2023-09-10 15:00:00
Frankfurt The world’s largest reinsurer Munich Re sees good business opportunities in a “continued complex market environment”. There are uncertainties due to inflation, the possible consequences of geopolitical risks and de-globalization as well as climate change and cyber threats, said Munich Re board member Thomas Blunck on the sidelines of the industry meeting in Monte Carlo, which takes place from Saturday to next Tuesday. There, reinsurers discuss the conditions for the next year with their customers.
Even in these difficult times, Munich Re is prepared to offer more reinsurance protection, provided the rates and conditions are right, emphasized Blunck.
The Munich Re board of directors continued that the business had already been able to expand significantly this year. One reason was that smaller reinsurers withdrew from some markets or reduced their risks in the difficult economic environment. Large providers such as Munich Re continued to offer reinsurance protection, but increased prices and tightened conditions – not an easy situation for primary insurers.
According to a survey by the rating agency Moody’s, over 70 percent of the participating primary insurers expect reinsurance prices in the property and casualty sector to continue to rise next year, also because claims are becoming increasingly expensive. However, 91 percent of those surveyed no longer want to buy reinsurance protection, but instead want to bear a larger share of the risks themselves.
Blunck from Munich Re, on the other hand, expects the business to continue to grow, even if it is unlikely to be as strong as it was recently. He is currently observing a stabilization in the reinsurance markets: there is more supply again and persistently high demand.
Reinsurance capital, a key indicator of available reinsurance capacity, is expected to rebound to $461 billion in 2023, after falling to $434 billion last year, according to data from AM Best and Guy Carpenter.
Inflation remains an important uncertainty factor
The focus for primary insurers and reinsurers in the upcoming contract negotiations is the question of whether prices are sufficient to compensate for high inflation. “Inflation will likely continue to cause reinsurance prices to rise, albeit to a lesser extent than in the last two years,” explained Blunck.
Inflation rates are now falling again, but according to Munich Re’s estimates, they are likely to be above the central bank’s target of around two percent on average by 2030 and thus well above the inflation rates of previous years.
Blunck expects premium increases in primary insurance and reinsurance, particularly for car policies: “In our view, some primary insurance markets still have some catching up to do to increase prices for motor vehicle insurance.”
In this segment, the rise in claims frequency and inflation were partly underestimated after Corona. “Increases in premiums would then automatically be reflected in our portfolio with our mostly proportional contracts,” he said.
In addition, Munich Re is primarily concerned with constantly changing risks, particularly natural hazards. According to the reinsurer, climate change is favoring the occurrence of severe thunderstorms. In the first half of 2023 alone, the total damage from these thunderstorms was $35 billion, and $25 billion was insured.
Damage from forest fires and flash floods is also increasing in many regions around the world. Nonetheless, Blunck is positive about the deal: “We have been able to negotiate prices with most of our customers that reflect these higher risks.”
Cyber risks are becoming increasingly important
Munich Re also has a particular eye on the increasing cyber risks. Economic damage from cyberattacks is estimated to triple to $24 trillion between 2022 and 2027. According to the reinsurer, it is becoming increasingly important for companies to better protect and insure themselves.
Munich Re expects the cyber insurance market to grow two and a half times by 2027, with premiums then amounting to around $33 billion. Blunck emphasized that cyber insurance will continue to be a growth area for Munich Re in the coming years. However, attacks on critical infrastructure and cyber wars are excluded from coverage.
Munich Re sees further challenges in what is known as “social inflation” in the USA, especially in the case of long-term liability covers. What this means is that the amounts of compensation payments won in court have recently increased significantly.
According to the reinsurer, political risks have also increased significantly in recent years. Local unrest and the resulting damage can be covered by property insurance, while uninsurable risks from wars and terrorist attacks are also excluded here.
More: Reinsurance prices deter primary insurers
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