BADEN-BADEN REPORTER
MONDAY | 20 October 2014
WE HAVE SPECIALISTS IN EVERYTHING
FROM AVIATION TO AGRICULTURE.
Aviation and Agriculture. Energy and Engineering.
Marine and Motor. Not to mention Credit and Surety
and Property – we can support you with high-flying
experts in all of these fields. Our underwriters
understand your business and your market – and
due to their long-standing experience they can
support you with solutions that fit and matter.
Contact us at qatarreinsurance.com or better still
meet us in person at one of the industry conferences.
BB_Day1_LR.indd C1
19/10/2014 18:43
Qatar Re, a global multi-line reinsurer,
headquartered in Doha with branch offices
in Zurich and Bermuda and a
representative office in London, will
continue to grow its International Property
CAT portfolio in the upcoming renewal
season. The company provides its cedants
with an unrivalled combination of a
uniquely diversified source of capital and
excellent underwriting skills.
Going forward, Qatar Re will seek to
further grow its geographic footprint and
to broaden its portfolio mix across a wide
range of business lines. International
is prepared to review every programme, analyse
even exotic risks, structure tailored solutions and
of course quote when requested. We write all
types of classical property products, be it
proportional, non-proportional, per-event or
annual aggregates. Qatar Re is not product driven,
but emphasises its focus on the needs of our
clients and markets.”
“In addition, clients benefit from the authority of
our underwriters. Due to their product and market
expertise – in combination with lean management
structures – we are responsive and fast at making
decisions,” continues Michael Roth. “Finally, a true
Qatari asset: we provide a balance sheet which is
distinct and not exposed to the vagaries of the
global stock market but gives us privileged access
to further capital, allowing us to support our
growth strategy in the most flexible manner.”
Property CAT, which is led by Michael Roth,
plays an essential part in this endeavour.
Unique value proposition
“We support our clients with a capital base, that
does not correlate with traditional reinsurance
markets, and combine it with underwriting
expertise in line with international standards. This
gives us a unique value proposition in a competitive
environment,” explains Michael Roth, Head of
International Property CAT at Qatar Re. “Qatar Re
BB_Day1_LR.indd C2
Technical approach enables
net underwriting
Qatar Re uses robust, proprietary pricing and
modelling tools, strict accumulation control, an
integrated portfolio management approach and
writes against one single balance sheet. The
combination of these elements allows Qatar Re to
abstain from retrocession for its CAT book, and to
run the risk net. This enables the company to
provide the same quality and amount of capacity
19/10/2014 18:43
throughout the cycle and does not leave its clients
with any ambiguity about their counter party risk.
Beside its net underwriting, Qatar Re does not
have a preference for certain layers of a
programme, but always looks at the overall
economics of a reinsurance placement and is of
course prepared to write across the board.
Driven by client’s needs
Currently, the Property CAT line (North American
and International) represents about 10% of Qatar
Re’s global portfolio. That share is earmarked in
the mid- to long-term to increase to roughly 15%
in order to maximise the capital efficiency of the
overall book. As a consequence, Michael Roth and
his team will pursue a strategy to grow the line in
the upcoming renewals, diversifying the portfolio
and selecting the most suitable and appropriate
business. “Even though the broker channel is our
preferred means of distribution, we take a proactive approach in maintaining our existing client
relationship, and to acquire new business”, says
Michael Roth. “Qatar Re does not focus on single
regions or products, but has a very flexible
approach to meeting its clients’ needs, such as
annual aggregates or multi-year deals.”
Growing in a shrinking market
In today’s environment of rising retentions on the
demand side and excess capital on the supply side,
Qatar Re still has an advantage due to its size and
its flexibility. It also benefits from the company’s
distinct value proposition and strategic alignment.
Qatar Re is able to pursue a selective underwriting
approach and focus on programmes which offer a
fair trade for both parties. “Of course, our efficient
cost structure also gives us a competitive
advantage. The combination of these factors
allows us to grow even in a shrinking market.”
states Michael Roth.
Michael Roth: has over twelve years of experience in the
reinsurance and financial industry. He started his career as a
futures trader before moving to Munich Re as an agricultural
underwriter. Later, he held senior underwriting positions at
Swiss Re, Novae Re and lastly Qatar Re, where he was
instrumental in the acquisition and development of the
agricultural book of the respective companies. Recently,
Michael assumed the leadership of Qatar Re’s International
Property CAT team. In addition, Michael also heads Qatar Re’s
Zurich Branch. Michael graduated from the Technical University
of Munich and Madrid and holds a Master’s degree in
agricultural economics.
