Reinsurers praised for absorbing inflation data from cedants

Reinsurers were praised for their willingness to digest vast amounts of data and information from some cedants ahead of recent renewals relating to the impact of inflation on their portfolios and acting accordingly – as opposed to imposing a one-size-fits-all on their clients.

That was a key point made by two buyers speaking on a panel discussion at Intelligent Insurer’s Re/insurance Outlook Europe 2023 conference taking place in Zurich this week (June 19-20).

The session, called ‘Combat the inflationary pressures of claims on property: reassess risk, price accordingly and adjust your underwriting appetite’, featured: Thorsten Fromhold, chief group reinsurance officer, Allianz Re; Dirk Spenner, managing director, EMEA, Gallagher Re; and Ivana Stark, CEO, UNIQA Re, the group-internal reinsurer for the UNIQA Group, one of the largest insurance groups in Austria and Central and Eastern Europe.

Fromhold said that Allianz has a good understanding of inflation but described last year as a special year because of the uncertainty around inflation. “You can cope with it for a short time: you have higher loss costs and you increase your premiums. But there were so many specific uncertainties last year, around the energy sector, for example, that put an additional strain on the industry.”

He described how Allianz’s internal economic research team worked hard to get a handle on the macroeconomic environment and also predict where inflation was headed. He said they were pretty accurate. They forecast average global inflation would be 5.3% this year; in fact, the latest estimates suggest 5.2%. “Looking back, they were pretty accurate,” he said.

“We were worried that many reinsurers would apply a one-size fits all approach to inflation. But inflation is a complex issue: it has different effects on different policies in different jurisdictions. We invested a huge effort into detailing and adjusting the exposures we received from all our operating entities.

“We bombarded our reinsurers with information. We shared everything to demonstrate what we were doing. But they absorbed that. We think, as a reinsurer, you have to differentiate a good cedant from a not so good cedant and we feel they did that. Transparency is everything and we would thank our reinsurance partners for working with us on that.”

Starks stressed that UNIQA also has robust processes in place for understanding the impact of inflation on the company. “We see managing inflation as a competitive advantage. The process is in place, not just on the claims side but underwriting too,” she said.

She also said that communication and transparency with reinsurers has been critical. “We also took the data available, generated forecasts and looked to predict future inflation. We also tried to understand the impact on different environments and markets: we broke it down by country by product. So we feel we know how to manage inflation but communication is very important. We invited all our reinsurers to visit us – we are very transparent.”

Spenner made the point that inflation is not new to the industry but some of the inflation numbers and uncertainty in Europe are new. He stressed the importance of granular data and transparency and noted that indices are not necessarily accurate or relevant to the property sector. He also made the point that property has often been traded as a commodity but that is now changing.

“They have to underwrite the client; each portfolio is different,” he said. “Reinsurers increasingly want to drill down into details of portfolios. It is a partnership between cedants and reinsurers. It is not like you can throw out your reinsurance panel and start again like it or not, those are the partners you are working with.

“So if you call it a partnership, make it a partnership. Invite them in and go through the detail. I agree that many reinsurers have been bombarded with information but that is good, as they need to understand the businesses of their clients. They all now have departments and special task forces to handle inflation so that information should be shared.”

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.