HDI Global forging ahead with strict action plan to tackle German combined ratio

HDI Global has made it clear to the German risk and insurance management community in recent times that it will not sacrifice profitability for volume in the face of continued high losses in fire business and a generally fiercely competitive market. The Hannover-based insurance group has reorganised its German business and adopted a strict new strategy called 20/20/20 that it hopes will deliver a much-improved combined ratio in the poorest-performing part of its portfolio. Commercial Risk Europe discussed this strategy with Frank Harting, member of the board of management at HDI Global SE responsible for industry and corporate divisions. Adrian Ladbury [AL]: How have recent renewals been for you in Germany – harder, softer or the same? Frank Harting [FH]: As we have been unsatisfied with recent results in our fire line of business, we started on our 20/20/20 programme in the second quarter of this year. With a particular focus on the German market, we thereby want to reduce the combined ratio in the affected 20% of our portfolio to well below 100% by the year 2020. To achieve this, we are looking for premium increases of 20% on average. The adjustments to rates are already underway. About one third of the necessary price increases have already been applied by the middle of this year. This is a significant success. It makes us optimistic for the remainder of 2018, in which we will see the major part of this year’s renewals. [AL]: How has your German business performed in the last year and how do you intend to deliver more profit in the coming year? [FH]: In recent years, property damage/business interruption insurance, in general, has not been profitable because the price-risk ratio was inadequate in many cases. What made things worse was an increase in severe business interruption losses. Furthermore, a high burden arising from natural catastrophes following hurricanes Harvey, Irma and Maria depressed our balance sheet last year, while numerous property claims led to a decline in our underwriting result in the first half of this year. To bring our property portfolio back into profitability, we started the above-mentioned 20/20/20 strategy. With this programme, we shall restore our fire business to profitability. [AL]: Why are German fire losses so bad? Why will the market’s combined ratio hit 115% this year? [FH]: This is a forecast that was released by the German Insurance Association (GDV). It illustrates the current situation of Germany’s industrial property insurance. We cannot speak for the whole market, of course. With regard to our book of business, however, we are seeing the consequences of 16 years of a worldwide softening market. Prices have decreased in a way that means premiums are more often than not inadequate to reflect the underlying risk. Business interruption and natural catastrophe risks in particular have increased over recent years, while we have failed to reflect this increase in our prices. [AL]: So what are you doing about it? [FH]: Basically, our action plan consists of two main measures. First, we raise prices. Second, we adjust terms and conditions – resulting, for instance, in higher deductibles. By raising prices, we want to bring down our combined ratio by 15%. Adjusted terms and conditions shall improve our combined ratio by another 5%. Our action plan will not only affect accounts with a negative loss ratio or with highly exposed risks. Our measures will, in general, affect all underpriced risks, even those without losses. Our aim is to increase the average premium overall and shrink down high exposures. Let me point out, though, that we still do not take a one-size-fits-all approach. Instead, we are going to evaluate, on an individual basis, each client to see how much their risk exposure might have changed. In those cases, where we cannot apply our action plan, we will reduce shares and relinquish underpriced business. To view our GVNW conference newspaper please click here.

HDI Global forging ahead with strict action plan to tackle German combined ratio

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