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Munich Re Sees Stable Reinsurance Rates in January Renewals

September 09, 2012

Munich Re Sees Stable Reinsurance Rates in January Renewals

The Munich-based reinsurer, led by Chief Executive Officer Nikolaus von Bomhard, said on Aug. 7 it expects to exceed its full-year profit target of about 2.5 billion euros after higher investment income helped second-quarter profit beat analysts’ estimates. Photographer: Guenter Schiffmann/Bloomberg

Munich Re, the world’s biggest reinsurer, said it expects stable rates for property and casualty reinsurance during January price negotiations.

“The uncertain economic environment poses major challenges for insurers and reinsurers,” Torsten Jeworrek, who heads Munich Re’s reinsurance business, said at a press conference in Monte Carlo today. “Against this background, the renewal of reinsurance treaties on January 1, 2013 takes on special significance.”

Reinsurers such as Munich Re, Swiss Re Ltd. (SREN) and Hannover Re are gathering for their annual meeting with brokers and their clients, primary insurers, in Monte Carlo to begin negotiating terms and conditions of next year’s property and casualty policies. Discussions will continue at an October meeting in Baden-Baden, Germany.

Allianz SE (ALV), Axa SA (CS) and other primary insurers buy reinsurance to help them shoulder claims from costly events such as natural disasters. The record $105 billion of natural- disaster claims in 2011, which were also covered by government funded-insurance programs, gave reinsurers leeway to push through price increases this year. Negotiating further rate increases may prove more difficult as 2012 didn’t see a comparable number of costly disasters.

Reinsurers’ capital has also recovered from the losses. The industry has accumulated a record $480 billion of capital, according to a report by Aon Benfield, the world’s biggest reinsurance broker and a unit of Aon Plc. (AON:US), which mediates contracts for primary insurers.

Capital Levels

“With industry capital at a record, we are in a very tranquil period in our industry at the moment,” said Michael O’Halleran, executive chairman of Aon Benfield.

“We think the asset base of our industry is artificially inflated, and a sudden increase in interest rates would weigh heavily on balance sheets,” Munich Re’s Jeworrek said, adding that capital buffers have benefited from higher government bond prices that came along with falling interest rates.

Munich Re expects prices as well as terms and conditions to “largely remain stable” in the January round of renewals as reinsurers “still have sufficient capacity,” Jeworrek said. At the company, about two thirds of annual property and casualty reinsurance contracts are typically up for renewal in January, with the remainder extended in April and June or July.

“With a quiet year so far, we expect further pricing pressure for 2013,” said Nick Frankland, European head of Guy Carpenter, the reinsurance brokerage unit of Marsh & McLennan Cos. (MMC:US) “At the same time, the European debt crisis remains a major problem for both reinsurers and primary insurers.”

Higher Profits

The Munich-based reinsurer, led by Chief Executive Officer Nikolaus von Bomhard, said on Aug. 7 it expects to exceed its full-year profit target of about 2.5 billion euros after higher investment income helped second-quarter profit beat analysts’ estimates. Operating profit at the reinsurance unit rose 43 percent to 796 million euros, helped by higher prices for natural catastrophe cover and lower-than-average damages.

The “general improvement” in primary insurance prices in the U.S. and in some European motor liability businesses “should have a positive impact on reinsurance rates,” Munich Re said, adding that it also expects “further rate adjustments” for windstorm policies in Europe. This year, Munich Re improved profitability of its own business by 2.4 percent, it said.

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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Companies Mentioned

  • AON
    (Aon PLC)
    • $81.25 USD
    • 0.81
    • 1.0%
  • MMC
    (Marsh & McLennan Cos Inc)
    • $47.79 USD
    • 0.41
    • 0.86%
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