Ralf Oelssner: Good day, ladies and gentlemen, colleagues. We all know what we want to do. We want to talk about the future of German industrial insurance. If you agree, we will start with Europe, and thus with the EU Commission’s analysis of the industrial insurance sector.I expect that most of us have read the 164 pages of the sector analysis mucho con gusto. If not, the summary will do just as well. Mr Schlicht and I recently had two discussions in Brussels which made us sit up and take notice. The subject was one part of the results of the sector analysis, namely that of co-insurance. The authors of the sector analysis have very specific ideas about the future of co-insurance, as we know it and as we also need it in certain larger fields. We are afraid of a possible misuse of the consumer protection idea in industrial insurance, in which this thought is out of place, we are old and ugly enough to direct our own affairs. Here it is possible that a tool that we need will be over-regulated or even taken right out of our hands. The bigger the risks are, particularly in catastrophe cover, so much more do we need co-insurance. In Brussels they imagine that this is very easy, that everything can be done by one insurer and whatever he cannot carry will be passed on to reinsurance. That seems to us to be a rather simplified way of looking at things. Are Mr Schlicht and I on the wrong track when we assume that we need the tool of co-insurance for large risks, or not? Here I would be glad to have the views of the colleagues.
Günter Dröse: I think I have a good example from a market which functions completely differently, namely the USA. After a big takeover, we had placed a property policy – let’s say after the German model – actually in the US with a total of only four insurers involved. There were two which were primarily aimed at the American market, and two which were more strongly involved in Europe.We had a loss arising from 11 September. There were arguments towards the end, but all in all it was a relatively simple matter; as you know, it was around $1bn. If we had had to regulate following the American guidelines – with umpteen layers and complicated structures, with varying demands by insurers per layer, differing deductibles, sub-limits and so on – we would probably still be arguing today about who paid what, when and where.The cost savings alone in the claims handling are considerable. I can see no disadvantages on the placing side, the rate was competitive, probably even more so than the average we would have received on the American market.
Ralf Oelssner: Mr Allerdissen, your body language seems to indicate that you agree.
Hans-Jürgen Allerdissen: Yes, I won’t disappoint you. One of the reasons why I prefer co-insurance as it has existed so far, is because I want in all circumstances to promote the leadership ability of all participants. If complicated contracts are always led only by one primary company over a long period, and the actual risks are handed on to reinsurance, then the number of those who can be regarded as alternative leaders will in the long run become considerably fewer.
Hans Jörg Schill: That would then have the disadvantage that there would be less competition. However, Brussels want to have more competition.
Herbert Fromme: Or the reinsurers take over the whole risk straight away, as they are beginning to do now. They let a subsidiary or another company do the fronting, and then take the complete risks. The reinsurers can take the whole thing and share it out.
Ralf Oelssner: Good, but then we still see the aspect of lack of competition, only this time on the reinsurance side. Maybe we could look at it for a moment from the other side. In London we have the principle of vertical placement. This is relatively unknown in Germany, for reasons which I simply cannot follow; and people go pop-eyed when somebody in Germany talks about vertical placement. We have a big policy, with a German leading company. For more than 50 years this has been Allianz. What Allianz as leader does not keep itself, we put into a pool and it is offered internationally. A double vertical placement: once about the premium for a share, and then also for the deductions to be paid by the buyer. Why don’t we have that in Germany? I’m speaking here about a combined hull and liability policy in aviation. That is $40bn hull value and $2.25bn liability limit any one incident, that is property and liability cover. That is sold in detail in the individual sectors. Why doesn’t that function in Germany? We choose a leader, and with our agreement the leader seeks out other insurers who will share the risk.
Hans-Jürgen Allerdissen: Or we look for them ourselves.
Ralf Oelssner: Or we do it ourselves. In Brussels, they see the danger of agreements which will distort the market and the competitive aspect.
Edwin Meyer: I have also had great problems with the abolition of co-insurance, because this does in fact naturally lead to a complete distortion of competition. We as a company have very global, international placements. The size of these risks, and also the dangers, call for partners who also want to take over part of the risk. It is already difficult enough to find competition in this field.
Herbert Fromme: Where is the difference? You complete a contract now with, for example, Allianz and say: Dear Allianz, the part you don’t carry yourselves we would like to have so and so to act as co-insurers. In future you could have a say in the choice of reinsurers or of primary insurers who are also active as reinsurers.
