German reinsurance giant Munich Re achieved significant growth in its natural catastrophe book at increased prices at the April 1st, 2023, reinsurance renewals, with Christoph Jurecka, Chief Financial Officer (CFO), stating that the company will go as far as it can in this line of business amid hard market conditions.
This morning, Munich Re reported a Q1 2023 profit of €1.3 billion despite above-average large losses from natural catastrophes, with its P&C reinsurance arm generating a solid combined ratio of 86.5% for the period.
Within its results, the firm revealed that it grew its P&C reinsurance book by 13% in the first-quarter of 2023, and then grew its April renewals book by a further 11.1% to €2.9 billion.
“Non-proportional natural catastrophe business was expanded, in particular, in view of attractive rate levels,” explained the firm.
Recently, the reinsurer held an earnings call and Q&A with analysts, during which its appetite for natural catastrophe risk was questioned.
“We are obviously enjoying a hard market and expanding our business into that hard market, so volumes go up,” said CFO Jurecka.
He explained that while it’s important to keep in mind that some of the firm’s cat development during the quarter and at the April renewals relates to FX, as a lot of Munich Re’s cat exposure is written outside of the Euro, the hard market is the driver of its ongoing appetite and growth in this space.
“Indeed, strategically we are going as far as we can when it comes to cat exposure, and for some perils, we’re getting close to our risk budget, so to the upper limit of our risk budgets,” said Jurecka. “But a hard market is exactly the point in time that you should do that because now it’s the time to make money with that business.”
The CFO went on to explain that in a softening market the carrier would of course decrease its nat cat exposure again, which in turn would lower both its exposure but also in relative terms when it comes to its risk budget.
“As a reminder, these risk budgets are peril by peril for us, and obviously they depend on the capital we have, and obviously retro plays a role and retro is different from one peril to the other, so also differently reflected in the various budgets.
“So, it’s a very detailed and sophisticated framework, and we are not simply just expanding the risk limits or the risk budgets, but we are managing to optimise our portfolio within the boundaries of these budgets,” said Jurecka.
During the first quarter, Munich Re’s large loss figure hit €1.035 billion, and includes gains and losses from the run-off of major losses from previous years, with expenditure corresponding to 16.4% of net insurance revenue, which is higher than the long-term average expected value of 14%.
Despite this, the reinsurer is confident that expanding into nat cat further while rates are very attractive is the optimal approach.
Of course, the scale of Munich Re means it is more able than others to expand its nat cat exposure regardless of the potential for large losses.
