Widespread rate rises in Germany off the table despite heavy nat cats

According to estimates by German insurers’ association Gesamtverband der Deutschen Versicherungswirtschaft (GDV), insured losses from the floods alone will total €2bn. This would top the costs following the then unprecedented 2002 flooding of the river Elbe, when insurers had to face a bill of €1.8bn. The hailstorm toll is still rising. According to recent estimates by reinsurance broker Aon Benfield, insured losses will be between €1.1bn and €1.5bn, making it the worst hailstorm event Germany has ever seen. The losses take place at a time when German commercial insurers are coping with increasing combined ratios. According to preliminary figures from GDV, the industry’s combined ratio for commercial property in 2012 was 106%, compared to 93% in 2009.hide“The loss situation has worsened considerably over the past two years in Germany,” said Stefan Nill, Managing Director of medium-sized broker Leue & Nill. Insurance giant Allianz has been hit particularly hard by the recent natural catastrophes. The company has to pay €700m as a result of the flooding. However, after reinsurance, the company faces a loss of €330m. Despite the flood losses, Allianz presented good results for the first six months of this year. The insurer earned €1.6bn in the second quarter of 2013, up 27% on the same period in 2012. Overall for the first half of 2013 earnings were up 24.6% to €3.5bn. The insurer benefited from positive developments in its property and casualty lines. However, its subsidiary, Allianz Global Corporate & Specialty (AGCS), reported a decline in operating profits from €192m to €178m in the first half of 2013. Its combined ratio rose only slightly from 97.5% to 97.7%. Gross written premiums decreased from €3.1bn to €2.8bn. AGCS attributed this to ‘market conditions, foreign exchange movements and focused underwriting across all lines of business’. Allianz Deutschland, the German operation that deals with private customers as well as small and medium-sized enterprises, has had to cope with a sharp drop in operating profits for the first half of this year, down 20% to €758m. Bottom-line profits were down 33% to €509m. Again, the floods played a major role, as well as the two storms Manni and Norbert in May and June. These events cost Allianz Deutschland €730m, €600m of that from the floods. The net loss was €380m. Allianz rival Talanx’s also partly blamed the nat cat events for a downturn in its industrial insurance operations so far this year. Its operating result fell from €157m to €78m and net profit more than halved from €99m to €47m. The full Talanx’s group, which includes Hannover Re, has so far paid out €419m in large losses. €232m of this relates to the central European floods—€95m in primary insurance and €137m in reinsurance. During a conference call, Immo Querner, Talanx’s Chief Financial Officer, said that on the positive side settlement profits had developed well. “We achieved very satisfactory settlement results from some old business relations in western Europe in liability,” he said. Total settlement profits for the industrial insurance segment in 2013 amounted to €100m. No comparable figures for 2012 were given. Talanx’s management in Hanover is still riding high on the success of its IPO in 2012, some 15 years after it was first mooted. “The diversification of the group and its expansion outside Germany have a positive effect on the annual results,” said Herbert Haas, Talanx’s Chief Executive. “We have compensated for the burden from large losses through better basic business, profits from run-offs and the profit from our withdrawal from Swiss Life.” The latter deal, in which Talanx reduced its stake from 9% to 4%, resulted in a special profit of €96m. While profits are down, Talanx managed strong top line growth for its industrial business—although at a somewhat slower pace in the second quarter of this year than the first. Total turnover was up 7% to €2.4bn. “The momentum stems from both growth of international programmes as well as rate increases in domestic business,” CFO Mr Querner revealed. He said that market hardening in motor fleet continued in the second quarter, but was reluctant to talk much about pricing in other parts of industrial business. Large losses made up 15% of the half-year combined ratio for HDI-Gerling Industrie, bringing it to 101%—eight points worse than the 93% for the first six months of 2012. Despite the heavy burden, most experts do not expect that this year’s natural catastrophes will lead to higher premiums in German industrial and commercial insurance. With the exemption of some lines, such as motor or liability for doctors and architects, premiums will remain largely stable, despite the fact that industrial insurers are facing lower investment income, they say. The losses are not enough for premiums to rise, with the German market remaining sufficiently competitive “Only if there is a huge loss this year and the insurers in the property market lose $50bn or $100bn, then something could happen,” predicted Gregor Köhler, Risk Manager of chemical and pharmaceutical company Bayer. One reason being the low interest rates facing the capital market. “As long as interest rates are as low as now, high capacities will be pushed into the insurance market via hedge funds, in particular for property and marine,” Mr Köhler explained. There have been many cat bond deals this year. In addition, reinsurance premiums, in particular for property, dropped at the 1 July 2013 renewal. Hannover Re, for example, reported a decline of between 1% and 2% in the recent property reinsurance renewals. Munich Re regarded it as a success that it managed to keep prices stable. The overall positive reporting season for the first half of 2013 has had a negative effect for industrial insurers looking to push through rate hikes. Their customers are quoting the enthusiastic reports of group parents when asked for higher insurance costs. Resistance to primary price increases has risen considerably, the general response ‘we understand you, insurers must earn more’ has somewhat disappeared.

Widespread rate rises in Germany off the table despite heavy nat cats

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