Far from a super-hard market, so underwriting must perform: Blunck & Golling, Munich Re

At a briefing held in Monte Carlo today by Munich Re, its executives explained that the reinsurance market is still not “super-hard” which means underwriting has to deliver returns and so they aren’t expecting much to be given back at the end of year renewal season.

There is a clear difference in tone between the reinsurance companies and the leading brokers around the 2024 Monte Carlo Rendez-Vous event, with the capacity side still determined to sustain price and terms to enable more good years, while the brokers are pushing for at least some improvements at the January 1st 2025 renewals for their clients.

Thomas Blunck, Member of the Board of Management at Munich Re explained at the briefing that, while the reinsurance market is in a “good balance” and conditions are stable, there are plenty of uncertainties in the macro-economic and risk environments.

Calling out a recent report by broker Gallagher Re that concluded reinsurers have been experiencing very strong returns, Blunck disagreed, saying that the report gave overly positive numbers and “I don’t think that is enough to be attractive in the capital market and to really find the interest of our shareholders.”

Adding, “So I think we have to keep up our return-on-equity to be attractive for the capital market.”

Blunck went on to say that, “She core message is, after poor performance and looking forward, we better not rely on just the assets performing nicely and maybe even subsidising some underwriting. No, it’s really the underwriting that has to perform very well in our core business.”

Blunck went on to highlight that market capital continues to grow, both traditional and alternative, but that this is not really running much above inflation and exposure growth.

“So it’s more or less in line and therefore one of the characteristics why we can say it is rather stable, the overall reinsurance market and the capacities should be good enough in order to cope with the demand. But there is, from our perspective, definitely not an excess capital in the reinsurance market,” he continued.

Munich Re also said that alternative capital remains complementary in the reinsurance market, but that no major alternative capital movements are expected currently, suggesting stability should also remain.

The reinsurer further explained in a press release today that it expects the reinsurance marketplace to grow by 2-3% over the next three years.

Blunck said during the briefing, “So the growth is okay, but we might see opportunities if structurally, or markets have some dislocations or some very specific demand.”

Stefan Golling, another of Munich Re’s Members of the Board of Management, reiterated that the reinsurance market is in good balance.

“On the one hand, there is a growing demand for capacity, seeing all the trends, exposure trends, inflation trends and so on,” Golling said. “But on the other hand, I think there is also a good level of confidence back in the market. Confidence by the capacity providers that they are really also then willing to put the available capital at risk if the terms and conditions are risk adequate.”

Golling continued, “I think we are far away from a super-hard market. So it’s a favorable market, a disciplined market, but we are not at all in a super-hard market where you could simply accept blindly any kind of risk that is presented to you, or where you could simply aim for growth.

“If you think you can do that, you will fail very quickly. Very diligent underwriting, sticking to your risk appetite, sticking to your business strategy are clear musts and active portfolio management is very, very important.”

Speaking about the drivers of higher attachment points and the tighter terms we see in the market today, Golling highlighted that he feels the risk-sharing between primary and reinsurance sides are now fairer, while urging the primary market to ensure it is charging risk adequate prices. He also said it’s about sharing the risk in an appropriate manner between market participants.

“If you know that some events occur almost every year, then you also need to focus on better risk prevention, you need to focus on exposure management, and maybe most importantly, you need to focus on that the original rates in the market are adequate.

“If original rates in the market are insufficient, and the business is loss-making for our clients, before buying reinsurance, you will never be able to turn it around into a profitable business by buying more reinsurance, by buying more frequency covers, or by lowering down the retention. That simply doesn’t work,” Golling said.