Hans-Jürgen Allerdissen: It is precisely here that I see an additional danger from the viewpoint of the client. I have always said, whether as insurer or as insured: don’t put all your eggs in one basket. There are times when even reinsurers totter or fail, and there are also good reasons for this. That means that I really ought, as client, to keep a check on how the primary insurer has organised its reinsurance programme, what comes under facultative cover to which reinsurer, what remains in the end in facultative reinsurance cover. How do I deal with long-tail risks for the period of the risk cover? I believe that to be as good as impossible. The only remedy is to atomise the risk, that is direct it ourselves into different baskets. If one of them falls away, then the others are still there, still sound. Otherwise I have no control over the matter, and for large risks I believe that is just not acceptable.
Edwin Meyer: Such regulation would automatically lead to the insurer developing its own model, while actually we do that. We would like to say, we want that as quota share, we want to make the programme. In property/casualty insurance I work in three markets, the European, the English and Bermuda. The varying premiums which can be structured into a programme, all the special factors which are important at specific times and can lead to considerable savings depending on the scope of the programme – we would lose all these.
Wolfgang Faden: Could it be that the insurance industry in Brussels is treated quite differently from others? We have already seen, in connection with cover for pharmaceutical risks and Brussels’ ruling on Gerling and HDI, that the decision actually leads to less competition rather than to more expansion. This would probably also again lead to a further constriction of competition, because – if the principle were all or nothing – other companies would not be in a position to take part in the negotiations. They will say they cannot carry the risk alone, they cannot reinsure it alone, or they don’t want to have the gross premium in their balance sheets. This is also true for top companies. I would like to see the insurer who wants to have a PML for ?1bn gross in the balance sheet if a loss arises. That means that there will be more and more insurers who are not in a position to act as leading insurer. They will also drop out as co-insurers. If a co-insurer says: I don’t feel capable of managing the business but I would like to offer capacity, and would also like a right to give my opinion, so I’ll make suggestions about the wording and about the premium level – all that would be lost. Therefore I put the question whether we should in principle talk about a constriction of competition.
Ralf Oelssner: It’s like this: we cannot really follow the thought pattern which exists in Brussels in this area. It is probably for us just as much a matter of getting used to the idea as the theme of insurance is for some politicians. A body which looks at the varying levels of profitability of European industrial insurers and from that draws the conclusion that Europe-wide competition for industrial insurance does not function properly, with that body you cannot really follow other ideas.
Günter Dröse: If it were really as they think it is, then all companies which today show large profits would have to work in sectors where there is no competition. That means, the Commission would generally have to intervene whenever a lot of money is earned in one market or another, whether it is car manufacturers or banks. It would have to say: Hey, that is no real competition and there we have to act. With Solvency II, I see in any case a trend coming, that the Commission in the end sets out how high the profits of an individual company can be, without it violating some competition idea of the Commission.
Ralf Oelssner: That supports my old thesis of state-regulated technical underwriting.
Herbert Fromme: Now I must come to the aid of the Commission. European industry has been screaming loudly enough that it is badly treated by brokers and insurers. What is coming now is a reaction to Spitzer. I can remember that after Spitzer the industry, including the DVS, beat the drums pretty loudly against the brokers, saying they had treated the clients badly. There the Commission said: Let’s have a look at things.So you started to meddle a bit, and afterwards you get worried. In addition there are two points. The first is the trend to re-regulation, both on national and EU levels, in particular affecting the insurance industry. Secondly, the lobbying work of both insurance industry and insurance clients was bad, in Berlin and also in Brussels, otherwise things like that don’t happen. You always have to look and see who started the fire, what came out of it and who afterwards cries ‘fire!’.
Ralf Oelssner: Gently, Mr Fromme. For DVS, the remuneration of brokers is as immaterial as it can be.
Herbert Fromme: It sounded different then, Mr Oelssner.
Ralf Oelssner: Slowly! What the DVS spoke out about was criminal activities such as bid rigging. The brokers’ remuneration is really immaterial to us. What we do not want, is a lack of transparency and criminal activities like bid rigging. Otherwise, the brokers can do to us what we permit them to do.
Hans-Jürgen Allerdissen: I would like to go back again to the original question of competition and the influence on it of the suggestions from Brussels. We all know how many insurers write such risks. A primary insurer that wants to take part in this sort of risk, and has to keep to the Brussels model, has to acquire suitable capacity on the reinsurance market before it makes an offer. Otherwise it has no chance of placing the risk. That means that I do not get any competition, I always get the same conditions from the same reinsurers.