Reinsurers face test of discipline as buyers demand more: DEVK

Expanding reinsurance capacity is giving US buyers greater leverage to demand flexible treaty terms. DEVK Re CUO Cliff Falkenhagen explains why such times demand greater underwriting discipline. 

Key points:More capacity gives buyers leverage
Primary terms complicate treaty pricing
No appetite for  frequency cat losses with low return periods

When Cliff Falkenhagen took over as chief underwriting officer (CUO) at German mutual reinsurer DEVK Re at the  beginning of 2026, he set out to expand the reinsurer’s North American portfolio – something he has helped build since the reinsurer entered that market a decade ago.

Almost a year on, he is committed to that task. But he must increasingly balance its strategy of only seeking profitable growth, against increasingly tricky market conditions, which favour buyers. He is steadfast in his commitment to underwriting discipline but believes opportunities for profitable growth remain.

“During that time, we’ve developed extremely well,” Falkenhagen told APCIA Today. “That said, capacity supply is increasing at a faster pace than demand, and that will result in more favourable terms and conditions for buyers. It would be very unfortunate if the successes achieved over recent years were put at risk by relaxation of underwriting standards on the reinsurance but also on the insurance side.”

The weather has helped. The 2026 underwriting year has been positive for many reinsurers and most of their US primary clients. “The Atlantic hurricane season has been exceptionally quiet so far, and of course, we all keep our fingers crossed that it will continue this way.”

While severe convective storm (SCS) activity remains elevated, primary carriers have largely absorbed those storm losses on their own balance sheets thanks to recent policy restructuring and tighter coverage terms. But with those strong results now fuelling fiercer competition for market share among insurers and reinsurers, Falkenhagen cautioned that carriers must not surrender the very defences that restored their profitability.

Pricing storm risk

While the wider market often views SCS as a secondary peril, Falkenhagen said that for DEVK Re, which has a relatively low concentration in Florida, these claims have played a far more significant role than hurricanes. As such, the reinsurer prices each peril individually, rather than treating storm risk as an incidental exposure.

Doing so is not straightforward, he conceded. Over the past few years, many clients have undertaken significant re-underwriting efforts within their property portfolios, for example introducing cosmetic damage exclusions, roof depreciation schedules, and actual cash value coverage in predominantly Midwestern homeowners’ portfolios. Those adjustments have also changed the risk profiles of the underlying books.

“All of these measures have materially changed portfolio risk profiles and make it much more challenging to rely on historical loss experience for pricing purposes,” he said. “It also remains to be seen to what extent newer catastrophe models provide a fully accurate and balanced representation of the underlying risk.”

“There’s definitely no appetite on our side for  cat frequency covers that see losses more often than, let’s say, every eight or 10 years.”

He added that continuous discussions with clients and brokers about exposure management help both sides reach workable compromises on pricing and structure.

Frequency flexibility

That also guides any flexibility that DEVK Re can offer on coverage. With buyers seeking lower attachment points and frequency coverage, Falkenhagen said any changes need to make economic sense. “We are of course willing to cover frequency risks, but only if we talk about extraordinary frequency. There’s definitely no appetite on our side for structures that see losses more often than, let’s say, every eight or 10 years.”

While open to collaborating with clients and brokers to find common ground, he said he did not believe that DEVK Re “overplayed” its hand during the hard market and hopes cedants will show that same partnership now that leverage has swung back in their favour.

Asked about the biggest tests for the industry, Falkenhagen reiterated that DEVK Re is not active in the more challenging segments of casualty reinsurance, but that he believed one important challenge – and opportunity – is the reinsurance and direct insurance of hyperscale data centres across engineering, property, and casualty. These facilities are growing in size, complexity, and concentration of values, so understanding and adequately pricing those risks will be increasingly important for the whole industry.

Market participants should not view the strong results of the past two years as the new normal, he cautioned, because years with higher loss activity will return, and both the primary insurance and the reinsurance industries should be prepared for that reality. 

“Of course, we will not be able to eliminate the cyclical nature of our business. However, we should approach reinsurance as a long-term partnership rather than a purely transactional relationship.” 

“I think also one significant opportunity for the global reinsurance market is to ensure that we use the excess capacity on the supply side, not solely to optimise pricing from a buyer’s perspective,” he said. “Instead, it would be highly desirable to deploy capacity to help narrow the protection gap.”

Cliff Falkenhagen is the chief underwriting officer at DEVK Re. He can be contacted at cliff.falkenhagen@devk.de

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