The benefits of increased demand

VIG Re is benefiting from increased demand from buyers keen to work with a reinsurer that can offer something different and a low cost ratio, Johannes Martin Hartmann told Baden-Baden Today.

A combination of increased levels of catastrophe losses in recent years and a continued readjustment driven by Solvency II capital requirements is prompting buyers in Europe to adjust their buying strategies and seek more coverage. But reinsurers are pushing back and seeking rates hikes for additional coverage.

This dynamic is good news for VIG Re, according to Johannes Martin Hartmann, chairman of VIG Re’s managing board. He told Baden-Baden Today that many insurers, stung by losses and volatility in their results, are re-examining their options and VIG Re is benefiting from a growing number of inquiries, including in the two markets it has launched in relatively recent times: Germany and France.
“Buyers are buying more and for a number of different reasons,” Hartmann said.

“After consistent losses in recent years, some insurers are further de-risking their portfolios. They are especially interested in aggregate coverages, as many of the losses of recent years have been through accumulation of smaller or medium-sized events instead of single large losses.

“They are also re-examining things because of Solvency II capital requirements. Only the bigger companies have internal models so the rest are using what has been provided by the regulator, and this often leads them to explore solutions via their reinsurers. Some are being forced by the regulator to buy more capacity.”

VIG Re is part of VIG group, the biggest insurer in Austria and Central Eastern Europe. It will reach about €10 billion in premiums this year. VIG Re, the reinsurance company of the group, has several tasks, one being the reinsurance business within the group, but without being exclusive.

VIG group has around 50 insurance companies that all cede a portion of the business to VIG Re, but it also writes a health amount of third-party business. As part of growth plans last year, the reinsurer opened branch offices in Frankfurt and Paris. The former looks after Germany, Austria and Switzerland and the latter looks after France and Benelux.

This increased demand, however, comes at a time when reinsurers are being more cautious on the rates they are offering and seeking rates increases where possible. Hartmann stressed that the continued low interest rate environment, meaning reinsurers cannot earn returns on the investment side of the book, remains a big driver in the market and means that achieving a technical underwriting profit is more important than ever.

Hartmann said that while capacity remains very healthy, these opposed forces mean that rates in continental Europe will remain relatively steady but with some potential upward momentum.

“Buyers in continental Europe will not want to feel they are paying for cat losses in Japan or the US,” he said. “That is the tension in the market, and it will be interesting to see how things pan out in these negotiations.”

New markets
This demand for more capacity means that insurers are open to speaking with new markets such as VIG Re, Hartmann said.

“That is a big driver for us and our low cost ratio means we can offer very economical coverage certainly compared to some of the incumbent players,” he explained.

He added that another worry for buyers, and a driver on how they are planning their reinsurance programmes, is the extent to which so-called secondary perils have causes losses in recent years. He notes that while wildfires are the best example of this, there have been a number of secondary weather-related losses such as hail and torrential rain in the past two years the claims from which have added up to mean a real impact on insurers’ bottom lines.

“This is the issue driving the move towards more aggregate coverages,” Hartmann said. “On top of this, you have the unknown impact of climate change. Exposures are shifting and there is more uncertainty. Overall that is good for reinsurers as it drives business.”

He said geopolitical challenges such as the UK’s departure from the EU and trade wars between the US and China are also causes for concern for insurers.

He reiterated the main thing that differentiates VIG Re is a really intimate knowledge of local market conditions in Central Eastern Europe (CEE).

“We have a strong position in CEE, where we are also recognised as the market leader and are very active on the external market.

“Now we are setting sights on further expansion in the rest of the Continental European world,” he said. “Along with our lean business model it is our reputation as a long-term oriented European reinsurer that sets VIG Re apart.”

Johannes Martin Hartmann is the chairman of VIG Re. He can be contacted at:  jm.hartmann@vig-re.com