DGAP-News: Hannover Re committed to portfolio consolidation and reliability in times of intense competition


DGAP-News: Hannover Rück SE / Key word(s): Miscellaneous
Hannover Re committed to portfolio consolidation and reliability in
times of intense competition

15.09.2014 / 09:00

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Hannover Re committed to portfolio consolidation and reliability in times
of intense competition

Monte Carlo, 15 September 2014: An intensely competitive environment
currently prevails across property/casualty reinsurance markets worldwide.
The supply of reinsurance capacity continues to far exceed demand. A major
driving factor here is the very healthy capitalisation of most insurers due
to the absence of large losses in regions with a high risk potential.
Ceding companies have responded by passing on fewer risks to reinsurers.
The pressure on prices, especially in US natural catastrophe business, has
been further exacerbated by the inflow of capital from alternative sources
- i.e. the ILS market, which for its part is experiencing substantial cash
inflows from pension and hedge funds.

As a further factor, the protracted low level of interest rates is putting
a strain on reinsurers, with pricing discipline taking on particular
significance in the face of diminished investment returns. These general
conditions are in turn likely - provided the current year is once again
spared market-changing major loss events - to shape the treaty renewals as
at 1 January 2015. On the one hand, competitive pressure will therefore
probably remain high. On the other hand, reinsurance prices should -
leaving aside a few exceptions - stabilise relative to the business renewed
for the 2014 underwriting year because scope for further rate reductions is
limited in light of the return on equity required by reinsurers.

With its profit-oriented underwriting policy Hannover Re considers itself
well-placed to handle the challenges posed by the soft market conditions.
"What is vital in this climate is to keep a disciplined eye on ensuring
that treaty conditions remain commensurate with the risks", Chief Executive
Officer Ulrich Wallin emphasised during a press conference in Monte Carlo.
"Our cedants can rely on high-quality coverage concepts for appropriate
prices. In areas where adequate prices cannot be obtained, we are prepared
to relinquish business going forward, as we have in the past."

Despite the soft market conditions in property/casualty reinsurance,
Hannover Re sees growing demand for high-quality reinsurance protection in
view of rising concentrations of values in urban population centres and the
implementation of risk-based solvency schemes. Special mention may be made
here of growth markets in Asia and Latin America as well as business with
agricultural risks.

For its three pillars of property/casualty reinsurance - target markets,
specialty lines and global reinsurance - Hannover Re anticipates the
following developments in the treaty renewals as at 1 January 2015:

I. Target markets:

North America
The North American primary insurance market continues to enjoy an upswing.
Yet the absence of sizeable natural disasters and other major losses is
leaving a mark on the reinsurance side, with the result that pressure can
now be felt on rates in property and to a more muted extent casualty
business. In the case of non-proportional reinsurance programmes with a
favourable loss experience spanning several years, Hannover Re expects
prices to trend lower. Conditions in proportional reinsurance should remain
adequate.

Based on its highly diversified portfolio and its broad range of products
and services, Hannover Re is in a position to offer its clients tailored
reinsurance solutions. With this in mind, the company expects to be able to
profitably expand its client relationships despite the entry of new capital
into the market.

Continental Europe
We group together under Continental Europe the markets of Northern, Eastern
and Central Europe. The largest single market is Germany.

Germany: Market conditions in Germany are not as soft as in other countries
owing to the considerable strains incurred from natural perils in 2013 and
increases in losses, some of which only become apparent in the current
year.

Bearing in mind that the total scale of the 2013 losses was not yet known
at the time of the treaty renewals on 1 January 2014 and with primary
insurers finding themselves compelled to take remediation measures,
loss-impacted lines are expected to see at least stable prices and
conditions in the upcoming renewals. The same is true of motor own damage
insurance, which has also failed to turn a profit for a number of years now
- a situation further aggravated by last year's severe hail events
"Andreas" and "Manni". Not only that, localised summer thunderstorms have
already caused further losses in 2014, especially in some western parts of
Germany.

Industrial fire insurance in Germany, which has been impacted by numerous
smaller and mid-sized losses, continues to give cause for concern.

In view of the heavy loss expenditure incurred in the German market, the
rate level is expected to remain stable as at 1 January 2015.

