Large and small reinsurers are growing market share while their mid-sized competitors are stagnating, according to Jürgen Gräber, board member at the world's third-largest reinsurer, Hannover Re.
Responding to a question about whether large reinsurers' growth in new business at the crucial Jan. 1 renewals indicated a flight to quality, Gräber told analysts during a Feb. 7 earnings call that large and small reinsurers had grown while "the middle segment has not gained market share worldwide."
He said this was partly due to the fact that the service the largest and smallest reinsurers provide helped them retain customers. In addition, larger reinsurers tend to have better credit ratings, so companies ceding risks to them are not hit with a large a capital charge for counterparty credit risk in capital regimes such as Europe's Solvency II.
"There is a flight to quality, and that has continued," Gräber said.
Not 'completely pleased' with U.K. motor excess-of-loss business
His comments came after Hannover Re revealed that it had grown its treaty reinsurance premium income by 12.7% at the Jan. 1 renewals, when €4.64 billion worth of the German reinsurer's treaty reinsurance business came up for renewal and it wrote €5.25 billion of business, partly thanks to improving market conditions. The reinsurer said rates increased by 1.4% across its book.
The spate of natural catastrophes that hit in the second half of 2017 halted the downward trend in reinsurance rates in Europe and sparked small increases in some areas. While Hannover Re was largely pleased with the Jan. 1 renewals outcome, Gräber said the rate increases of between 60% and 70% for the U.K. motor excess-of-loss business — triggered by the cut in the U.K. personal injury discount rate to negative 0.75% in March 2017 — were lower than expected.
"It would be incorrect to say we are completely pleased with this — we had hoped for an increase of around 100%," he said, but added that the increases seen would be enough to cover bodily injury claims settlements at a discount rate of between 0% and 0.25% and still provide for "an adequate profit margin."
On a positive note, Gräber highlighted a jump in U.K cyber business to €92 million from €31 million, which contributed to an increase in the group's overall cyber book of business to €193 million from €122 million. Gräber described the growth as a "meaningful development on the cyber business."
He added: "We had hoped one day this account will be as big as D&O [directors' and officers' liability], and we are moving towards this."
Tax impact
Hannover Re also revealed on the call that it would move the U.S. life reinsurance business currently written in Ireland to Bermuda-based subsidiary Hannover Life Reassurance Co. of America (Bermuda) Ltd. in response to the Base Erosion Anti-Abuse Tax (BEAT) portion of the U.S. tax reforms that were passed in December 2017.
BEAT taxes inter-company payments and is designed to prevent companies shifting U.S. profits to low-tax domiciles.
Hannover Re CEO Ulrich Wallin said the Bermuda-based entity pays U.S. tax and is therefore not affected by BEAT.
"It is cumbersome and makes it all rather complicated, but with the [U.S. taxpaying company] that we established three years ago for other reasons, we are in a pretty good position," he added.
Hannover Re reported preliminary full-year 2017 group net income of around €950 million, up from the €800 million it had previously expected, and forecast a profit of more than €1 billion for full-year 2018.
The reinsurer's share price was up 2.54% in trading on Feb. 7 against a 1.86% increase in the benchmark DAX index.
