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Healthy third quarter results reported by German reinsurance group Hannover Re strongly support market claims that the financial reinsurance market is back in business and that overall reinsurance rates are holding relatively firm as the market nears the year-end reinsurance renewal round.
The Hanover, Germany-based reinsurance group that is majority owned by the German mutual Talanx Group, reported much improved operating and net profits for the third quarter and year to date compared with last year on the back of steadily rising revenues and sharply lower losses.
The group consequently raised its profit forecast for this year. It now predicts a return on equity "comfortably in excess" of its original 15% target and group net profit of about €480 million for the full year.
The only real bad news for Hannover Re investors was the admission from the group chairman Wilhelm Zeller that it is finding it more difficult than hoped to wind-up its troublesome United States specialty operation Clarendon, that was closed after taking big hits in the U.S. storms of 2005.
Mr. Zeller explained that Clarendon, which "bears responsibility" for so-called commodity business that the group no longer writes as well as for the management and winding up of terminated programs, has been unable to reduce its residual catastrophe-exposed business to the "desired extent".
Mr. Zeller blamed the delayed exit on "regulatory restrictions" that dated from 2004 and 2005 including government-imposed moratoria. "For this reason the program of protection cover for natural catastrophe exposures had to be retained, albeit at significantly increased costs," he said.
Mr. Zeller is a keen advocate of financial reinsurance and other so-called structured lines and was one of the leading public defenders of the business when it came under intense attack from former New York Attorney General Eliot Spitzer and U.S. regulators in recent times.
He has maintained throughout this period of regulatory scrutiny that customers should not be scared of using this type of coverage so long as sufficient genuine risk transfer can be shown and that it is properly accounted for.
He was therefore pleased to reveal in the third quarter numbers that demand for the business has picked up strongly of late and that this segment delivered a significant contribution to the group's recovery in profit terms.
"Having already got off to a good start in the first half-year, we further expanded our (financial reinsurance) business - especially in Eastern Europe and Asia. I am confident that demand for structured products will continue to stabilize," said Mr. Zeller.
Gross written premiums inn financial reinsurance climbed sharply by 34.4% to reach €924.3 million compared with €687.6 million for the same period last year.
Mr. Zeller said that the overall market environment for property and casualty reinsurance remains "good on balance".
He said that all the treaty renewal phases completed so far this year presented the German group with "opportunities to write attractive business at prices and conditions appropriate to the risks."
"In catastrophe-exposed property business - at least in the United States - further rate increases can be anticipated. The annual gatherings of reinsurers and their clients in Monte Carlo, Baden-Baden and the U.S. also clearly demonstrated that there is no reason to expect widespread rate cuts or deteriorations in terms and conditions in the year ahead. In those areas that are witnessing rate reductions - such as aviation lines - prices for the risks written are still adequate," commented Mr. Zeller.