Focus on quality, not just price

Renewals discussions are increasingly focused less on price and more on products and solutions, a trend that is putting pure capacity providers in a weaker position, Artur Klinger, chief underwriting officer of NewRe, told Baden-Baden Today.

“We see a flight to quality,” Klinger said. He believes this is driven partially by the latest wave of mergers and acquisitions (M&A), which has prompted some cedants to rationalise their reinsurance panel, giving preference to highly-rated players. Given that NewRe is owned by Munich Re, he believes this benefits NewRe.

“We have only one shareholder, who knows the reinsurance business very well. We have a predictable strategy and we can take a significant exposure on our book,” Klinger said.

In addition, the market is becoming more rational, he noted. “We are talking about structures, about the most suitable solution, and a flight towards quality where buyers seek long-term relationships,” he explained.

Unlike past renewals seasons, discussions for the 2019 renewals are less focused on price, Klinger said. Instead, cedants are interested in customised solutions such as specific add-on covers that, for example, can improve their capital position under Solvency II.

He noted that the recent M&A activity has triggered a temporary uptick in reinsurance demand as the aggressors look to buy protection against adverse development in some parts of the books of business they are acquiring.

“Our customised solutions segment is very suitable for such event-driven protection needs.
“Here, we can offer clients significant capacity and stability,” Klinger said.

As cycles in reinsurance become arguably less pronounced, cedants are more focused on what reinsurers can provide for a given cost. “This is good for players that can offer flexible solutions but less so for pure capacity providers.”

Asked if there are lines of business on which pricing needs to adjust, he said some action is needed in the industrial fire business as well as on specialty lines such as marine.

“Insurers need to make sure that the contract terms are appropriate,” Klinger said, stressing that this means looking closely at deductibles and coverage, as well as price.

The industrial business segment was hit by significant losses in 2017 and 2018.

“Insurers have to take action. Some of it can be compensated by pricing but parts of it are reflecting the risk conditions in the sector. Reinsurers will react upon the steps cedants take,” he concluded.