Risk transfer industry concedes it is failing corporate buyers

But this year’s networking event kicked off with an animated panel discussion not about prices but rather how insurers and reinsurers are failing their big corporate customers. Speaking on the sidelines of the symposium, which was hosted by Guy Carpenter, the reinsurance intermediary’s head of EMEA strategy Chris Klein said that although catastrophes and alternative capital had dominated the headlines, insurers had other challenges. “We thought companies ought to be more focused on finding profitable growth. That’s why we chose to look at how the industry could deploy its excess capital by widening the insurance market,” Mr Klein said. At the symposium, panel speakers shared the view that the insurance and reinsurance industry felt challenged by the lack of premium growth, especially in mature markets. But risk carriers are actually missing out on opportunities because they are failing to provide clients with all the cover they need, the panel agreed.hidePaul Horgan, Global Head of Group Reinsurance and Casualty Underwriting at Zurich, told the audience that feedback he received from corporate insurance buyers indicated serious insurance industry short-comings. He said they felt that only around 20% of their risks can be insured, citing demand for supply chain and outsourcing risk transfer coverages. “The industry needs to get to grips with non-physical risks and that means obtaining better data,” Mr Horgan said. Lloyd’s Head of Underwriting Tom Bolt agreed. “There’s sufficient capital but the industry is only interested in a few lines of business. Why not find other opportunities,” he said. Mr Bolt pointed out that the Thai floods, which caused massive ‘unmodelled’ business interruption losses, highlighted an opportunity for the risk transfer industry. “We need to address this sort of exposure in a consistent way. It is an opportunity to do something new and original,” he said. Mr Bolt urged insurance underwriters to take note of frequent risk manager surveys that rank their perceived problem areas. “Look at any emerging risk list. Corporations can identify these risks, that’s a start for insurers. Let’s have a little more dialogue between buyer and insurer,” he said. Munich Re’s board member Torsten Jeworrek agreed [pictured, above, inset], saying that the corporate risk landscape is changing and that insurers need to respond by devising new solutions—to protect intangible assets, for example. Mr Jeworrek pointed out that although there is a strong increase in the number of ‘new technology’ companies in the Global Top 100 ranking, insurers still consider old technology companies as their biggest customers. Echoing Mr Horgan’s comments on insurers’ lack of innovation he cited a conversation he had with an executive at media group Bertelsmann who told him that it only had insurance coverage for 8% of all the risks it could identify. But Mr Jeworrek did sound one note of scepticism over insureds’ take up of new and innovative coverages. He said that in the aftermath of the Icelandic ash cloud, Munich Re had offered a contingent business interruption coverage to the aviation industry. The only problem was that ‘they wanted it for free’, Mr Jeworrek said. Speaking at the event Luca Albertini, Chief Executive of the ILS fund manager Leadenhall Capital, suggested that alternative capital might have a bigger role to play in providing risk transfer for certain business risks. “I believe that [capital markets] investors can underwrite unmodelled perils, but they still need to have good data,” he said. “Some investors are entering non-cat perils such as marine, energy and space, for example.” Guy Carpenter’s Sunday symposium is a curtain raiser for the discussions that take place over the following two to three days in the hotel lobbies and cafes of the German spa town Baden-Baden. An over-riding concern voiced by many reinsurers is the reduction in ceded reinsurance premiums available to them. Aspen Re’s Managing Director of Europe, Jacopo d’Antonio, said the large insurance groups are increasingly centralising the purchase of reinsurance and at the same time there is a general trend to increase retention levels. “Then there is the growing involvement of the capital markets in the cat business, which reduces the share of traditional reinsurers to an extent,” he said. Amer Ahmed, Head of Allianz Re, is responsible for both incoming and outgoing reinsurance transactions for Allianz SE. His unit’s assumed reinsurance amounts to around €4bn, one tenth of which is from non-Allianz clients. He said that the Allianz share is growing, reflecting the trend in the wider market for big groups to centralise their reinsurance protections and also to buy less. “There is a discernible trend among big and small insurers to increase retentions as companies examine their reinsurance needs more broadly than they used to,” Mr Ahmed said. “We ourselves have taken a more portfolio-wide view and asked ourselves how reinsurance can support the group’s needs through higher retentions. We can support individual business units from within.” Mr Ahmed believes that reinsurance companies will have to adjust their business model accordingly, emphasising expertise to clients rather than just commoditised capacity. “It will no longer be a case of ‘here’s a cat programme, do you want a 5% share’. Instead reinsurers will have to come up with more customised solutions to insurers’ needs,” he said. Nat cats were also on reinsurers’ minds. Although on face value 2013 has been a relatively benign year for natural disasters, Munich Re’s board member Ludger Arnoldussen said insured losses so far this year totalled €8bn, compared to the ten year average of €6bn. “The flood event in central Europe compares with what happened in 2002—it means we have effectively had two ‘centennial’ events in around 10 years,” he said. Summer hailstorms resulted in insured losses of €2.5bn and Mr Arnoldussen drew attention to the August event which saw hailstorms the size of tennis balls pound 28,000 brand new Volkswagens parked at the manufacturer’s Wolfburg factory. Mr Arnoldussen said that with nat cat severity and frequency growing in Europe, some cedants should brace for inevitable reinsurance cost ‘effects’. In the immediate future Munich Re expects a largely stable renewal at 1 January with the exception of Germany where significant nat cat losses will have to be reflected at the renewal outcome. It is a complicated renewal picture but in a speech to the market on Tuesday night Lloyd’s Mr Bolt deftly summed up the market in just seven words—soft cycle, low interest rates, over capitalised. He added two words of advice: Be careful. by Garry Booth, Editor of Reactions, Baden-Baden Reporter

Risk transfer industry concedes it is failing corporate buyers

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