Munich Re January Reinsurance Treaty Renewals Show Rate Increases

February 15, 2006

Munich Re followed Swiss Re’s announcement yesterday (See IJ Web site Feb. 14) with its own upbeat report on the January reinsurance treaty renewal season. The world’s largest reinsurer said that as of Jan. 1 it had “renewed about 66 percent of its treaty business (i.e. without facultative reinsurance) in property/casualty reinsurance, involving a premium volume of around €8.9 billion [$10.57 billion].”

The bulletin stressed the continuation of the Company’s “strict underwriting policy,” as being essential to achieving its earnings expectations, and maintaining them at a high level.

Munich Re gave the following “figures in relation to the respective renewable business:
– Premium volumes will rise by around 5 percent, taking into account price increases.
– Some 7 percent of new business was acquired (at terms in line with our risk-adequate underwriting policy).
– Approximately 6 percent of our business was not renewed as premiums and / or conditions did not meet Munich Re’s requirements.
– On average, a 3 percent rise in rates was achieved for business renewed, with the usual variations in prices and conditions according to trends in specific regions and classes of business.

While the average increase may have been around 3 percent, some regions, notably those hit by the 2005 hurricanes, paid a lot more for reinsurance coverage. Munich Re noted “high two-digit figures” as the more or less average increase. However it also said, “the highest increases were in offshore energy, with approx. 400 percent on the primary insurance side, from which Munich Re profited in proportional reinsurance business and via its primary insurance subsidiary Watkins in London.”

Board member Torsten Jeworrek commented: “All in all, we are highly satisfied with the renewals. Our clients understand that if you want to buy or sell first-class reinsurance cover, there is simply no alternative to risk-adequate prices and conditions.”

Munich Re took a big hit from the hurricanes, but still managed a profit and a 55 percent dividend increase (See IJ Web site Dec. 29, 2005). Its most recent loss estimates were over €1.6 billion [$1.896 billion] from Katrina; around €250 million [$256 million] from Rita, and around €330 million [$391 million] from Wilma. The ultimate impact is around €2.3 billion [$2.725 billion] before tax and after retrocessions. “These natural catastrophes clearly demonstrated the threat posed to many people and also the high exposure of insured values,” the bulletin continued.

It also stressed that the catastrophes have “made it necessary to reassess the risks. Adjustments have been made to the windstorm models (based on historical data and scientific knowledge) that reinsurers use to determine possible loss scenarios in the future. Munich Re has also adapted its catastrophe risk models and taken account of the results in the treaties it renewed.”

Munich Re’s overall assessment of the renewal season was upbeat as well. It noted that “by and large, the continuing discipline of market players was apparent. In so-called short-tail business (property and marine), Munich Re enhanced its risk profile by implementing higher premiums and introducing structural changes. We are concentrating to a greater extent on covers above the frequency-loss area, which respond comparatively less often. In doing so, we require our cedants to create more transparency in portfolio information, and we reduce our peak liabilities in the treaties. These two factors are part of our risk management. In long-tail business (third-party liability), we were able to maintain the good standard of terms and conditions we have worked on achieving over the past few years.”
t also anticipates that the trend will continue with “the forthcoming renewals on 1 April (Japan and Korea) and 1 July (parts of the US market, Australia and the Latin American markets).” It singled out the “negotiations on business renewals at 1 July, when a large portion of US natural catastrophe covers is up for renewal,” noting that they “ought again to have a positive impact on the development of premiums and conditions.”

“With the 1 January renewals, we have created the basis for reinsurance business to contribute strongly to the profitability of the whole Group in 2006”, Jeworrek continued. “The advantages of active risk diversification that result not only from distributing risk across various regions and classes of business but also from our creating value from primary insurance and reinsurance were particularly obvious in the past year. Thus, despite extreme burdens, Munich Re remains a reliable partner to its clients, who continue to benefit from our excellent financial strength.”

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