Reinsurance brokers report orderly softening in Germany, except motor

The main reason is high capacity. As Aon Benfield stated in its renewals analysis: “Overall reinsurance capacity is expected to be more than sufficient. Reinsurers’ balance sheets have been reinstated and supply exceeds demand. The existing and new capacity in Switzerland plays an increasingly important role in the German market.” The main exception, as in France and the UK, was the motor market which has finally turned following years of fierce competition and fast-rising combined ratios as a result of the long and cold winter. Aon Benfield reported that property catastrophe excess of loss programmes achieved small decreases on a risk adjusted basis (down 4–5% on average) with no major changes in other terms and conditions. hideAon commented that the losses faced by the German insurance and reinsurance industry during 2010 were relatively low, despite the dramatic start to the year provided by Windstorm Xynthia. The broker reckons that Xynthia caused losses of about €575m in Germany and hit the reinsurance programmes. The third quarter results of the major German reinsurance companies were, however, dominated by healthy investment income and good underwriting results and Aon expects higher profit targets for 2010. As a result Aon Benfield said that the 2011 renewal was ‘in line with the expectations’ and characterised by stable individual reinsurance programme structures. Most market experts believe that the higher capital requirements of Solvency II will spark a boost in demand for reinsurance among smaller and medium-sized insurers that cannot afford to implement their own internal models or are not too diversified. But as in France and elsewhere the brokers report that the impact has yet to be felt in a major way. “The impact of Solvency II and QIS5 is moderate since many clients already secured additional capacity to deal with the future requirements, while other companies have elected to wait until closer to the implementation of Solvency II to secure protection to the 200 year level,” said Aon Benfield. It added that buying decisions in Germany remain driven by budget restrictions with ‘continued pressure’ in the local market on original rates. Willis Re reported a similar response, or rather lack of one so far in Germany, to the new capital rules. “Buyers will await results of QIS5 studies and are likely to review their programmes for 2012,” it said. Aon reported that property per risk programme renewals were stable compared to the previous year and that rates continue to be driven by the loss history of the programmes. “Contrary to prior years, no major fire loss affected the industry in 2010 resulting in a few new reinsurers being attracted to these programmes in order to diversify their aggregates,” it added. Rival reinsurance broker Guy Carpenter agreed that catastrophe excess of loss reinsurance rates were flat to 4% lower, with stop loss and aggregate excess of loss flat year over year. Willis Re reported that few changes occurred with property programmes and many were renewed with unaltered structures. Overall Willis Re reported an ‘organised softening’ of the reinsurance rates with ‘more than sufficient’ catastrophe capacity available. “Reinsurers seem to be prepared to accept increases in exposures in selected areas,” added the broker. The German casualty market was also calm and good for buyers at this renewal, according to Willis Re. The broker said that underwriters of general, employers’ and professional liability business are all eyeing the low interest rates carefully. But on the back of good results it reported a slight softening in prices in ‘mainstream’ areas. The strongest pressure for rate increases came in the motor market in Germany as elsewhere in Europe. Aon pointed out that the German primary motor market has become very competitive over the last few years. But increasing loss ratios from a higher loss frequency suffered during the long winter period in 2009/2010 has led to deteriorating results. As a consequence most insurers are beginning to increase original tariffs, said Aon Benfield. “Both proportional and non-proportional reinsurance for motor business are under pressure for an improvement by the reinsurers and unchanged excess of loss rates and commissions are the exception,” reported the broker. Willis Re agreed with Aon. “After years of decline, [there is an] expectation for an increase in original estimated premium incomes. Low interest rates [remain] an issue,” it stated.

Reinsurance brokers report orderly softening in Germany, except motor

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