European reinsurance company Hannover Re is expecting a broadly flat risk-adjusted rate environment for the property and casualty (P&C) market in 2025, which supports its combined ratio guidance of less than 88% for next year, with terms in the segment projected to be stable amid strong demand and a disciplined marketplace.
This is according to Chief Executive Officer (CEO), Jean-Jacques Henchoz and Sven Althoff, Member of the Executive Board for P&C at Hannover Re, who spoke earlier this morning following the release of the firm’s 9M 2024 results, which included some guidance for next year.
For 2025, Hannover Re expects group net income of around €2.4 billion, and a P&C combined ratio of less than 88%, which is a slight improvement on full year 2024’s forecasted combined ratio of less than 89%. These metrics assume that large loss expenditure does not significantly exceed the higher budgeted level of €2.1 billion (€1.825bn for 2024) and there are no unforeseen distortions on capital markets.
In light of the above, management was questioned on the combined ratio guidance and the market environment, and how it sees large losses being absorbed in the combined ratio, given the firm’s retrocession arrangements and the pricing of the business.
“We are expecting a broadly flat risk-adjusted rate environment,” said Althoff. “But of course, this is now the third year at a favorable level of rate environment, so when the business is earning through, we of course still have an impact from the strong years ’23, ’24, with the prior years’ becoming less important in our forward looking profitability estimation. So, therefore, it’s really this three-year block which led us to make the comment we are expecting a similar rating environment on a forward looking basis.”
On the increase in the large loss budget, Althoff confirmed that part of this is down to the underlying growth of the business now and forward looking, as well as the fact Hannover Re is going to place less retro coverage on the property side.
“And given that the business is inherently profitable, the way we are modelling our K-Cession, of course, would in any normal year be a cession of profits for our retrocessional partners, and therefore, with us placing somewhat less, we can expect this to somewhat contribute to this slightly better combined ratio outlook compared to this year,” he explained.
Later in the call, Althoff was questioned on how dependent the 2025 guidance for P&C reinsurance is on the pricing environment.
“Of course, our base assumptions play a crucial part in setting the guidance for the next year. So, from that point of view, if we should see a pricing environment that is completely different to what I just said, we would of course revisit the guidance for 2025, and we would be able to talk about that when we do the renewals call in February.
“But, for now, we are optimistic that our base assumption is going to be correct, and minor deteriorations from that base assumptions would not immediately lead to a change in our guidance. Again, quite a bit of the business we are going to earn in 2025 is going to come from the years ’23 and ’24, so ’25, of course, is an important component in the profitability assumption, but not the only one,” said Althoff.
Expanding on this and whether Hannover Re foresees any softening next year, CEO Henchoz noted that while it’s always difficult to predict, demand for reinsurance is elevated.
“The demand remains very strong. We expect also additional demand in 2025 from insurance companies around the world,” said the CEO.
“I think the other driver is that the market has been extremely disciplined in the past couple of years, and we don’t see this changing anytime soon. We also note that there are very few to no new entrants in our space in the coming year. And, last but not least, of course, the large loss burden has been considerable on the industry in the past few years, which also has a bearing on the future outlook.
“So, our best estimate, and it’s just a gut feeling rather than a scientific view, our best estimate is that we’re going to see stable terms in 2025 in the P&C market,” added Henchoz.
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