While performance remains “pretty good” for many players in the global reinsurance and insurance market, it is no longer “business as usual” according to Torsten Jeworrek, member of the board at the world’s largest reinsurer Munich Re.
Speaking at the reinsurers press briefing at the Monte Carlo Rendez-vous today, Jeworrek explained that the challenging market environment is set to continue, although he does feel the worse is over for now.
However, it was clear from his comments, and the initiatives Munich Re is responding to the market challenges with, that Jeworrek feels we are in a new normal and that the reinsurance market is evolving into something that will challenge even the largest firms to adapt.
“Is everything good? Can we continue, can we do business as usual in the years ahead of us? My conclusion and my first statement is no, not at all,” Jeworrek explained.
Growth is still being seen in reinsurance, he continued, but it is limited and so in order to take advantage of opportunities reinsurers need to innovate and embrace new business models, Jeworrek explained.
Munich Re itself remains disciplined in its underwriting and clients continue to seek to partner with it, Jeworrek said; “Our capacity, expertise and customised service are in demand. At the same time, we maintain active cycle management and offer our capacity only where we are able to obtain risk-adequate prices, terms and conditions.”
However challenges continue to be evident as the reinsurance market evolves.
The reinsurers press release explains; “There is still unrelenting competition in property-casualty reinsurance. The prices, terms and conditions for reinsurance cover are therefore under pressure across the board, albeit with decreasing intensity.”
Munich Re expects further price softening at the key January 1st reinsurance renewal, like so many other players and observers have stated in recent days. There seems a consensus that prices will be down, but discipline will help to keep that decline to single-digits largely.
More competition is expected, as we move into a new reinsurance business environment, Jeworrek explained. The new normal that is emerging will challenge all reinsurers, making the steps the reinsurer is taking to innovate and embrace digitalisation of its services and products absolutely key.
But it goes further than embracing technology, Jeworrek said.
“Innovation is much more than digitalisation. We need to embrace not just technological changes, but also economic and social developments, and we must make the risks associated with them insurable,” he commented.
Munich Re is, like so many others, focused on helping to narrow the protection gap and increase insurance penetration, as well as develop new complex solutions to problems where insurance products have not existed in the past.
Reinsurance capital is equally as important as insurance capital here, and there will be opportunities for ILS and the capital markets to support the work of reinsurers as they adapt to the new business environment and its opportunities.
However, Jeworrek warned the reinsurance market against “making the mistakes of the last soft market”, explaining that the need to adopt disciplined cycle management and be willing to relinquish risks is key, something Munich Re is prepared to do (and has been doing as appropriate).
He warned reinsurers not to compete so far on price that underwriting goes to below the technical levels required to maintain margins. But even with this in mind, Jeworrek acknowledged that a “decline in earnings will happen” for the sector, while conditions remains as they are.
So reinsurers continue to face a situation where they are being pushed to evolve by market forces, something that affects all players from the smallest mono-line to the largest global players. Expect innovation, something Munich Re is embracing wholeheartedly as it seeks to evolve with (or perhaps in front of) the market, rather than risk being left behind.