Munich Re forecasts “prolonged” reinsurance market hardening

This morning global reinsurer Munich Re said that “prolonged” market hardening is expected in reinsurance, with rate rises forecast for the January 2022 renewals and European contracts seen as particularly important, as major losses and inflation indicate more pricing discipline.

Doris Höpke, member of the Board of Management said, “Rising prices for various assets and the latest major losses make considerably higher reinsurance rates in Europe likely. The major losses produced by extreme flooding in Central Europe and the rise in weather events like droughts and wildfires affect regions that, in some cases, are not characterised by risk-adequate prices and conditions. In addition, the higher inflation is accompanied by continuing low interest rates for investments.

“Accordingly, I see a number of indicators for prolonged market hardening when the renewals come.”

Munich Re’s forecast for reinsurance market hardening comes after Hannover Re’s German subsidiary said this morning that market hardening is also expected by it, especially for property catastrophe reinsurance renewals.

After significant losses across Germany and Europe from flooding, Munich Re said that “the influence of climate change… has to be taken into greater account in risk assessments.”

Rising inflation is also a factor, with inflation rates expected to remain above pre-pandemic levels, with ramifications for claims costs.

These two conditions, climate related catastrophes and inflation, “are producing an upward pressure when it comes to insurance prices,” Munich Re said.

Munich Re continues to drive home its advantage in terms of scale and resources, wanting to go beyond purely providing reinsurance capacity, to offer resilience solutions for perils from natural catastrophe risks, to cyber exposures.

“This is how I see the future role of insurance: We want to be the central partner for comprehensive risk management, to be a resilience provider, if you will. The basis for insurance, and for risk management of any type, is to monitor and understand risks, and to subsequently develop forward-thinking solutions that can strengthen society in the long term. And of course we want to help reduce the considerable gaps in insurance that can still be found in many industrialised countries, like insurance for flood losses in Germany. Otherwise, many people will have no way to cover their losses, or will have to hope they receive state support, even though these losses could have been insured in exchange for a suitable premium,” Höpke explained at the Baden-Baden Reinsurance Meeting this morning.

Höpke said this morning that “capacity is not scarce” but she believes that an “increasing risk awareness” and the loss burden, particularly in Europe where the market was very soft, means that “I don’t see any impulse for rates going down.”

She said that the reinsurance market will not harden as was seen twenty years or more ago, but rates are inadequate and so additional hardening on top of the last few years is to be expected.