The Vienna Insurance Group limits its liability arising from the insurance business by ceding, as necessary, a portion of the risks assumed to the international reinsurance market. Within the Vienna Insurance Group, only some risks of smaller foreign companies in the Group are reinsured. These risks are in turn ceded to reinsurers at the Group level.
Reinsurance guidelines
The Vienna Insurance Group’s reinsurance guidelines are jointly determined each year by the central reinsurance department and the member of the Management Board responsible for reinsurance while the reinsurance strategy for the next fiscal year is being developed.
The reinsurance guidelines require each company in the Group, in conjunction with the central reinsurance department, to provide reinsurance coverage that is appropriate for its local company. The reinsurance guidelines govern the following matters:
- Reinsurance is a prerequisite for providing insurance coverage. Departments may only make a binding commitment to insure a risk if sufficient reinsurance coverage from external reinsurers has already been ensured.
- Retention: It is Group policy that no more than EUR 15 million per event of loss due to natural catastrophe can be placed at risk on a PML (probable maximum loss) basis. The maximum Group-wide retention per individual loss is less than EUR 4 million.
- Selection of reinsurers – diversification. Wiener Städtische AG and its consolidated companies divide their reinsurance coverage among many different international reinsurance companies of appropriate credit quality, so as to minimize the risk growing out of a reinsurer’s being unable to pay. No significant default of a reinsurer has occurred in the history of the Vienna Insurance Group.
- Selection of reinsurers – rating. For business segments where claims take a long time to be settled, especially for auto liability and general liability, Wiener Städtische AG uses as reinsurers companies with outstanding ratings (at least a Standard & Poor’s rating of “A,” preferably “AA” or higher), which in all likelihood will continue to exist over the long term. Even for business segments with claims that are settled quickly (for example, natural catastrophes, fire, technology, transportation, storm, burglary, household, water pipes, auto collision), where the number of reinsurers is greater, the preferred rating is Standard & Poor’s “A” or higher. Only in a few cases – and for limited periods of time – are reinsurers with lower ratings accepted.
- Design of the reinsurance programs. If economically justified, any company in the Group may purchase reinsurance coverage individually from external reinsurers. If individual reinsurance contracts can only be purchased by a company in the group on uneconomical terms, the Vienna Insurance Group strives, as far as possible, to jointly place reinsurance contracts covering risks from natural catastrophes, property lines, accident, aviation and motor vehicle third-party liability under the Green Card [international motor vehicle insurance certificate] agreement. If reinsurance contracts for small companies in the Group involving a low level of risk may be purchased in the reinsurance market only on unfavourable terms, the Vienna Insurance Group itself acts as the reinsurance company. If necessary, these intercompany reinsurance contracts are, for reasons of safety, passed on by retrocession to the reinsurance market. The guidelines for Wiener Städtische AG reinsurance coverage are presented below. Retentions for all other companies in the Group are below those of Wiener Städtische AG.
Reinsurance coverage using the example of Wiener Städtische AG
- Natural catastrophes. Wiener Städtische AG provides insurance for damages caused by natural catastrophes such as storms, hail, flooding or earthquakes. Wiener Städtische AG uses reinsurance coverage to limit its retained losses from natural catastrophes to EUR 4.5 million per loss event.
- Corporate customer business. In the corporate customer business, predominantly proportional reinsurance cessions limit Wiener Städtische AG’s maximum net loss to EUR 1.5 million. This reinsurance structure can guard against both the effects of individual large losses, for example from fire, as well as an increased loss frequency.
- Private customer business. The private customer business consists essentially of stable insurance portfolios having calculable results that are marked, above all, by a stable loss frequency. Thus, frequent claims are only reinsured for exposed segments, for example storm insurance, with a targeted use of proportional reinsurance to reduce the effects on retention. The effects on the retention of the few major claims to be expected are insured by non-proportional reinsurance. Even in this business segment, the maximum net loss of Wiener Städtische AG is between EUR 1.0 and 2.0 million for each class of insurance.
