VIG Re sees alignment ahead of 1/1

This year’s 1/1 renewals represent “a rare situation”, according to Olaf Dietrich (pictured), chief underwriting officer at VIG Re, because there is “quite an aligned view” across the industry in acknowledging capacity constraints and rising rates.

“The reinsurance market is facing pressures from all sides,” he told Intelligent Insurer, from natural catastrophe events such as Hurricane Ian, to global economic conditions and geopolitical tensions.

Inflation is the number one market influencer at the moment, he said, but added that VIG Re expects to be able to manage this to a certain extent.

“Inflation has different effects, which will be mitigated over time. We will also see some higher returns on our investments, higher yields, but that takes time.”

Natural catastrophe is another big market influencer, although Dietrich said it was “more specifically about climate change”.

“Climate change is a long-term issue we have to deal with. It also has a short-term impact, and has taken on greater relevance more recently, because we’ve seen the impact on secondary perils in the last couple of years where we had large losses—from convective storms in Europe, the flooding in Germany and now hail in France,” he said.

This change around nat cat and secondary perils’ severity and frequency is not properly reflected in the models, he said, adding: “That’s the reason for some changes in the market, particularly around how reinsurers want to access and write nat cat business—or don’t want to write this business.”

All this is coming on top of global economic pressure and globally connected supply chains that are sensitive to world events—for example, Russia’s invasion of Ukraine and its impact on the energy market. Dietrich highlighted the effect the Nord Stream gas pipeline explosions had on the stock markets in September, as the incident increased uncertainty around energy security. “This is also, of course, having a very strong impact on the reinsurance and insurance industry,” he said.

Whether re/insurance markets are hard or hardening is another area of hot debate.

“It’s a hardening market but I think the question of a hard market and how you define it is not easy.

“What we definitely see is capacity reduction by reinsurance. We see capital is down and there’s not much new capital coming into the market. We also see quite a significant demand increase by insurance, so an extra €10 billion or even up to €20 billion for Europe in additional capacity. All this is a demand-supply topic, which definitely will lead to a hardening,” Dietrich said.

A complex picture

Asked whether inflation is skewing the picture, he said: “Inflation has caught the biggest attention but I would say in the industry it’s also about climate change pushing up prices.”

With such a complex, challenging picture, a hard or hardening market could be “difficult” for reinsurance and for insurance, he said.

“As a reinsurer we need a much deeper understanding of what insurers are doing and what is truly the scope of the cover, what is the impact.

“There’s always a risk, and this is why we are here. But my view is that too often reinsurance relies on the model,” he said, adding that this was “not working”.

VIG Re buys retro, and the retro market at the moment is “even more pronounced in its hardening than other business”, he said.

Dietrich has treasured relationships over his almost 35 years in the industry and it is something he returns to as he prepares to leave the sector at the end of Q1 in 2023.

“I really love the industry, I’m almost 35 years in and I have worked for different companies in different locations and continents. So this is what I love; it is a lasting element for my life and that connects to many people who have become friends.”

He said he sometimes wonders why he is leaving, but that it’s good to leave on a high.

Dietrich will leave quite a legacy. One of the things he is most proud of is the seven years he spent in Prague working for VIG Re. When he arrived there wasn’t a big reinsurance base. “We were building it up, and bringing in a lot of young talent and training them up,” he recalled.

“I still find this very exciting and I believe the industry needs more young people. Now we see our young colleagues, who worked with us for five or six years, are getting attractive offers from very knowledgeable reinsurers in Munich, Zurich and Bermuda. VIG Re has definitely built a reputation as a talent pool for the industry.”