Cat losses leave Munich Re anticipating major increases at upcoming renewals

Mar 13, 2012 by Adrian Hönig in  Baden-Baden Meeting

Munich Re has high expectations for the renewals in April and in July for natural catastrophe risks.

“We expect significant price increases in these segments,” Torsten Jeworrek, board member in charge of reinsurance at Munich Re, said. “In Japan, we are experiencing major increases in primary rates for earthquake risks.” Munich Re participated in this through its proportional business.

“In addition, cat rates are rising, especially for clients that renewed before the events in 2011,” Jeworrek said.

After the 2012 renewals, Japanese property rates will be 40% to 50% higher than those achieved two years ago. In addition, reinsurers were successful in tightening conditions.

“In South Korea, we see a sideways movement, both in proportional and non-proportional,” he said.

The April renewal, with its focus on Japan and South Korea, will see €1.1bn ($1.44bn) of premium income coming up for renewal at Munich Re; July will bring €1.8bn, mainly in the US, Latin America and Australia.

“In the US, we will see little movement on prices in casualty,” Jeworrek said. While casualty rates are not moving up, in proportional US property business rates have begun to move. “We don’t know whether this will be sustainable,” he added.

Jeworrek said the Europe-focused January renewal, when €8.5bn was at stake, saw mainly flat pricing. “The nat cat portion was only 11%,” he added.

The company suffered a total burden of €4.4bn from cat losses in 2011, plus €600m in manmade large losses. Together with writeoffs on Greek bonds, this resulted in a sharp drop in profitability. As announced before, net profits were down from €2.43bn in 2010 to €712m in 2011, helped by major tax effects.

However, Munich Re’s chief executive, Nikolaus von Bomhard, said the company is on track to earn close to €2.5bn this year. “We are in a much better situation than one year ago,” he said. “We have had five years of the financial crisis and there no end in sight, but our company has coped well.”

As a result of Munich Re’s “robust capitalisation”, the company was able to pay an unchanged dividend of €6.25, despite the sharp fall in profit. Munich Re’s largest investor is Warren Buffett, who owns at least 11.2% of the company.

Munich Re’s profit from reinsurance was considerably less than that of rivals Swiss Re and Hannover Re. “It is difficult even for us to see through the figures of our competitors,” von Bomhard said. “Our colleagues in Switzerland dissolved more reserves; we are sitting on large valuation reserves.”

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