Certain lines must push back on rates
“We can’t carry on like that. We’re not here
to lose money for our shareholders, we’re here
to make a profit.”
Rates to return to risk-adequate levels
Although Munich Re issued a profit
such as Irma are fully taken into account in our
risk strategy; due to our strong capital base we
are in a position to maintain our risk appetite
provided that prices are technically sound.
“The huge gap that still exists between
economic and insured losses following natural
catastrophes, particularly in emerging countries
but even in highly developed countries, is
evidence of the great potential that companies
and countries have to improve risk management.”
Talking more generally about emerging
business opportunities, he said that companies
must analyse their risks in a global economy
that is increasingly interconnected and identify
interactions that could, for example, create a
risk of business interruption.
“In the interconnected world in which we
live, risks are becoming increasingly complex.
In order to develop comprehensive risk
management solutions to deal with them, an indepth
knowledge of risk is not enough—you also
need to have a holistic view of the risk landscape
and to make use of the very latest technologies.”
Pohlchristoph explained that Munich Re’s
new Risk Management Partners unit exists to
develop tools that follow this approach.
“Digital change and transformation keep us
on our toes—the world is changing rapidly and
we must keep pace,” he said.
The marine, energy and aviation markets
have allowed themselves to slip into
low single-digit return on equities, and must
push back on rates to return to double digits,
Adrian Poxon, executive vice president and
head of global specialty reinsurance at Sompo
International, told Baden-Baden Today.
Poxon believes every line is challenged—
even property has been in a “dire” position for
many years—and that the market has become
used to reducing the cost of their insurance.
He suggested this is exacerbated by the losses
from Harvey, Irma and Maria, and the market is
now in a much more powerful position to push
back on rates and push terms and conditions.
“We need to do that,” Poxon said. “Even
without the storms, we were still looking at the
overall results and finding that the rate inadequacy
of the whole portfolio was such that we weren’t
actually making money for our shareholders.
warning in September as a result of the
Fall nat cat events in Mexico and the US, it is
still not ready to release figures for the losses.
Hermann Pohlchristoph, a member of Munich
Re’s Board of Management, said in a press
briefing at Baden-Baden that the company was
reluctant to be the first to release such figures.
“When we come up with first loss estimate
we want to be on the safe side,” he added.
“These losses are highly complex, so to come
up with a reasonable estimate is very dificult.”
Asked how he expected the events to impact
pricing outside the affected areas, he noted that
in the last few years the softening of the market
has taken nat cat rates to levels that are not riskadequate.
“Therefore we would expect pricing to come
back to risk-adequate levels,” Pohlchristoph
said. “There has been a lot of debate about
whether the impact of this series of events
was more regional or global. Losses might be
regional in terms of location but at the end of
the day reinsurance is a global business model.
“I would expect, especially in property cat,
some price effect spillovers from this event into
Regarding Munich Re’s appetite for these
risks, he added: “At Munich Re extreme events
Even before the storms, Poxon suggested,
most players were in a situation in marine,
energy and aviation where they knew they
couldn’t carry on what they were doing.
“The premium adequacy has reduced; it’s not
significant enough to pay for the attrition that’s out
there—never mind the large losses or the storms.
You’re going have to get tough with people.”
Aviation is probably more challenged than
many other lines of business, said Poxon, with
a deficit that has been growing over the last four
years and many insurance facilities disappearing.
“You no longer need to have a subscription
market in marine hull, cargo, and aviation,”
“These are areas where the requirement for
capacity on the physical damage side is not very
large, but you have top values in those areas,
even on marine hull where you have cruise
ships worth in excess of $1 billion.” n
He identified cyber risk as the business area
with the highest market potential going forward,
and emphasised the important of technological
sophistication when addressing this risk.
“Cyber as an insurance product is still
underdeveloped. The market is very much
dominated by the US. The awareness in the US
is bigger because they have had the regulatory
framework in place for many years dealing
with cyber, with data protection breaches, and
describing the security framework you need to
have in place.
“Increased risk awareness is leading to higher
demand on the client side. We consider cyber
risk to be insurable, although we are well aware
of the unknowns and the accumulation risks.
“We are learning by doing and by
investing in ourselves and in cooperation with
universities,” he concluded. n
12 | BADEN-BADEN TODAY | DAY 2: Tuesday October 24 2017 www.intelligentinsurer.com | www.bermudareinsurancemagazine.com