Allianz Re challenges the insurance cycle

With renewal season well underway, Allianz Re keeps its focus on prudent risk assessment and disciplined underwriting. CEO Amer Ahmed looks back at 2011 and the challenges faced by reinsurers in an interview with trade magazine “Reactions”.

Munich, 18-10-2012 — / — Looking back at an extraordinary natcat year 2011

“Firstly, the frequency of catastrophic events was ‘extreme’,”  says Amer Ahmed, CEO of Allianz Re. “New Zealand alone had three events. The Japan earthquake and tsunami was a human and societal tragedy. Having a large earthquake in Japan in itself was not a big surprise but the effects of the tsunami were more devastating than foreseen. Nevertheless, this event did not throw the market too far off course,” says Ahmed.

Another feature of last year – and one that it still rippling through the market – was the losses that came from secondary perils or so-called cold spots such as the Thailand flooding, which raised concerns on a number of different levels.

“We know that Thailand is prone to flooding but the severity was much greater than envisaged. Second, it became clear how human interaction imposed upon the flow of water can lead to unexpected consequences. Third, and perhaps most important, Thailand showed the impacts of globalization and concentration into industrial parks such as those in Bangkok which led to an immense accumulation of insured values in the area,” explains Ahmed.

How are reinsurers responding to 2011

The big question raised at last year’s Monte Carlo Rendez-vous and Baden-Baden meeting was how could and should the market respond to this remarkable and challenging string of losses, particularly in the field of business interruption and contingent business interruption. Insurance and reinsurance buyers feared a sudden loss of capacity as has occurred in the past in more standard cat lines after big events.

“First, we all need better information about the risk exposures. For property insurance this should be relatively straightforward: insurers should know where buildings are located so that a comprehensive picture can be built,” says Ahmed.

“Second, we need to look at the elements that move such as stock and goods in transit. This is more difficult to judge and with business interruption this moves on a level further in complexity. One can judge the potential damage to property relatively easily but it is much more difficult to model the consequences on business operations and getting them up and running again. Therefore improved transparency on the underlying exposures and risk is the top priority,” he explains.

On the challenging environment

Ahmed says that in today’s economic environment the whole industry faces a challenge. “Insurers take on premium income and when a loss happens they are supposed to pay out. This is what our job is all about. But we have to make sure that we have enough premiums across the portfolio to make this work, to pay for the losses and generate a return on the risk capital that supports the risk we carry. In that sense, reinsurance is a pretty straightforward concept which provides stability by the international spread of business that reinsurers build across the globe,” he says.

“As a large insurance group we are investing in upgrading the exposure data we gather and in analyzing this to actively manage the overall portfolio. Things can change very quickly in today’s global environment. Maybe we need to be ready to analyze our exposures more frequently than in the past and react more quickly. Perhaps the traditional annual cycle for reinsurance needs to be reconsidered,” he continues.

On renewals 2012

“Clearly the recent catastrophe loss experience has been in the headlines and on the mind of everybody in the market. As we are heading into renewal season it is important to address the issues that were identified. We know that in the current environment there is little scope to offset poor underwriting results with investment income. Therefore, there has to be a strong focus to get the risk assessment and underwriting right,” he says.

“The modelling of major perils plays an important role and impacts the overall market dynamics. For example, we have seen changes in the catastrophe models for the US with some upward trend across the board. Last year’s events in Thailand, New Zealand, Japan and the huge damage through tornadoes in the US may not have hurt the reinsurers in the same way as a dramatic single loss in the past. But a lot of companies were impacted by a string of mid-sized losses across the world. Therefore, I expect rates will continue to drift up gradually, but it has to flow through the system. Where we don’t see that prices are adequate we are prepared to let that business go even if it results in a shrinking top line,” continues Ahmed.

The interview was done by Adrian Ladbury and excerpts are shown here with the kind permission of Reactions.

Press contact

Christiane Merkel
Allianz Re
Phone +49.89.3800-18195
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Thailand showed the impacts of globalization and concentration into industrial parks such as those in Bangkok which led to an immense accumulation of insured values in the area.

Thailand showed the impacts of globalization and concentration into industrial parks such as those in Bangkok which led to an immense accumulation of insured values in the area.

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