In property and casualty reinsurance we make a fundamental distinction for risk assessment purposes between risks that result from business operations of past years (reserve risk) and those stemming from activities in the current or future years (price / premium risk). In the latter case, special importance attaches to the catastrophe risk. Licensed scientific simulation models, supplemented by the expertise of our own specialist departments, are used to assess our material catastrophe risks from natural hazards (especially earthquake, windstorm and flood). Furthermore, we establish the risk to our portfolio from various scenarios in the form of probability distributions. The monitoring of the risks resulting from natural hazards is rounded out by realistic extreme loss scenarios. Biometric risks, i.e. all risks directly connected with the life of an insured person, are the material factors that need to be assessed in life and health reinsurance. The risks associated with assessment include, in particular, the miscalculation of mortality, life expectancy, morbidity and occupational disability. Furthermore, we must also evaluate the lapse risk because the cash flows resulting from the reinsurance treaties are in part dependent on lapse rates among policyholders. In addition, consideration must be given to catastrophe risks in life and health reinsurance as well, especially events involving a high number of fatalities. Emerging risks have direct implications for our treaty portfolio in both property & casualty and life & health business, not only in terms of the risks they may entail for the future (e.g. questions of liability) but also in the form of opportunities, such as increased demand for reinsurance products. Close coordination therefore takes place between our working group on "Emerging Risks and Scientific Affairs" and our central risk monitoring function. In addition, the evaluation results are integrated into the quarterly internal risk reports, which serve to keep the Executive Board – among others – updated on material risk assessments. The insights and risk assessments of the working group are utilised Group-wide in order to determine any measures that may be needed. With a view to supporting this process of identifying measures, we have set up a committee that assists with the coordination and implementation of recommendations on emerging risks. In this way, we ensure that the recommendations of the working group are factored into underwriting decisions. The committee also takes responsibility for the fine-tuning of position papers and the assessment of newly emerging risks.
In addition, we evaluate trends and issues of the future (e.g. weather derivatives, shortage of resources, health market, cybercrime) and determine how any identified business opportunities can subsequently be acted on through marketable primary insurance and / or reinsurance products. For this purpose, specific subject fields are explored by interdepartmental and interdisciplinary teams and analysed with an eye to business potentials that can be leveraged. In this context we also tackle the question of what new insurance products can be developed in order to protect against cyber risks. Cyber attacks on critical systems are becoming increasingly prevalent. Along with causing heavy financial losses, they can lead to considerable impairments in private and public life, especially if critical infrastructures such as the health, transportation and traffic or energy sectors are impacted. In such instances supply shortages with long-lasting effects as well as significant problems affecting public safety may occur. We have already been present in the market for some years now and have developed appropriate products. Demand for cyber risk covers grew in the year under review as part of the progressive trend towards digitalisation. While the bulk of the worldwide insurance premium was still generated in the US, we are now seeing increasing interest in Europe as well.
Climate change, defined as naturally occurring changes in climatic conditions or those caused by human activities, constitutes a major environmental risk. Owing to the multidimensional nature of the topic, our company draws on the insights of not only insurance specialists but also meteorologists, geographers, hydrologists and mathematicians as part of the risk assessment process. They evaluate the natural hazards and analyse their economic impacts on a global and regional basis.
As a member of the International Insurance Law Association (AIDA), we also regularly share insights with insurers and reinsurers in the "Climate Change" working group on coverage concepts and on loss events that may be attributable to climate change. In the field of natural hazards modelling we also cooperate with universities and research institutions and provide financial assistance to appropriate initiatives. For example, our company has been a long-time supporter of the Geo Research Center in Potsdam and the Global Earthquake Model (GEM) Foundation, whose mission is to improve public understanding and awareness of earthquake risks worldwide by promoting science and establishing consistent standards as well as to reduce the impacts of earthquakes on populations and concentrations of values. Our natural hazards modelling unit sets standards for the management of natural catastrophe risks. We develop and license models for managing windstorm, flood, hail and earthquake risks and assure their quality. Since 2015, drawing on data from the Global Earthquake Model (GEM) Foundation, we have developed a probabilistic simulation model for the earthquake risk in Germany which has been successfully implemented in the business processes.
Furthermore, we participate in the German Insurance Association (GDV) project group "Flood information in ZÜRS". The goal is to publish a zoning system for flood, backwater and heavy rain (ZÜRS Geo). This system can enable policyholders to identify whether their residential property is located in a risk zone and to adjust their insurance coverage accordingly.
We are also represented on the Geneva Association working group "Extreme Events + Climate Risk Working Group". This working group seeks to identify the causes of social and economic risks and, in particular, to recommend actions to the insurance industry that will enable it to build economic resilience to extreme events and climate risks.
In cooperation with universities, research institutes and government organisations we are working to build an extensive knowledge base for the evaluation of climate risks. This digital library already encompasses more than 400 scientific papers and will be further expanded. They tackle a range of subjects, including the effect of rising temperatures on natural disasters and the correlation between natural catastrophe events across different regions.
In addition, experts from our company regularly attend conferences.
We want to make available to our customers broad and individually tailored support that extends beyond pure risk assumption to include the successful provision of a diverse range of services. With "hr | ReFlex", for example, we offer our customers in life and health reinsurance a modular automated Underwriting system that facilitates quick and expert underwriting directly at the point of sale (e.g. over the counter at banks, during a telephone interview or online). In the field of medical underwriting we discuss topical and relevant medical issues through various channels, including our "ReCent Medical News" newsletter. Similarly, when it comes to our electronic underwriting manual "hr | Ascent" – which gives our customers comprehensive support for individual risk assessment – we focus on continuous revision and enhancement so as to be able to map the latest market developments at all times. Furthermore, our international network enables us to quickly and directly transfer innovative reinsurance solutions to other markets.