GVNW members urged to keep options open as insurance market tightens

German risk managers have warned leading industrial insurance companies that attempts to restore profitability in their core market with knee-jerk price rises and the addition of unjustified exclusions in important risk areas such as cyber, will not be well received. During a press conference hosted by the German risk and insurance management association GVNW at its Cyber and Financial Lines Conference in Cologne late last week, Alexander Mahnke, president of the association, and fellow committee members advised members to ensure they are not too dependent on any single carrier as the market starts to harden, and leading insurers warn of a tough stance on renewals. The risk managers conceded that industrial insurers need to deliver underwriting profits to their parent groups and this has been difficult to achieve in recent times, during the long soft market. However, they reminded the market that improving profitability levels is not just about raising prices and tightening conditions to keep investors happy. The insurers also need to invest in the latest technologies to help raise productivity and efficiency levels to reduce their bloated cost ratios. Hopefully, at the same time they will deliver improved services to customers, pointed out the GVNW board members. The risk managers’ warning to the market came as most of the leading international industrial insurers have vowed to finally sort out their books, stand firm and halt the softening once and for all. In Germany, there is no doubt that insurers needed to act, not least in industrial property lines. The German insurance association (GDV) predicts the combined ratio for the German industrial property market to hit an ugly 115% for 2018, once it has finished totting up the numbers. The fact is that, according to GDV figures, the premium rate for German property insurance, as a percentage of the sum insured, has fallen steadily since 2003, from about 0.55% to just over 0.2% in 2017. But at the same time, claims in German property business insurance and global natural catastrophes have steadily risen – hence the horrible combined ratio figure for 2018. Much attention on the reaction of industrial insurers in Germany has been focused on HDI Global. This is because it very publicly stated it is acting decisively to sort out its industrial fire book, and is happy to turn away business that does not live up to its requirements. Christian Hinsch, CEO of HDI Global who hands over to Edgar Puls in April, said the Hannover-based insurer would act decisively by raising prices in this area, adjusting terms and conditions, reducing shares and relinquishing underpriced business. He added that the company is committed to its 20/20/20 strategy, that aims to improve the premium/risk ratio by 20% in 20% of its industrial portfolio by the year 2020. Last month, parent group Talanx reported that the restructuring of industrial fire insurance as part of the 20/20/20 programme was making “excellent progress”. Thorsten Leue, recently installed chairman of the board of management of Talanx, said: “We are ahead of plan and confident that we will achieve our 2019 outlook.” He reported that almost 90% of the minimum price increases under the programme had already been achieved. The full-year figures reported by HDI Global suggest, however, that the pressure on buyers will not relent. An “extraordinary claims burden” caused the combined ratio for 2018 to worsen to 109.1% from a not much more impressive 108.5% in 2017. Allianz Global Corporate & Specialty reported a much better combined ratio than HDI Global. But Allianz Group will still not be happy with the fact it remained above 100%, at 101.5%. This is against 105.2% the year before. Against this backdrop, the German risk management community is understandably wary of how the market will develop and advising its members to plan accordingly. “All the talk is about HDI Global of course and its 20/20/20 programme. It is not certain to GVNW members whether this is sustainable, but we will see. The good thing is that most of us risk managers are also members [of HDI as a mutual] and so will see the numbers. But this does remain a question mark,” said Mr Mahnke when asked about HDI Global’s strategy. “The focus is on HDI because it was the first to put its foot forward and this has been an outstanding theme for the company. There is always a concern in such situations that, potentially, internal issues are more important than external ones. There is a significant change in management at HDI and at the parent group Talanx. Any risk manager will be concerned that the new chairman of Talanx is taking a deep look at the industrial business,” continued Mr Mahnke. Fellow GVNW board member Swen Grewenig, global head of corporate insurances at pharmaceutical giant Bayer, pointed out that HDI Global is not alone in having to tackle its book at this difficult time for the industrial insurance market. “It is not just about HDI. Oliver Bäte, CEO of Allianz, used similar words as those used at HDI and we are hearing the same thing from Swiss Re, AIG and the others. The insurers are clearly looking very closely at their industrial business and this is a concern for customers,” he said. The reference to Mr Bäte’s comments as Allianz announced its results, was potentially significant from a wider perspective. There is no suggestion of course that Allianz will walk away from industrial insurance if the market does not improve. But, as Mr Bäte made his introductory remarks during the fourth-quarter 2018 analyst’s call, he did clearly point out that the various Allianz businesses are in competition for limited capital and have to justify continued access to that capital with adequate returns. “We are going to work on making sure everybody meets minimum requirements. That is the basis for allocating capital and for allowing people to grow. We do not want top-line growth for the sake of top-line growth. We want to grow value,” said the Allianz CEO, according to online reporting service SeekingAlpha. So how should the German and wider European risk and insurance managers react to the apparent new tough line? “We try to keep dependencies as limited as possible,” said Mr Mahnke. “In a soft market, it is easy to just put your risk to the market and get what you want. But you have to prepare for a change and I am happy that we have used our captive more for just this reason. I think that most GVNW members will be OK, apart from those in specific industries for which capacity is scarce. But most of us are happy we can manage the hardening, though I have to say, I do not expect a truly hard market. We would need another global financial crisis for that to happen,” continued the GVNW president. Mr Mahnke did point out, however, that this is all a rather short-term perspective. He said that, on a longer-term basis, there are bigger questions to ask about the implications of the ongoing M&A process among insurers and how much value the traditional insurance market will be able to deliver to multinational customers if it does not adapt its model.

GVNW members urged to keep options open as insurance market tightens

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