Hannover Re and Scor show retro value
The experience of continental reinsurers Hannover Re and Scor in 2011 highlights the value of retro as a product, but also the challenge of renewing cover in a tighter post-loss market.
Hannover Re is in the process of overhauling its retro programme that includes its collateralised K quota share and whole account excess of loss (XoL) treaty, as it seeks at least EUR450mn of 2012 cover.
The reinsurer is expected to renew the XoL with up to $50mn less limit and has changed its K quota share into an annual deal for 2012 to soothe loss-struck investors.
But the value of the protection was clear to see in 2011, with Hannover Re recovering nearly half of its EUR1.2bn major loss bill from retro markets as it posted a profit of EUR218mn.
France's Scor, meanwhile, used just a quarter of its retro cover in the first nine months of the year, but still ceded EUR297mn of cat claims to retro writers during the period, protecting its net results from substantial deterioration on Q1 loss events.
At the end of the first quarter Scor had reserved EUR380mn for these losses. This deteriorated to EUR510mn in the second quarter and then to EUR575mn by the end of Q3, with Scor's retro providers absorbing all the loss deterioration.
The company also benefits from having 40 percent of its 2012 cat retro protection already in place through multi-year covers.
A senior retro broker suggested that the 2011 loss activity has validated the role of retro protection as a product, and suggested that the market would respond to buyers' needs at renewal.
"Demand is going to be strong, and it's not necessarily going to be an easily negotiable marketplace. I think that ultimately the capacity will be there for most people to meet their needs. If it isn't then you're more likely to see some of the capital on the sidelines appear," they said.