‘Certainly no excess capital’ in reinsurance market: Blunck

While global reinsurance capacity is robust enough to handle demand, there is “certainly no excess capital” in the market, according to Munich Re board member Thomas Blunck.

Capital has grown slightly in the reinsurance and alternative risk transfer markets, but that growth is “more or less in line with the inflation we’re seeing,” the executive noted.

“Our core message is that our risk appetite, our strategy, our setup continues,” he said. “No big changes, broadly speaking. Pretty stable.”

The reinsurance sector’s return on equity, according to Aon, reached nearly 20% in 2023, but Blunck said that after several years of losses, one good year was too little.

“I don’t think it’s enough to be attractive in the capital market, to really find the interest of our shareholders,” he said.

He also argued that the industry should avoid relying on investment assets to perform strongly or “subsidize” underwriting results.

“It’s really the underwriting that has to perform really well in our core business,” he said.

Stefan Golling, another Munich Re board member, noted that the reinsurance industry “is not at all in a super tough market where you can just blindly accept any type of risk that comes your way or in which you can simply target for growth’.

He said the only area where Munich Re was cautious now was casualty, particularly US liability, which accounts for about 7% of its premiums.

Commenting on this year’s casualty reserve movements, Golling said the industry had “clearly failed to correctly assess demand and inflation trends”.

He argued that with rates and caps, the industry tended to show “very strong action” when results were bad, but then fell back into the habit of ignoring or underestimating the exposure or strength of claims.

This is not done by “aggressively pushing rates down,” but rather by “simply not keeping rates high in line with the exposure trend,” he said.

“We have to avoid that,” he added.

During the July renewals, Munich Re reduced its proportion of non-motorized casualties by around 15%.

Golling said the company made the decision not because it didn’t have concerns about its own accident business or reserve levels, but rather because it recognized that the initial rates or commissions were simply inadequate.

“We have no problem either letting whole businesses go, or at least reducing our holdings to manage the cycle adequately,” he said.

Cyber, on the other hand, is a segment where Munich Re held a strong position last year, particularly on cyber warfare exclusions.

A year later, Gulling said Munich Re had completely excluded cyber warfare from its primary insurance and reinsurance books.

It has had to shed some business in the process, he added, but expects to record $1.8 billion in cyber premiums by the end of the year.

“As insurance density in cyber is still very low, it will not surprise you to expect further growth in the market as well,” Gulling said.

“I would expect Munich Re to grow in cyber in line with the market.”