Hannover Re’s Henchoz: Capital inflow unlikely to arrive during 2024

Investor appetite for the reinsurance sector is unlikely to return next year as capital providers continue to assess whether the industry can deliver sustainable returns, according to Hannover Re CEO Jean-Jacques Henchoz.

Speaking during a fireside chat at this year’s Singapore International Reinsurance Conference, Henchoz said investors continue to wait on the sidelines having “lost their patience” with the sector a couple of years ago.

“Through meetings with investors they were very clear about their fatigue with the industry losing money. Last year they were clearly hoping for a reset – they have seen this but are not yet convinced the industry can deliver sustainable returns and they are waiting on the sidelines.”

While around $15bn-$17bn in fresh capital has come into the market through equity raises or hybrid capital, Henchoz said this was a fraction of what was raised in previous hard markets.

“After Hurricane Andrew, for example, you saw $40bn-$45bn coming into the system, so this is not an influx of capital by any stretch of the imagination,” he said.

Hencoz said he saw no change in the investor view at present.

“I don’t see a new class of reinsurers emerging because of investor fatigue. From all discussions I am having, I don’t see any [major] capital inflow coming in the course of 2024.

“Investors will want to see a successful 2023 and will likely wait again in 2024 – I don’t believe 2024 will be very different from an investor point of view,” he said.

He said the main source of reinsurance industry growth over the coming year would be through the continued push to ensure natural catastrophe risk is appropriately priced.

“Looking at the long-tail sector, casualty has yet to see much of a correction. This is less of an issue in Asia, more so in the US,” he said.

Longer term, Henchoz said cyber had the potential to be a major growth generator for the sector.

“I can imagine in a decade’s time cyber will be viewed similar to a nat cat scenario, where you can manage cyber in a similar way to a nat cat scenario.

“The next frontier will be using the ILS market to cover cyber risk,” he said.

For the cyber market to reach its potential, he suggested some form of framework would need to be in place to manage the risk of an “armageddon scenario”.

“The creation of a backstop for the industry could be one way of creating capacity,” he said.

“We need to push the frontiers of insurability and I see cyber as one of the big drivers of growth over time.”