Munich Re expands in nat cat, says pricing ahead of loss / inflation trends

In announcing its full-year 2022 results this morning, global reinsurance giant Munich Re has said that prices at the key Janaury 2023 renewal season more than compensated for the sometimes significantly higher loss estimates, caused by inflation and other loss related trends.

It’s another sign that the largest reinsurance firms feel rates-on-line have moved back to a sustainable level and perhaps shows there is some give in the higher baselines set at January, which could mean that renewal was a peak in the cycle.

Of course, that raises the question of how disciplined the market will be, to hold onto the price gains secured.

But Munich Re, like the other major reinsurers, is confident the market environment will remain positive and it looks forward to securing more attractive opportunities at the renewals later this year.

The company has underwritten a January renewal portfolio that features a significant roughly 40% growth in nat cat premium volumes, with price increases in the high-teens and believes that property catastrophe reinsurance is particularly attractive at this time.

Munich Re has reported strong results for 2022, delivering €3.4 billion of full-year profit, well up on the previous year’s €2.93 billion and importantly exceeding the €3.3 billion profit target it had set itself.

Reflecting the attractive reinsurance market and growth opportunities it sees, Munich Re is now targeting €4 billion of profit for 2023.

The fourth-quarter of 2022 alone saw Munich Re deliver over €1.5 billion of profit, a near doubling of the 2021 €871 million figure, despite impacts from further catastrophe events during the period.

Munich Re’s reinsurance business delivered almost €2.6 billion of profit in 2022, just beating its €2.5 billion profit target, and almost €1.4 billion in Q4.

P&C reinsurance accounted for €1.8 billion of the 2022 profits, despite high natural catastrophe losses, with the combined ratio indicating profitable underwriting at 96.2%.

Major losses totalled over €4.3 billion for the year, with natural catastrophes driving €2.43 billion and man-made losses €1.74 billion, of which hurricane Ian was around €1.6 billion on the nat cat side and the war in Ukraine contributed €475 million to man-made losses.

Munich Re has kept to its trend of releasing significant prior year reserves, with €1.3 billion flowing back to support its 2022 result.

At the January 2023 reinsurance renewals, Munich Re underwrote 1.3% more in premium, taking the total to €15.3 billion.

Less proportional business was written and more excess-of-loss and non-proportional, with property catastrophe risks an area of growth.

Citing “improved contractual terms and conditions” Munich Re said the overall quality of its January renewal portfolio increased.

“Despite times of high uncertainty and inflation, as well as a reduction in the capacities offered by reinsurers and capital market players in certain markets, Munich Re continued to position itself as a high-quality and reliable partner for the long term,” the company explained.

On the pricing side, Munich Re said that prices developed positively overall, which it says “more than compensated for the significantly higher loss estimates in some areas, which were caused primarily by inflation or other loss trends.”

Price increases were evident globally, to different degrees, and all-in prices for the Munich Re portfolio increased by 2.3%, on a risk-adjusted basis.

“Despite increasing market pressure, Munich Re expects the market environment to remain positive and to present attractive growth opportunities in the upcoming April and July renewal rounds,” the reinsurer concluded.

Munich Re now believes that natural catastrophe business provides “highly attractive margins” and says it has additional capacity within its risk appetite to grow in this segment of the market, while pricing remains healthy.

Property reinsurance on an excess-of-loss basis increased by roughly 40% in terms of volumes, while price increases, on a percentage basis, were in the high teens, according to disclosures from the reinsurer this morning.

Given this property XL reinsurance business only made up roughly 10% of the renewed portfolio in January, the significant volume and price increases are not so visible in the reinsurers’ full results.

Because of this nat cat exposure growth, Munich Re has increased its major loss assumption to 14% of the combined ratio for 2023, breaking down to 10% nat cat, 4% man-made. This is a 1% increase to account for the growth in property and nat cat business.

Munich Re pronounced this morning that natural catastrophe risks are “one of the most profitable lines of business despite high industry losses in recent years,” with risks well captured in models and in 2022 the nat cat ratio coming out below budget even with Ian.

As a result, we should anticipate further nat cat growth from Munich Re in 2023, as pricing remains harder through the upcoming renewals.