Reinsurance still needs to demonstrate ability to earn sustainably good margins: Munich Re

With the key January 1st, 2024, reinsurance renewals fast approaching, there remains an imbalance between supply and demand, amid an expectation of limited capital inflow as the market works to deliver sustainably good margins, according to Munich Re’s Clarisse Kopff, Member of the Board of Management.

Speaking this morning during the company’s Baden-Baden media conference, the large European reinsurer discussed the impacts of inflation, the rising frequency and severity of natural disasters, as well as increasing geopolitical risks and the evolving cyber market ahead of the 1/1 2024 renewals.

In light of the changing risk landscape, Munich Re noted a pretty significant rise in demand for reinsurance protection. For nat cat specifically, the firm sees additional demand of around €5 billion in Europe alone.

But while demand is rising, the anticipation is that supply will remain stable.

“We don’t expect big capital inflows,” said Kopff. “Neither in the traditional reinsurance market, as you’ve seen, we’ve had a slight pick-up in reinsurance capital in 2023 from the low point in 2022, but it’s also fair to say that there is no big capital inflow.”

The reason for this, according to Kopff, is that “the reinsurance market overall still needs to demonstrate that they are capable of earning good margin and sustainably good margin.”

Reinsurers have reported improved results in 2023 so far when compared to recent years, driven by better underwriting performances on the back of rate rises and changes to terms and conditions, and also a more positive contribution from investments. But there’s still uncertainty as to whether the market will meet its cost of capital in 2023.

Mirroring the traditional market, Kopff said that Munich Re also sees no big inflow from alternative reinsurance capital, which has been “rather stable over time to a level of roughly €100 billion, with cat bonds developing faster than collateralized reinsurance, but this is also not providing a big capital inflow.”

Overall, then, there’s still a mismatch between supply and demand, which will likely benefit reinsurers heading into renewal discussions as they seek to maintain, and potentially improve rate and terms achieved through the 2023 renewals.

“There is still an imbalance between a rather stable, slightly increasing supply and still more dynamically increasing demand,” said Kopff.

“So, that means that the prices, structures, and wordings are still being discussed. Again, we don’t like to comment on a general trend of quantification because it’s all about individual situation, but it’s true that this imbalance is still there,” she added.

The post Reinsurance still needs to demonstrate ability to earn sustainably good margins: Munich Re appeared first on ReinsuranceNe.ws.