Hannover Re sees marine reinsurance premiums fall

German reinsurer Hannover Re reported that gross written premiums (GWP) for 2016 in marine within the p&c reinsurance sector declined to €277m, from €297m the previous year, equal to just over 10% of the €2.65bn (2015; €2.92bn) specialty lines book as a whole. Hannover Re’s total GWP was €11.92bn, down from €14.14bn in 2015.

GWP for the marine line as a whole within Hannover Re was €378.7m, down from €436.9m the previous year. An €86.7m release from loss reserves boosted the underwriting result to €105.7m, way up from the technical gain of €8.2m the previous year. The loss ratio fell to 30.8%, from 74.3%. The operating profit (EBIT) rose to €138.1m from €112.3m in 2015.

Major losses in marine amounted to €124.6m (€66.5m net), from four large claims. This made up a small but not insignificant proportion of the €846.5m (€626.6m net) in major claims last year. They were also the second-largest “single” claim group – the largest being last May’s forest fires in Canada, which cost €190.8m (€127.9m net).

Hannover Re said that, even though the price decline was considerable in some markets, it was still able to preserve healthy profitability for its portfolio. Aviation and marine business saw sharp rate declines, hence the decision by Hannover Re to scale back its premium volume in the sectors.

The reinsurer said that underlying factors such as the low oil price, a “faltering” global economy and surplus capacities in the market for the transportation of freight and cargo impacted Hannover Re’s customers. “In the face of falling prices for commodities and other goods, the premium volume in the market contracted significantly for the first time in years. Combined with a slight increase in the supply of capacity, this has further stepped up the pressure on original rates in both offshore energy and marine insurance business”, the company said.

Although in 2016 the market was not confronted with a marine loss on the scale of the explosions at the Port of Tianjin in 2015, there were some significant loss events. Damage to a production facility off the coast of Ghana (Tullow Oil’s FPSO damage at the Jubilee field, identified in February 2016), in combination with the subsequent business interruption, resulted in a significant offshore energy loss. However, Hannover Re said that “in view of the conservatively oriented underwriting policy that we had pursued in prior years, the impact of this loss on our account was disproportionately slight relative to our market share”.

Hannover Re renewed its protection cover known as the “K cession” – a modelled quota share cession consisting of non-proportional reinsurance treaties in the property, catastrophe, aviation and marine (including offshore) lines that has been placed inter alia on the ILS market for more than 20 years – at an increased level of roughly $520m for 2016.

Hannover Re put its marine business in the +/- category for 2017, equating to “on a par with the cost of capital”. The company said that, in marine reinsurance, it expected the pace of rate reductions to slow in the 2017 financial year, and that this was already evident in the treaty renewals as at January 1st 2017. However, “even over the medium term, however, the market environment for our ceding companies is unlikely to change. The losses recorded in recent years have significantly eaten into reinsurers’ margins and lent added impetus towards a bottoming-out in prices. In

view of the fact that our customers have also seen a contraction in premium income, we anticipate a reduced premium volume in 2017.”