Poor pricing forces Munich Re to shed business in July renewals

Although rate reductions have slowed, inadequate pricing in the mid-year renewals forced Munich Re to walk away from almost a quarter of business it already held as a reaction to pricing, the company revealed in a conference call covering its second quarter results today (Tuesday August 9).

The company said risk prices continued to fall in the latest renewal round of July 1 albeit at slower speed, despite a number of heavy catastrophe losses in the second quarter.

Munich Re’s property/casualty reinsurance combined ratio worsened to 99.8 percent of net earned premiums in the second quarter compared with 93.3 percent in the same period a year ago.

Its overall loss expenditure for major losses totalled €542 million in the second quarter, up from €207 million in the same period a year ago.

Natural catastrophe losses in the second quarter amounted to €335 million compared to €21 million in the same period of 2015. In May, extensive wildfires in the Canadian Province of Alberta caused considerable damage, for which Munich Re anticipates net expenditure of around €400 million. Further extensive losses were triggered by a series of earthquakes on the Japanese island of Kyushu in April of this year, resulting in expenditure of about €85 million.

The second quarter renewal involved a volume of treaty business of approximately €2.1 billion, mainly from the US, Australia, Latin America, and global clients, for Munich Re.

Pressure on prices, terms and conditions remained high in this renewal round, in particular for natural catastrophe covers, which accounted for about 21 percent of the renewals, Munich Re said in a statement.

Prices were down by 0.4 percent, a slowdown compared to previous year's renewals as at 1 July 2015 when prices declined by 2.1 percent.

Torsten Jeworrek, head of reinsurance, explained that the excess of capital in the market is not only driven by alternative capital, but also by traditional carriers. Price competition is especially strong in the catastrophe business where Munich Re has shed some business, he said.

In the July renewals, Munich Re reduced the business it already held by 23.5 percent as a reaction to pricing and in order save profitability.

At the moment, the sector’s results are still too good to allow for higher prices, Jeworrek said.