Holger Gaserow reviews the impact of January's renewal season

The German insurance market produced no major surprises in the 1 January 2005 renewal season and, despite previous fears of tumbling prices, and pressure on terms and conditions, the overall picture was relatively positive.

Some believe that the global reinsurance market has passed its peak this year with maybe the exception of heavy industrial casualty business. Capacity in the market is more than adequate and some even speak of over-capacity.

Among the key topics this renewal were security of capacity and also risk concentration. Globally, the industry is attracting fresh money and increased competition due to the overall positive business development.

CLASS DIFFERENCES

In casualty, rates have remained generally firm although a few segments experienced some softening due to substantial capacity and new entrants growing their market share. This has been most obvious in personal lines and in particular in homeowners' liability, personal liability and lower limit liability with non-professional exposure. Despite that, the market is still relatively hard overall and there have even been slight rate increases in some classes such as motor.

In property, price rises were seen in markets that were hit by the major storm activity experienced in 2004. In the other markets, prices were slightly off the high 2004 levels. Looking ahead, continued pressure is expected on property rates.

The shift to non-proportional reinsurance covers is ongoing as even major professional reinsurers continue to move away from proportional reinsurance.

Client retentions continue to increase in certain markets and products, such as property per risk, property catastrophe, industrial liability and, to a much lesser extent, in motor. There are reduced cessions for reinsurers due to good results in 2004. Cedants are looking to reduce their expenses for reinsurance, particularly in the lower layers.

With progressing technological standards in the industry, there is an improved transparency of catastrophe exposure.

In marine, the market is generally showing technical and risk adequate rate levels. The increasing pressure on excess of loss rates seems to have been compensated by the hurricane events of 2004.

Motor continues to be the most important class of insurance for German property insurers. There was a marked increase in activity in the primary market in 2004 as the big German motor insurers competed for clients using new tariffs, targeting the public service sector. Market leader Allianz introduced new prices in September 2004, aimed at public service employees in particular, which triggered an industry wide price war. HUK-Coburg, the number two in the market which has a key base among public sector staff and has grown strongly in recent years, also introduced a new tariff from November 2004.

Another notable development in the motor market was the introduction of higher insurance limits following a major loss resulting from a traffic accident. In August 2004, a collision between a tanker truck and a passenger car on the Wiehltal bridge near Gummersbachn resulted in the death of the truck driver and severe damage to the bridge. The insured loss is now estimated at EUR33m after initially rather exaggerated estimates. Following this claim, lobbyists (namely the German automobile club ADAC) asked for higher covers.

Motor insurers Kravag (R+V group), Deutscher Herold (Zurich) and DEVK became the first in the market to extend their maximum cover from EUR50m to EUR100m for new contracts. Kravag & Deutscher Herold introduced their new tariff as from 1 March 2005, DEVK's new tariff came into effect as of 1 April 2005 and other insurers are likely to follow. The market leader, Allianz, is still waiting and monitoring closely the actual market development.

Before, all German motor insurers offered a maximum limit of EUR50m for new contracts. This had been introduced by the reinsurers after 11 September 2001, replacing the unlimited cover (illimite). Old contracts, however, continue to be subject to unlimited cover. The rate of conversion from old to new contracts as at 31 December 2004 is expected to be roughly less than 50%.

- Holger Gaserow, chief executive officer of Aon Ruck.

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