Losses from secondary perils have leapfrogged peak perils’, Munich Re warns

The industry needs to put a greater focus on the growing threat of non-peak or secondary perils and their increased frequencies, otherwise the accumulation of small and mid-size events will hit harder than one or two single mega events would. That’s the stark warning from Roland Eckl of Munich Re.

“Losses from non-peak perils have leapfrogged those from peak perils. Fuelled by climate change, these have turned into major risks which have driven the annual insured losses above the $100 billion threshold globally in recent years,” Eckl, chief executive officer of Munich Re’s APAC, MEA, and cyber divisions, told SIRC Today. 

Nowhere is this risk more apparent than in Asia, which was the world’s most disaster-affected region in 2023, according to the World Meteorological Organization’s “State of the Climate in Asia 2023” report published in April. The devastating impact of floods, storms, and worsening heatwaves has continued into 2024. 

“Insured losses from natural catastrophes in Asia during the first half of this year were significantly above the long-term average,” Eckl noted. “The market environment remains challenging,” he said, warning that potential future events could “further impact its delicate balance”.

“We do not want to grow into business which is not priced risk-adequately.”

Discipline on growth

Munich Re is responding to this volatile environment by doubling down on a disciplined, risk-adequate approach. “We do not want to grow into business which is not priced risk-adequately,” Eckl asserted. “For us, maintaining underwriting discipline is paramount.”

He underscored that while the reinsurer sees immense potential for growth in Asia, especially in markets with lower insurance penetration, “Munich Re’s focus is not on growth per se, but on profitable, sustainable business relationships with our clients”.

“Asian markets with lower insurance penetration can attain higher growth rates than mature markets such as Japan or Australia,” he explained. 

“But even small percentage increases in the mature markets can have a bigger impact in overall figures. Hence, a look at growth rates in isolation is not very meaningful.”

To better serve clients in the region, Munich Re has restructured its operations across the Asia-Pacific, Middle East and Africa regions. Beginning in July 2024, the reinsurer adopted a more decentralised model. By empowering local underwriting teams, the company aims to increase agility and responsiveness to market needs.

“We have become leaner at the top and broader in the markets,” Eckl said. “Through this shift, we have further increased our client proximity. As the teams have matured, giving them greater underwriting decision mandates is a logical step.”

A growth area

Cyber is a significant growth area for Munich Re in Asia-Pacific. With rising cyber threats and increasing regulatory scrutiny, the demand for cyber coverage is expected to soar.

“We expect cyber premium in Asia-Pacific to double by 2027, outpacing growth rates compared to the rest of the world,” Eckl predicted.

“The market estimate of cyber premium in Asia-Pacific makes up only around 6.5 percent of total global cyber premium, but as awareness rises, and businesses become more conscious of the vast loss potential from this line of business, we see cyber as a key area for growth in the region,” he said.

“Typically, we have seen companies with highly sensitive data, such as healthcare firms, driving growth and claims,” Eckl added. “However, with data breach regulation increasing, we are now seeing growth across all segments.” 

In Japan alone, ransomware incidents have doubled over the last three years. “Cyber insurance is already a key part of the risk management framework for many large companies,” Eckl explained, stressing that awareness and availability need to extend to SMEs and personal insurance so that protection is available across all segments and industries.

He highlighted that when comparing different primary markets, there are many variations in coverage and regulation, which puts local market experts in a better position to provide tailored coverage, across both treaty and facultative placements.

Beyond cyber, Munich Re is keeping a close eye on China’s “green” energy revolution. As the country drives forward with solar plants, offshore wind farms, electric vehicles, and energy storage systems, Munich Re expects the demand to increase.

“The green energy transformation in China is one of the key trends likely to shape the reinsurance market,” Eckl said. “China is driving the transformation on a large scale.”

The reinsurer is working with manufacturers and tech firms to ensure these projects are “financially viable” and sustainable.

“We have become leaner at the top and broader in the markets.”

A cautious outlook

Looking ahead to the upcoming renewals, Eckl remains pragmatic. He believes the drivers of reinsurance rates have not changed significantly, and the market remains fraught with uncertainties. “Looking at the factors that drive reinsurance rates, I cannot detect anything material that would point to a sudden end of the current market conditions—especially when taking Hurricane Milton in the US and Typhoon Yagi in Asia into consideration,” he said.

“General conditions and changing risks require a disciplined approach and precise risk management, and that is broadly being recognised,” he observed. 

“Claims inflation is still high in a number of segments and there are significant downside risks hanging over the overall economic environment. At the same time, global insured nat cat losses are continuing to rise.

“Munich Re will provide sufficient capacity as long as rates and conditions are risk-adequate,” Eckl concluded.

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