Hannover Re’s Freiboth: Property valuations and casualty loss trends in focus for renewals

Hannover Re’s managing director for North America Axel Freiboth has said there must still be a focus on scrutinizing property valuations in underlying portfolios as well as casualty loss trends as he touched on expectations for the upcoming 1 January renewal.

The executive was talking to The Insurer on the sidelines of last month’s Rendez-Vous de Septembre in Monte Carlo, ahead of Hurricane Helene’s recent landfall.

“We’re going to talk about the usual suspects - high excess casualty business, commercial auto - which have not performed well. So that’s going to be one of the areas” he said, commenting on what he expects will dominate talks between reinsurers, brokers, and cedants.

“For US casualty, we’re still going to talk about the loss trends that we’ve seen,” the executive commented, as he also said that insurers writing property business need to stay focused on valuations, pushing back against any notion that the issue has been settled.

“That’s exactly why. Everybody thinks, ‘Oh, now we are done with it’. It’s an ongoing thing. We need to keep watching that space [to make sure] we don’t make the same mistake again, and fall behind. So that needs to be on the forefront,” he said of appropriate property valuations.

“In general, insurance carriers need to keep their eye on insurance-to-value. It’s dropping off the top of their minds. Bring it back. Keep it up. it’s never [fully] accomplished,” he commented.

Amid a volatile geopolitical environment, Freiboth also flagged strike, riot, and civil commotion (SRCC) exposures as a key area of focus, saying that his firm is “consciously aware” in how it manages such risks.

Potential PPR risk-adjusted decreases

The executive was also asked his general expectations for the property market overall for the upcoming renewal, along with the property per risk and property quota share markets more specifically.

“Well, what I want to see happen is one thing. What will likely happen is maybe slightly different now, that there’s probably sufficient capacity in the market. Is there more capacity coming into the market? Not big bounds and leaps,” he observed.

“But interestingly enough, there’s not such a big push for this new class of ’24 or something like that. Yet, reinsurers have had a few good quarters. So is there the ability to take on a little more risk?,” he added.

Freiboth noted that the outcome of the ongoing hurricane season will dictate just exactly how the January property renewal – especially in the catastrophe business – will play out.

“So it’s wait and see. But the fundamentals right now are actually pointing to a fairly stable mar-ket. We still have a few issues to discuss,” he said, referencing SRCC losses as an example.

“It’s not a loss-free year either”

He also pointed to the continued frequency of record-breaking severe convective storm activi-ty, though he noted the scope of damage from Hurricane Beryl earlier on in the season was con-tained.

“We have had losses, so it’s not a loss-free year either, right?” he commented.

“But it’s a wake up call,” he said of Beryl.

“Hurricane season is on, so there is momentum from that perspective as well. So it’s not like it’s totally quiet.”

When asked the extent to which the outcome of the current wind season would influence re-newal dynamics, Freiboth emphasized that Hannover Re “has always taken a long-term ap-proach” to support its clients.

“That’s what is driving us. It’s not the market as a whole. Yes, we are part of the market, but we want to serve our clients, and it’s always that long term approach that may have been taken,” he noted.

“Will there be differences in the outcome of the renewals? Absolutely. It will also be driven by loss activity for certain clients, cat loss activity of other clients. So we will clearly differentiate there as well,” he continued.

“So it’s always funny when you say, ‘Well, will you be dictated by the market? Of course, we are part of the market,” he added.

Retention levels have been “right-sized”

Freiboth said the property cat market has “right-sized” the balance on deals between rate and retention, and that Hannover Re would consider moving down to write lower return periods “for the right reasons”.

“But in general, I would still think that the current retention levels are here to stay,” he said, adding that any potential changes would be a “case-by-case decision”.

“Have we taken a really big step over the last couple of years? Yes, we have. Did that hurt? Probably. But reflecting on that, I would think that a lot of clients will actually come to a conclu-sion now we are at a right level [of retentions]”.

“We’ll have those discussions. We’re always open to having those discussions.

Still room for long-tail commissions to come down

With underlying long-tail primary market conditions weakening, Freiboth said that ceding com-missions still have some more room to come down, but also said he could envision buyers po-tentially increasing their cessions, after having slashed them in years past.

“There’s still some room. The commissions stayed at a fairly healthy level for quite a while and have not come down. Is there still some room? Yes, there is, I would think so. In some cases it will have to come down, because otherwise the economics were not there”.

In evaluating long-tail lines deals, Freiboth acknowledged work the industry has broadly done in containing limits, and that it is important that Hannover Re understand steps clients have al-ready taken to reposition their portfolios.

“We’ll take that information and see what we can get out of it,” reiterating the “case-by-case” nature of different cedents.

“We’ll have to spend extra time in really assessing the underlying portfolios and those factors,” he said, adding that “for sure, what we have seen over the last several years is a quite significant increase in loss trend on general casualty lines”.