Niche approach key for German industrial insurers facing profit squeeze

Mr Leicht is chief executive of Gothaer's main property and casualty company Gothaer Versicherung and explained the company’s position as well as a market overview during last week’s general meeting of Germany's risk managers' association Deutscher Versicherungs-Schutzverband (DVS) in Bonn last week,. At a first glance, DVS' choice of this year's guest speaker seemed a bit odd because Gothaer makes a point of not insuring very large companies, especially those represented in the blue-chip Dax 30 index. Instead, it is focused on medium-sized enterprises and on niches such as renewable energy. DVS, on the other hand, tends to be dominated by the very large German corporations. "Gothaer used to do its business in a very challenging manner," explained Mr Leicht. "We once had a special policy for car dealers, for midwives, we were quite wild in commercial credit and in reinsurance," he said. All this cost Gothaer a lot of money and brought it close to the brink, Mr Leicht added. "Under our group head Werner Görg, we withdraw from many of these segments." hideSince then, rivals have tried to brand Gothaer as the insurer of butchers, bakeries and pedicurists Mr Leicht said. "Others who have to admit that we are an industrial insurer are claiming that we cannot do any international business," he added. But this is not true when it comes to renewable energy, especially wind energy, Mr Leicht said. "Here we are market leader in a number of countries, and we can fill that role quite well." The German insurance industry is not very good at keeping separate figures for industrial property business. They are usually bundled with commercial lines and agriculture. For these segments, German companies saw a rise in premiums of 0.5% to €5.7bn in 2010. However, average premiums fell as more risks were covered, Mr Leicht said. "Prices are today below the level of 2001 and 2002, when we had the large price rise movement," he added. In engineering and related business interruption, premium income was up 3% to €1.6bn. "The loss trend is also OK, with a combined ratio of 92%," he said. All these figures have one important flaw: They do not include those of Allianz Global Corporate and Specialty (AGCS), the industrial arm of the world's largest insurance group. AGCS is no longer a member of the insurance federation Gesamtverband der Deutschen Versicherungswirtschaft (GDV) and does not supply figures for the industry-wide statistics. The same is true for Axa Corporate Solutions. In marine, premiums lagged behind the development of manufacturing industries and of trade, Mr Leicht said. But according to his calculations real premium income rose 2.1%. Marine insurers had reached a combined ratio of 100% in 2010, following 98.1% in 2009. This is still a far cry from the 124% of 2001, but nevertheless worrying. "This is all the more so as the loss ratio has been comparatively stable since 2007 and is now at 67%," Mr Leicht said. "If you know what levels of commissions are being paid to brokers today, you know why the industry still has a combined ratio of 100%." Mr Leicht called for some recognition on the part of customers that insurers had helped them. Gothaer had been granting rate reductions in 2009, when customers asked for reductions because of the severe crisis in the wake of the Lehman collapse. "We gave in, as we did not want to lose our customers," Mr Leicht said. "But in 2010, the businesses of our customers were booming again, while our rates stayed at the low level." The company now seeking price rises to reach the old level again. In liability lines, Mr Leicht criticised companies that target especially small and medium sized commercial customers. The market does not have separate statistics for private, industrial or commercial liability. "But the overall combined ratio of 91% brings some market participants to do some really wild things," he said. This was true for brokers and insurers. The same lack of data means that motor business is not very transparent for customers. "We saw market-wide a combined ratio in motor of 107% in 2010," Mr Leicht said. For motor fleets, the ratio was 111% in 2010, compared with 107%, the year before. "Nearly all insurers lifted rates on 1 January 2011, but it will take one to three years before we will come back into an underwriting profit in these lines." One reason for the weak pricing trend was the declining number of very large losses in Germany. "The largest loss in 2010 was an €51m fire loss," he said. Since 2006, large losses have been declining from €133bn in that year to €850m in 2010. But there were signs for a change in the trend. "We have seen this year already a fire loss of €174m, which could still grow," he said, without giving a name. According to market sources, however, the loss stemmed from a fire on 25 February in the Dinslaken steel pipe plant of industrial group Benteler.

Niche approach key for German industrial insurers facing profit squeeze

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