Munich Re warns ‘bleak’ economic outlook for Europe will drive pricing

Munich Re said the outlook for Europe’s economies has become “bleaker” in the past few weeks, as it warned insurers that it will charge for the impact of rising inflation and changing risk landscapes on renewal. “Rigorously pricing in inflation is key for Munich Re,” it said. Ahead of the industry’s Baden-Baden reinsurance meeting, Munich Re said extreme inflation and increasing threats from natural disasters and cyberattacks call for disciplined risk management. Thomas Blunck, member of the board of management, said: “Insurers [are] in a difficult and complex situation where financial strength and risk expertise will be what pay off. Inflation expectations and changing risks have to be reflected in our pricing for insurance cover.” Munich Re said that while reinsurers are seeing an increase in demand, capital bases and therefore capacity across the sector are in decline. “Despite inflation, changing risks and overall high levels of uncertainty, we stand at the ready with our capacity. What is crucial is that we ensure, together with our clients, that all of these developments are adequately covered in the pricing,” said Blunck, whose responsibilities on Munich Re’s board include the Europe/Latin America division. The reinsurance giant said the double whammy of economic and geopolitical crises has caused “virtually unprecedented” levels of complexity for primary carriers and reinsurers worldwide, with inflation, which for many markets is reaching a 40- or 50-year high, expected to impact losses across multiple operating areas. Munich Re explained that higher central bank base rates in response to inflation will impact the balance sheets of (re)insurers as the value of fixed-interest securities falls. Inflation risks are higher in Europe than the US, Munich Re said, with the outlook for commodity and energy markets, in particular gas, a key driver of uncertainty. Munich Re’s economic research unit is working on the assumption that the eurozone will slide into recession this winter and real-term GDP for 2023 is expected to stagnate. At the same time, the landscape for cyber risks and climate change is deteriorating, which will also have to be reflected in rates. Munich Re said it has stepped up its research and modelling of risks, including severe thunderstorms, to price coverage for natural hazards and support loss mitigation measures. “In today’s difficult economic environment, precisely assessing changing risks is also an absolute must,” Munich Re said, with rising losses caused by convective storms and the increased risk of severe hailstorms, more frequently, in many regions of Europe, in particular in northern Italy, southern Germany and large parts of France. “The accumulation potential of severe thunderstorms is immense if a major urban area with high values is hit by hailstorms together with extreme rainfall,” the reinsurer said. Claudia Hasse, chief executive of Munich Re for Germany, cyber Europe and Latin America, said Germany’s insurance market calls for strict pricing discipline and rigorous risk management, with the floods in Germany’s Ahr Valley last year a wakeup call on the impact of climate change. “We have the expertise and capacity to support the industry in its efforts to increase insurance density for severe natural hazards such as flooding. But to do that, the pricing must be commensurate with the risk – and the impact of climate change can no longer be underestimated,” she warned. Hasse said demand for cyber cover is high, with premium volume in Europe rising from just over €400m to €2bn in the last five years, but again the reinsurer stressed balancing the increased risk through pricing. “Increasing cyber risks will be firmly accounted for in Munich Re’s underwriting business,” Hasse said, adding that the reinsurer has added exclusions for systemic risks, such as cyberwar. She added that Munich Re’s cyber business is profitable in Europe, with its main focus on cover for small to medium-sized businesses as well as selectively underwriting industrial business.

Munich Re warns ‘bleak’ economic outlook for Europe will drive pricing

High inflation, climate change and cyber risks will be priced in to renewals

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