The next match is always the toughest

Most football fans will be familiar with this nugget of footballing truth. The quote is attributed to former German football coach Sepp Herberger, who included it in a letter he wrote to his players on 20 August 1954, shortly after they had won the football World Cup. We can draw an analogy between the situation Sepp Herberger was referring to and our renewals seasons – each one is "the toughest renewals season of all time", and autumn 2021 is, of course, no exception!

There are traditionally two major industry meetings in Europe. The first, the virtual event in Monte Carlo, has already been held; the second will see some insurers and reinsurers meet physically in Baden-Baden. Those who are not making the trip to the Black Forest this year either will have to be satisfied with collaborating with colleagues through individual trips and visits. What's more, there is currently some doubt as to whether Monte Carlo will retain its position as the location of the famous "Rendez-Vous de Septembre" going forwards, despite a history dating back to 1957.

The leading players in the industry are already warmed up and on the pitch. This year, though, Mother Nature and climate change brought forward the game's kick-off to June, when it battered the industry with storms and hail, particularly in Germany. The pressure was ramped up still further in the following month with the heavy rain and flooding that brought immense human suffering and saw the German insurance industry experience its most damaging year of all time. The results for 2021 also took a hit from the "Industrial fire damage" category, which saw two claims that each involved estimated losses in excess of EUR 200 million.

The reinsurance market took on around two-thirds of those losses, leaving the reinsurance team on the defensive and no doubt playing catch-up when it comes to the renewals season. The retrocession market is taking another portion of the losses from individual reinsurers, which in turn is adding another player and substantial price increases to the mix. This scenario is likely to put additional pressure on reinsurance buyers.

German insurers are currently discussing a lot of fundamental issues: What are the next steps concerning the pandemic?  Compulsory flood insurance – yes or no? In fact, the industry doesn't really want compulsory insurance because it's too worried about the state interfering. There are concerns that preventative measures might dwindle and the government could impose a fixed premium. The "risk-based premium calculation" buzzword has taken up a centre forward position – but will it score? Wouldn't it be great if, in the match between reinsurance buyers and their reinsurers, the buyers were also to factor in the need for risk-based reinsurance premiums? But for many years now, the buyers have built a wall based on the best the classic Italian Catenaccio defensive style has to offer. The negative results from German reinsurance contracts in 2020 (company closures) and 2021 (natural hazards, fire) certainly give the attacking reinsurers "firepower" that is reminiscent of Lewandowski.

One of the young players on the pitch is "cyber". Everyone is talking about its huge potential and predicting a great future. But here too, there are dark clouds gathering on the horizon: How should we deal with "cyber warfare", with terrorist attacks on the IT infrastructure of entire economies? As was the case with the pandemic, diversification would simply not do the job in such a horror scenario – after all, losses could occur worldwide and simultaneously. How could accumulations be determined and controlled in this situation? It is also important to note that many existing non-life and liability policies have long included certain coverage elements for cyber risk, though often not with great transparency and rarely quantified. Dealing with this "silent cyber" exposure is one of the key topics of this renewals season. Only over the coming weeks, or in the second half if we're keeping with the football theme, will it become clear whether and to what extent coverage can be obtained from the respective reinsurance markets.

Wondering why you haven't heard about "sustainability" yet? Fear not! It will, of course, be a key part of the renewals season. Climate change, with its effects on the frequency and severity of certain natural catastrophes (especially droughts, floods, heavy rain, forest fires and wildfires), poses a particular challenge for the industry in terms of its ability to adapt to changing conditions and to re-evaluate and update natural hazard models. It is highly likely that a host of insurers will want to buy more reinsurance capacity for 2022 than they have to date. The reinsurance market is ready for that.

Of course, there are also many other specific areas to be addressed in the bilateral discussions. Being a good reinsurer is not about making blanket demands of clientele, but about evaluating individual portfolios and their inherent risks.

The different perspectives of reinsurance buyers and reinsurers on the results of this kind of analysis, their different views on risk-based premiums and about the coverage amount for contracts are part of the annual tradition of the renewals season. As is the case every year, finding a consensus will not always be a quick process. So, once again, it will probably be the toughest renewals season of all time.

​Baden Baden 2021. Let's join forces.