Sava Re enjoys stability amid wider change

It has enjoyed solid growth and an upgrade this year, which it describes as an historic achievement. But Sava Re remains wary of market forces as it heads into Baden-Baden, says the firm’s Aleš Mirnik.

What are your expectations for negotiations in Baden-Baden?

There is a lot of uncertainty in the market now, deterioration of 2017 results, mergers and acquisitions of large companies, changes at Lloyd’s and Brexit. Although 2018 hasn’t brought any large losses so far, we feel that the reinsurance market simply cannot afford another soft(er) renewal.

With the current rates, many companies cannot keep up with their profit targets. I would argue that 2017 was not an exceptionally bad year.

So when it comes to our expectations, we are looking forward to a more or less flat renewal, and our mission in Baden-Baden is mostly to catch up with our clients and present our recent upgrade to “A”.

What is the significance of your upgrade?

It is a historic achievement for Sava Re. When we take into consideration the current environment of our industry, the rating agencies’ views of the market and then match this with where our Group started and what it has achieved in the last 10 years, the significance and success feel that much greater.

While many competitors were experiencing their ups and downs, Sava Re Group was growing and consistently delivering good results. This is important and the upgrade is the recognition of our hard work.

On the reinsurance side, it does not affect our strategy and approach. We keep the same underwriting standard and loyalty to our clients. We expect to enhance our portfolio profile and improve our image.

How much business do you write in Continental Europe?

In 2018, Europe represents roughly 30 percent of our book. It was not always like that. We started as a regional reinsurer and about 10 years ago had more than 80 percent of business in Europe. Now, we are much more diversified and have clients in over 100 countries globally.

Do you see opportunities for growth in Europe in current market environment?

In the near future, only limited. The problem is this is the oldest re/insurance market and some relationships go back for many decades. Not many scenarios create opportunities.

In most cases this would happen after a merger or when a reinsurer for some reasons goes into a run-off, or if we were to compete on a price, which we normally don’t do.

The environment here is already very competitive and not much business meets our technical requirements. As we are not pressed to grow our book, we have the luxury to deploy our capital globally. Our only focus is the client that shares our long-term commitment, and not one single region.

Are you seeing demand for cyber coverage?

Our daughter companies on the insurance side are starting to see some demand, especially after last year’s NotPetya malware event. A few companies were affected in Slovenia so risk awareness started to increase. The first insurance products are in the final stage of development and will be ready to launch soon.

What is your view on cyber from the reinsurance perspective?

We see cyber as a completely standalone line of business, which demands a very different approach to risk surveying, pricing and loss adjusting. It will be a long-tail business, with potentially heavy legal implications.

Right now, many reinsurers are intensively looking for new sources of income, so a new industry segment was very welcomed. More and more companies are ready to provide reinsurance coverage but at least for now, Sava Re is not in that group.

In our view, we are at a very early stage with too many uncertainties. Not many clients are aware what kind of coverage they need and at the same time, insurance companies will struggle charging appropriate premium rates.

An additional problem for reinsurance companies will be exposure control. From a technical perspective, we need to build new underwriting expertise with help of the IT sector, and this will take time.

Looking forward, we very much believe that cyber will be a very important insurance line. In terms of premium volumes, we think it will be up there with classes such as motor third-party liability and personal accident. However, before the market reaches that kind of maturity, there will be a transition period, which is going to be very painful for those who are not properly managing their exposures.

What are your objectives for the next 12 months?

Our main task is to keep and improve the profitability of our portfolio. We will remain cautious, as in this climate, the only predictable fact is that there will be more cat events and they will be bigger.

We can all expect more years like 2017 and worse, and we should be prepared for this, for our shareholders and our clients.

Aleš Mirnik is executive director of Reinsurance Operations at Sava Re. He can be contacted at: ales.mirnik@sava-re.si