About contracts for 2023
Inflation makes Munich Re negotiations difficult
September 11, 2022, 6:50 p.m
In Monte Carlo, insurers and brokers are negotiating the renewal of contracts for the coming year. For Munich Re, a large part of the contract portfolio is up for renegotiation. According to an expert, this one could be much more challenging than the last one.
According to the world market leader Munich Re, inflation and rising interest rates are making negotiations on the new contracts for the coming year more difficult for reinsurers. Torsten Jeworrek, the board member responsible for reinsurance, still expects prices to rise – a “hard market” – as he said at the start of the reinsurance meeting in Monte Carlo.
“But the next round of renewals will be much, much more challenging than the last. The numerous factors of uncertainty made it difficult to make reliable assumptions. Munich Re had raised prices sharply during treaty negotiations in the middle of the year, but adjusted for inflation it was only a small plus The “Rendezvous de Septembre” in Monte Carlo, which is taking place again after a two-year break, marks the start of discussions with insurers and brokers about the renewal of the contracts on January 1, 2023.
For Munich Re, a large part of the contract portfolio is up for renegotiation. The experts at Standard & Poor’s expect prices to rise in the mid-single-digit percentage range next year. Jeworrek warned that numerous reinsurers are withdrawing from the market for natural catastrophe covers – i.e. for hurricanes, floods or earthquakes.
According to data from brokers and rating agencies, the capacity of reinsurers has fallen for the first time since 2018 – and significantly. And alternative capital, such as catastrophe bonds, is at best available at the previous level, said Jeworrek. At the same time, demand is increasing. This could result in short-term bottlenecks, for example in the event of natural disasters in the US state of Florida.
Reinsurers from Europe suffer from strong dollar
Munich Re’s economists assume that the global reinsurance market will grow by two to three percent by 2024, adjusted for inflation. Between 2019 and 2021 it was six percent, the market volume was around 309 million dollars. Munich Re is still available with appropriate prices and contract conditions, said Jeworrek. “We remain disciplined but take advantage of opportunities as they arise. We are careful to price in inflation prudently.”
The reinsurers from Europe – where Munich Re, Swiss Re and Hannover Re are three of the four largest – also suffered from the strong dollar, which made claims payments on the huge American reinsurance market more expensive, said Jeworrek. In terms of investments, Munich Re will benefit from rising interest rates in the medium term.