Steadfast Competitor-Jens Wohlthat

ADRIAN LADBURY: What is your outlook for the European industrial insurance business and what kind of year have you experienced at HDI-Gerling up till now?

JENS WOHLTHAT: We achieved a good result for 2009. Our net combined ratio was greater than 100% but this was because of some exceptional items to do with old reinsurance receivables. But if we have got this right and we see higher investment income then there should be a run off profit in future years and it will work out in our favour. Generally though last year we had a very good investment result and therefore a good result overall.

In Germany we have still experienced a reduced premium to risk ratio and a lower premium volume because of the economy. It is fair to say that, apart from motor fleet, rates in Germany were at best stable or business declined. Through internal measurement of risk we noted that actual risk insured also declined in many lines, for example less mileage driven in motor fleet. All in all we had a satisfactory underwriting year in 2009, but insured risk has already increased in 2010 due to increased economic activity at existing premium level, and we expect a reduced underwriting result in 2010.

Outside Germany we managed to grow organically which was very pleasing. And outside Germany a lot of this growth came from the perceived problems of others. We managed to take business from XL and we took some business from Fortis for example. We managed to defend our risks against Chartis well but there is still pressure there. In some cases this was done by reducing our premium to risk ratio. But we did not take a lot of business from Chartis because often it was just not economically viable.

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AL: Were you angered by the aggressive stance of Chartis as others were, particularly as it is backed by US government money?

JW: I heard others complain saying that the US government backed AIG and so it was not fair. But I would not go so far. The government is the shareholder. But it let the management run the company and I am not sure whether the US taxpayer would have been better off if the company had lost risks and gone into run off. If you are honest you have to ask yourself what you would have done in this situation.

AL: Where do you hope to grow in this still competitive market?

JW: Our biggest growth recently has been in Switzerland. Our overall strategy in this market environment is rather than looking at totally new business, to seek to turn coinsurance business into lead business and increase our share for a possibly higher premium. We have been relatively successful at this. We have also defended our lead positions and have not lost one lead which is good, coupled with the new business outside of Germany.

AL: What is your growth strategy outside of Germany? Everyone seems to have a ‘unique’ strategy that will enable them to buck the trend in this competitive market. What is yours?

JW: We are now perceived as a credible industrial insurance lead outside of Germany. There are local champions in all markets. In Germany we are first or second choice depending upon the market. But if a buyer outside Germany does not want to use a local champion or place all their eggs in one basket we are an option, especially for global programmes because we have large treaty capacity, technical skill and an international network.

AL: What is the nature of your international presence? What do you have to offer cross border buyers particularly those with risks outside of Europe?

JW: There is clearly no problem for us to issue policies in Germany and 22 other countries where we are present on the ground. But we can also initiate policies in another 70 odd countries based on pre-existing contractual relationships. This is done mainly with RSA Global Network and so we are able to work in about 100 countries with prearranged procedures. Also our underwriting capacity is not dependent upon facultative reinsurance, but is stable long-term worldwide.

AL: How have you looked after your clients and brokers since the merger with Gerling and what is your strategy looking forward?

JW: In almost all larger European markets where we are currently present we have either a local country manager who came from HDI or Gerling. So we have a stable local presence in all the significant industrial insurance markets in Europe where we, as standalone companies, may not have been before. In some of the newer markets in central and Eastern Europe the challenge was to bring the teams together and deliver a consistent approach. We needed to win the trust of the market that we are in the industrial business for the long term and have the right people to do it.

We have now made a success of this and can take the next step forward to take the lead position or win new lead mandates for global programmes. In the past we only had one office in what remain very regional markets like the UK and Switzerland where language is still something to consider. In Switzerland we now have a French-speaking office in Lausanne for example and we need to investigate whether we need more than one location in places like France. In the UK we clearly do not compete with those insurers that can provide all the products and the question is: ‘How do you provide things to the local broker market in a more focused way?’ I think that local brokers want empowered local decision makers as we have in Germany and therefore we need skilled people who are empowered and we can entrust with a decentralised mandate and know that in nine out of 10 cases we will achieve the same result as at home.

AL: It is a good theory. But how do you make this work in practice and retain control across the group as empowerment brings its own risks?

JW: We want people to act as entrepreneurs locally and do not have to bother managing a lot of subsidiaries or employees. They are empowered and technically skilled to do the deals themselves and it is not easy to find those kind of people as it is a key way to differentiate yourselves from the competition. We can also set ourselves apart by looking at different markets, for SME-type business for example, which is what we are doing in the Netherlands and Belgium providing combined covers that we have in Germany already. This means you have to develop products and services for broker partners that require less effort in the actual transaction. This does involve an investment in IT and people again and in some cases, such as the Netherlands, it means that you do not need five offices. But maybe in France you do. Clearly you do not want to create personalised letter boxes in this market. You need more than a handshake and a drink, otherwise it is not us. But if you do not have the right people it presents a challenge because you have to start with a low cost base and find the business first before adding to that cost base. This is easy to say but we have proven that we can do it. For the individuals who join us it may be more of a challenge because it is not everyone’s cup of tea. But if you can make it work you can deliver a very stable operation that can be personally very satisfying and rewarding. The groundwork is hard but it is what we think we are good at. It is all based on attracting the right people.

AL: What kind of changing risk environment are your managers having to deal with currently?

JW: You have to distinguish between young and old operations. The old operations have to deal with complexity and the best bet is good IT solutions. You have good stable relationships but the other side of the coin is that you have legacy problems. You have old claims to handle and maybe old systems that need to be built upon but the people who built them may be somewhere else. For younger operations the biggest problem for new people is to tap in and use all the available knowledge within the organisation. If you have someone in the UK Midlands business for example who has joined and knows how they did it in their old life and could find answers at the press of a button it may not be the case anymore and there is no manual to help you find easy answers in two minutes. It is about helping people find that knowledge and taking the time to help them to do so. This is a management challenge.

AL: And what about the changing external market?

JW: It is very difficult to grow in a softening market. We grow in a hard market but you have to be there at the beginning of a hard market, not the end. The challenge in a soft market is to have the people who are disciplined enough to understand what is expected of them and make their presence felt. It is about knowing how to use the accelerator and clutch. In this market it is about understanding clearly what the customer wants. Some are looking for service for the captive or high excess risk transfer while others want coverage from zero. Others want risk engineering especially for property and we want to provide this at a price that we believe is adequate for the market situation and helps us to survive. It is no good selling something for a price that you know you have to be lucky not to lose. This is not insurance as I understand it. The customer has the right to recover what he pays for via valid claims paid and we have to be able to pay claims even in a soft market. We can only do that if the loss ratio is under control and do not do those fancy things for nothing. This is the challenge. We try to differentiate ourselves as much as possible with a more consensual claims handling approach. We need to fight a claimant on behalf of our customer but we do not want to fight over coverage because that should not be necessary. It should have been agreed beforehand. Sometimes you have to go to court and this happens more when the relationship is coming to an end but generally we try to differentiate ourselves from the competition in this regard. The key is people again because most of our people have been in their position for a long time and HDI and Gerling had shared values in this area. This may not soundvery exciting but stability does have a very positive effect for us and our customers.