The risk landscape has changed, discipline must hold: Deutsche Rück

As Deutsche Rück expands across international markets, its CEO says abundant capital cannot justify a return to the inadequate pricing of the last soft cycle.

Key points:
International units merged
Caution in softer markets
Discipline is now key

The international footprint of Deutsche Rück has been growing steadily since 2020, when it first ventured in a meaningful way into markets outside Europe. This year, that strategy was consolidated when it formed its International Growth Markets division, consolidating its property/casualty operations across the Middle East, Asia, and Latin America under one roof.

That, says Achim Bosch, CEO of Deutsche Rück, will allow it to improve portfolio resilience and capitalise on strategic overseas expansion. Bosch emphasised that the strategy is not driven by growth for growth’s sake, but by the objective of building a more diversified and resilient portfolio. He explains that it is also a question of bringing together markets that share similar characteristics from Deutsche Rück’s perspective.

“These regions offer comparable growth opportunities, face similar challenges and require a comparable operating model. That is key,” he told Monte Carlo Today. “They are characterised by a relatively high number of client relationships and treaty contracts, which makes efficient and focused management particularly important.” 

He said: “Bringing these markets together allows us to leverage the expertise we have, establish consistent processes and serve clients effectively, while recognising the specific requirements of each market. The objective is to combine regional insight with stronger global portfolio steering.” 

“Diversification only creates value if the risks are genuinely understood, properly assessed and are appropriately priced.”

A market normalising, not weakening

Bosch notes that capital in the industry remains strong and profitability robust. But he is also mindful that the market is softening – and is adamant that the market cannot afford to make the mistakes of the past.

“The reinsurance market is moving into a phase of normalisation after several years of rate hardening,” he said. “Competition has increased in selected segments, particularly property-catastrophe business.

“However, we would caution against a return to the rate levels of the last cycle, which were insufficient. The underlying risk environment, which is the key thing here, has fundamentally changed. Our most important risk drivers are no longer just temporary challenges; we think they are here to stay. They include climate-related exposures, geopolitical tensions, cyber and claims inflation. They have become enduring features of our risk environment.”

“Therefore, increased capital availability should not be mistaken for a reduction in the underlying risk. More capital does not mean less risk; more capital also does not mean that less premium is needed. The key question remains whether pricing and terms adequately reflect the new realities.”

There is nuance to this, Bosch said. Different risk drivers affect regions, lines of business and client segments differently. Thus, he anticipates a differentiated market environment rather than a broad-based soft market. “Competition is likely to increase where loss experience is favourable and risks are well understood. Business exposed to greater uncertainty will continue to require careful underwriting and risk selection, with appropriate pricing discipline.” For Bosch, capital strength alone is not a measure of success.  Ultimately, sustainable success will depend not on the amount of available capital, but on the ability to deploy that capital responsibly and consistently over the long term.

Lessons learned

This caution is not driven only by the last soft market. One of the most formative periods for Deutsche Rück was its international expansion of the early 1980s. Faced with economic recession, inflation and pressure on earnings, the company expanded internationally to achieve growth and diversification. While the strategic rationale for the acquisition was sound, parts of the business acquired through the London market proved significantly more loss-making than anticipated.

“That experience taught us a really painful lesson that remains highly relevant for us, and for the whole market today: diversification only creates value if the risks are genuinely understood, properly assessed and are appropriately priced,” he said.

He explains that lesson marked a turning point for Deutsche Rück and led to a very strong focus on technical expertise, disciplined portfolio management and deep risk analytics. One outcome was the development of its natural catastrophe modelling capabilities, which was pioneering for the company and the market at that time.

“The principle that emerged from that period and still guides us today is that we only write risks we understand,” he said. “The success stemming from that discipline enabled us to follow another important principle: we finance our growth through our own strength and our own earnings. That may lead to a slower path of development, but it is sustainable. It ensures our independence from the short-term interests of external capital providers.

“Those principles have supported our successful international expansion over the past two decades, especially in recent years outside Europe, and they remain highly relevant in today's complex risk environment.” That discipline, Bosch argues, should not be mistaken for caution at the expense of responsiveness. Clients increasingly expect both technical expertise and timely decisions, particularly in an environment marked by heightened uncertainty.

S&P Global Ratings recently reaffirmed Deutsche Rück's A+ rating with a stable outlook, and the group also secured its first A+ rating from Fitch this year. “The rating does not change the strategy. It confirms the approach we have pursued for decades, focused on stability, financial strength and sustainable growth.”

Achim Bosch is the chief executive officer of Deutsche Rück. He can be contacted at: achim.bosch@deutscherueck.de

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