He is supported by Lukas Wissler, a PhD in Geology
from the Federal Institute of Technology, the ETH
Zurich, who has been in the industry for almost
fifteen years, which includes previous stints at
Partner Re and Converium. Stefan Fritsche, also a
PhD, who has been in the industry for five years
and previously worked at the Earthquake Institute
of the ETH for seven years, and Patric Frei, an
economist who has been in CAT Underwriting for
five years, complete the team. Willi Schürch, Qatar
Re’s Chief Underwriting Officer, with more than
thirty years of experience in reinsurance,
particularly in Property CAT Underwriting, is a
great additional source of expertise for the team.
Strong business acumen
Michael Roth leads the International Property CAT
team and has been in the financial services and
reinsurance industry for the past twelve years.
BB_Day1_LR.indd C3
19/10/2014 18:43
IN TIMES OF NEED IT’S GOOD
TO HAVE THE SAFETY
OF UNCORRELATED CAPITAL.
Reinsurance is all about reassurance.
Planning for a safe and smart diversification of the
capital you rely on is part of it.
Be reassured in knowing then that our capital base
is distinct from the vagaries of the global stock
markets. Because we are backed by Qatar Insurance
Company, the largest insurer in the Middle East,
with a 50 year history. Little wonder we are rated
“A/Stable” by Standard & Poor’s and A (Excellent)
by A.M. Best.
Contact us at qatarreinsurance.com or better still
meet us in person at one of the industry conferences.
BB_Day1_LR.indd C4
19/10/2014 18:43
BADEN-BADEN REPORTER
MONDAY | 20 October 2014
LEAD SPONSOR
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Baden-Baden Reporter
Reinsurers face uncertain future
The reinsurance industry has
reached an important stage in its
evolution, judging by the remarks
of industry leaders at the BadenBaden symposium, hosted by
Guy Carpenter yesterday evening.
Industry veteran Brian
Duperreault, formerly head of Ace
and also Marsh and now chief
executive of Hamilton Insurance,
reassured delegates that the
existence of reinsurance is not
under threat – but the business
model of reinsurers is at an
inflection point.
Comparing the roles played by
traditional reinsurance and
alternative capital, Duperreault said
that the “value add” of pure
reinsurers is important but that in
the end capital is what’s important:
“Pure reinsurance capital has to
be as effective as capital from
other sources.”
He pointed out that as insurers
grow bigger they are able to handle
more risk on their own balance
sheets and questioned whether they
Guy Carpenter’s Baden-Baden
symposium explored the future
of the reinsurance industry
will continue to cede so much risk.
Duperreault asked whether the
pure reinsurer model has a future
in such an environment.
“How many standalone
reinsurers are there left today?
Companies writing pure
reinsurance are a rarity,” he told
delegates. “Evolution is in the
direction of a mixed play of
insurance and reinsurance to make
a more diversified company that
can move in and out of markets.”
Amer Ahmed, chief executive
of Allianz Re, reflected on the
changes taking place within his
own group, describing how
reinsurance purchasing has been
rationalised at Allianz. He said that
Allianz had reduced its reinsurance
spend by €1.5bn in recent years.
“The trend to use reinsurance
as a globally coordinated strategic
tool to manage volatility at group
level is a one way ticket,” he said.
Ahmed described how Allianz
Re aims to manage its retrocessions
as a portfolio, using different
instruments including alternative
capital and ceding out more
volatility “per unit of premium”.
It fell to Hannover Re chief
executive Ulrich Wallin to defend
the role of traditional reinsurance
in the face of what he described as
a “wall of money” from the capital
markets. Wallin stressed the value
that reinsurers bring in terms of
product development, especially in
areas that can’t easily be modelled,
such as cyber risk.
He said that today, reinsurance
is effective capital in the context of
Solvency 2 risk based capital
models and that it protects
earnings volatility. Wallin said that
the promise of longterm, unlimited
cover differentiated reinsurance
from an investment asset like ILS.
“Both traditional reinsurance
and insurance linked securities
have their place in the future, but it
is important to understand the
differences in the two business
models,” he said. “Reinsurance adds
a value proposition to capital.”
IN TODAY’S ISSUE
3
Hannover Re identifies
market pressure points
9
7
Growing concern over emerging risk
accumulation
10 Emerging markets
light the way
BB_Day1_LR.indd 5
Peak Re aims at expansion in Europe
– and beyond
12 Swiss Re unveils weather time
machine
12 Probabilistic hail model hits the
European market
19/10/2014 18:43
Aon Benﬁeld
Let your
DATA
FLOURISH
Data is the foundation of understanding your risks.
At Aon Benﬁeld we go one step further by using our
tools and experts to bring data to life and help transform
your business decisions. Learn more about our analytical
capabilities at aonbenﬁeld.com.
