On a risk-adjusted basis, reinsurance rates for loss-free catastrophe excess of loss programs were flat at the January 1, 2012, reinsurance renewal in Germany. Loss-affected programs sustained rate increases of 5 percent to 10 percent on a risk-adjusted basis.
Aggregate primary property insurance premium rose 1.7 percent to EUR15.4 billion at the end of the third quarter of 2011. Private property aggregate premium fell 1.5 percent. However, the summer storms this year resulted in automatic increases in storm premiums of 5 percent to 6 percent for some cedents. Industrial/commercial/agricultural property aggregate premium was up 1.5 percent, primarily because of inflation-adjusted commercial and agricultural business. Industrial pricing was stagnant, although the amounts insured grew. The sector’s combined ratio reached 107 percent. Technical (engineering) insurance premium income was up 3 percent, compared with loss increases of 2 percent, and the sector posted a combined ratio of 89 percent.
The property insurance sector is expected to remain stable in 2012. Overseas industrial losses may influence original rates. Business interruption - particularly contingent business interruption - is causing insurers to focus on coverage such as sublimits and exclusions for unnamed suppliers.
Two important storm events occurred in Germany in 2011 for property carriers and reinsurers: “Achim/Bert” on August 26, 2011, in Bernkastel-Kues in the Rhineland, and “Frank” in lower Saxony on September 11, 2011. On a national level, both were small. However, they did cause significant localized damage, with losses on almost every house in the affected areas. Local companies operating in these regions sustained substantial losses, with loss ratios exceeding 90 percent just from these two storms. Yet, they are not expected to have a significant impact on overall storm ratios for Germany.
In addition to the country’s two large per risk losses, there was a general increase in the number of medium-sized losses. The second-largest single risk loss in the last 20 years - EUR234 million - occurred in February 2011. Another, reaching EUR120 million, was the second largest in the past decade.
The impact of losses in Thailand on German contingent business interruption policies is yet to be assessed, though they are expected to generate some heavy losses for German property insurers. Water pipe damage still generates a negative loss ratio in the German market, with many companies now applying strict underwriting guidelines to this class of business.
In general, German exposures are growing by 2 percent to 3 percent.
Loss-free German catastrophe excess of loss programs effectively were flat on a risk-adjusted basis at the January 1, 2012, reinsurance renewal. The primary influence on the market was the introduction of RMS v11, which indicated that German insurers will need to pay more at lower return periods. At the top end of the occurrence exceedance probability curve, the return period gets lower. Most German insurers have noted the new RMS version but have elected to stay with RMS v9 outputs. Meanwhile, loss-affected programs renewed at increases of 5 percent to 10 percent on a risk-adjusted basis.
A few companies in the German market have increased their catastrophe program deductibles by 2 percent to 3 percent in an attempt to keep them within their reinsurance budgets. This, however, will have an impact on their increased capital costs to service such higher retentions. Most companies purchased the same reinsurance capacity for 2012 as they had in 2011.
Capacity was affected by the number of reinsurers opening operations in Zurich, which increased the catastrophe capacity available to the German market to approximately EUR7 billion to EUR10 billion. Lloyd’s has pulled back from large parts of the German insurance industry, expecting pricing to be up 10 percent (risk-adjusted) on each cedent’s portfolio, while rates were generally flat elsewhere.
While many German property insurers stayed with RMS v9, the impact of RMS v11 will be felt next year, when the former basically is withdrawn from the market. As a result, some cedents may need to review their structures and pricing for the January 1, 2013, reinsurance renewal.
Attritional loss ratios are up, mostly because of the poor performance of the fire account. Nonetheless, capacity and retentions were stable for the January 1, 2012, reinsurance renewal. Most companies stayed with their existing structures while they wait for the final Solvency II rules to be released. Commission levels fell 1 percent to 1.5 percent for fire because of the increased attritional loss ratios.
Overall, capacity remained stable for proportional treaty.