Munich Re rejects ‘nonsense’ calls to cut property reinsurance prices

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The chief executive of one of the world’s biggest reinsurers has dismissed calls for the industry to cut the price of natural catastrophe cover as “noise” and “nonsense”, arguing it was simply responding to rising costs.

Rising reinsurance prices in recent years have been one factor in an affordability crisis for a range of consumers looking to insure their homes and businesses against natural disasters such as severe storms and wildfires.

In an interview with the Financial Times, Munich Re chief executive Joachim Wenning rejected calls for reinsurers – which provide cover to primary insurers – to help take the pressure off companies and consumers now that rising prices have brought record profits for industry.

Munich Re itself posted record profits in the first half, partly due to the rise in the cost of property coverage. It now has a market capitalization of 65 billion euros.

“I never hear the opposite of that, when the market cycle is a little bit softer, that they’re saying, give the reinsurers a little bit more, they deserve it, because they’re not making enough money,” Wenning said. “It’s very asymmetrical, it’s noisy, it’s silly.”

The sector was still making up for a string of catastrophe years when yields fell due to high claims costs, he added, saying that if reinsurance is too expensive, primary insurers may simply choose to buy less coverage.

Wenning went on to say that it would be “increasingly challenging” for consumers to find affordable property insurance in disaster-prone areas.

“Because of climate change” insurance losses could increase and coverage should be more expensive, he said. “It will be harder for corporations and private households to pay for it. It’s not a systematic impossibility, it just gets more expensive.”

Some policy makers have supported more public-private schemes to share disaster costs, adding to existing programs in some countries that cover floods and other extreme weather conditions.

Wenning said any other schemes must be carefully designed to minimize price distortion.

“If you have a property in a high-risk area, you should pay more. If that doesn’t happen. . . then we socialize the risk.”

Reducing financial incentives for homes and businesses to protect themselves against natural disasters could increase losses from future events, he added.

Reinsurers generally maintain very high solvency ratios — capital as a percentage of the minimum required by regulators — to protect against major losses.

Munich Re’s solvency ratio rose to 287% in the first half of the year, well above its target range of 175-220%, suggesting it has excess capital to deploy.

One option, Wenning said, was more mergers and acquisitions, in areas such as U.S. specialty insurance and expanding its Ergo primary insurance division into markets where it already has operations.

Offers between 1 and 5 billion euros were realistic, he said. “We could systematically, proactively look at which (companies) would fit on our list.”

He also warned of the threat posed by a major cyber attack. Here, a public-private loss-sharing scheme could play a role, he said.

Citing the example of an attack that crippled a country’s energy supply, the market currently lacks the capacity to provide the majors with sufficient coverage against losses from such an event, he said.

“Ultimately, they have to retain the risk and they have to do everything to mitigate their own risks.”