OUR MARKET TODAY
NewRe ‘not desperate for growth’ at 1/1 renewals
Reinsurer’s CEO and CUO welcome the arrival of the hard market in certain classes and say inflation will be the hot topic at Monte Carlo this year.
NewRe may have declared a moratorium on aggressive growth in theory, but with a truly hard market in certain classes and capacity at its disposal, the reinsurer has not ruled out seizing the day if opportunities arise.
The reinsurer’s chief executive officer, Thomas Braune, and chief underwriting officer property & casualty, Dirk Herrenpoth, welcomed the arrival of the hard market in some classes, as they spoke to Intelligent Insurer in a joint interview.
“I’m happy that the market is recognising that the pricing level is no longer sustainable, after many years of softening terms and conditions (T&Cs),” said Herrenpoth.
Softer T&Cs had become “unsustainable” against a backdrop of climate change and increased frequency and severity in certain risks, he said.
“In property we are seeing something that could be called a hard market. There is a lot of tail wind in certain areas so it is difficult to place problems. When we look at aggregate business some markets are relatively dry.
“On the casualty side, I am not so sure it is really a hard market,” he added.
“There may be some pockets where it is getting difficult but all in all the market environment in casualty, especially on the motor side, is very challenging and we are observing that very closely.”
Looking ahead to the 1/1 renewals, the CUO said NewRe had grown its book meaningfully and successfully over the last two years. “So we are not desperate to grow our business further,” he said.
The company still has capacity available on the property side and does not have any capacity constraints. “If there are good market opportunities we can seize, and we believe we can get the return we need, we will seize them.”
In NewRe’s casualty business, Herrenpoth said, the company was “farming what we have”, explaining that there was no particular ambition to expand this book further because it has “grown meaningfully” over the last two years and now he would like to see it mature.
Behavioural changes
Braune expects to see changes in client behaviour as NewRe’s weather solutions business approaches its October 2022 renewals for the winter season.
Weather renewal discussions were ongoing, he said, but added: “We can call it a kind of hard market currently because, particularly with inflation, all the discussion is energy-related. We have seen inflation around 40 percent or more.”
The reinsurer’s clients are now more aware of the risk because of the volatility of the weather, he said.
“We expect them to continue to buy protection but with a different behaviour.”
During the 2021 winter renewal season, Braune said utility clients had asked for protection against a winter that was “too cold” because in that scenario utilities have to buy additional energy at much higher prices.
“We took inflation into account more conservatively than other market players.”
Dirk Herrenpoth, NewRe
“That was a new development,” he said, as previously utility companies bought protection only against a winter that was “too warm”, which would mean they could not sell enough energy.
“We will probably now see a new kind of product which protects against both. And we will see how clients react in these market conditions—the prices are higher because our hedge prices in the capital markets are higher.”
A challenging year
Braune and Herrenpoth are no strangers to challenging markets, particularly given the past few years, but the results from 2021 tell a very specific story of volatility.
In 2021, the reinsurer achieved a profit of €156 million ($) up from €109 million in 2020, while gross written premiums dropped from €5.2 billion in 2020 to €2.5 billion in 2021.
The firm’s top line drop of around €3 billion was caused by the termination of one contract with its newest life client, Braune said.
“This was a very specific situation because the client decided to terminate the contract because of a regulatory change in the US,” he said. “If you go back some years you will see that our top line also increased because of this one transaction.”
This shows that on the top line NewRe might see more volatility than other reinsurers because of its large life transactions, Braune said.
“The pipeline is full, so maybe in future we will see some additional volatility here. Luckily it did not affect the bottom line significantly,” he added. “On the bottom line we have seen compensating effects.”
In 2020, the entire re/insurance industry was hit by COVID-19 in life as well as P&C. It was also “a difficult weather year” for NewRe.
“Then in 2021, in P&C we had the German flood losses and also some COVID-19 losses in life, but the weather business performed very well. So here we could see the diversification effect.”
Braune said that such “strong results” proved the reinsurer’s resilience in two difficult years. In further evidence of this robustness, the company’s Swiss Solvency Test ratio was also “very stable between 180 percent and 200 percent”, he added.
Were they pleased with the 2021 results? “In these difficult times, yes,” Braune said.
On everybody's lips
With the arrival of a hard market you could be forgiven for thinking that this would be the main topic of conversation. But it would seem that soaring inflation has taken the top discussion spot.
“Inflation is the hot topic currently,” Herrenpoth confirmed. “Last year when some market players said: ‘It’s just temporary because of coronavirus’, we took inflation into account more conservatively than other market players. That is playing out now because we don't have such a big inflation gap to close.”
“Our clients can rely on us to continue with our strategy.”
Thomas Braune, NewRe
NewRe will, of course, be taking inflation into account when it prices its business, favouring a more cautious approach given all the ongoing uncertainty, particularly around the war in Ukraine.
“No-one knows how long this is going to continue, or what impact it’s going to have on the energy markets, etc. So we take a more conservative stance, and when it comes to growth we are also a bit more clear in that regard. That is one element of our underwriting strategy as well.”
Inflation is less of an issue for the life division of NewRe because it “doesn’t have any influence on the claims”, Braune said.
Rising interest rates are another area that the reinsurer’s life and P&C businesses view differently.
In the P&C portfolio and its customised solutions business, Herrenpoth said they are not seeing an increased demand because of increased interest rates.
“But in life, it’s different,” said Braune. “We have waited for years for an interest rate increase, so overall our industry welcomes the increase, in particular for the variable annuity products.”
Braune has seen an increase in demand in the primary insurance industry and said that NewRe hopes to participate also as a reinsurer, so the company can sell more solutions to clients to protect against market risks.
“We foresee that we can sell more of our solutions such as acquisition costs, financing and other solutions. On the other hand, some solutions that are linked to the current low level of interest rates will probably see the demand decrease.”
A potential global recession is another issue that is coming up more frequently when people talk. Asked what it could mean for NewRe, Herrenpoth said there was not a single answer to this for P&C as it would depend on the underlying business. But any global recession would be observed very closely, with NewRe prepared to initiate things that would help it to mitigate and handle that exposure, he added.
With the Monte Carlo Rendez-Vous now in our sights, Braune and Herrenpoth agreed that inflation and how it is impacting business would be the main topic when people meet up.
Herrenpoth added: “There are different opinions. We have some discussions with clients who say: ‘for our portfolio it’s not a big deal’, and others who are very concerned about it.”
Braune said: “I’m quite happy that we’re in the situation where we’re still a very resilient partner and a real partner for our clients.
“We are open to expand our capacity, which we offer to the market in these times in particular, because when we look at the market we see others who restrict their capacity. In that respect our clients can rely on us to continue with our strategy, which is more important than in other times.”
To view the full interview click here
Image: Shutterstock / KITTIPONG SOMKLANG
