Capacity balanced but risks ahead: Munich Re

The global reinsurance market is in a healthy state right now—but must keep an eye on the horizon and be attuned to future changes and threats, Achim Kassow, member of the board of management at Munich Re, claimed in a speech that opened the second day of the Singapore International Reinsurance Conference (SIRC).

Kassow underlined what makes the gathering vital for insurance and reinsurance leaders: relationships and shared insights. “It’s relationships, being in Singapore, and being welcomed by friends,” he remarked.

He emphasised that the conference serves as a vital forum for industry leaders to connect and discuss timely issues, particularly as they approach the year-end renewals. The platform SIRC provides, according to him, offers an opportunity not just for networking but for important discourse on the pressing matters facing the industry.

“The discounting levels we sometimes observe are unsustainable.”

Turning to the health of the industry, Kassow said it has achieved a sensible balance. He expressed confidence that capacity would remain sufficient so long as rates and terms continue to be risk-adequate. However, he acknowledged the underlying struggles, which have meant the reinsurance sector has struggled to earn its cost of capital in many prior years.

Kassow discussed some of the pressures that dictate pricing, including “competitive intensity leading to price reductions and pricing inadequacy”. This, he argued, inhibits new capacity.

“The discounting levels we sometimes observe are unsustainable and create significant strain on insurers due to growing exposures and frequency of losses,” he said.

This volatility means more demand for reinsurance, Kassow claimed. ”We see primary insurers seeking more protection against volatility coming from many drivers of risk.” These drivers include exposure inflation and regional business growth.

The confluence of these factors sets the stage for an unusual year-end renewal. In the context of high cat losses and geopolitical tensions, Kassow suggested the upcoming renewals will be complex.

Pressure points

Turning to the broader risk landscape, Kassow painted a sobering picture. He listed three observations impacting the industry: subdued global economic growth, increased geopolitical conflict, and the escalating effects of climate change.

“Global economic growth over the next years will likely be lower than in the pre-COVID-19 pandemic era,” Kassow predicted, adding that Asia, although still dynamic, may not see the previously high growth rates. The need for stimulus measures in China serves as a testament to this changing reality. This economic shift is compounded by persistent claims inflation, due to factors that are independent of the macroeconomic conditions.

He went on to say that geopolitical tensions pose a renewed challenge to global economic stability and highlighted a modern battlefield: cyberspace. He noted that re/insurers need to react, saying: “Cyberspace has become a new territory for wars; we need to establish clear wordings to exclude war from cyber coverage.”

The influence of climate change was another urgent theme in Kassow’s address. He shared alarming figures: for the first half of the year 2024 there have been $62 billion of insured nat cat losses—77 percent above the 10-year average. The growing significance of secondary perils—once local, limited-risk events—was now undeniable, he said. Factors such as increased population density in high-risk zones and subpar building codes exacerbate this issue, making climate-driven events more severe.

Despite the daunting challenges, Kassow argued that the insurance industry has unique opportunities. “The good news is that risk is our business,” he remarked. He framed this risk-centric outlook as “not a revolution but a necessary evolution”.

New solutions for new risks

The speech transitioned into key strategies for industry growth, enumerating seven focal points: partnerships, expertise, product innovation, artificial intelligence (AI), simplicity, active communication, and people.

Kassow stressed the importance of fostering long-term partnerships that go beyond transactional relationships. “By understanding and mitigating each other’s pain points throughout the whole insurance value chain, we make real risk transfer happen,” he stated. He called for deep expertise that adapts to emerging risks, underscoring that historical data is no longer sufficient. Investments in specialised talent, such as cyber experts and engineers, are essential.

On innovation, Kassow showcased how evolving risks demand new solutions. Whether it’s insuring offshore wind farms or the rising number of electric vehicles, the industry must keep pace with technological and environmental shifts. AI, described as both a boon and a risk, plays a pivotal role.

Kassow noted: “AI will do the repetitive preparatory stuff, but our experts will provide greater insights and focus on the more complex systems.”

Communication and simplicity rank high on Kassow’s agenda. He pointed out that simplifying policies is crucial, especially to address underinsurance in regions such as Asia. On communication, Kassow asserted: “We as an industry should engage more in public discussions, to prevent our being perceived as the bad guys.”

Closing on the note of human capital, Kassow made it clear that people are the linchpin of the industry’s future success. ”People are the key factor for our business success,” he said, highlighting the necessity of attracting and retaining talent.

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