Munich Re calls for higher reinsurance renewal pricing, increased discipline

Munich Re is forecasting more hardening across the reinsurance market at the upcoming January reinsurance renewals, with the company saying this morning that there is a need to refocus on profitability.

The company says that low interest rates are impacting reinsurance profits and at the same time the COVID-19 pandemic and lockdowns of economies are serving as a wake-up call for the industry regarding systemic risks.

After years of reinsurance pricing declines, which Munich Re attributes to excess capacity and in the main blames alternative capital inflows for, as well as randomly lower major losses especially in Europe, and now as interest rates are set to remain lower for longer due to the coronavirus pandemic, Munich Re is determined to see change.

All of these factors have challenged reinsurers ability to make profits, as a result of which Munich Re says insurance will become more expensive and so too reinsurance.

Importantly, the company is focused on underwriting discipline and adequacy of pricing, saying this morning that, “Munich Re will consistently ensure that prices, terms, and conditions are commensurate with the risks in the next renewal round.”

Of course, this is really the job of a reinsurer, to underwrite risks at pricing and terms that enable it to make a profit for its shareholders.

“Interest rates will remain low for quite some time. In turn, income for insurers must come from risk assumption itself, and that includes long-tail business. Relying on interest income, or hoping that statistically likely losses will not occur, is an unsuitable basis for the long-term assumption of major risks. We want to support our clients reliably and in the long run with our financial capacity and our knowledge of risks. We devote considerable attention at Munich Re to sound underwriting as well as appropriate prices, terms, and conditions,” Doris Höpke, Member of the Board of Management responsible for Europe and Latin America commented today.

Prices need to match the risks assumed Munich Re believes and the company is determined to focus on this at the January renewal season.

In addition, Munich Re believes we now have a renewed risk awareness, due to the pandemic, which has raised the spectre of systemic risks and focused companies on understanding their risks better and closing off avenues where unexpected losses could fall.

Munich Re’s call for higher reinsurance pricing follows that of the other German major player Hannover Re, earlier this morning.

Höpke said this morning that the industry is focusing on the “quality of reinsurance” it provides, winding back some of the softening of pricing and widening of terms.

“We see room to grow but we will only do so with a focus on disciplined underwriting,” Höpke said of Munich Re’s renewal ambitions this year.