A.M. Best Briefing: Natural Catastrophe Exposures Underpin Stable German Reinsurance Buying Trends

LONDON--()--Germany’s cedants continue to maintain high retention ratios, although reinsurance and retrocession cover remains paramount for exposure to natural catastrophes. A.M. Best’s analysis of the country’s 20 largest cedants shows insurers have taken advantage of the soft market conditions to buy more reinsurance, although this trend is being driven by the four largest participants. The remaining insurers also rely on reinsurance to protect their balance sheets from volatility, although the inherent nature of risks underwritten enables them to absorb retail risks, which in many cases is their focus.

The findings have been published in a new briefing, titled, “Natural Catastrophe Exposures Underpin Stable German Reinsurance Buying Trends.” A.M. Best notes, according to the last full-year data available, Germany’s 20 largest cedants collectively posted a 13.1% increase in non-life reinsurance ceded, while at the same time gross premiums written (GPW) rose by a more modest 6.7%. The increase in reinsurance and retrocession buying has been primarily by the four largest cedants–multi-line insurers Allianz SE and HDI Versicherung a.G. and reinsurers Munich Reinsurance Company and Deutsche Rückversicherung AG.

Carlos Wong-Fupuy, senior director, said: “These companies have increased the amount of reinsurance bought, reflecting a trend in Continental Europe whereby demand for reinsurance is outpacing growth in GPW. The demand for more reinsurance has been a result of soft market conditions, regulatory demands under Solvency II and the need to support product diversification.”

The briefing notes that if the German market’s four biggest cedants are excluded, insurance ceded by the other 16 companies grew by just 0.5%, while GPW increased by 5.2%. As the risk profile of their portfolios is more predictable, domestic and regional insurers can afford to adopt passive reinsurance strategies, and have relatively less sophisticated enterprise risk management approaches than the larger international groups.

Yvette Essen, director of research and communications, said: “Public law companies have continued to maintain a heavy focus on personal lines business. Similarly, mutuals predominantly underwrite home and motor risks, focusing on regional clients and small to medium-sized enterprises. As risk carriers of mainly personal lines and retail products, medium-sized insurers have comparatively less need for reinsurance protection.”

The briefing looks at how reinsurance for non-proportional covers in respect of catastrophe risks is purchased–in particular for windstorm and hail damage affecting motor “casco” (hull) business. Germany’s main perils are windstorm, flood and hail, although there is some earthquake exposure in the southern part of the country and Rhine Valley. It is expected reinsurance for catastrophe and liability will remain fundamental to prevent instability and fluctuation in underwriting results, given that Germany does not have a natural catastrophe scheme.

To access a complimentary copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=259955.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2017 by A.M. Best Rating Services, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Carlos Wong-Fupuy, +44 20 7397 0287
Senior Director
carlos.wong-fupuy@ambest.com
or
Yvette Essen , +(44) 20 7397 0322
Director, Research & Communications
Europe & Emerging Markets
yvette.essen@ambest.com
or
Edem Kuenyehia, +(44) 20 7397 0280
Director, Market Development & Communications
edem.kuenyehia@ambest.com
or
Jim Peavy, +(1) 908 439 2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Carlos Wong-Fupuy, +44 20 7397 0287
Senior Director
carlos.wong-fupuy@ambest.com
or
Yvette Essen , +(44) 20 7397 0322
Director, Research & Communications
Europe & Emerging Markets
yvette.essen@ambest.com
or
Edem Kuenyehia, +(44) 20 7397 0280
Director, Market Development & Communications
edem.kuenyehia@ambest.com
or
Jim Peavy, +(1) 908 439 2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com