Quality cedants can face down reinsurers’ demands: Allianz Re
These may be challenging renewals, comparable to little the market has seen in decades. But quality cedants with a proven track record for reliability, consistency and transparency won’t need to back down to the full list of demands coming from their panels of reinsurers—the best players should hold their own. Deals will get done.
That is the view of Jan Störmann, a 30-year industry veteran in his 13th year as chief underwriting officer for Allianz Re, the unit of Allianz that manages the insurer’s reinsurance buying programme globally. He is acting again as chief buyer for the group’s global reinsurance needs heading into another 1/1 renewal.
“Clearly this market is challenging; we can’t ignore that,” Störmann told Baden-Baden Today, commenting on a renewal season characterised by reinsurers seeking higher rates, lower retentions and tightened structures. He stresses that these market conditions are not unique—it’s just that only the most seasoned industry executives were in senior enough positions to have learned lessons from the last time this happened.
He believes the situation in 2022 can be compared with 2001, when the market was reeling in the renewals period from the terrorist attacks of 9/11 with the uncertainty that event meant in terms of claims and economic shocks.
He offers the confession that he is among a select crowd who can remember the mix of uncertainties and hardening that has proved “incomparable” to much since.
Those who have endured such turmoil before, and who have perhaps worked in different parts of the industry, will be less perturbed by the current situation. “I am not scared at all,” Störmann said. “I’ve been in this business for more than 30 years, I have seen it from every side you can think of: broker, cedant, and underwriter.”
“Being opportunistic is never our strategy.” Jan Störmann, Allianz Re
While reinsurers have their demands, Störmann believes he can set some of his own lines in the sand. He is clear that the core aspects of structures remain his own sovereign decision; retentions may be an acceptable negotiating point, he accepts, but he believes that rates are unlikely to shoot into unpalatable ranges.
The Allianz Re CUO’s confidence stems from the strength and market position of parent Allianz, which he describes as “one of the strongest companies in the market”. He even offers the suggestion that “the market should play to us”.
He knows that Allianz has proved itself historically. “The key to why I am confident is that we have a history of being credible and reliable,” he said, offering the one caveat of its recent history of several draw-downs on its reinsurers.
But it has always stood firm by long-term, deep relationships with its reinsurers, he says. It has never chopped and changed its panel based on price, which will stand it in good stead now. “We have never been a trader in the market” and being opportunistic is “never our strategy,” he added.
Structures a top priority
“For me, the first thing is the structure,” Störmann said of what he calls his top priority. “We have always looked to protect on a global basis.”
Allianz’s two-tower programme—one for the US and one for the rest of the world—stems from internal talks, “independent of the market” in an annual process that he admits is “a bit of evolution” but not a revolution.
“We try to keep it as stable and as simple as possible; being simple is good,” he said. He claims he has experienced “no pressure” to date from reinsurers to change that and vows “we are not splitting it into pieces”.
“Allianz’s focus on two major towers has been the case for 10 years, will be the case next year and also probably for the next 10,” he stressed.
Retentions could be a different negotiation, however, and something Störmann is more willing to give ground on. Reinsurers are demanding higher retentions by cedants across the board and he acknowledges this could be met with greater understanding at Allianz; it could even provide the largest bargaining chip.
“We will respond to the retention level,” he said. “Retentions are more flexible than structures.”
Once structures and retentions are broadly agreed in principle, then the negotiation will inevitably move on to price discovery. Störmann has “no clear feeling yet” what that may bring, but is sufficiently confident that the industry will be able to find enough common ground to get deals done. “I am confident we won’t have to go to loops and loops of discussions,” he said.
“Capacity, spooked by uncertainty and volatility, has left the market.”
Störmann reports “very constructive” tones in talks to date. “The discussions we have had so far are very constructive and I am very confident,” he said.
His perspective on reinsurers’ priorities, based on discussions held behind those closed doors, is that they can be compatible with the needs of cedants—or certainly the requirements of Allianz Re this year.
He believes that reinsurers are “least likely to bend” on demands that retentions rise. Their demands on structures could be more difficult to negotiate but he suggests they can likely be satisfied via “some clarifications” on wordings and terms. Price, for now, remains the hardest part of the negotiation to predict; he describes it as guesswork still.
He acknowledges that market conditions are difficult: capacity, spooked by uncertainty and volatility, has left the market; yet demand, driven by those same factors plus inflation, has increased.
Störmann is keen to move ahead apace and get deals done. In a sign Allianz’s buyer is confident that price shock won’t sink its planned structures, he has already posted its submission to the market. “I don’t want to play last-minute; I’ve never done that and don’t wish to,” he said.
