Munich Re holds line on price & terms at July renewal, sees industry capital in equilibrium

Global reinsurance giant Munich Re said this morning that it reduced the volume of business underwritten at the July 1st renewal season, holding the line on price and terms, while across the industry the company believes supply and demand for capital are in equilibrium still.

Munich Re reported its first-half 2024 results this morning, revealing that it has generated €3.763 billion in net profit for the period, while for Q2 a result of €1.623 billion means the company remains well on-track for its €5 billion full-year guidance figure.

Underwriting profits have been strong, despite a higher-level of natural catastrophe losses this year.

Munich Re said that its property and casualty reinsurance combined ratio remains below 80% after the first-half, at 77.5%, a significant improvement year-on-year over the 83.5% of H1 2023.

Joachim Wenning, CEO, commented on the results, “Thanks to a profit of nearly €3.8bn in the first half-year, Munich Re has performed well once again. What’s more, we’ve never earned more in the first six months of any year. This result demonstrates our operational strength in reinsurance and primary insurance – both of which delivered better-than-expected profits. Encouraging July renewals plus the continued high yield on reinvestment add up to an optimistic outlook for the rest of 2024. Although our profit target for 2024 remains unchanged at €5.0bn, our impressive half-year result does make it more likely that we can achieve or even outperform our full-year guidance.”

The property casualty reinsurance unit generated a Q2 result of €786 million, up on the prior year’s €578 million, while insurance revenue from insurance contracts written in P&C reinsurance was also up, rising to €6.914 billion for the period.

For Q2, major losses were €957 million for the period, up on the previous years €600 million and slightly above budget at 14.4% of net insurance revenue.

For the first-half, major losses came in below the budget at 12.2% of net insurance revenue, but were still well-up year-on-year, with natural catastrophe losses reaching €846 million, compared to €445 million a year earlier for H1 2023.

Despite the higher losses, Munich Re’s profits and insurance revenues are up, and combined ratio fell, which is a further clear demonstration of the profitability of P&C reinsurance at this point in the cycle and with the new reality of reset pricing, terms, conditions and attachments.

Importantly, Munich Re said it held the line on these at the mid-year renewal season.

At the July 1st reinsurance renewals, Munich Re said the volume of renewed business fell to €3.5 billion, a decline of –5.4%, as the reinsurer “selectively opted to not renew or write business that did not meet expectations with respect to prices, terms and conditions.”

Munich Re’s focus in the July reinsurance renewals was on North America, South America, Australia, and with global clients.

The reinsurer said on price, “Price development was stable overall in the sectional markets, with different trends dependent upon claims experience, future loss expectations and the situation in each individual market. Prices for reinsurance cover rose considerably in some markets, including Latin America and Australia. These price increases were sufficient overall to offset elevated loss expectations owing to inflation or other developing trends.”

As a result, the company reports that with its July renewal book, prices across the Munich Re portfolio rose slightly at +0.6%, on a risk adjusted basis.

The reinsurer noted that, because of continued higher inflation levels, “Munich Re was deliberately cautious in calculating future loss expectations.”

Munich Re also made some comments on market conditions today, saying that the P&C reinsurance cycle remains supportive of profitable business growth, in its view.

The reinsurer continues to believe that risk-adequate rates are necessary given the higher levels of natural catastrophe losses being seen, with annual losses above US $100 billion the “new normal”.

There remains a need for re/insurers to prove they can sustainably earn returns above their costs of equity, Munich Re believes, with 2023 the only year in recent history where this has been achieved by any kind of margin.

On the capital and capacity side, Munich Re sees alternative capital and insurance-linked securities (ILS) capacity as demonstrating price discipline, but notes that net inflows to the sector have still been relatively limited.

On traditional reinsurance capital, Munich Re notes the absence of material new capital and also said that holding onto the firm terms and conditions is key for the industry.

Overall, Munich Re said that 2024 has seen continued demand for reinsurance, with inflation and exposure growth both supporting largely stable rates.

At the same time, continued underwriting discipline is allowing capital suppliers to the P&C reinsurance industry to “earn appropriate margins over a cycle”.

Looking ahead to the January 2025 reinsurance renewals, Munich Re remains positive that conditions won’t change too much, saying it expects that, “the market environment will remain favourable and offer attractive business opportunities.”