Munich Re CEO Joachim Wenning has delivered a bullish outlook on reinsurance rates at the key January renewals, pointing to the phenomenon of price increases on loss-free business as cause for optimism.
Wenning used an interview broadcast as part of this publication’s (Re)Connect virtual conference to reiterate to the market Munich Re’s view that P&C rates will continue to increase for at least two years.
The executive distinguished between the price hikes happening now, which he categorised as more likely to continue, and the more reactive and short-lived increases that followed the major cat events in the past 10 years.
“What we can very clearly say, is that there are rate increases. We saw them after Harvey and Maria in 2017….mostly in the loss-affected programmes, the loss-affected regions like the nat cat programmes in the US east coast,” said Wenning.
“So mostly in recent years, we saw the rate reactions in the loss-affected programmes only, and the rate increases were significant but they were far from the rate increases that we were used to back in 2005 for example, when we had the Katrina-Rita-Wilma events.
“What we see now is more serious rate increases in the nat cat areas. We also see spill-over effects into non-loss affected programmes and regions, which is a new phenomenon which typically is a sign of a hardening market, not just a better market.”
Wenning also described the US casualty market as being in a period of “catching up” as carriers have begun to react to social inflation and prolonged low interest rates.
“When it comes to the US casualty market, we are not yet where I think the market is going to go, but we see big steps have been taken, but we expect more steps to follow,” he said.
Wenning added that there was a degree of uncertainty around the sustainability of current nat cat rate increases, particularly as capacity remains broadly stable.
“When we look to the nat cat business, we believe that the trend of rate increases will go on, but we don’t know for how long and we don’t know how sharp,” he explained.
“This all depends on the claims development…[and] on the capital supply that is there. From a past claims track record perspective rates should go up, but then if capacity is there, it could bring it down.
“We believe that we will see certainly a couple more very good years with better rates.”
Wenning defended the industry’s performance in dealing with Covid-19, citing the speed and efficiency with which Munich Re and others had organised home-working and remote annual general meetings.
“If we look at how we have continued providing the services to the clients to the distribution, my assessment is that the industry has done a pretty nice job.
“We are assuming big losses, and we are compensating many people for losses. Think about the life business: it’s not over. Think about health: it’s not over. Think about the event cancellation and some of the property coverages out there. Still there is discussion about BI, and there has to be because it’s technically difficult but the industry is doing its job and it is paying what it owes to the people.”
Wenning also addressed the plethora of disputes in various countries including the UK, Australia, the US and Germany over BI covers and carriers’ response to the pandemic.
“If you look around the globe there are hundreds of wordings, so you cannot easily say, is it covered or not?” Wenning said.
“That’s technically fine. However when it comes to a crisis that affects everybody, [it] creates urgency where the flower shop or the hairdresser struggles to survive. In such a time, you hardly have the time to figure out what is covered and not covered, you need immediate answers.
“Arguing technically is not a winning point. From a reputation perspective, going forward, I would recommend [we] as industry try and find more standardised terms, so that there is higher clarity for the next pandemic that will certainly come.”
Wenning also used the interview to reiterate Munich Re’s vision for the future of cover for pandemics, as outlined by CUO Stefan Golling in a press conference last week.
In this blueprint, Munich Re proposed national pandemic risk pools, for which the (re)insurance industry would use its own architecture to collect premiums and pay claims but in which the risk is underwritten by governments.
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