Munich Re expects positive 2024 renewals, warns on price adequacy for extreme weather

Munich Re said this morning that while market pressure has increased slightly in reinsurance, the company anticipates positive conditions continuing through the April and July renewals, although at the same time cautioning that pricing must remain adequate to cover severe weather risks.

Global reinsurance giant Munich Re reported strong full-year 2023 results this morning (read more on the results announcement over at our sister publication Reinsurance News), with a net result of €4.6 billion that beat its initial guidance by €600 million for the period.

Organic growth in property and casualty reinsurance and its ERGO primary unit helped to drive insurance revenues higher year-on-year to €57.884 billion for 2023.

While in P&C reinsurance a combined ratio of 85.2% drove a result of €2.448 billion in 2023, on the back of higher insurance revenues at €27.061 billion.

“2023 was another successful year for Munich Re. We beat our annual profit target for the third consecutive time and delivered a strong performance across all business segments. Thanks to a broadly diversified business portfolio, Munich Re is well placed and fully on track to meet the targets specified in its Ambition 2025 strategy programme. With the exception of systemic risks – such as cyber and pandemic – our appetite for covering existential risks for people and enterprises is far from exhausted,” explained Joachim Wenning, CEO and Chair of the Board of Management.

Christoph Jurecka, CFO added, “All KPIs are near or even better than the Ambition 2025 targets at the end of 2023. Our financial strength makes it possible for our shareholders to participate in our success through a substantially higher dividend. They’ll also benefit from a new share buy-back that will likewise be substantially higher. And we remain ambitious, as we seek to boost our annual profit to €5bn this year.”

Interestingly though, Munich Re’s natural catastrophe losses were up year-on-year, at €2.335 billion, compared to 2022’s €2.118 billion, with Q4 driving that with €873m of nat cat losses, up from €525m in the previous year.

However, overall major loss expenditure came in under budget at 12.6%, below the budgeted 14%, and were down year-on-year as man-made losses were much lower.

Munich Re said that the elevated level of nat cat losses alongside a reinsurance industry that is only seeing limited new inflow of capital is supporting a prolonged hard market.

At the same time, the company said that catastrophe reinsurance underwriting “continues to provide very attractive margins.”

Explaining that, “Munich Re continues to have capacity within its overall risk appetite for cat business in a healthy market environment.”

The reinsurer said it experienced “significant growth in nat cat” in 2023, as it took advantage of market conditions.

But also noted that the frequency of US cat events did dent residential insurance business there under the American Modern brand.

Perhaps reflecting its higher than last year nat cat losses, in a year where major losses were less prevalent, Munich Re took the time this morning to explain that severe weather risks remain a challenge for the industry.

“The rising incidence of extreme weather resulting in high losses continues. Munich Re will keep offering sufficient insurance capacity for such risks, with an eye to sustained growth in this market. The private insurance industry supplies enough global capacity in principle to cover the rising risks associated with extreme weather,” the reinsurer explained.

Adding, “But prices for cover must be appropriate in order to create incentives for better preventative measures. Superior prevention can substantially reduce the losses caused by extreme weather events, in turn easing the financial burden on society. And governments can certainly exert a positive influence on insurability and the price for insurance cover by way of state-mandated preventative measures.”

Interestingly, Munich Re also called for a state backstop for systemic cyber risks this morning as well, which it called “a precautionary measure of last resort,” because “the private sector cannot provide cover for the greatest systemic cyber risks, such as the failure of critical infrastructure or cyber war.”

Munich Re also commented on the reinsurance renewals this morning, saying that it grew its business written by 3.5% to €15.7 billion at January 1st 2024.

The reinsurer expanded some business with existing clients and added new cedent relationships as well, but also discontinued business that no longer met its expectations with regard to prices or terms and conditions.

“It was possible to maintain the high quality of our portfolio thanks to stable or improved contractual terms and conditions,” the reinsurer said.

In terms of reinsurance renewal prices, Munich Re said they were “stable overall, and for the most part more than compensated for the higher loss estimates in some areas, which were primarily attributable to inflation and other loss trends.”

Prices developed by only 0.3% across the Munich Re portfolio at 1/1, but this is more positive rate gains on a very profitable base.

Looking ahead, Munich Re explained that, “Despite market pressure increasing slightly, Munich Re expects the environment to remain positive in the upcoming April and July renewal rounds.”

With positive conditions set to continue, Munich Re said it will target a net result of €5 billion in 2024, with insurance revenue of around €59 billion and a return on investment of more than 2.8%.

Reinsurance will be the main driver for 2024 for Munich Re, with insurance revenue of €39 billion expected and a contribution to the net result of €4.2 billion.

In addition, the P&C reinsurance combined ratio is forecast to fall to 82% for the year, which would make the catastrophe reinsurance business Munich Re has underwritten particularly profitable.

“In a market environment poised to remain favourable, Munich Re will leverage its position of strength to grow once again and generate even more profits,” the company explained.