NEWS
E+S Rück expects further price increases and improved conditions
After negotiations last year were derailed by a focus on property-cat business, the executives at E+S Rück now want to refocus on Germany.
Discussions at last year’s Baden-Baden meeting got caught up by the imminent volatility and dislocation around property-cat capacity that characterised the 1/1 2023 renewal. This year, Michael Pickel, chief executive officer of E+S Rück, the Hannover Re subsidiary responsible for the reinsurer’s German operations, has unfinished business.
“Baden-Baden, and not only this Baden-Baden, is not meant just to discuss rates on nat cat,” Pickel told a media briefing in Baden-Baden, by way of a reset against the 2022 madness. “Last year was a bit of a rush because capacity disappeared from the market; we neglected to discuss other features.”
E+S Rück, which is celebrating its 100-year anniversary this year, now wants to focus back on some of these issues—and its overall message is that rate improvements are needed. One German line that has unfinished business for reinsurers is motor. E+S Rück expects motor insurance in Germany—the largest line of property and casualty insurance by volume—to close heavily in the red this year.
Average claims in motor insurance have again surged significantly in the current year, while at the same time the tariff adjustments made so far have failed to achieve the desired effects.
“Sharply above-average increases in the costs of spare parts and repairs as well as higher claims frequencies are causing massive losses and remain a heavy drag on motor insurers’ profitability,” said Pickel.
“Against this backdrop, we take the view that adjustments to prices in motor insurance are unavoidable in the coming years to move out of the red and restore business to a profitable footing over the long term. We expect to see gradual progress in this respect.”
“We shall continue to stand by our clients.”
Michael Pickel, E+S Rück
Underlying rate
Speaking more broadly, Jonas Krotzek, managing director for Germany, Austria, Switzerland and Italy, pointed back one year to his own calls at Baden-Baden for a 10 percent increase in underlying primary rate with the threat that “if not, you’ll get a loss”.
“This is exactly what we have seen,” Krotzek said of the mere 3 percent rate taken in 2023 and what he calls the “not good shape” of the industry. Last year’s call for a 10 percent increase has now evolved into this year’s demand for a “severe increase”.
That price inadequacy has German motor proportional treaty under pressure, albeit differentiated by client based on success on rate. Non-proportional treaty has increasing losses from inflation. The implication is that rates and retentions need to increase.
Nat cat, although a smallish 10 percent of the German reinsurance book, is seeing a rise in demand, estimated at $1 billion. “We expect further increase in prices and retentions,” albeit “moderate compared to last year”. The Italian market may see bigger changes after “rather small” retention adjustments in 2023.
Industrial-commercial lines are suffering “continued pressure” on account of inflation and large fire loss. Supply chain disruptions have “begun to normalise” although the rising conflict in the Middle East means this could change.
Overall, E+S Rück expects further price increases and improved conditions in the 1/1 2024 renewals in property and casualty reinsurance.
“We must assume that the multi-year trend towards higher claim payments will continue. Adequate prices are indispensable if we are to offer our clients the best possible reinsurance capacity in the future, as we have in the past,” said Pickel.
“I am confident about the upcoming renewal round.”
Michael Pickel
“Particularly at a time of many different interrelated challenges, it is vital for us as a reinsurer to tackle these issues and design solutions jointly with our partners. Moving forward, then, we shall continue to stand by our clients as their partner in managing losses caused by climate change and natural catastrophe risks—just as E+S Rück has done for 100 years.”
Bad weather
The briefing highlighted the global effects of extreme weather phenomena. In Germany, too, the issue of coverage for impacts from heavy rain, flood, windstorm or hail as well as the associated costs remains front of mind.
While losses under natural catastrophe covers were, if anything, below average in the first six months with summer storms Lambert and Kay, considerable claims expenditure was incurred in August from a series of storms centred on southern Germany. With this in mind, 2023 is again expected to bring substantial losses overall from catastrophe covers, the executives stressed at the briefing.
They expect that sustained high rates of inflation as well as the trend towards adding natural perils covers to existing contracts will drive claims expenditures for the industry even higher in the future. Parallel to this, capacities on the reinsurance market remain tight overall, while at the same time demand for natural perils coverage is on the rise. All in all, then, prices for catastrophe covers look set to increase further.
“Despite the challenging market environment, I am confident about the upcoming renewal round, because our customer relationships and thus also the upcoming negotiations are always characterised by a cooperative partnership with all market participants,” said Pickel.
Main image: Shutterstock / oatawa