Cedants with little exposure to COVID-19, who are transparent and have historically committed to long-term relationships with reinsurers will fare better and should secure favourable terms in what will be the most challenging renewal for well over a decade.b

That is the view of Johannes Martin Hartmann, chairman of VIG Re’s managing board. He tells Monte Carlo Today that these qualities will be sought after by reinsurers.

In contrast, buyers that are grappling with uncertainty around COVID-19 claims, which are unwilling to open their books to scrutiny and who may have been opportunistic in their buying in the past, could face severe rate hikes.

“There will be rate increases across the board but they will, and should, vary depending on the loss experience of the cedant and their relationship with their reinsurers. Where that relationship and transparency is in place, it should mitigate price increases,” Hartmann says.

VIG Re is part of VIG Group, the biggest insurer in Austria and Central Eastern Europe. It will reach about €10 billion in premiums this year.

VIG Re, the reinsurance company of the group, has several tasks, one is to buy reinsurance protection on behalf of VIG Group with third parties but without being exclusive, thereby placing the business from around 50 insurance companies that all cede to VIG Re with third parties.

VIG Re also writes a healthy amount of third-party business; it makes up around one third of its gross written premiums and the majority of its retained business.

As part of growth plans, the reinsurer opened two branch offices in recent years in Frankfurt and Paris. The former looks after Germany, Austria and Switzerland and the latter looks after France, Spain, Portugal, and Benelux.

Speaking as a buyer for VIG Group, Hartmann says that what matters in the end for cedants is security and continuity over matters such as terms and conditions moving forward and the way risks associated with pandemics are treated in the future.

“We just want fair adjustments and no surprises,” he says.

He wants reinsurers to understand the nuances in the different markets in which it writes business. He stresses that Central Eastern Europe, for example, is a very different insurance landscape to say America—in terms of its litigation culture and regulatory environment.

Terms and conditions

The negotiation around terms and conditions and clauses and how pandemic risk is treated in the industry will be one of the most interesting aspects of the renewal, Hartmann says.

“There is a big push now to exclude pandemic coverage in treaties but it will be interesting to see what happens with that risk. Some reinsurers may see it as an opportunity at the right price.”

The most likely scenario is that a scheme similar to some of the terrorism and nat cat insurance pools on a country or European level is ultimately created when the re/insurance industry manages and covers a portion of the risk, but only to a certain maximum exposure. The government would cover losses after this point.

“The situation reminds me of the way the industry treated terrorism risk after 9/11. Everyone was taken by surprise by the magnitude of the loss and the uncertainty that followed,” Hartmann says.

He stresses that COVID-19 alone has not triggered the hard market. Well before this latest event, the industry had endured several years of heavy cat losses, reserve releases had dried up and investment income remained at very low levels.

“COVID-19 came on top of all those things.”

He expects that the extent of rate increases will vary based on region and client experience. In Japan and Florida, for example, increases have reached 30 percent because of the recent nat cat loss experience in both markets.

In the European territories Hartmann expects increases in the single digits in cases where buyers have fulfilled the criteria he outlines above.

On the question of how long the hard market might last, he stresses that this will be determined partly by how much rates increase—higher returns will tempt more capital in, thus flattening the curve.

“If rates increase by 20 percent, for example, it will attract more capital—so the level of hardening might be muted then.

“There are many risks that have not been priced correctly and will need to find a new appropriate rate,” he concludes.

Johannes Martin Hartmann is chairman of VIG Re’s managing board. He can be contacted at: jm.hartmann@vig-re.com

Main image: Shutterstock / Andrii Yalanskyi