Munich Re targets cyber in Europe

Munich Re plans to grow its cyber book of business in Europe and will raise its cyber prices in the region, Claudia Hasse, chief executive of Munich Re Germany and head of its cyber business in Europe said at a Munich Re pre-Baden-Baden Virtual Media Breakfast on October 20.

“When it comes to cyber, there are always two questions which are relevant: how much premium do we write and is cyber profitably insurable?” Hasse said.

Munich Re’s cyber business in Europe is profitable—and the European market for cyber has grown substantially in recent years, she added. Munich Re’s market share ranges between 5 percent in some countries and more than 20 percent in Germany. It writes all segments, with a preference for SME and private lines, which diversifies its portfolio.

“We believe that most cyber risks can be modelled and insured, but there are clear limits to the insurability,” she said. “Systemic risks such as critical infrastructure or war cannot be insured.”

She added that specific exclusions are currently being discussed, and war is already excluded in Munich Re’s wordings.

“For Germany, very high combined ratios are currently reported for the market,” she said. “In our portfolio, we see an increase in losses, but not to the same extent.”

She attributed this outperformance to the fact that Munich Re chooses its partnerships very consciously and to its focus on pricing, wording, risk assessment, and provision of pre and post incident services to its clients.

“As a consequence, our clients on average outperform the market,” she said. “Nevertheless, given the loss trends and the accumulation potential we see in cyber, our technical price will increase in Germany and in Europe. Overall, we are very confident that our strategy is the right one and we plan to further grow in cyber in Europe.”

Standing by clients

Increased risk of cyber attack is just one of the issues that are causing virtually unprecedented levels of complexity in the business environment for primary insurers and reinsurers worldwide. Alongside the current economic and geopolitical crises, climate change and the fallout from the COVID-19 pandemic are also cranking up the pressure.

Discussing the challenges, Thomas Blunck, member of the board of management of Munich Re, highlighted the extent to which high inflation is impacting loss expectancy in many operating segments.

He said that that while the traditional reinsurance capital available this year may shrink, the need for reinsurance and retrocession is increasing, driven by inflation and rising exposure in certain segments, such as natural perils.

He added that it is necessary to take into account the trapped capital that needs to be available to pay Hurricane Ian claims—and this could mean the industry has less capital available for exposures in Europe.

“The main message from our side is that in this set of circumstances, we stand by our clients,” Blunck said “We do have the needed capacity, we can increase that capacity according to the inflation, and we are willing to deploy this capacity.

“But of course, the terms and conditions have to reflect these underlying circumstances and trends and I believe we have to be conservative as the downside risks seem to have a higher probability.”

He added that investment in risk management tools and products is at the core of Munich Re’s work to understand how natural perils are evolving.

To address the issue of inflation, Munich Re is working with its Economic Research Unit, and analysing each line of business to understand what the specific impact of inflation will be.

“We go a step further and take client the client’s specific situation into account,” he added.

Continuing with his overview, he noted that Munich Re’s clients currently experience high fire losses in commercial and industrial business, and despite remediation efforts, it had high losses in the segment in its portfolio in 2021

The motor insurance industry is being significantly impacted by evolving mobility trends.

“There are also mid-term challenges that our clients are facing and they will need strong solutions in 2023 and beyond,” he said.

An example is capital relief and volatility: Munich Re expects increases in retentions, which will make its clients’ results much more volatile and might affect their capital base.

“This is despite high solvency levels in Germany,” he added. “In this case, we’re able to offer so-called structured solutions, which smooth the volatility and strengthen the capital base of our clients.”

He highlighted digitisation as a key theme as the industry evolves to tackle a challenging landscape.

“Digitisation is not just a buzzword,” he added. “German insurers are currently investing heavily in their digital transformation, and more and more clients have successfully implemented new systems.

“Our goal is to offer ready-to-use solutions as well as individual consulting to support them to improve their profitability and to increase growth. This can be done, for example, through dynamic pricing or a better targeting to consumers,” he concluded.