Artemis: Munich Re Expects Positive Renewals But Slower Premium Growth
Munich Re’s reinsurance CEO, Torsten Jeworrek, told Artemis portal journalist that the company expects positive market conditions in the upcoming renewal season, but said it is vital that market prices sustain recent gains to ensure that risks are adequately covered. At the same time, the reinsurer expects the development of property and casualty reinsurance premiums to decline in key regions in the coming years.
Thanks to the economic recovery that took place after the COVID-19 pandemic blockades, plus the price increases experienced after the long-term market, Munich Re sees reinsurance market conditions as positive. Which leads the company to project growth for the P&C reinsurance market, albeit at a slower pace than that observed in recent years.
The company expects the reinsurance market to grow at around 3% per year (adjusted for inflation) until 2023, with the primary insurance market forecast to grow at the same rate. For reinsurance, however, this represents a slowdown in growth of a rate of 6% in the period 2018 to 2020, with expansion to decelerate in Europe, North America and Asia-Pacific, according to the reinsurer.
On the other hand, P&C reinsurance premium growth is expected to accelerate for Africa, the Middle East and Latin America in the coming years. Speaking at a press conference on the 7th, Torsten Jeworrek gave more details about what one of the world’s biggest reinsurers expects for next year.
Jeworrek explained that, “In the traditional reinsurance market, we see an ongoing stable environment.” But after the recent year of catastrophe losses, social inflation, pandemics, other man-made loss events and the ever-present threat of climate risk, Jeworrek believes the market needs to protect its price gains. “We are convinced that the market environment is positive, but it is absolutely necessary for us to maintain this price level, otherwise we will find it difficult to cover these risks in the future,” he explained.
He also said Munich Re expects reinsurance renewals in January 2022 to be broadly positive. “The market environment leads to an expectation that rates should stay or improve further, this is a global statement,” said Jeworrek.
He said recent losses from catastrophes, such as the floods in Europe, Hurricane Ida and the ongoing wildfires in California, will add pressure on catastrophe-threatening property lines and businesses. “This will lead to further improvements, especially in the property business, the catastrophe business,” he explained.
Adding: “This picture is not homogeneous throughout the world, but we expect at least stabilization, if not an improvement in prices.” Specifically on the home catastrophe reinsurance business in Europe, in light of the recent floods, Jeworrek said that “the cat price in Europe has been stable, at best, for the last five, six, seven years or so, a little different from other markets around the world. Now we have an event here in that market and it will definitely lead to a reconsideration of prices.
“We still have to update ourselves as an industry in modeling secondary hazards such as forest fires, floods and others,” he explained. Adding that, “with social inflation in the United States, many of the market participants in our industry had to deal with reserve issues because social inflation accelerated and was unexpected. This has stabilized a bit, but we’re not sure how the coronavirus might affect this in the next few years. ”
Therefore, there are still issues to watch out for and price gains that are likely to be needed to ensure that the reinsurance market is covering its cost of losses, cost of capital, expenses and to provide a margin in the long run. On the alternative capital side of the reinsurance market, Jeworrek also provided some comments, saying that, in the view of reinsurers, “alternative capital is stable at a level of around $100 billion, including locked-in capital”.
But he noted that challenges faced in reinsurance have affected investors’ confidence in insurance-linked securities (ILS). “When you ask the investor community, this increase in unmodeled losses and perils has led to some kind of business model reconsideration and higher return requirements,” said Jeworrek. “Because of capital fixed assets, due to the events of recent years, there is a greater appetite for liquid investments such as catastrophe bonds and less appetite for less liquid products that were more popular in recent years.”