Risk. Reinsurance. Human Resources.
BB_Day1_LR.indd 6
19/10/2014 18:43
#bbre14
Managing editor Peter Birks
Tel: +44 (0)20 7779 8755
[email protected]
Americas editor Christopher Munro
Tel: +1 212 224 3473
[email protected]
Senior reporter Victoria Beckett
Tel: +44 (0)20 7779 8218
[email protected]
Deputy editor Lauren Gow
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[email protected]
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Commercial director and publisher
Gary Parker
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[email protected]
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Tel: +1 212 224 3711
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Tel: +44 (0)20 7779 8754
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Tel: +1 212 224 3466
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Tel: +44 (0)20 7779 8184
Email: [email protected]
Divisional director Roger Davies
Reactions, Nestor House,
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©Euromoney Institutional Investor PLC
London 2014
Although Euromoney Institutional Investor PLC
has made every effort to ensure the accuracy
of this publication, either it nor any contributor
can accept any legal responsibility whatsoever
for consequences that may arise from errors or
omissions or any opinions or advice given. This
publication is not a substitute for professional
advice on a specific transaction.
Hannover Re identifies
market pressure points
Hannover Re set out its renewal
strategy in Monte Carlo last
month with chief executive
Ulrich Wallin stating that the
reinsurer is “committed to
consolidating its portfolio given
the highly competitive nature
of the reinsurance market at
the moment”.
Talking in more specific
terms in Baden-Baden, board
member Dr Michael Pickel, who
is responsible for North America
and continental Europe says it is
necessary to distinguish between
the US, which has not seen
much catastrophe activity lately
and Germany, which has. “In the
US there is pressure on rates and
in Germany by contrast we
expect rates to be stable even
increasing a little,” he says.
“In the US, we don’t want to
increase our premiums. We
want to stay with our clients
but we won’t enter into new
ventures – so that we can remain
a stable partner.
“In Germany, by contrast,
we want to have rate increases
and if possible increase our
market share. We want to
increase our business where our
shares are not that high, in some
medium size companies for
example where a partnership
can grow,” Pickel explained.
Hannover Re has a big share
of German proportional motor
business and Pickel expects to
see reduced premium increases
this year compared to last year,
at around 3%.
In the wider markets Pickel
says that conditions are better in
specialised products than in
“commodity lines” and so
Hannover Re will emphasise
business like marine and
aviation. “We are already
specialists in marine business
and we’re targeting aviation
business as a leader as there
Reactions Baden-Baden Reporter | www.reactionsnet.com
BB_Day1_LR.indd 7
Dr Michael Pickel
is room for improvement
following significant losses,”
he says.
German cedants are
responding differently to the
prevailing reinsurance market
conditions in their reinsurance
strategy, according to Pickel.
“The top ten cedants increased
their retentions last year. Their
major concern now is how to
protect against frequency of
claims in their retention,”
he says. “Other cedants
outside this group are making
adjustments, but not in big steps.
They are able to compensate by
obtaining increased tariffs and
premiums in their motor and
homeowners business.”
Pickel thinks that all
insurers in Germany are faced
with the question of how much
reinsurance cover they should
buy in the future: “There has
been significant adverse
development from hail claims
last year and this year causing
leading insurers to ask if they
have adequate capacity” he says.
“The industry has several
potentially costly ‘local’ claims
issues to deal with in relation to
recent serious floods and also
hailstorms in Germany. These
weather patterns are a concern
for the market.”
German industrial business
is a worry as well, not least
because rates are still decreasing
at a time when there have been
both big losses and an increasing
frequency of medium sized
losses, Pickel thinks. But there’s
another emerging risk issue that
needs addressing: cyber liability.
“It is given for free in some
commercial policies. That’s
wrong because accumulation
is potentially an issue. The
insurance market needs to
urgently establish a framework
for cyber attacks in policy
wording, especially relating to
limits. It could be important
where a fire is caused by a cyber
attack for example, as well as
data loss and privacy.”
NOTE: Hannover Re won
the “I3 Award” at Insurance
Conference Munich (inscom) in
the Design Innovation category
for its “Energie Einspar Protect”
(EEP) policy, an energy savings
product developed jointly with
b2b Protect GmbH. The EEP
policy enables providers of
energy-saving measures to offer
their customers a warranty for
the efficiency of their solution.
If the measure fails to deliver the
promised savings, the customer
receives a compensatory
payment from the insurer.
Monday 20 October 2014 | 7
19/10/2014 18:43
AON BENFIELD
Embrace opportunities; respect tradition
What are the key themes for this
year’s Baden Baden?
