Reinsurance News

More rate needed, but cat is clearly a profitable line: Munich Re CFO

10th November 2021 - Author: Luke Gallin

While many of the catastrophe prone markets have already experienced hardening over the past few years, higher prices are still required for some of the less impacted geographies and perils, but overall, Munich Re is pleased with the profitability of its catastrophe book, according to its Chief Financial Officer (CFO), Christoph Jurecka.

christoph-jurecka-munich-reAmid a trend of rising insured losses from catastrophe events and the greater frequency and severity of certain perils, such as floods and wildfires, the willingness of reinsurers to participate to the same extent in this market appears varied.

Some have expressed a desire to pullback from certain markets and geographies owing to a lack of rate momentum, while others have highlighted the opportunity to take advantage of this retrenchment and the generally more favourable pricing environment.

Of course, it remains to be seen what happens to property catastrophe rates at the upcoming January 1st, 2022 renewals. Market sentiment suggests it’s going to be a late renewals, and it’s still unclear how supply and demand will pan out in the catastrophe market.

Yesterday, during Munich Re’s third quarter 2021 earnings call, CFO Jurecka discussed the cat risk market and whether rates are adequate.

“It’s a differentiated picture. We saw hardening in many cat prone markets already in the last few years and this was highly necessary. But in some markets and in some perils where we did not see a lot of claims, we still need higher prices,” said Jurecka.

He explained that in the current market environment, he’s pretty optimistic that in Europe at 1/1 the market will see some upwards movement in prices.

“That’s at least what I hear and looking at the events we saw in the past and the pricing level we experienced at certain occasions, I think that’s highly necessary,” said Jurecka.

But while more rate is needed and would certainly be welcomed by reinsurers, Jurecka confirmed that “cat business is clearly a profitable line of business, earning its cost-of-capital and a decent margin on top of that.”

On a long-term perspective and looking at Munich Re’s cat book overall, “we’re very happy with profitability,” he continued.

Jurecka went on to explain that if the rates are adequate, then Munich Re is happy to grow its cat book, highlighting that it’s the “core of the strategy” for every reinsurance company.

“It’s where we started from as reinsurance businesses. The geographic diversification is an obvious benefit we can deliver to the individual markets and as long as the rates are adequate, we are happy to grow that.

“How that will play out in the 1/1 renewal I think it’s too early to tell, but if rates are adequate, we’re happy to grow that and then PMLs would also go up,” said Jurecka.

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