Real success for a global reinsurer is increasingly about spotting opportunities in different geographies as they arise – and then moving prudently to capitalise on them. We caught up with Allianz Re’s Mr Holger Tewes-Kampelmann on the sidelines of Les Rendez-vous de Septembre to talks about growth opportunities, the year ahead and the one just gone.
Allianz Re is probably the closest thing that the reinsurance market has to a household name – largely because of the ubiquitous brand of the Allianz Group that features in so many markets around the world.
We spoke to Allianz Re chief executive officer Holger Tewes-Kampelmann on the sidelines of the annual reinsurance get-together in Monte Carlo about how the business is growing and where further opportunities might be found.
Last year in review
Asia is undoubtedly an important series of markets for Allianz Re that requires deep local knowledge.
“Asia in itself is a number of different markets with completely different dynamics,” said Mr Tewes-Kampelmann. “Overall, performance in Asia has been good in the last year. We didn’t have a big CAT event in Japan. China has been relatively good. India is also growing, so we have had a couple of markets with good performance. For us, Australia is a little bit outside Asia and the dynamic with all the CAT losses has been completely different.”
But Mr Tewes-Kampelmann is quick to note that performance must be viewed in context.
“In relative terms, given that the performance has been good, the rate development that we have seen in Asia in the last renewal has been less good for reinsurers compared to other markets,” he said. “If you think about the big markets, Europe or US, the rates and terms have improved quite a bit and on a relative basis are now sometimes better than what we see in Asia. In Asia, we would still expect to see further improvements to close that gap a bit.”
China
Allianz Re has significant exposure to the China market.
“We have quite a sizable business in China and we like that it’s a core part of our business,” said Mr Tewes-Kampelmann. “The growth has been smaller than expected, but growth is not our primary concern. The margin has been good – or okay – definitely not great. But while we see some need for further strengthening, we think that we end up at an acceptable level.”
Most metrics indicate that China’s economy has been struggling post-pandemic.
“Therefore, in China growth is lower than anticipated,” said Mr Tewes-Kampelmann. “You had a little less economic activity, so that helped a little bit on the loss ratio side. In some European market, with the reopening, you saw some inflation surge which also led to some deterioration of the loss ratios.
“We haven’t seen that in China, so therefore, from a margin perspective, China has been in line with expectation.
Nevertheless, if you look at the overall margins in China, given that some of the other markets have improved quite a bit, there’s a bit of a gap.”
But China will remain important for Allianz Re. “Overall, we are a material player in China and we will continue to be there,” he said.
The year ahead
Mr Tewes-Kampelmann is focused on looking for future growth in the markets where it already has a strong presence.
“We run our third-party business on a global basis, so we really look at the different markets,” he said. “On the one hand, every piece of business that we write has to be profitable on a standalone basis, but it’s also a relative comparison. This is important for us because then we can shift our portfolio depending on where the terms are globally most attractive.”
Deploying capital where it can command the best return is an ongoing process.
“Given a significant hardening in developed markets, in some parts of Asia we see a bit of a gap because they have not strengthened the terms as much,” said Mr Tewes-Kampelmann. “Therefore, it is something we still would like to see in the next renewal. Those local players have to understand that it’s not only the local performance of the contract, but also how attractive the market is in relative terms globally.”
This can involve giving local cedents a snapshot of the global picture.
“To give you an example, we have some CAT exposure which we also pick up in surplus treaties or other treaties in Asia and that is something that we also protect with some CAT retro,” said Mr Tewes-Kampelmann. “Now, CAT retro prices globally have increased in the last renewal. That is something that has to be factored into the local account, which for local cedents, quite understandably, is something that they might not have on their radar screen.
“They say, ‘Wait a minute. I have a contract. I delivered on the margin that was indicated - so why is there now a push for higher rates?’ That is something to be discussed with the local cedents in order to help them understand where we are coming from and what is really driving our prices. We made some progress in the last renewal, but there’s a little bit still to go,” he said.
Growth markets in three pillars
Mr Tewes-Kampelmann analyses each market on a standalone basis.
“Currently we find India most attractive with the dynamics in the economy and everything,” he said. “Our share of the Indian market from our portfolio perspective has been a little bit lower. In our portfolio, one significant pillar is China, one is Japan and we want to build up our Indian business to be a third pillar.
“We have made progress on that and we will continue. Maybe Indian business will grow a little bit over-proportionally for us in order to improve the overall balance of the market and also reflect what we think is the relative attractiveness of the different markets. The government is also focused on the protection gap, so I think the Indian market is really quite attractive. For the Indian economy, we are rather bullish. India is really on a good path,” he said.
Pricing, capacity, retentions prospects
Mr Tewes-Kampelmann is approaching the 1/1 with a profound sense of realism.
“It depends a little bit by market,” he said. “We have to wait for some things to develop – like the CAT season in Japan and things like that. To some extent it’s too early to say, but overall, it’s one thing to look at the actual performance of the contract but in comparison to some of the global trends, on the pricing side, on the margin side, there is a little bit of a gap to be filled.
“Retentions sometimes have still to be looked at because what we see globally, in Europe, we have seen quite a bit of change. These climate-change-driven midsize, but still severe losses, we see more of these and that is a big burden for reinsurers if the retentions are too low. There’s quite a push, which started last year, to increase retention in the developed world and that is something that I think will also spill over, but it might take a bit of time until it comes through in the local (APAC) portfolios,” said Mr Tewes-Kampelmann.
Climate change
Does Mr Tewes-Kampelmann see a time when some geographies or business lines just become uninsurable. Such a debate currently raging in Australia, for instance.
“We don’t do reinsurance business in Australia because we have a significant local entity as Allianz Group there,” he said. “They provide significant exposure to the Allianz Group and therefore we don’t have to add more on the assumed reinsurance side. That’s why we are not active there - but as we support our local entity as an internal reinsurer - we have seen the loss developments there and the size as well as the frequency of these events has increased, which leads to discussion about affordability of insurance in some exposed regions.
“That is something in which our local entity is in active discussions. It’s a question of how the industry, but also the government, can come up with a sustainable approach to address insurability because there’s obviously a significant push to have adequate prices because otherwise insurance is not sustainable,” he said.
Cyber
Mr Tewes-Kampelmann is both realistic and sanguine about the cyber market.
“Cyber is definitely a topic that we spend quite some time on,” he said. “The performance in cyber this year has been okay and that is why I don’t think that it’s much of an issue right now. People provide reinsurance capacity for cyber. Cyber is growing.
“The terms and conditions are something to be monitored. Where the conditions become a little bit weak, then indeed it can be a difficult situation. First, it might be great for policyholders to have wide coverage, but I think in the long run it might be a negative because then if you once have a big, big loss with aggregation issues, then some capacity and capital might go out of the market and not come back.
“Therefore, we think that you should be rather prudent and modest and keep an eye on your conditions. And then I think the cyber market can continue to develop,” said Mr Tewes-Kampelmann. A