Systemic nature of very large losses has increased – better preparation needed, says Munich Re

Global reinsurer Munich Re has updated its loss estimates for some of the major catastrophe events of the year, including the COVID-19 pandemic, hurricanes, California wildfire and the Beirut explosion.

The reinsurer is anticipating a low triple-digit-million euro amount in claims expenditure for the damage caused by hurricanes Hanna, Isaias and Laura in July and August 2020, based on an initial estimation. For the devastating explosion in Beirut, Munich Re expects claims in a low three-digit-million euro range, mostly relating to property.

The company said that its COVID-19-related losses, which were around €1.5 billion in the first half of 2020, have developed with "reduced momentum" since June 30, compared with the first two quarters.

In the first quarter, the reinsurer reported COVID-19-related losses totalling nearly €800 million, particularly in event cancellation insurance, leading to a 65 percent decline in the profit year-on-year. In the second quarter, it reported a €700 million hit in its reinsurance operations.

Munich Re noted that the impact of the ongoing California wildfire season at this point is not estimated to be material.

The reinsurer also highlighted that the systemic nature of very large losses has increased as a result of globalisation and digitalisation, making it crucial for insurers to draw the right conclusions and make better preparations in order to minimise losses.

"The coronavirus pandemic needs to be a lesson to us all: We must take action more rapidly and vigorously to ensure that we are not as unprepared as we were with COVID-19 for risks such as cyber attacks or climate change," said Torsten Jeworrek, member of the board of management and CEO of reinsurance at Munich Re. "It is possible to better safeguard against the financial consequences of such risks for the benefit of humanity.

"It needs to be clear that systemic risks like pandemics also require systemic countermeasures – for instance, the creation of state-backed risk pools to make uninsurable risks bearable."

Jeworrek added: “So far, climate change has not been a systemic risk, but it will be if global warming continues unabated. Certain regions will no longer be arable in a few generations’ time. The loss probabilities of certain natural hazards are on the rise, and we are already seeing this with severe thunderstorms and forest fires.”