Hannover Re’s Henchoz: Pressure from investors means reinsurers don’t have opportunity to relax

Hannover Re CEO Jean-Jacques Henchoz explains to The Insurer that he expects a relatively stable renewal at 1.1 with capacity likely to meet demand – but not at any price.

Hannover Re has enjoyed a prolonged period of growth since Jean-Jacques Henchoz took over as CEO in 2019, capitalising on the hard market conditions of recent years while expanding significantly in non-traditional reinsurance.

Over the past year the reinsurer has seen its share price rise more than 30 percent, and, speaking to The Insurer on the eve of this year’s Rendez-Vous in Monte Carlo, Henchoz remains confident that the group can maintain the double-digit P&C growth it reported in the first half of 2024.

Henchoz arrived at Hannover Re five years ago following two decades with rival Swiss Re. Since then, he has overseen a period of expansion at the German reinsurer.

“We have been able to leverage the Hannover Re franchise, and our P&C story has been one of quality growth,” he explains.

“Over the past five to six years we have made significant progress, doubling our global P&C premium volume.”

Henchoz says a significant proportion of this growth has come through expanding existing client relationships.

“We've been able to grow across the board with clients that we want to partner with,” he explains. “By increasing our share on existing business we have also helped keep costs under control, and we remain a very lean operator in proportion to the market, and very focused on our core business.”

One area in which the group has been outperforming is non-traditional reinsurance, where Henchoz says it has built an “outstanding portfolio”.

“We are consistently focusing our ILS franchise to serve as a facilitator between capital markets and the insurance world, and we are leading the market in the collateralised fronting space,” he says.

“We have also been growing in specialty lines and we are very strong in the London market. Specialty is an area where we want to be among the leaders.

“Within specialty, aviation stands out as an area where we expect conditions to be good in 2025. We are also strong in marine, and should grow within reason there, subject to the market cycle.”

Double-digit growth to continue

In addition to increasing its share of wallet with its main clients, Henchoz says Hannover Re has been focused on managing the cycle and taking advantage of improved conditions in the global marketplace.

“We have seen 10 percent growth in P&C globally for the year to date. I expect this to continue into 2025,” he says.

“We have stuck to our focus as a pure-play reinsurer, utilising the retro market to smooth our results over time.

“Given the strength of our balance sheet, and that we now have clarity on the new S&P methodology, we are in a very strong position that allows us to grow a bit further than a year ago.”

He says Hannover Re is in the process of finalising its retro program for 2025, but expects the structure to be very similar to this year.

“In all likelihood, the cession rate on the proportional side of our retro program will decrease slightly so we can grow our net exposure a bit more than originally anticipated,” he says.

“We have benefited from retro markets for a few years, and our retrocessionaires made good money in the last couple of years. We are happy with that as it helps cement our partnerships.”

Renewals outlook

Henchoz remains confident that the market will be relatively disciplined at 1 January.

“Given that the root cause of the recent price correction in P&C reinsurance is the underwhelming performance of the industry for a number of years and the subsequent investor fatigue, pressure from investors will likely remain very material and incumbents won't have the opportunity to relax,” he says.

“I'd expect a relatively disciplined market with relatively stable conditions with capacity available to meet demand – but not at any price.

“There are no significant new names coming into the reinsurance market at this stage and I don't expect new entrants before the January renewals.

“The incumbents have strong balance sheets and can handle the increased demand that is out there.”

However, with one eye on the Atlantic hurricane season, he notes: “One or two big events can completely change logic in the short term.”

Henchoz says specific renewals may be influenced by losses incurred so far in 2024, notably those impacted by flooding in Germany.

Casualty caution

Henchoz remains cautious on casualty, noting that while the group is comfortable with its portfolio in the US, it remains relatively defensive in that space.

“We have shied away from higher excess layers on exposed treaties with Fortune 1000 companies. And we are cautious on any commercial auto and pharmaceutical exposures.

“The latest price corrections are insufficient for us to grow or re-enter these markets in 2025. D&O for listed companies is another example of an area where we would need more improvements in terms and conditions to increase participation.”

He remains critical of the power of the litigation finance industry, describing it as “of detriment not just to the insurance industry but society at large”.

He said Hannover Re will also remain cautious in its approach to cyber. “We will grow our cyber exposure and support our clients, but we will not look to grow exponentially,” Henchoz says.

“We are going to be cautious in the short term, particularly around accumulation of exposures.”

SRCC accumulation scenarios

Across all classes, he highlights the need for data transparency and granularity around underlying exposures.

“I'm always interested in better understanding terms and conditions on the primary side, particularly for our proportional treaties,” Henchoz says.

One area where Henchoz feels greater understanding is needed is around strikes, riots and civil commotion.

“We have unfortunately seen a number of incidents in recent years across different geographies where riots and violent events have resulted in material losses,” he says.

“This year we saw a significant loss event in New Caledonia. This is a good example of an exposure which is becoming increasingly frequent and severe, impacting both primary and reinsurance markets.”

Market estimates suggest the New Caledonia riots will be a $1bn industry event.

“New Caledonia highlights the need for improvement, as this loss came as a surprise to the market in terms of magnitude,” he says.

“My sense from our internal discussions is that there is still some room for improvement in understanding accumulation scenarios, and how these exposures are managed by our clients.”

This is one of several topics Henchoz expects to feature in conversations over the coming days.

“Natural catastrophes and the link with climate change will also remain a topic of discussion at Monte Carlo, particularly around so-called secondary perils which are becoming increasingly prominent.

“Flood will be one area of discussion – in the first half of the year there was flooding in Germany again, a surprise event in Dubai and a significant event in Brazil, all of which have impacted reinsurers.”