Deutsche Rück eyes disciplined growth as risk becomes more complex

More capital is chasing opportunities, but the risks are becoming harder to assess. Deutsche Rück’s Caren Büning speaks to Baden-Baden Today about international expansion, client needs and underwriting discipline.

Key points:
More capital does not mean less risk
Pricing must reflect changing exposures
Growth depends on discipline

Deutsche Rück is stepping up its international growth ambitions at a time when reinsurance capital is plentiful but the risks competing for that capital are becoming more complex. CUO Caren Büning believes that disciplined risk selection, pricing and capital allocation are just as important as identifying where the next opportunities lie.

“There is clearly significant capital available in the reinsurance market today. But more capital does not mean less risk, nor does it fundamentally change the economics of the risks we assume,” Büning told Baden-Baden Today.

Much of the increase in traditional reinsurance capital, she noted, has come from retained earnings following several years of strong results rather than a significant influx of new external capital.

“A stronger capital base therefore does not automatically translate into structural excess capacity,” she said.

Alternative and private equity-backed capacity are adding competition, but different sources of capital can come with different investment horizons, risk appetites and levels of commitment to the market.

“For clients, the question is therefore not only how much capacity is available, but also how reliable and sustainable that capacity will be throughout the cycle and following major loss events,” Büning said.

That question becomes more important as the underlying risks themselves become harder to assess. Climate-related exposures, geopolitical uncertainty, cyber risk, claims inflation and growing concentrations of value are all increasing the complexity and potential severity of losses.

“Historical loss experience remains an important input but needs to be complemented by forward-looking assessments,” she said. “We need to consider changing exposures, emerging risks, accumulation potential and the increasing interdependencies between different risk classes.”

Pricing, she added, still needs to reflect the exposure, expected losses, volatility, uncertainty and cost of capital. “Competition is a normal and healthy feature of the market, but sustainable pricing is essential if capacity is to remain available when clients need it most.”

“Competition is a normal and healthy feature of the market, but sustainable pricing is essential.”

Selective growth

The same discipline is shaping Deutsche Rück’s international expansion. The reinsurer has brought its activities across the Middle East, Asia and Latin America together within its International Growth Markets Division, as it looks to strengthen and diversify its portfolio across markets where it sees attractive long-term potential.

“Internationalisation and premium growth are not our objectives in themselves,” Büning said. “Our focus remains on profitable and sustainable growth. While markets differ, experience and underwriting insights from one region can create value in another,” she noted.

“At Deutsche Rück, we seek opportunities where we can combine local market expertise, strong partnerships and our underwriting capabilities to create long-term value for clients while strengthening the resilience of our portfolio,” Büning said.

Deutsche Rück’s first Fitch rating, an A+ with stable outlook, and its long-standing A+ rating from S&P is also expected to support that international development, Büning said, by improving access in markets where cedants, brokers and counterparties increasingly look for more than one external assessment of financial strength.

“As our business becomes more international, a second rating increases our visibility and credibility in the marketplace,” Büning said.

Client solutions

The international push comes alongside growing demand for structured and tailor-made reinsurance, particularly where standard products do not fully match a cedant’s balance sheet, risk appetite or strategic objectives.

“Every cedant has a different balance sheet, risk appetite, capital position and strategic objective,” Büning said. “Standard reinsurance products will therefore not always provide the most effective answer.”

Structured solutions can be used to address objectives ranging from risk transfer and earnings stability to capital efficiency and managing volatility over time.

“For us, the starting point is always to understand what the client is trying to achieve,” she said. “It is not about creating complexity for its own sake, but about designing a solution that is closely aligned with the client’s underlying risks and financial objectives.”

“We have never viewed ourselves simply as a provider of reinsurance capacity,” Büning said. “Rather than pursuing short-term opportunities, we have focused on building lasting partnerships and supporting our clients through different market cycles.

“Deutsche Rück has consistently put this commitment into practice,” Büning added. “Throughout the pandemic and during major loss events such as Storm Bernd, we maintained a close and open dialogue with our clients, working together to find timely and sustainable solutions.

“We write risks that we understand,” she said. “International business is not an end in itself, nor have we ever pursued growth for growth’s sake.”

Caren Büning is an executive board member of Deutsche Rück and chief underwriting officer. She can be reached at: caren.buening@deutscherueck.de.

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