Evolving to meet clients’ needs amid challenging times

​How has Deutsche Rück coped with COVID-19 from an operational perspective?
Deutsche Rück (DR) makes every effort to support the measures adopted by politicians and authorities to slow down the spread of COVID-19. Since mid-March, even before the start of the nationwide lockdown in Germany, all employees at our Düsseldorf headquarters and at the DR Swiss office in Zurich have been working from home.

Since mid-summer, we have a reduced number of employees back in our offices, but most remain at their remote workplaces at home.

Nevertheless, we have not recorded any noticeable impact on our business operations. From a technical standpoint, we have been very well prepared for mobile working as far as systems and processes are concerned.

At the same time, we are always aware of our responsibility to our clients. Especially at a time of crisis affecting society as a whole, a reliable partnership is vital for our clients, so we work with them to resolve issues or to find solutions as we do in “normal” times, although the situation makes some discussions more challenging.

What claims might you see stemming from COVID-19? How have you supported your clients through the crisis?
In line with our portfolio mix, most of our claims result from business interruption (BI) insurance in Germany, and are a direct result of the general lockdowns. Some other Western European markets also contribute to a measurable extent.

In contrast, we have registered hardly any pandemic losses so far from the Central and Eastern Europe markets. The size of our losses is currently in line with a significant mid-sized winter storm. The difference compared with such an event is that the premiums we received for the COVID-19 risk are negligible.

In general, pandemic risks seem uninsurable due to the well-known lack of diversification. Any sizable portfolio would have a non-negligible likelihood of far too many potential losses at the same time, irrespective of any regional spread. The potential of this threat became visible during the last few months, although we have clearly not seen a worst-case scenario so far.

We are now noticing that many clients are improving their wordings to control this risk, and we are putting a lot of effort into assisting them in their work and adopting their risk transfer.

How might the industry help manage pandemic risks in the future?
Private capital alone would never be sufficient to deal with such risks. The American Property Casualty Insurance Association (APCIA) estimates that the risk capital of US insurers would have been depleted within a few weeks if COVID-19 losses had been insured under BI policies.

Deutsche Rück, as well as the vast majority of the industry, is therefore in favour of state-backed pools or public-private partnerships, where the state and the insurance industry can shoulder these risks in a joint effort. However, such solutions will take time.

Discussions with the national authorities of our German home market, for example, are still at an early stage.

What is your perspective on the renewals in terms of outlook and hard market conditions?
Wherever you look, the industry is expecting a massive re-pricing. In general, the hardening has been apparent for almost a year now, in some regions more than others.

The driving force is bad results: 2020 will be the fourth year in a row with a three-digit combined ratio for the worldwide reinsurance industry. In combination with the outlook of continuing low interest rates, a significant improvement in results seems to be necessary. COVID-19 has just highlighted this need.

How will this renewal differ from previous years because of COVID and market trends?
Conferences remain essential for the efficient exchange of ideas or qualitative renewal information between insurer and reinsurer. The established industry meetings are very well suited to bringing together numerous suppliers and buyers in a very short period of time—they are a real marketplace.

Over the past few months, we have explored at length the possibilities of videoconferencing. Our verdict is clear: videoconferencing is far better than we expected, but still not a suitable long-term substitute for meeting clients in person.

Managing an established business relationship works fine, but creating new ones or solving really difficult issues with clients seems more challenging. Nevertheless, our business model would still work well enough if personal meetings were impossible for a longer time.

From the reinsurer’s point of view, industry meetings such as Baden-Baden are an important and very efficient part of our work. If those meetings did not exist, we would have to spend significantly more time, effort and money travelling around the world in order to meet our business partners, even if we used videoconferences wherever they make sense.

Ultimately, however, the clients will decide on the format and thus on the continuation of industry meetings. As soon as our clients can largely do without them, we will act accordingly.

What is your strategy around your expansion into MENA?
Following our business strategy, we will selectively expand our underwriting outside Europe. Deutsche Rück’s Supervisory Board has paved the way for our group to go beyond the markets of Europe and the Maghreb countries, which we entered last year.

From January 2021 onwards, we will start writing business in the Middle East markets.

We will write mainly standard property and casualty business. We will be a reliable capacity provider on the basis of trustful relationships with our partners and of course we want to earn an appropriate long-term return.

What are the main priorities and goals for the company now?
In our traditional markets, we will continue to strive for two things. On one hand, in our German home market, we are further expanding and strengthening our leading role in reinsurance relationships with our owners, the public insurers in Germany, as well as with our other clients.

On the other hand, we are aiming for greater added value in the European markets in which we are already active as Deutsche Rück, together with our subsidiary DR Swiss in Zurich.

Looking ahead, we plan to further expand our business geographically into other international markets.

Any other thoughts as we move into the renewals?
The pandemic has increased many companies’ vulnerability to cyber risks, as many businesses have been forced to digitise their processes very quickly and to send employees into working remotely from home. I see it as a positive sign that risk awareness seems to have increased as well.

The risk of natural catastrophes has not disappeared simply because we have a new favourite subject, pandemics. According to Deutsche Rück’s NatCat Center, 2019 was the warmest year in Europe since weather records began.

Extreme weather conditions affect us in many ways: we have seen torrential rain making houses and entire residential areas uninhabitable. Winter storms continue to cause severe damage.

Climate change is a fact. This makes it even more important to distinguish between natural and manmade factors. We support counter-measures to mitigate the consequences of climate change wherever they make sense.

Alarmism, however, is not helpful. We stand for a prudent and considerate approach.

Achim Bosch is the chief underwriting officer of Deutsche Rück Group. He can be contacted at: vorstand_dr@deutscherueck.de