Interview: Johannes Goebel, Novae Re


25.10.11 TUESDAY


Engineering challenges and success


Johannes Goebel, head of engineering and risk officer at Novae Re’s Zurich office, speaks to Intelligent Insurer about the state of the engineering reinsurance market.


priced somewhat higher, whereas the world-wide coverages tend to be renewed flat or with a small sur- charge.


Q How would you validate the present business


environment for your line of business?


A Engineering is not as cycli- There are fewer market players


cal as property per risk.


machinery breakdown covers. What else is there to consider?


A The market for electricity production is at a turning point within many markets.


The disaster of Fukushima made it clear to many that nuclear energy can only be a bridg- ing technology towards energy forms that are beyond petrol and uranium. We have seen the first batch of offshore windfarms go online, new thermo solar plants built in Southern Eu- rope and thermal water power plants – a tech- nology predominantly used in Iceland – being


The regional treaties, that suffered from losses are, as expected, priced somewhat higher, whereas the world- wide coverages tend to be renewed flat or with a small surcharge.


Johannes Goebel, head of engineering and risk officer, Novae Re Q What affect did the disastrous Q1 events in Australia, New Zealand


and Japan have on the engineering reinsurance market?


A The first quarter 2011 posed a lot of stress on many reinsurers, especially the


ones that are heavy in catastrophe business and are not diversified. The pressure on re-capital- izing and/or downsizing for the upcoming pe- riod is there. Reinsurers including Novae suf- fered losses from these events within its cat book, whilst engineering largely escaped Nevertheless, we see that there are – of course


– increased building activities, especially within the earthquake stricken areas of Japan and the South Island of New Zealand; infrastructure has to be restored, buildings are to be re-built. The influence on the pricing of engineering


treaties, however, is limited. The regional trea- ties, that suffered from losses are, as expected,


around; engineering is largely seen as quite a stable line. However, the pricing of individual risks is quite depressed – construction reinsur- ance seems to run better than ma- chinery breakdown those days. In essence, the large soft engi- neering phases of the years 1999


– 2001 are not forgotten. During these years, the deductible of direct policies were extremely low, so attritional losses hit the reinsurance con- tracts – most of the engineering business has always been placed on a proportional basis. Presently, the deductible level is under pres-


sure but still far above the levels of those years mentioned before, so attritional loss ratios are not the predominant focus of reinsurers. Nev- ertheless, the complexity of coverages and tech- nologies increase and I am certain that we might see single losses that we all are not used to. On the pricing front, there is pressure on good accounts and a few new players entered the markets during the last 12 months, so pric- ing remains a challenge for the reinsurance market.


Q Engineering does not only consist of construction of buildings or 18 | INTELLIGENT INSURER —BADEN-BADEN TODAY | Tuesday October 25 2011


explored in many other parts of the world. All of these “new” technologies pose certain


new risks that have nothing to do with the tra- ditional construction or breakdown risks and it requires a steep learning curve for many rein- surance underwriters to get familiar with new risks and loss scenarios. But there are always pockets of engineering


risks that are hardly considered by reinsurers, for example, Novae had started to develop some cov- erages for today’s computer risks. The focus is not on the hardware any more but on the availability of technology to a client and its increased costs to stay online instead of just not doing business at all. The blackberry incident, when services were disrupted for several days, clearly showed to most of us the importance of online availability. We also see a trend that credit & surety placements go hand in hand with engineering, which makes perfect sense. Most projects re- quire financing aspects and bundling both cov- erages is one aspect that has been mentioned by our clients to us. Providing reinsurance capaci- ty for both lines also require a matching interest of the underwriters, so there this turns into an underwriting exercise not for two independent lines of business but to underwrite cedent’s ac- tivities for projects instead.


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