Rates charged by reinsurers, which have been falling for most of the past decade, may decline more slowly this year, the head of Allianz SE’s reinsurance division said.
“Our assessments show that rates in some parts of the market are reaching a level where they don’t seem sustainable and don’t justify the risk-reward,” Amer Ahmed, CEO of Allianz Re, said in an interview in Munich. “In January, some programs had to be re-priced to keep reinsurers from walking away. That shows that we are reaching a point where economics prevent further significant price reductions.”
Reinsurers including Munich Re and Swiss Re AG help primary insurers shoulder risks. The rates they charge to backstop claims from catastrophes such as hurricanes and earthquakes, typically the most costly disasters, declined in seven of the last 10 years, according to the Guy Carpenter World Property Catastrophe Rate on Line Index.
Prices for property-catastrophe policies up for renewal on Jan. 1 declined 11 percent for the second year in a row amid an oversupply of capital and the absence of costly claims. Prices dropped in many segments, affecting almost all lines of business and geographies, Guy Carpenter, the reinsurance broker of Marsh & McLennan Cos., said in a report this month. Annual reinsurance contracts are typically renewed at the start of January, April and July.
“The July renewals will be the most interesting this year as they focus on the U.S., which is the largest market and offers the biggest capacity for catastrophe coverage,” said Ahmed, 47. “If, contrary to expectations, rates continue to fall significantly this year, we would consider buying more reinsurance than we did in the recent past and likely sell less.”
Allianz, Europe’s biggest insurer, has over the past years bundled the reinsurance buying of its subsidiaries at Allianz Re. The unit also sells reinsurance coverage to other insurers. The more centralized reinsurance spending “took a couple of billions of premiums out of the market” at a “substantial benefit” to the costs, Ahmed said.
“There are more examples among reinsurance buyers to try to place multiyear contracts instead of annual ones in order to lock in favorable conditions,” he said.
Allianz Re, which employs about 350 people, reported operating profit of €418 million ($484 million) in 2013, up from €404 million [$467.8 million] the year before. Gross premiums written remained at €3.9 billion [$4.516 billion] over the same period.
Operating profit at the unit, which gets more than 80 percent of its business from other units of Munich-based Allianz, should range from €300 million [$347 million] to €400 million [$463 million] of a normal year despite the industry’s current challenges, Ahmed said.
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