Re/insurance market hardening, in relation to price increases and renewed discussions around terms and conditions (T&Cs), is expected for “probably the next two years, or even a bit longer,” according to Torsten Jeworrek, Chief Executive Officer (CEO) of Reinsurance at Munich Re.
With the annual, September meeting of the reinsurance industry in Monte Carlo cancelled this year as a result of the ongoing pandemic, Munich Re today held a virtual media conference.
While the overriding theme of the discussion was systemic risks such as pandemics, cyber, and climate risks, Jeworrek also provided some commentary on the current hardening market landscape.
“We see further hardening in insurance and even more so in the reinsurance market, at least next year, probably the next two years, or even a bit longer,” said Jeworrek. “It will not only be a hardening in terms of price changes and price increases, it will also be a hardening of the market in terms of re-discussion of terms and conditions.”
After a prolonged soften market state during which margins faded significantly for global reinsurers, alongside the weakening of T&Cs in certain instances, Jeworrek said that reexamining T&Cs is the natural pattern.
For global reinsurer Munich Re, the main drivers of the hardening market include the erosion of capital over the past decade, which drove down profitability of the entire industry; higher catastrophe and man-made losses in numerous markets and lines of business, including social inflation impacts; and, lower interest rates.
“All these three factors, erosion of profitability and prices, loss activity, and interest rate levels, lead to this hardening, which, I think, is undisputed at this time,” said Jeworrek.
Additionally, he continued, loss creep from secondary perils will also be a driver of rate hardening, as will the challenged retrocessional marketplace.
“The retro market has tightened, the capacity is not available to some extent. And, those companies which heavily depend on retro capacity have a difficult time now, either they pay the very high price or they can’t take advantage to the same extent in the coming year,” said Jeworrek.
“For the next at least one, two years or so, I’m convinced we see more hardening in reinsurance than on the primary side. And the biggest market, the biggest drivers are Asia and North America,” he added.
Alongside today’s webinar, Munich Re also provided some updated loss forecasts for 2020, including for Hurricane Laura, COVID-19, and the Beirut port explosion.