Bloomberg News

Munich Re Expects Little Changed Reinsurance Rates Next Year

October 24, 2011

(Updates to add comments on areas of price increases in fourth paragraph, Turkey earthquake in final paragraph.)

Oct. 24 (Bloomberg) -- Munich Re, the world’s biggest reinsurer, expects prices for property and casualty coverage to remain little changed next year, with increases focusing on areas such as Japan that have been hit by disasters in 2011.

“We are seeing a general stabilization in prices, coupled with hardening markets in a number of segments,” management board member Ludger Arnoldussen said today at a press conference in Baden-Baden, Germany. “Particularly in times of greater uncertainty, staying strictly focused on adequate profitability is more essential than ever.”

Munich Re, led by Chief Executive Officer Nikolaus von Bomhard, in March scrapped a share buyback and a 2.4 billion- euro ($3.3 billion) profit target for the year when the record earthquake and tsunami in Japan triggered the reinsurer’s first quarterly loss since 2003. After earnings rebounded in the second quarter, the Munich-based company now expects to post a full-year profit.

“Every year of low interest rates eats into the profitability of the portfolio,” Arnoldussen said. “The situation remains fragmented, with prices increasing in loss- affected regions such as Japan, as well as in natural catastrophe covers and specific motor markets.”

Insurance Gathering

Reinsurers including Munich Re and Hannover Re are meeting with brokers and primary carriers such as Allianz SE and Talanx AG this week in the southern German spa town of Baden-Baden to renegotiate terms and conditions of contracts due for renewal in January, following first-half earnings for the industry that were hurt by natural catastrophes. The gathering follows earlier meetings in Monte Carlo in September.

Disasters including the earthquake and tsunami that struck Japan in March caused record insured losses of $70 billion, according to Guy Carpenter & Co., the reinsurance brokerage of Marsh & McLennan Cos. At the same time, low interest rates are crimping investment returns, which typically provide a buffer for earnings when claims rise.

“Reinsurers’ capacity remains in good shape, and therefore prices in non-loss-affected areas are expected to remain stable in the January 2012 renewals,” Nick Frankland, European head of Guy Carpenter, said in an interview in Baden-Baden.

Extra Capacity

Global reinsurers’ capital declined 5 percent to $445 billion in the first half of the year, meaning that “reinsurers will again have capacity in excess of demand from insurers in every region,” according to a report by Aon Benfield, Aon Corp.’s reinsurance brokerage. “Reinsurer capital is more than likely to end the year at a level higher than the $470 billion at the start of the year,” Aon Benfield said.

Munich Re and Swiss Re, the two largest reinsurers, typically renew about two-thirds of their annual property and casualty contracts in January, and the remainder in April and July. The renewals on April 1 focus on the Asia-Pacific region. In reinsurance terms, a hardening of markets or rates refers to an increase in prices for coverage.

In Monte Carlo, Munich Re and Scor SE, France’s biggest reinsurer, had said they expect overall reinsurance prices to increase, driven by more expensive catastrophe coverage. On the contrary, brokers such as Aon Benfield and Guy Carpenter, who help primary insurers negotiate better prices for reinsurance coverage, argued claims haven’t risen enough to boost prices.

It’s too early to give a claims estimate for the quake that hit Turkey’s province of Van near the Iranian border yesterday, Arnoldussen said. “Historically, earthquakes in this part of Turkey have rather been a humanitarian issue than one for the insurance industry,” he added.

--Editors: Keith Campbell, Steve Bailey.

To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Edward Evans at eevans3@bloomberg.net


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