German motor market needs readjusting
The German motor market requires some rate adjustments while overall primary players in the country may have significant cost-cutting potential, Frank Reichelt, market executive Germany & Nordics at Swiss Re, told Baden-Baden Today.
In the current low interest rate environment, prices in the German long tail business, in particular in non-proportional covers, do not appropriately reflect the risk, Reichelt suggested. A consequence of the low interest rate environment is that, at least on a calculatory basis, losses are higher than in the past, he said. In the non-proportional business, the majority of cost increases, similar to the Ogden rate in the UK, end up with the reinsurer, he added.
“We are debating with our clients, with some success, that the reinsurance premium should reflect those low interest rates,” he said.
Reichelt added that he is less concerned about German nat cat cover. Here, rate decreases in recent years have been much less pronounced if compared, for example, to those in the rest of Europe or globally. German clients have taken some advantage of the good conditions for buyers, but not as much as in other markets.
“We feel pretty much OK with the book,” Reichelt said.
German insurers may yet have a lesson to learn from the Nordics, he suggested. Large Nordic cedants have combined ratios of around 90, some of them even below that, he said. This is the case not only in a single year, but the performance has been stable consistently, he noted. In the German market, non-life insurers have combined ratios of just below 100 percent.
“The Nordics started earlier to look into their cost structure,” Reichelt explained.
“They started implementing technology and digitising the business earlier than the Germans, they are well advanced compared to German insurers and this has paid off,” he concluded.
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