Munich Re CFO confident about P&C growth

Munich Re has expanded the property/casualty (P&C) reinsurance business by 16 percent year on year in the first nine months of 2018 and chief financial officer Jörg Schneider is confident that this new business is of good quality.

In the first nine months of 2018, Munich Re expanded gross written premium in the P&C reinsurance business to €15.70 billion from €13.52 billion in the same period of 2017.

“Growth is driven by new and retained contracts,” Schneider explained during the reinsurer’s third quarter results conference call. “Around 60 percent of the growth is coming from very large quota share programmes,” he noted.

“As the strong growth is driven by large quota share programmes as well as mid-sized very interesting new contracts we can calculate the profitability through statistics and our own models very well and they are really well priced,” Schneider said. “It’s not that we are growing into a flattened market. These are very well planned and deliberate moves. We feel very confident about it,” he added.

Munich Re’s combined ratio for the third quarter of 2018 was 100.7 percent of net earned premiums after 160.9 percent in the same period a year ago, when hurricanes Harvey, Irma and Maria (HIM) hit the sector.

At 97.3 percent the combined ratio for the first nine months of 2018 improved significantly from the 117.3 percent recorded in the same period a year ago. “The figure for first nine months remained at a good level and right on course to reach the envisaged figure of 97 percent for the year as a whole,” the company said in a statement.

Overall, Schneider believes that a normalisation of the large loss development will lead to a “sensible stabilisation” of pricing levels. “This is what we are observing this year,” he said.

In 2017 the re/insurance industry was hit by estimated record catastrophe losses of $135 billion following hurricanes Harvey, Irma and Maria as well as a severe earthquake in Mexico.

In 2018, the insured loss for Japan from Typhoon Jebi is expected to reach between $3 billion and $5.5billion.

Hurricane Florence will cause an economic impact and damage of between $30-60 billion, according to estimates.

“Before 2017 we had a series of years where we had been simply lucky with few large natural catastrophes,” Schneider said. During this period, very large profits could be generated and low interest rates allowed companies to produce additional profit from disposals plus reserve releases from their portfolios, he explained. It was therefore not surprising that rates fell and profitability in the business shrank, he suggested.

But now a normalisation of large loss developments will help to stabilise rates, Schneider said.

“The market is currently well balanced and we hope that we won’t face any rate reductions at the January renewals and we expect rate increases particularly in areas hit by large losses such as Japan, the Caribbean and Latin America,” Schneider said.

“Here we expect significant price increases and overall a stable development,” he added.

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