Demand for non-life reinsurance in Germany has surged at a rate that nearly doubles cedants’ gross written premiums (GWP) growth, said A.M. Best in a report on Germany’s 20 largest cedants’ reinsurance purchasing trends.
The global rating agency said the last full-year data available showed “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%.”
Insurers are ceding a greater proportion of risk as they take advantage of soft market reinsurance prices, grow balance sheets to offset Solvency II requirements, absorb retail risk, and protect against volatility.
Carlos Wong-Fupuy, A.M. Best senior director, commented; “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.”
However, this reinsurance and retrocession demand growth is driven almost entirely by Germany’s four largest cedants – multi-line insurers Allianz SE and HDI Versicherung a.G., and reinsurers Munich Re and Deutsche Rückversicherung AG.
Excluding these four giants – the total growth figures for the remaining 16 cedants was at just 0.5% for reinsurance and a GPW increase of 5.2% – A.M. Best said smaller insurers took on less cover because their risk profile is more predictable and less sophisticated than that of their larger counterparts.
Yvette Essen, director of research and communications at A.M. Best, explained: “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.”
As Germany’s top natural perils, windstorm, hail, and flooding are major risk exposures driving reinsurance purchase growth.
In non-proportional covers for catastrophe risk, windstorm and hail damage affecting motor “casco” (hull) business, were highlighted in the A.M. Best briefing, as areas of risk especially driving higher rates of reinsurance purchase.
A.M. Best said along with market conditions, Germany’s natural catastrophe exposure is plumbing the steady and growing demand for reinsurance and retrocession cover; “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.”
