German buyers relaxed about terror threat and Extremus renewal

Risk managers did not see the need to make any special preparations or buy more cover against terrorist hazards. “Generally, we take all terror warnings very seriously, but we also remember that the US Department of Foreign Affairs has often been mistaken,” Ralf Becker, managing director of Berliner Airport Assekuranz-Vermittlungs-GmbH, the captive broker of Berlin airport company Berliner Flughafen-Gesellschaft told Commercial Risk Europe. “We prefer to trust domestic sources.” For this reason and because the US warnings only apply to railway stations or tourist venues, Mr Becker sees no need to extend insurance coverage. “The most recent warnings have not led to an increase in business for us,” affirmed Dirk Harbrücker, board member of insurer Extremus, the state backed terrorism insurance vehicle.hideThe Cologne-based company was set up in 2002 by 16 insurers active in Germany. It covers losses from €25m upwards. Altogether Extremus carries risks up to an impressive €10bn. Of this, the insurers takes the first €2bn and the government provides a guarantee for the remaining €8bn, for which it charges a handsome fee. Up till now, Extremus has not had to cope with any losses. “But our clients are sensible and have not demanded a reduction in premium,” said Mr Harbrücker. Nevertheless the premium level is dropping, since Extremus is tied to trends in industrial fire insurance in which rates have been falling for some time. “However, we managed to compensate for this with the volume of new business,” Mr Harbrücker told CRE. This year Extremus will be able to match the premium volume of €52m achieved in 2009, he added. The Extremus executive said it is now firmly established in the market. “There are clients who really believe in us,” he said. Extremus is an alternative to the Lloyd’s market, a traditional leader of private market terror cover, which could otherwise tighten the thumbscrews with regard to prices and conditions, German risk managers believe. Mr Becker said that he also appreciates Extremus’ geographical proximity to his company and the government guarantee. In the meantime the German insurer has lost one disadvantage that it faced when offering cover to customers with overseas operations. Extremus only deals with losses that occur in Germany, but it has co-operated with the Bermuda-based Lloyd’s insurer Catlin since 2006 to offer clients coverage abroad with Extremus conditions. In many countries, governments and insurers co-operate on terror cover. This will remain the case, said Mr Harbrücker. The federal government’s guarantee for €8bn runs out at the end of 2011 and he is optimistic that Berlin will continue to be involved. So is Mr Becker. “If the government abandons us the business model will fail,” he said. “For us, the clients, this would mean that we have to go back to the London market," continued the risk manager. Moreover, experts say that German interior minister Wolfgang Schäuble would find it difficult to justify a state withdrawal from terror insurance because he has warned about the danger of terrorist attacks in the country on more than one occasion. Meanwhile rating agency Moody’s announced this week that it believes the outlook for the German insurance market remains negative because of continued rate pressure in P&C lines, particularly in motor insurance, and the low interest-rate environment that places pressure on the profitability of life products with guarantees. "Despite the stabilisation of motor rates, underwriting profitability for P&C insurers remains weak," explained Paul Oates, a Moody's Vice President and Senior Analyst. "Low investment yields exacerbate the unprofitability of the P&C sector and also pose problems for life insurers which have significant guarantees on traditional business" he added. Moody’s said that there are a number of themes that persuades them of the outlook. The main ones are: Solvency II is expected to lead to higher capital levels, which is a credit positive, but raises concerns over the competitive situation of smaller insurers As a consequence of the tighter regulatory regime there could be consolidation or rationalisation of the industry Portfolio durations are likely to lengthen as investors search for yield (which may also result in a slight increase in holdings of riskier asset classes).

German buyers relaxed about terror threat and Extremus renewal

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