Munich Re ready to take nat cat to the limit to max out margin

Global reinsurer  Munich Re is ready to take nat cat exposure to the limit on the simple logic that hard markets are meant for making money, CFO Christoph Jurecka (pictured) has said.

“Strategically, we are going as far as we can when it comes to cat exposure and for some perils we are getting close to our risk budget, the upper limits of our risk budget,” Jurecka told his company’s Q1 earnings call.

“The hard market is exactly the time to do that,” Jurecka said. “We are not simply expanding the risk limits or the risk budget, we are managing to optimise our profitability within the limits of these budgets.”

Jurecka nonetheless warned analysts not to over-read the shift in PMLs quarter to quarter, where valuations have been unduly impacted up and down by heavy currency market moves over recent periods.

Margin improvement at the two major renewal seasons to date in 2023 has been “very high” and Munich Re has placed its hopes even higher for the mid-year renewals.

“For 1.7, we do not have any indication why this should change at all,” Jurecka told analysts. “The environment should continue to be very positive, particularly in nat cat.”

At the April treaty renewals, Munich Re’s most nat cat intense renewal, the group claims to have increased premium on its renewal book by 11.1% on a 4.7% risk adjusted price increase. The April renewals have the biggest share of nat cat in the Munich Re book at 31%, ahead of 27% at July 1 and a mere 11% at January 1, although the absolute value of nat cat is higher in January given the size of the total renewal.

And that 4.7% risk-adjusted price gain should go straight to margin, as Munich Re claims to have baked all profit considerations into its realised price measure.

Munich Re had taken a much smaller gain at the January 1 renewals, claiming a mere 2.3% risk- and inflation-adjusted price increase while increasing total exposure volumes by some 1.3%. Sums rendered a 3.6% increase in book (risk- and inflation-adjusted), well below levels seen in recent years, in part as management called out one major resignation.

Jurecka attributed the discrepancy largely to the differing business mix at the two renewal periods and claimed that the underlying story was of high profitability.

“We continue to be very happy with our renewal outcome and continue to be very optimistic for the upcoming renewals given the market environment how it presents itself to us.”

That market is not about to be spoiled by the arrival of any new capital, including word that Bermuda-based rival Everest Re has raised as much as $1.5 billion in fresh equity for growth just ahead of the mid-year renewals.

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