the area of agricultural covers we anticipate undiminished demand. Key factors here are a growing demand for food and a greater need to protect against extreme weather events. In addition, the use of index-based insurance products – along with loss-based covers – is likely to increase, especially in the field of micro-insurance policies in developing countries. Hannover Re’s premium volume for agricultural risks should again rise sharply in the current financial year.

Global catastrophe business

In view of the protracted low interest rate environment, further capital on the ILS market can be expected to flow into global catastrophe reinsurance. Against this backdrop, the treaty renewals as at 1 January 2014 saw further rate reductions, especially in US catastrophe business. On the other hand, in regions impacted by losses in 2013, such as Germany and Canada, we were able to secure rate improvements in some instances. The future trend in catastrophe business, particularly on the US market, will depend upon the major loss situation in the current year. For 2014 we currently anticipate a reduced premium volume.

Facultative reinsurance

In facultative reinsurance, too, the climate is becoming more competitive. The good results posted by insurers in 2013 as well as an adequate supply of capacity are keeping up the pressure on rates and conditions. Despite this, we anticipate attractive business opportunities. We are looking to book further growth in our portfolio of facultative risks in the current financial year. In addition, we set up a new department for the energy lines in order to further strengthen our position here.