Which reinsurer financial model or
combination of models really serves client
needs best; how do you embed your value in
your client; leveraging information for growth,
client retention, pricing, deepening
relationships and future understandings;
central bank actions, inflation and investment
environment concerns. More specifically, true
buying motivations – immediate, long term or
opportunistic. Product development will
occupy many conversations, be these in the
“golden oldies” – multiclass, multiyear; in the
“future blockbusters” – cyber, health,
agriculture; and then the “rough diamonds”
being certain specialist classes with variable
loss experience.
dramatically as it has in the past, but change is
inevitable. If your cost of capital is being
substantially lowered by a counterparty,
in the absence of anything as compelling,
of course clients will be at times
understandably tempted.
What about the resurgence
of hedge fund backed
reinsurers (HFRs) in particular?
They have been dubbed
disruptive reinsurers, but are
they a passing phenomenon?
In most businesses and lines that’s broadly true
– in particular recent records are good in
volatile lines with significant supply available.
There are of course individual client
experiences and classes that belie this trend.
Areas of aviation, marine, agriculture and
political risks may all require different kinds
of attention. New products such as cyber risk
and the more contemporary classes demand
considerable thought and marketing,
depending on the geographic region in which
they reside.
We in reinsurance sell a great product with
strong fundamentals, so we’re bound to
regularly attract newcomers. With HFRs, the
theme isn’t new but the quantum is greater.
Not all hedge funds are created equal or
indeed wish to be. I think it is inevitable that,
as with other participants, some will come and
some will go for a variety of different reasons.
Some hedge fund departures from the
reinsurance space, should they occur, will be
prompted by their experience outside their
reinsurance activity.
About 100 equity reinsurers support our
business and the composition of that group will
change from time to time. For the range of
non-equity counterparties, the current number,
at around 50, could change significantly, but
only if the original reinsurance business grows
substantially or secondary and tertiary market
trading truly develops.
Is the traditional reinsurer model
threatened by the combination of
alternative capital vehicles and ILS?
What are the implications of
all this competition for the
longstanding reinsurers?
Alternative capital is an influential force in the
market today. It contributes to the challenge of
sustainable pricing levels in targeted highmargin classes such as property, excess of loss
reinsurance and retrocession. Activity outside
of these classes is growing. For some portfolios
in which catastrophe business has subsidised
weaker margins in other classes, the impact
will be acute.
However, it is important for cedants to
keep a sense of balance in their relationships.
You have to respect the past; you have to think
about connections and security. It is worth
remembering that while we are in one kind of
market today, conditions can change and
tomorrow the market might be quite different.
It is unlikely that the market will turn as
The current climate has energised messaging
around the value represented by the
longstanding reinsurers in terms of their
consistency and continuity and the multi-class
capability they possess. Expressing this more
forcefully and really determining what a key
client is to them will be of huge importance to
the established reinsurers. I am still of the view
that strong platforms with dynamic leaders,
with a history of substantial investment in their
businesses, will prevail.
Is this a buyers’ market, pure
and simple?
8 | Monday 20 October 2014
BB_Day1_LR.indd 8
What aspects of Aon Benfield’s
service are particularly emphasised
in the prevailing environment?
Being attentive transactionally, spotting market
opportunities before anyone else, caring more
By Dominic Christian,
executive chairman of
Aon Benfield International
than our competitors, bringing new products
to market – for instance, exporting products
from one region of the world to be deployed
in another. Advancing our risk knowledge
through increased investment in our data
analytics capability, and advising clients
on growth strategies, remains central to
our proposition.
Outside the property-casualty segments,
I think we will develop our life business further
and also grow our health business where we
have a tremendous advantage through our
association with Aon Hewitt.
Aon Benfield has expertise across
the spectrum of services and
solutions. Is there ever any conflict
over what’s the best solution?
We make sure that our clients understand the
totality of the solutions available and how their
motivations relate to the different providers
looking to support them. Sometimes the
motivations will be around price; sometimes it
will be more about value. Sometimes a client’s
motivation will be around claims paying. Only
if we can reflect those priorities right across the
spectrum of available solutions – old and new
– are we representing our client to the best
effect. Unlike most of our competitors we are
legitimately able to operate both in the
traditional and capital markets. Having a
strong understanding and expertise in both is a
huge advantage.
www.reactionsnet.com | Reactions Baden-Baden Reporter
19/10/2014 18:43
#empoweredexpertise
Something
big...
is happening
in Insurance
www.empoweredexpertise.com
BB_Day1_LR.indd 9
19/10/2014 18:43
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A clearer
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What will future economic and societal trends bring? What legal reforms may lie ahead? What will their
impact be? The past is not always helpful in forecasting the future. Our forward-looking modelling is a
radical new approach to assessing liability risks. It provides a unique perspective – one that’s particularly
useful in markets where past data is unavailable or unsuitable. It brings our vision of what lies ahead
into sharper focus. And it enables us to identify future casualty trends together, anticipate the impact of
developments, and manage future exposure. Looking for a partner who’ll keep you ahead of the game?