Central and Eastern Europe: Political tensions, repercussions of the
financial and economic crisis as well as fierce competition among insurers
do not change the fact that demand for high-quality reinsurance solutions
has risen. Particularly in the markets of Central and Eastern Europe,
Hannover Re anticipates strong growth in premium volume over the medium
term - with reinsurance prices set to remain largely adequate.

II. Specialty lines:

Aviation
The 2014 financial year is already feeling the strain of several
significant major losses in the airline segment. Although substantial
insurance capacities continue to be available in aviation business, it is
to be expected that these events will at least lead to stabilisation of the
rate level for conventional aviation (re)insurance. On the other hand, the
recent loss experience in the area of war covers is likely to prompt
appreciable premium increases. Thanks to its long-standing expertise in all
lines of aviation reinsurance, this environment also offers attractive
business opportunities in Hannover Re's assessment.

Marine 
Early softening tendencies can be observed in marine reinsurance after
several years of a hard market. Despite this, the deterioration in the
reserves for removal and salvaging of the "Costa Concordia" and "Rena"
wrecks should prevent any substantial decline in prices. As far as the
reinsurance of offshore risks is concerned, even though sums insured are
rising in the original market Hannover Re expects to see modest softening
owing to the absence of major losses.

Credit and surety 
Loss ratios in credit insurance and in business with political risks
remained stable on a good level compared to previous years. The burden of
losses in surety insurance has decreased to a normal level after two years
of elevated claims activity. All in all, it is to be expected that prices
will hold steady or may come under merely moderate pressure.

III. Global reinsurance:

Cat XL business 
The oversupply of reinsurance capacity continues to be a feature of natural
catastrophe markets. The absence of major losses has further ensured -
especially in the United States - that prices have seen another notable
drop. Certain segments and regions are now expected to see rates bottom out
because in some cases the obtainable margins no longer adequately reflect
the risks.

Hannover Re anticipates the following developments on individual markets: 

North America: Prices have fallen very sharply in the United States, with
Florida seeing particularly marked price erosion. As a result, it is
becoming increasingly difficult to secure adequate margins. Even allowing
for the fact that rates in North America are crucially driven by how costly
the hurricane season proves to be, they are unlikely to sink any lower in
view of risk considerations. What is called for here is underwriting
discipline on the part of all market players.

Europe: The numerous losses caused by natural disasters in Europe - in both
2013 and 2014 - should at least have a stabilising effect on prices and
conditions.

Japan: Despite rate reductions in the renewals as at 1 April 2014, the rate
level in Japan can be described as adequate overall. Given the losses
caused by the snowstorm of February 2014, further rate decreases are
unlikely.

Australia/New Zealand: Owing to the uncertainty associated with the further
run-off of losses from the 2011 New Zealand earthquake, rates can at least
be expected to hold broadly stable. For the Australian market, too, prices
are likely to remain unchanged on the whole. Hannover Re is well
represented on both markets, both as a traditional reinsurer and in the
context of its activities in the ILS market.

Worldwide treaty business 
Developments in worldwide treaty business vary across markets and regions: 

Asia-Pacific: Here, too, markets are fiercely competitive, as reflected in
broadly declining rates. In view of the soft market conditions Hannover Re
concentrates on its good long-term client relationships and complements its
portfolio with profitable niche business.

Latin America: Growth here remains strong, despite modest rate declines on
account of the existing oversupply in the markets of Central and South
America. In many Latin American countries, however, increased demand for
security and know-how can be observed, and financially robust reinsurers
are therefore able to write business at adequate prices. Hannover Re
considers Latin America to be one of its growth markets.

Agricultural risks: The rising demand for agricultural commodities and
foodstuffs as well as the increase in extreme weather events are fuelling
demand for agricultural covers, especially in emerging and developing
economies. Yet recent natural disasters in Europe should also serve to
boost interest in protection against potential crop failures. Overall, the
growing implementation of public-private partnerships as well as an
ever-expanding range of products are increasingly opening up opportunities
to generate profitable business with agricultural insurance.

