Too early to tell on retro renewals. Cat still attractive (as long as prices rise): Munich Re CFO

Given the heavy catastrophe loss activity and the challenges this has placed on some alternative capital market players, it is too early to tell how the retrocessional reinsurance renewals may pan out, according to Munich Re CFO Christoph Jurecka.

Speaking this morning during a media call, Jurecka explained that he is optimistic on the potential for rate increases at the January 2022 reinsurance renewals and said that catastrophe risks remain an attractive proposition for Munich Re, but noted that pricing needs to maintain pace with catastrophe and climate trends.

Asked about the Munich Re on catastrophe risk pricing adequacy under the shadow of climate change, Jurecka explained that the diversifying nature of cat risk, versus other areas of the reinsurance companies book, do make it attractive.

But that isn’t at any cost, so rates need to remain commensurate with the risks being assumed.

“Cat business is a highly volatile business but it’s a profitable business long term,” Jurecka explained. “What we do to stay on top of this is adjust our models. On the one hand we include data on climate change and the other we use the latest scientific information.”

Continuing to say that, “In underwriting, we’re focusing a lot on rate adequacy, as what we think is very important is getting a fair market price.”

He explained that property catastrophe underwriting remains “a very important business for a global reinsurer” going on to say that as “we have the chance to reprice the business every year… we think it’s a very healthy business for us overall.”

Looking towards the January 2022 renewal season, Jurecka said that, “I continue to be optimistic for the pricing environment going forwards.”

But when asked on how the retrocession renewals may pan out, given the trapping of capital at some of the larger collateralised market players, Jurecka wouldn’t yet be drawn.

“It’s a little early to tell, as there’s still some time to go.

“I wouldn’t be surprised, given the loss activity we’ve seen, if this would have an impact on the alternative capital markets in general. But really what this might mean, I think it’s a bit early to comment.”

This aligns with market sources who say retrocession renewals are already looking very late and that the traditionally early retro renewals, including SCOR’s, have largely met with some feedback that has caused a rethink and restructuring to be undertaken.

Munich Re does use retrocession, as well as its own quota share collateralised reinsurance sidecar vehicles, so will be watching market conditions and the availability of capital in the retro market closely.

Jurecka’s comments on price adequacy imply that Munich Re is likely anticipating some further price increases in catastrophe exposed business at 1/1, which suggests the company will continue to take this opportunity to grow its book further in 2022.