VIG Re: how reinsurers get ahead in continental Europe

The values and ethos of Czech Republic-based VIG Re make it an appealing partner for many smaller insurers in Continental Europe and have contributed to its strong growth in that area since it embarked on an expansion plan beyond its core markets in 2017.

That is the view of Johannes Martin Hartmann, the chief executive of the company, which opened an office in Germany in 2017 and in France in 2018. Both offices have grown steadily, says Hartmann, who believes that smaller insurers in the two countries value what VIG Re can offer, especially the shared principles.

VIG Re was formed originally to optimise reinsurance buying for the VIG Group, which is based in Vienna, Austria, and has operations across Central and Eastern Europe (CEE). The reinsurer coordinates multiple reinsurance programmes for its parent, retaining some risk itself but also working with a multitude of regional and national reinsurers; it facilitates group treaties but also has a right of refusal for local cessions.

The reinsurer was already writing some third-party business outside its home region but in 2017 it formalised a strategy to expand—the result was the launch of the two extra offices. Since then, it has flourished in the region.

“In Germany, Austria, and Switzerland we were writing some business before we opened the office in Frankfurt. Currently we are now writing €60 million of premium of mainly non-life treaty business for 63 clients,” says Hartmann.

“In France and Belgium, after one year of operation , we are writing €20 million of business for 29 clients.

“We are very pleased with the growth of both offices—each is ahead of where we thought we would be in terms of the business plan,” he adds.

“We have found that insurers want to work with us. In that region, reinsurers must usually wait before replacing another on the panel of insurers—there is an order to things, but we seem to have skipped that. We have been able to jump the queue.”

Shared values
Hartmann identifies four key reasons that insurers want to work with VIG Re, and they all boil down to its basic values and way of operating.

The first is that the company is very cost-efficient. Its admin cost ratio is 2 percent, much below that of its peers who may struggle to get their internal costs under control. This allows it to compete on business that larger reinsurers cannot and remain profitable on business where other companies cannot.

“On the back of our lean operating structure, we are also very fast and nimble, and able to make decisions quickly. This is something our clients like and appreciate,” Hartmann says.

The second is that, because its roots lie in working alongside the mutual VIG Group, its cultural thinking is very similar to that of its smaller clients in the sense that it looks at business for the long term and values personal relationships.
“We represent a natural cultural fit for these clients—we have the same alignment of values,” he says.

“It is difficult to quantify the importance of that but because our background is essentially that of a mutual, our business culture is very similar to that of our clients. We operate in markets that are very different from other international centres such as the London Market.

“We understand the culture and we are very long term-orientated in our relationships; we are not driven by short-term profitability but sustainability and consistency. We want partnerships for the long run.”

He says this in particular has been a key factor in allow the reinsurer to “jump the queue”, with insurers allowing it to look at their business and join panels where it can offer added value despite no other reinsurers stepping aside.

Partly linked to this is the fact that VIG Re can offer advice on CEE to insurers interested in writing business or expanding existing operations in this region.

“We can offer advice on many aspects of operating in this region. We are the only group with operations in every CEE country and we have in-depth knowledge that is second to none,” Hartmann says.

Finally, he notes, insurers like the fact that VIG Re’s parent does not compete with their operations in Western Europe.

“We don’t compete with them on the primary side. That means they are more inclined to trust us and share information with us.

“We also see both sides of the coin—we are buyer for the VIG Group and a seller to third parties. That gives us an unrivalled understanding of many types of business,” he explains. “We are rarely a leader on business, but we are a smart and informed follower who can act as a trusted adviser and add value.

“They discuss concerns and challenges with us and we will often be able to provide advice or solutions. We are a trust consultant.”

Reaching critical mass
Driven by all these factors, Hartmann says the company is reaching what he calls a critical size in the Germany region. He says that it is now working with most of the clients it wants to work with. In France, where so far it is writing more cat and short-tail business, progress has been ahead of expectations.

Next on the list will be expansion into remaining parts of Continental Europe. While there are no firm plans to open more offices as yet, he says the company is looking at building books of business in Scandinavia and also countries such as Greece, Cyprus, Spain, and Portugal.

While its expansion from the core CEE markets is going well, VIG Re does face challenges.

VIG Re has more than 300 clients in the CEE region and this high market penetration means that while some growth opportunities still exist, they are becoming fewer.

“It’s harder now for us to find new clients in the region because either we have threats to overcome—such as we are perceived as a key competitor—or there is a reason we do not want to do business with them. For example, they are companies that we believe don’t have a long-term perspective,” he says.

Exacerbating this problem is consolidation in the market, meaning fewer bigger clients and reinsurance-buying increasingly being centralised. This trend is continuing in all the markets VIG Re operates in.

Hartmann admits that rates in the market are challenging, and stresses that there are many factors at the moment that should point to a hard market emerging. These include the heavy cat losses of 2017 and 2018, reserve releases drying up and the fact that investment income remains elusive.

“There remains an abundance of capital and even more waiting in the wings and that keeps pressure on rates,” he says. “Yes, we have seen some hardening but overall the market is flattish. We see this as the new normal. The capacity available will not allow for any hardening of note.”

He stresses that VIG Re is better placed to manage such an environment than many because of its low cost ratio.

“That is the only way to have a sustainable business model,” he says.

“We pick up a fair bit of business from smaller clients that larger reinsurers cannot handle because of their higher cost ratio.”

He adds that the reinsurer does not need to go hunting for premium. It has found a niche working with the smaller players that share its values. It will now take this philosophy and extend where it can across Europe—with more companies that appreciate its ethos and long-term approach.

Johannes Martin Hartmann is the chief executive of VIG Re. He can be contacted at:  jm.hartmann@vig-re.com