Be wary of rate cuts in CEE
Property loss activity has been benign in Central and Eastern Europe (CEE) in the past five to six years, benefiting insurers and reinsurers—but this should not mean rate decreases, Christian Kreutzer, head of market underwriting CEE at Swiss Re, told Baden-Baden Today.
“We have not seen any major catastrophe losses throughout these years in CEE, nor any significant fire loss, so the property business has been quite good for our clients as well as for us as reinsurers,” Kreutzer said.
Nevertheless, Swiss Re would be concerned if that led to rate reductions, on the original markets but also in terms of reinsurance prices for property treaties. There has been little loss activity, but the exposure is nevertheless real, Kreutzer said.
“Prices would not always enable clients, or us, to bear a major loss event on the books,” he added.
There is still quite a low level of penetration in natural catastrophe insurance in CEE, Kreutzer said. Consumers are often not aware of the risk they are exposed to but there is also a budget constraint. “This is something the insurance industry should find a solution for,” he suggested.
New solutions could involve parametric products which are easy to understand and pay claims quickly, Kreutzer noted. Such products would be particularly suitable for earthquake risk cover, he said.
At the same time, the re/insurance industry in the CEE region is facing a higher frequency of large motor losses from outside the region. Many logistics firms in Europe are operating truck fleets from the region and while the policies are issued in Eastern Europe, the exposure is often in western countries. The premiums paid for the insurance in CEE are disproportionately low compared to the losses incurred in Western Europe.
“Clients have been taking measures and, in some cases, increased rates significantly,” Kreutzer said. “Unfortunately, others have not, and that may be the reason we have seen some bankruptcy cases, in Romania a few years back and another this year in Bulgaria,” he said.
Rate increases must be introduced in a measured way, Kreutzer said. “It’s a process which takes time.
“Measures have been taken, but the level rates have reached in many Eastern European countries is still not reflecting the exposures,” he added.
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