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Come and join us at Swiss Re’s headquarters, Bad Hotel zum Hirsch,
Baden-Baden, 19-23 October. swissre.com/badenbaden2014
BB_Day1_LR.indd 10
Follow us on:
19/10/2014 18:43
#bbre14
Growing concern over emerging
risk accumulation
A
ll the headlines point to a
universally soft market,
as the industry heads into the
January 1 renewal negotiations.
But Cologne-based Achim
Bosch, member of the board of executive
directors at General Reinsurance AG, says that
outside global cat business most other lines
reflect their individual environment.
Bosch, who is responsible for non-life treaty
business in Germany, Austria, Switzerland, the
UK and Ireland, says original rates for property
business are still inadequate. “Most reinsurance
programmes in Germany are on a proportional
basis and therefore reinsurance results for
this line have not been favourable and are in
need of some corrective action,” he says.
“For long-tail business the prevailing low
interest rate environment, which is not
restricted to Germany, does not really leave
any room for reductions.”
There is continuous pressure on primary
property results, Bosch reckons. “The biggest
property line – homeowners – has had negative
results for the last 12 years in a row with a
peak in 2013. For 2014 the German Insurance
Association (GDV) has estimated a combined
ratio of 106%, despite a very modest cat loss
experience so far,” he says. “The second biggest,
the industrial segment, has also experienced
negative results over the past few years, and
unfortunately we don’t see significant signs
of improvement.”
In contrast to 2012 and 2013, motor
results are having a positive effect for Gen Re’s
German clients. “After many years of insufficient
premium levels 2014 and 2015 should show
positive results. As motor usually has a big
impact on a company’s balance sheet, this will
help a lot to compensate for one of the real long
term threats: the extremely low interest rate
environment, now at a level that – I guess –
nobody expected,” Bosch says.
Long term low interest rates are not just a
problem for life insurers, according to Bosch.
“P&C has always discounted expected loss costs
to a certain extent, and losses have been reserved
using discount assumptions which in the past
have proven to be somewhat optimistic,” he
Achim Bosch
A lot of research
and data collection
is needed to get our
arms around a risk
that clearly has the
potential magnitude to
influence capital needs
Achim Bosch,
member of the board of executive directors,
General Reinsurance AG
explains. “This will by no means lead to
difficult solvency situations, but it will affect
results to some extent when assumptions
have to be revised.
“The increasing gap will also have an
impact on long-tail treaties as rates are usually
calculated with a discount for future investment
returns, which will be even lower in the future
than today,” Bosch says.
Bosch recently warned in an article of
possible problems ahead for European liability
insurers. A potential issue is that “hardly
any” market player is able to estimate the
accumulation potential of certain liability risks
in their portfolios, Bosch believes.
“Take nanotechnology as an example:
with the exception of pure private lines
companies, every insurer covers this uncertain
but potentially serious risk, as a lot of even
Reactions Baden-Baden Reporter | www.reactionsnet.com
BB_Day1_LR.indd 11
small enterprises (e.g. painters) work with
nanomaterials. What materials are potentially
dangerous? Which of an insurer’s clients deal
with material that is likely to bear a risk? How
big is the accumulation risk in each individual
book of business? A lot of research and data
collection is needed to get our arms around a
risk that clearly has the potential magnitude to
influence capital needs,” Bosch told Reactions
Baden-Baden Reporter.
He thinks that there are other risks that bear
accumulation uncertainty. “Cyber is an obvious
one. Currently the market develops products
which put the emphasis on first party losses
triggered by a data breach case, for example.
The third party loss is not in the main focus
of the product developers, nevertheless it is
also covered.
“Although the policy limits are sometimes
relatively small, the accumulation potential is
very significant. How to control and measure it
is still uncharted territory and does not always
receive the attention it deserves,” he says.
With Solvency II now clearly on the
horizon, Bosch believes that German
insurers are ready but that it could still
spring some surprises.
“All QIS studies have shown that the
German non-life primary market is very
solvent. In addition, Solvency II has already
played a role during almost all reinsurance
restructuring projects we have handled over
the past few years.
“Some clients chose to buy a bit more cat
protection to meet the 200 year-Value at Risk
threshold. Others realised that their capital
is more than adequate and chose to buy less
reinsurance. So, Solvency II has had its impact
already. Therefore I don’t expect too much of an
additional influence on reinsurance.”
