Munich Re open to more cat exposure as loss ratio remains stable despite headwinds

Munich Re is prepared to take on more nat cat exposure, in spite of concerns around climate change, as the profitability of this line remains acceptable across many segments. Higher 2021 claims have yet to dislodge the group’s long-standing estimate of an 8 percent nat cat loss ratio, CFO Christoph Jurecka (pictured) told his company’s Q3 investor call.

“The nat cat business is a clearly profitable line of business, earning its cost of capital and a decent margin on top of that,” Jurecka said. “All in all, I think the message is that we are growing into a more profitable environment.”

But he added that this approach could reverse in the future, should rates and profitability change. “Reinsurance will continue to be a cyclical business; at a certain point in time, margins will reduce again.”

He also said that further rate increases remain possible, in part as growth to date has been uneven amongst sub-segments and geographies. Gains over recent years have been “highly necessary” but left a “differentiated picture” on pricing adequacy, he noted.

“In the current environment, I would be optimistic that we see some upward movement in prices,” Jurecka said.

Despite many carriers, including Munich Re, licking their wounds from Hurricane Ida and the July European floods, the wider health of catastrophe business remains robust and Munich Re stands by its estimate of an 8 percent nat cat loss ratio through its fifth year.

Upside pressure on both claims and premiums have helped keep the forecast in place, the company nonetheless noted in its presentation. The impact of climate change, adjustments to the structure of certain portfolios as well as regulatory changes all mean increases in the levels of claims.

“We are still comfortable with 8%,” Jurecka said, describing the forecast as “remarkably stable”. It was last rejigged by Munich Re in 2016. The figure will be up for review again in Q1 2022, “but at this point in time, I see no need nor tendency for it to change.”

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