Will discipline hold or greed return? Munich Re ponders on 1/1

As the reinsurance industry approaches the 1/1 renewals, Carsten Prussog, Munich Re’s chief executive officer for the UK, Ireland, Netherlands, and Nordics, is keeping a watchful eye on how the market will respond. 

“It is a question of whether the discipline seen in the past couple of years will hold or whether, in some areas, greed might return,” he said. 

“That would be one of my concerns,” Prussog told Monte Carlo Today. “People trying to grow on a not-so-technical pricing can always have a certain impact on the market dynamic.”

With inflation, climate change, and global uncertainties creating a volatile environment, how reinsurers manage risk and growth will be crucial, he said. “Given the high frequency of significant losses, there is a hesitancy that reinsurers are going too close to the frequency, too close to the risks. They want to keep retentions where they are, and the balance where we are currently standing.”

“We’ve seen a fundamental shift in how risks are being structured.”

According to Prussog, the so-called “hard market” is not quite what it seems. Instead, he views it as a necessary correction after years of underperformance. Between 2017 and 2022, reinsurers earned their cost of capital only twice, making the current market adjustments long overdue. 

“This was an overdue and required correction of the market,” he said. Prussog believes it has resulted in a “much more balanced equilibrium between the reinsurance and primary markets”.

In the market correction, Prussog explained, price was only part of the equation: it’s also about how risks are structured. Reinsurers have been forced to rethink their approach. “We’ve seen a fundamental shift in how risks are being structured,” he said.

In terms of the supply:demand dynamic, he noted that traditional and alternative capital have increased—but demand from cedants has also grown, fuelled by inflation and higher business values. 

“There is now quite a good balance between supply and demand,” he said. “We are not seeing a similar kind of distortion of the market as in 2023, with spiking inflation and geopolitical uncertainty.” But he warned: “All this is subject to no significant loss.”

Growing climate risk

Prussog highlighted that the reinsurance market is still highly vulnerable to large loss events, particularly climate-driven ones. Meanwhile, the frequency and intensity of severe weather events—floods, tornadoes, wildfires—are increasing, pushing reinsurers to adapt their models accordingly. 

“We’ve shown how massive this trend is,” he said, adding that climate-related risks must be priced adequately. Munich Re, like other insurers, is working to update its models to account for the growing risks posed by climate change and ensure transparency with clients about why premiums are rising.

Beyond the challenges, Prussog sees opportunities, especially in meeting the increased demand for capacity. “We are extremely well-positioned to bring significant capacity, specifically in difficult times,” he said, noting that the company’s financial strength gives it a competitive edge, allowing it to navigate turbulent markets “without depending on retrocession”.

For more news from the Rendez-Vous de Septembre (RVS) click here.

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