Understanding risks in depth and breadth, protecting capital and avoiding surprises are key to Jan Störmann’s success in buying reinsurance on a global scale. A background in underwriting helps too
Jan Störmann is global head of reinsurance for Allianz Global Corporate and Specialty (AGCS), which is Allianz Group’s dedicated global carrier for industrial and specialty business.
Störmann, 44, has been at AGCS since 2007. While he is a seasoned insurer, it is his early experience as a broker at Aon Jauch & Hübner that sets him apart and puts him at a distinct advantage in reinsurance negotiations.
A cedant that understands its risks in detail, he says, is at an advantage in any cedant-reinsurer conversation, and reinsurers should be prepared to give price advantages. Beware any reinsurers that plan to enter the negotiating room with a thick rulebook of underwriting rules and actuarial data.
When it comes to analysing risks, there is certainly a lot for his team to understand. AGCS, a large specialist global company, is one of the largest companies of its kind in the world.
Here, Global Reinsurance finds out more about how Störmann operates.
Q: What do cedants most look for in their reinsurers?
A: Sustainability. AGCS is buying reinsurance with a long-term view. We are looking for aligned philosophies with our reinsurance partners. Apart from pure security aspects, the overall quality of the relationship is very important to us.
Q: Reinsurance rates softened at the 1 January renewals. Were cedants holding out until the last minute to get cheaper pricing?
A: With AGCS’s high-capacity demands, it would not make sense to play tactical games around year-end. Contract certainty, transparency and stability are driving our purchase process for our strategically important cessions. I personally do not believe that potential ‘last-minute wins’ pay off in the long term. There is always a risk that this will lead into exactly the opposite direction.
Negotiations with our reinsurers are very much driven by technical arguments anyway. The special character of AGCS’s business makes us work with reinsurers that naturally have a deep understanding of our book, and therefore pricing of AGCS reinsurance treaties is less driven by market developments than by exposure changes within our own portfolio.
Q: Do you think we have entered – or re-entered – a soft cycle of the market?
A: AGCS is spending significant amounts of reinsurance on specialty business, such as aviation and financial lines, where we could definitely not observe softening tendencies. The cat markets are by nature cyclical, but are overall still a major source of risk-adjusted profit for well-diversified reinsurers. The reinsurance market has become a lot more professional over the past decade and I don’t believe we will see really soft periods again, such as at the end of the 20th century.
Q: How does AGCS design its reinsurance-buying programmes?
A: The overarching goal is to optimise the diversification of our net portfolio and subsequently improve our use of capital. This means we look carefully at any euros spent, comparing ceded profit to savings in capital.
Having said that, it’s also important to understand that AGCS follows a very conservative risk management approach, protecting our capital at substantially higher safety levels than required by rating agencies or regulators. We don’t want to see any surprises from potential clash scenarios impacting our net because we have not considered them in our reinsurance concept.
Apart from the purely economic view, we are targeting simplistic and transparent solutions, moving away from product or line-specific covers towards fewer programmes covering multiple lines of business.
Q: How much does AGCS cede into the reinsurance market per annum?
A: AGCS cedes about E350m ($430m) of treaty reinsurance premium annually.
Q: How will Solvency II change the way reinsurance is purchased?
A: Solvency II is not expected to change AGCS’s reinsurance purchase strategy. We have already been using enterprise risk management approaches, including our own internal risk capital model for a number of years. To us, Solvency II constitutes a formalisation of a risk management process that, to a large extent, has already been practised within AGCS.
Q: To what extent is a reinsurance buyer judged on their track record, and to what extent on future strategy?
A: Both aspects count. Innovation and strategic alignment with the corporate targets are becoming increasingly important. However, the reinsurance buyer will also be judged against how they are executing their job. Contract certainty of the placements, sustainability of capacity and maintenance of relationships are absolutely key.
Q: How did you personally become involved in purchasing reinsurance?
A: Before joining AGCS, I was working as a reinsurance underwriter and broker in various positions. The missing part had been the buyer’s view, and so I simply took the opportunity when it came up with AGCS. The job is not just attractive to round up the picture on the reinsurance side, but also to broaden the experience with the direct business in a highly dynamic environment.
Q: How does ceding differ from underwriting? Does it attract a different sort of person to that attracted to underwriting?
A: Underwriting requires a deeper understanding of the business specifics, while ceding requires a broader understanding of the corporate strategy. Both jobs require analytical thinking and the ability to work within cross- functional structures. It’s difficult to become a good reinsurance buyer without having experienced the front line for a while. A certain underwriting practice and a solid understanding of at least one line of business is beneficial for every reinsurance buyer.
Q: Describe an average day in the office
A: I can hardly recall having ever had two comparable days in my professional life, particularly at AGCS, which has been growing quite rapidly on a global scale. Every day poses a new challenge and gives me fresh motivation.
Q: Who do you most admire in insurance and why?
A: Frankly, I don’t think the insurance business is really made for producing idols. My heroes come from the worlds of sports and history. GR