Price will be a talking point but reinsurance structures expected to hold: Munich Re

Global reinsurer Munich Re expects price to be a discussion point at the 2025 Baden-Baden Reinsurance Meeting next week, and emphasised that the firm is ready to deploy more capital ahead of the January renewals with structures projected to hold, but warned that the carrier will walk away from business which is not adequately priced.

This is according to Clarisse Kopff, Member of the Board of Management at Munich Re, who addressed the media this morning at the company’s Baden-Baden breakfast briefing.

The message from Munich Re was very much around stability and being there for clients in light of climate-related perils and the impacts of geopolitical and macroeconomic uncertainty.

During the briefing, Kopff was quizzed on the current state of the market and what she expects in terms of price at Baden-Baden, a period when the industry gets together to accelerate discussions kicked off at RVS in Monte Carlo in September.

“So, is the market weak? First, let me take a step back. Our global P&C portfolio is made of 25% structured solutions. I showed examples of it with our motor book. And there is another 15% that is in Specialties, and these lines of business, they respond to totally different market dynamics and cycle. So, when we talk about pricing, it’s very often property pricing. So, what do we see? And these lines of business are, by definition, a bit less sensitive to the property cycle, because these are other lines of business,” said Kopff.

“Now, if we concentrate on property, demand is still very strong. As a matter of fact, Europe in particular, in the past five years, as I showed you in one of the slides, has been hit consistently by nat cats, even if the very past months have been a bit quieter. The industry is also growing at a pace that is more rapid than GDP, because of exposure dynamics, because of demographics, because of urbanization, etc,” she continued.

Kopff highlighted that both demand and supply are there, which is of course intensifying competition.

“So, prices will be a discussion point, although the year is not finished yet, because we still have potential climate events in front of us. We consider the market is still priced adequately, if not attractively, and we actually are ready to deploy more capital, as I said, if the price is risk adequate and if terms and conditions are sustainable. Of course, we would be ready to let go of business which is not priced adequately for the sake of active cycle management, as we would do in any point of the cycle.

“Now, reinsurance structures are very important to the quality of the portfolio, and here we expect them to actually hold, as we are seeing from preliminary discussions,” said Kopff.

To avoid the volatility and challenges of the most recent soft market phase, reinsurers have moved away from aggregate protection, but also frequency covers for so-called secondary perils as retentions lifted, meaning primary insurers have had to absorb more of these losses than in the past.

As noted by Kopff, Munich Re expects reinsurance structures to hold, and the message from other leaders has been that, overall, discipline will be maintained.

At RVS last month and no doubt at Baden-Baden in the coming days, secondary perils will be discussed as brokers look to secure coverage for clients, and there’s been a push from the broking community for sellers of protection to be innovative.

However, Claudia Strametz, President of NewRe’s Board of Directors, and a Chief Executive Manager at Munich Re responsible for Non-Life business in Germany, Cyber Underwriting for Europe & Latin America, the German Pharma Pool, NewRe and Munich Re of Malta, stressed this morning that “Munich Re is primarily focused on absorbing peak volatility, whether it comes from peak perils or non-peak perils”.

“So, we are here for absorbing the peak volatility of major hurricanes, big wildfires like this year in California or flooding. But for those events that occur almost on a yearly basis, other measures are even more important, if you think of risk prevention or adequacy of original rates. That is why we think that frequency should first and foremost be managed by primary insurers, because a good balance between the risk taking of cedants and reinsurers risk taking is key,” she said.

Expanding on this, Kopff explained that three years ago, Munich Re’s investors took the view that the company was taking too much risk and that the reinsurance sector was not earning its cost of capital.

“So, we had to operate a reset in the market, not only on pricing, but also on structures. And I believe we’ve reached a good balance which can be sustained over time,” said Kopff.