Nevertheless, the effect on the insurers
themselves can’t be underestimated, Bosch
thinks: “The administrative burden is huge.
I wonder whether this burden will trigger
reactions like giving up smaller pieces of
business, not because it would make sense from
a risk management and profitability standpoint,
but simply because of the significant additional
administration and compliance issues involved.”
Monday 20 October 2014 | 11
19/10/2014 18:44
WE EMPOWER OUR
UNDERWRITERS TO MAKE
TIMELY DECISIONS.
Our underwriters are highly experienced
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someone who knows you and your business.
Contact us at qatarreinsurance.com or meet
us in person at one of the industry conferences.
It’ll be time well spent.
BB_Day1_LR.indd 12
19/10/2014 18:44
#bbre14
Peak Re aims at expansion
in Europe – and beyond
Franz Hahn, chief executive of
Hong Kong–based Peak Re, has a
different perspective on the
European reinsurance market
compared to most Baden-Baden
attendees. A veteran of the greater
China region, having worked for
first Munich Re and then Swiss Re
in Hong Kong, his company writes
reinsurance treaty business across
the Asia-Pacific region.
“I can see that reinsurers in
Europe have been facing a
declining reinsurance market for a
decade or more as retentions
among cedants increase and so
does competition,” Hahn told
Reactions Baden-Baden Reporter.
But price competition is not
the main problem posed by a soft
market, Hahn believes. “Reinsurers
in Europe have to be careful not to
grant wider conditions, opening
treaties up at no extra cost and
without proper risk management.
This is a potentially dangerous
development because unlike
pricing, which fluctuates, it is hard
to turn back terms and conditions.”
Meanwhile, diminished
investment gains mean that the
earnings pressure is firmly on the
liability side. “But cost ratios are
high in Europe and increasing.
There’s real pressure on reinsurers
to reduce cost ratios,” he said. Hahn
thinks that such tough operating
conditions make the reinsurance
market ripe for mergers and
acquisitions, as reinsurance
businesses look for strategic exits.
Peak Re is backed by Fosun
International, the fast growing Hong
Kong based investment group that is
based on its insurance interests. In
Europe, Fosun Insurance Portugal is
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the largest insurance group in
Portugal. At the end of 2013, Fosun
Insurance Portugal’s audited total
assets were around €12.8bn.
Fosun’s founder and chair Guo
Guangchang’s role model is Warren
Buffett, head of the investment firm
Berkshire Hathaway.
In its first year of underwriting,
in 2013, Peak Re posted after tax
profits of $102.99m on the back of
gross premiums of $103.19m; total
net assets were $652.75m.
Peak Re already has some
clients in Europe and Hahn is in
Baden-Baden to meet up with
them. But he also wants to get a
better understanding of the market
because Peak Re intends to grow its
business in the region over the next
three years.
“There are some good
insurance businesses in Europe and
Franz Hahn
we want to find the right partners
to work with; we won’t jump into
markets and write everything we
can. We are cautious but if we
like something, we’ll go for it,”
Hahn said.
In the longer term, Hahn
expects to see Peak Re’s expansion
into other important reinsurance
markets: “We are looking at all
possible options from organic
growth to strategic growth to
achieve a stronger global presence
for Fosun and Peak Re.”
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Emerging markets
light the way
T
he struggle for growth
continues in the insurance
markets of the world’s
mature economies,
six years on from the
financial crisis. Meanwhile, across
the southern hemisphere, from
Latin America to South East Asia,
continued strong economic activity
in emerging countries keeps on
fuelling the expansion of local
insurance markets.
Global non-life premium growth
slowed to 2.3% in 2013, compared
with 2.7% the year before, with total
premiums at $2,033bn, according
to a sigma study from Swiss Re. Not
surprisingly, in view of economic
conditions across North America and
Europe, non-life premium growth was
driven by the emerging markets.
Non-life premium growth remained
strong in 2013 in emerging markets at
8.3%, after 9.3% in 2012, and was solid
across all regions with the exception of
Central and Eastern Europe (CEE), the
sigma report said.
By comparison, non-life growth in
advanced markets has been slow since
the financial crisis in 2008. Premiums
increased by an annual average of 0.7%
between 2009 and 2013, compared with
1.9% in the period 2003-2007.
Non-life premium growth in
emerging Asian countries continued at
13% in 2013, on the back of sustained
strong growth in China (+16%) that
was based on rising motor sales and
infrastructure investment.
In Southeast Asia, Thailand
premium revenues maintained
momentum (+13%), despite lingering
social unrest, while strong macro
fundamentals underpinned insurance
demand in Indonesia (+13%) and
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the Philippines (+10%). In Vietnam,
premiums were down 1.6% as the
market recovered from the domestic
financial turmoil of 2011–2012 related
to corporate bankruptcy, when banks’
balance sheets deteriorated because of
rising non-performing loans.
