It’s been a year of marked changes for the European reinsurance industry.

As the market gathers for meetings and discussions, albeit in large part virtually for yet another year, in the sublimely leafy setting of Baden-Baden in the shadow of the Black Forest, a number of new issues have cropped up since the last such talks.

While the COVID-19 pandemic has formed the primary backdrop to the ruptures which have hit the re/insurance industry and the global economy over the last year, European reinsurers have also had to deal with the devastating flooding which hit large parts of the continent over the summer.

TigerRisk partner Juan England sat down with the 1.1 Club, Intelligent Insurer’s online, on-demand platform for one-on-one interviews with industry leaders, to discuss the major themes likely to dominate this year’s conference.

The flooding which caused widespread destruction and loss of life across parts of Germany during the summer was a reminder of the scale of the issue as well as the dangers posed by shifting climate patterns to traditional assumptions about natural catastrophes.

The total loss burden stemming from the event is estimated by the German Insurance Association to sit at around €7 billion ($8 billion), and it has prompted investigations into the reliability and efficacy of modelling for the region and how it can be priced moving forward.

Pricing

For England, the topic will be one of primary importance at Baden-Baden as reinsurers reassess the risk and its impact on their overall books.

“The floods and then the pricing of flood risk will be an area of further scrutiny. And not just floods—we’ve seen tornadoes and hailstorms. There is an element of secondary perils being under the magnifying glass in terms of a pricing perspective,” he said.

“These losses will indeed attract an element of scrutiny from the reinsurers and will form a central part of the discussions in terms of how much to reprice this type of risk and how to include it.

“Nonetheless, a traditional catastrophe cover will be on an all-perils basis. So of course, there will be an element of some implicit pricing included within these covers.

“It’s a matter of a bit of recalibration and an understanding of what type of return period it will be. That’s going to be a very interesting discussion during Baden-Baden, to listen to different views from different reinsurers—where do they peg these type of events?

“That will give a rough idea of where the pricing of flood risk is landing in terms of how to include it or how to recalibrate it within the existing pricing approaches.”

Aside from the regional impact of the natural catastrophes, England added, ongoing uncertainty over the eventual quantum of pandemic-related losses was likely to play a substantial role in pricing talks.

With the impact felt more keenly by some carriers than others, the extent to which losses from the pandemic have crystallised on a company’s books is set to have an influence on the direction of negotiations, he said.

“Another pricing dynamic that might come into play is how the COVID-19 loss, if any, has been settled, now that there is more certainty on that loss—in many cases it’s been completely closed. So buyers of reinsurance that have already closed their pandemic losses might perhaps have an easier discussion as they go into 1.1,” he said.

“But vice versa, you might see all those where there’s still uncertainty, and that might add another complex dynamic to the discussion. The nat cat losses and the historical COVID-19 loss will be areas of discussion.”

Rate adequacy

Overall however, while price rises are set to be felt in some areas, England predicted, the market retains abundant capacity to service the risk demand, making it difficult to call this a hard or hardening market in the truest sense of the word.

TigerRisk has noted some areas of capacity shortages in specific areas around aggregate covers or lower underlying areas in areas highly exposed to catastrophe losses, but England added there was a trend of positive rate changes for non-loss impacted business.

“Loss-affected business will see a much wider range of increases that will depend on seasonal conditions, the size of the loss and any restructuring of programmes as well. There will be an element of price increases,” he said.

“Has rate adequacy been achieved yet? I think the question is, what does rate adequacy mean? It will probably mean something different to every reinsurer, which will have its own view of risk. We have to factor in 10, or even 20, years of data which, from a European perspective, has been mostly loss-free.

“Is rate adequacy going to be achieved this year? It’s going to depend on every single reinsurer so it’s hard to comment on that. But certainly, it is one of the main points of discussion, mostly because over many years, there have been price reductions. This year there will be a small correction to that.

“It’s still to be seen how much of those prices we’ll see change at January 1. It’s going to be quite dependent on individual conditions,” he concluded.

To view the full 1.1 Club interview click here