Insurance-Linked Securities: Hannover Re operates in multiples roles on the
ILS market - firstly for protection against its own catastrophe risks and
secondly in order to transfer its clients' insurance risks to the capital
market. This primarily takes the form of collateralised reinsurance
arrangements and is supplemented by the issue of catastrophe bonds. In view
of the advantageous constellation for investors as well as for reinsurers
and insurers alike, Hannover Re expects to see steadily growing demand over
the coming years. In addition, the company is itself active as an investor
in catastrophe bonds, thereby ensuring that it can leverage every
opportunity offered by the ILS market.

Structured reinsurance/Advanced Solutions: With the adoption of risk-based
models for calculating solvency requirements not only within but also
outside the European Union, Hannover Re expects to expand this business.
Demand for innovative and tailor-made reinsurance solutions is continuing
to grow, supported by changes in purchasing behaviour on the part of many
clients.

Outlook 
Given an absence of large loss events, Hannover Re again anticipates
intense competition for the treaty renewals as at 1 January 2015 with
sustained pressure on prices and conditions. Nevertheless, it is the
company's expectation that cedants will increasingly look to high-quality
reinsurers. "Even in a soft market environment we can expect stable,
attractive business opportunities on the basis of our excellent ratings",
Mr. Wallin noted. "Reliability, expertise and established business
relations are of crucial importance to ceding companies, especially in
times such as these."

Hannover Re will continue to adhere to its systematic cycle management
combined with strict underwriting discipline and, in accordance with its
underwriting strategy, remains committed to its broadly diversified
portfolio of high-quality existing business supplemented by niche and
specialty acceptances written as and when opportunities present themselves.
Risk assessment and selection in the context of underwriting decisions is
assisted by sophisticated mathematical methods and exposure-based
underwriting tools.

Furthermore, Hannover Re secures its capital base - especially in a soft
market - by itself making use of reinsurance. By purchasing additional
retrocession protection the company reduces the volatility of the business
and thereby conserves its robust capital resources.

In addition to safeguarding stable income from its reinsurance portfolio,
Hannover Re attaches critical importance to preserving the value of its
assets under own management. In so doing, the company is committed to a
balanced risk/return profile and a low-risk mix of investments.

Based on constant exchange rates the Hannover Re Group expects to generate
stable to slightly higher gross premium volume for the current 2014
financial year.

Assuming that major loss expenditure does not significantly exceed the
expected level of EUR 670 million and that there are no adverse movements
on capital markets, the company continues to anticipate Group net income in
the order of EUR 850 million for 2014.

For further information please contact:

Corporate Communications:
Karl Steinle (tel. +49 511 5604-1500, 
e-mail: karl.steinle@hannover-re.com) 

Media Relations: 
Gabriele Handrick (tel. +49 511 5604-1502, 
e-mail: gabriele.handrick@hannover-re.com)

Investor Relations: 
Julia Hartmann (tel. +49 511 5604-1529, 
e-mail: julia.hartmann@hannover-re.com) 

Please visit: www.hannover-re.com

Hannover Re, with gross premium of EUR 14.0 billion, is the third-largest
reinsurer in the world. It transacts all lines of property/casualty and
life/health reinsurance and is present on all continents with around 2,400
staff. The rating agencies most relevant to the insurance industry have
awarded Hannover Re very strong insurer financial strength ratings
(Standard & Poor's AA- "Very Strong" and A.M. Best A+ "Superior").

Please note the disclaimer:
www.hannover-re.com/misc/disclaimer-pr-050811



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Language:    English                                                     
Company:     Hannover Rück SE                                            
             Karl-Wiechert-Allee 50                                      
             30625 Hannover                                              
             Germany                                                     
Phone:       +49-(0)511-5604-1500                                        
Fax:         +49-(0)511-5604-1648                                        
E-mail:      info@hannover-re.com                                        
Internet:    www.hannover-re.com                                         
ISIN:        DE0008402215                                                
WKN:         840 221                                                     
Indices:     MDAX                                                        
Listed:      Regulierter Markt in Frankfurt (Prime Standard), Hannover;  
             Freiverkehr in Berlin, Düsseldorf, Hamburg, München,        
             Stuttgart; Terminbörse EUREX                                
 
 
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286865 15.09.2014