Nat cats, inflation and civil unrest all suggest tough reinsurance renewal ahead

Munich Re says that the “unprecedented” series of natural catastrophe losses exceeding the €1bn mark will be the focus of coming reinsurance renewals. The tone of the German reinsurer’s comments as the European market gathers for the Baden Baden reinsurance meeting strongly suggests that Europe’s risk and insurance management community can expect little relief on property prices and capacity in following insurance renewals. Munich Re said that it will “pursue a policy of disciplined, technically sound underwriting, allowing it to make capacity commitments early in the renewal process and on the basis of clear criteria”. Such statements do not usually indicate a market-wide softening. Despite posting healthy recent results, the reinsurer pointed to the uncertain and volatile market environment in which reinsurers and insurers currently operate. “Insurance markets currently have to cope with growing uncertainty: inflation, geopolitical crises, rising cyber risks, and an increased frequency and severity of natural events, also in Europe where we have seen an unprecedented series of natural catastrophe losses exceeding the billion-euro mark this year. These changes will be at the centre of the upcoming renewal discussions,” said Munich Re. “As [a] leading provider in Europe, Munich Re is able to allocate additional capacities for natural catastrophes and other types of risks, provided that appropriate prices, terms and conditions can be achieved. Both delivering added value for clients and maintaining the quality of its own portfolio are top priorities in the renewals. To achieve this, Munich Re will continue to pursue a policy of disciplined, technically sound underwriting, allowing it to make capacity commitments early in the renewal process and on the basis of clear criteria,” added the Munich-based reinsurer. The reinsurer said that in the euro area, unusually high inflation over the past two years has thankfully recently abated. However, energy and food prices remain high and wages are growing, it added. “Accordingly, in the baseline scenario, Munich Re Economic Research predicts an inflation rate of around 3% for 2024, more than twice the mean inflation rate for the 2010s. Moreover, Munich Re expects inflation in the euro area to remain above the long-term average beyond 2024,” said the reinsurer. “In insurers’ portfolios, still-palpable price increases are producing higher exposure and loss expectations alike. This is particularly true for the motor book in the underwriting years 2021 and 2022,” added Munich Re. In order to offer suitable cover for future losses, insurers and reinsurers need to factor in segment-specific inflation factors – such as higher prices for replacement car parts, higher construction costs and wage increases, said Munich Re. Inflation will remain a key feature in pricing, it warned. The frequency and severity of weather-related natural catastrophes are increasing – and Europe is no exception. This year has continued this trend, and provides some further evidence that climate change is already aggravating weather-related risks, said Munich Re. Up until this point, Europe has suffered extreme weather events, including heavy rainfall, flooding, flash floods and severe hailstorms, producing overall claims expenditures that were once again a “major burden” for insurers, it added. According to a Munich Re analysis from late September, at least seven natural catastrophes in Europe exceeded the €1bn mark, compared with five in 2022 and four in 2021. These seven events this year were: Earthquakes in Turkey and Syria in February. Flooding in northeast Italy and adjacent countries in May. Storms Kai and Lambert in Germany in June. Severe weather due to Storm Unai in northern Italy, Slovenia and Croatia in July. Flooding in Slovenia, Austria and Croatia in early August. Storm Hans in northern Europe in August. Storm Denis with hail, especially in southern Germany, in late August. Despite the scale of the challenge, Munich Re said it will continue to invest to better understand natural hazards and underlying trends, use scientific analysis to improve the basis of its modelling and provide valuable information to develop targeted measures to prevent risks and mitigate attendant losses, as well as for adequate pricing. The reinsurer said that thanks to the quality of its underwriting, the underlying mix and diversification of risks in its portfolio, paired with its considerable financial strength, it will continue to offer consistent – and for Europe, increasing – capacities, which are “stringently defined” on the basis of ensuring profitability. Clarisse Kopff, member of the board of management, said: “Natural catastrophes have always been at the core of Munich Re’s business. When top capacities are called for, we are a stable and dependable provider. We can see that, given the challenges posed by climate change and its growing economic impacts, there is a lasting demand for our core competences on the market.” The reinsurer also hinted at a further tightening in the political risk, violence and terrorism market in the face of increasing civil unrest in Europe. Civil unrest has worsened over the past several years, both globally and in Europe, said the reinsurer. “These risks are only insurable as local events under property insurance and on the basis of individual coverage designs (clear wordings with event definition and temporal and geographic limitations on events). Further, they must be assessed using a stringently technical underwriting approach. In terms of monitoring this dynamic risk, it is essential that the potential accumulation risk be continually evaluated,” it commented. “The potential for unrest and riots to spread both temporally and regionally could be seen in this year’s events in France. In the city of Nanterre, what began as a vigil for a teenager shot dead by the police escalated into prolonged violent protests against the police in several cities. Retailers, supermarkets, banks and restaurants were damaged, as well as public buildings and facilities. According to initial estimates, the riots resulted in economic losses in excess of €1.1bn,” added Munich Re.

Nat cats, inflation and civil unrest all suggest tough reinsurance renewal ahead

Munich Re stresses discipline and technical underwriting at Baden Baden

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