In India, non-life premium
growth slowed in 2012 to 4.1% from
8.9%, due to a weaker economy and
poor business sentiment. But rising
incomes and an expanding middle class
will soon refuel demand for non-life
insurance products in India, Swiss Re’s
analysts believe.
The non-life sector across the
Middle East, Central Asia and Turkey
has also developed well (4.7%), relative
to its Western counterparts. Turkey,
which produces over one quarter of the
region’s premiums, grew by 13%
mainly driven by a double-digit
increase in motor liability business but
engineering, property, credit & surety,
workers comp and general liability
premiums also expanded.
In Latin America, despite a cooling
economic environment, non-life
insurance premiums ticked up by 7.2%
in 2013 to $103bn, with Brazil, Mexico
and Argentina leading the charge. Chile,
Colombia and Venezuela all slowed as
did Mexico, which is expected to keep
trailing its peers.
Rising tax rates and depressed
consumer confidence in Mexico were
behind sluggish growth in that market.
Chile and Colombia also had weak
growth in the motor and property lines,
reflecting slowing economic growth and
increasing competition. In Chile, harder
rates after the 2010 earthquake attracted
additional capacity into property
insurance, which set the stage for the
current soft market.
In Peru and Colombia, resilient
infrastructure investment should
cushion the downside from softer
private consumption, Swiss Re believes,
while exposure to an accelerating US
economy also bodes well for traderelated lines of business.
Looking to the future,
Shaun Crawford, Ernst & Young’s
Global Insurance Leader, believes
that the overall contribution of
rapid-growth markets to insurance
premium growth will continue to be
very significant. “Some of the larger
economies, such as Brazil, Russia,
India and China, appear to have
entered a period of slower growth
but they continue to possess high,
long-term potential.
Crawford said in a report that new
waves of market liberalisation and rapid
consumer adoption of new technologies
are opening additional markets such as
Mexico and Thailand to non-domestic
firms. “However, each market has its
own distinct risk profile. Insurers will
need to model the risks across all the
geographies to clearly evaluate the
drivers for growth and pick their
targets carefully.”
The E&Y report noted that many
rapid growth economies have opened
up their insurance markets over the
years by privatising state-owned
organisations, encouraging foreign
investment and reducing tariffs and
non-tariff barriers. It added that,
while deregulation of the insurance
sector has come relatively late in many
emerging economies, reduced
government intervention and the
opening of domestic markets to
global players created an array of
attractive opportunities for the
insurance industry.
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#bbre14
Insurers acquire a
taste for MINTS
“Insurers will need to
model the risks across
all the geographies to
clearly evaluate the drivers
for growth and pick their
targets carefully”
Shaun Crawford, Global Insurance Leader,
Ernst & Young
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Goldman Sachs Asset Management chairman Jim O’Neill
was the first to coin the acronym BRICS to reference the
fast growing economies of Brazil, Russia, India, China and
South Africa. He has subsequently identified another set of
countries with big potential: Mexico, Indonesia, Nigeria
and Turkey – or the MINTs.
But what makes the MINTs especially attractive to
insurers? John Cusano, Accenture’s senior managing
director of Global Insurance recently came up with the
following suggestions.
Mexico is close to the established markets of the US
and the expanding markets in Latin America, and it’s
growing well at 3.6%, without the drag of high population
growth. Urbanization is expected to increase – a key
indicator for insurance – while per-capita income is also
expected to rise. Premiums are projected to grow by 13%
thanks to economic performance. However, there are new
capital requirements and tax law reform that could prompt
industry consolidation.
With GDP rising at 5.9% and low population growth of
1.4%, Indonesia is an attractive target for insurers. It’s
already the world’s fourth most populous country, so low
growth rates are good. Fairly low urbanization rates
(53.7% projected for 2015) will increase to 72.1% in 2050,
with a fast-growing middle class. Insurance penetration
is low.
Nigeria, one of Africa’s most populous countries, is
urbanizing—and fast growing more wealthy. It has a
substantial middle class and plenty of oil. Projected annual
growth rates in non-life are 9.5% and 13.5% for life. Some
big insurers are already purchasing existing Nigerian
insurers as a way into this exciting market, Cusano said in
his note.
At 3.2%, Turkey’s growth is the least lively of the four,
but its economic expansion continues apace driven by
exports to the Middle East and a boost in investment
spending. It’s already fairly well urbanized at 75.1%, a
figure that is expected to rise to 87.3% in 2050. Another
important indicator for insurance companies is the growth
in wealth per capita from $7,274 in 2000 to $17,103 in
2013 (135.1%).
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Swiss Re unveils weather
time machine
A European winter storm model based on a
“weather time machine” that holds weather
activity data from 1871 is to be unveiled at
Baden-Baden this year by Swiss Re. Swiss Re
says it is the first reinsurer to apply this wealth of
data to European winter storm risk modelling.
Weather reanalysis data, or weather
hindcasts, reaching back over the past 140 years
set the foundation for the new probabilistic
model, which is designed to work at the highest
granularity. It uses specific details of each
individual risk in its assessments, in terms of
location, type and designated use as well as the
loss frequency of insured assets.
In an initial phase, the new model will be
used for the markets in Germany, Denmark,
France, Belgium, the Netherlands, Luxembourg,
the UK and Ireland.
Swiss Re believes that insurers whose
portfolios are exposed to European winter
storms thus have a strong incentive to provide
Swiss Re with detailed information for each
insured location, including specific deductible
and limit structures. “In this way, the model
helps to optimise reinsurance covers,” Peter
Zimmerli, Swiss Re’s head of Atmospheric Perils,
said in a statement ahead of the launch. “Where
necessary or desired, the new risk assessment
model can of course still work with aggregated
portfolio data (e.g. per CRESTA zone).”
There has been a marked increase in
demand in recent years for reinsurance covers
with special conditions to avoid accumulations
in the same year (e.g. annual aggregate
deductibles or drop-down covers). At the same
time, variations to existing event definitions –
for example adjusted hours clauses – have been
proposed in various insurance markets.
These developments underline the
importance of having precisely modelled winter
storm event clusters, as this is the only way to
obtain a realistic assessment of the resulting cost
implications, Swiss Re says.
Swiss Re’s natural hazard experts have
validated the new model using comprehensive
loss information from the past. “They have
Peter Zimmerli
carefully analysed and reassessed the loss
information of historical events. A productive
exchange with internal and external risk
engineers, claims adjusters and other experts has
helped to identify the individual loss drivers
involved with winter storms and thus to
fine-tune the model,” Zimmerli says.
Governments and regulatory authorities are
increasingly pressing insurers not only to
disclose their winter storm risks but also to
describe and substantiate the underlying
model assumptions.
Probabilistic hail model hits
the European market
A probabilistic hail model for
Europe is now available from Guy
Carpenter. The G-CAT Hail Model
produces historic hail tracks using
a lightning detection system
developed for Guy Carpenter
by atmospheric research firm
Nowcast GmbH.
Nowcast’s patented global
lightening detection system,
LINET, uses certain parameters of
lightning data to reconstruct hail
occurrence in a storm track and
has been verified using policy
claims from past events, hail
reports from the European
Severe Weather Database and radar
data from the German Space
Agency, DLR.
The hazard module’s stochastic
event set was developed by analysis
of the physical attributes of the
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BB_Day1_LR.indd 16
historic hail events using a
proprietary statistical model
to generate events that capture
the erratic nature of severe
convective storms.
“There is no direct way of
measuring hail intensity over broad
scales and so the challenge is to
find a good proxy measure of hail
occurrence that can be used on
a consistent basis over the entire
area of interest,” said Mark
Weatherhead, Guy Carpenter’s
head of catastrophe model
development. “To this end, we have
formed a partnership with Nowcast
GmbH who are using leading-edge
technology to track the occurrence
of those lightning parameters that
best reconstruct the possible
occurrence of hail in a storm track.”
He said LINET is producing very
Mark Weatherhead
interesting data to use as a basis for
the hazard component of Guy
Carpenter’s model.
The launch of the model comes
at a time when recent insured
losses from hail events in Europe
have reached record levels. Max
Strasser, project leader for the
G-CAT Hail Model, said: “While
much of the focus is on the larger
perils such as windstorms and
floods, hail is a major European
peril responsible for high attritional
losses in many countries.”
In a bad year, hail can be the
largest source of insured loss in
some places: hailstorm Andreas
which struck Germany last year
caused insured losses of $3bn,
including hits to property, motor
and agriculture portfolios.
Guy Carpenter’s European hail
model will contribute to the
identification of accumulations of
insured risks exposed to hail, from
the production of reliable estimates
of hail losses to property and motor
lines at a country level, to an entire
insured portfolio across the
Continental European region. The
model is currently available for
Austria, Germany, Italy, Poland and
Slovenia, and will be extended to a
number of other European
territories in 2015.
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INTELLIGENCE IS
OUR BUSINESS
It is this intelligence and creativity that guides
our underwriting decisions. Our exceptional
knowledge of our markets allows us to provide
thoughtful engagement, fresh intelligence and
innovative solutions for our customers.
Find out more at aspen-re.com
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