Capacity generated by retained earnings will hold its ground on discipline: Munich Re

Demand for reinsurance is climbing and supply is abundant. But in contrast to previous cycles, capacity in this market is largely self-funded by incumbent carriers’ earnings rather than a new wave of third-party capital. Because of this, underwriting discipline, especially on US casualty, remains a red line.

Key points:
Nuanced picture on rates
US casualty remains a concern
Opportunities for growth exist

That is the perspective of Carsten Prussog, Munich Re's chief executive officer for the UK, Ireland, Netherlands, and Nordics. “Demand remains high because exposures are continuing to go up,” Prussog told Monte Carlo Today. 

To illustrate this, he points out that globally insured catastrophe losses have risen exponentially in recent years. These totalled $140 billion in 2024, making it the third most expensive year on record. These losses were also significantly higher than the 10-year average of approximately $94 billion. Equally, some $80 billion of insured losses in the first half of 2025 were the second highest on record.

But the supply side is keeping pace with demand. He said there are healthy levels of capital in the market, something illustrated in the 1/4 and 1/7 renewal. “But it is predominantly capacity produced within the industry by retained earnings; there’s no fresh money coming into the industry.”

That, he thinks, is “actually positive – traditional players are reinvesting into the industry after many years where the cost of capital were not sufficient”.

“Some lines will need strengthening – US casualty, some specialty lines, marine. Other lines will be more competitive.”

A split market

Prussog also paints a nuanced picture when it comes to market conditions. He expects line-by-line divergence to define the next round of renewals, with differences emerging also based on geography in some cases.

“I expect there will be lines which continue to need strengthening – US casualty, some specialty lines, marine. Other lines will be more competitive,” he said.

On property, the picture varies greatly by region and loss experience. He anticipates programmes in the UK and the Netherlands with long benign loss histories will press for lower rates. In contrast, business written in Italy, Germany and parts of the US, hit by recent wildfires and other events, will still justify a firming of rates. “It’s not that you can just brush over [these losses],” he said.

On UK motor, he believes the cycle “is about to harden again” after a profitable spell but subsequent rate reductions. 

Turning to US casualty, a concern for many players and big talking point at Monte Carlo this week, his message is unequivocal – like many players, he is wary. “We have a very cautious stance,” he said. “Looking at social inflation, the backlog of open cases in court, we feel comfortable with our book; however we sense the market might need more reserves to cover this adequately.”

Crucially, he notes that claims development patterns in US casualty business are not improving. “We currently don’t see that the development patterns are getting shorter… there is always room that those claims grow, given inflation.” 

Independent data supports that caution. S&P Global Market Intelligence reported significant adverse reserve development in US liability lines in 2024, with a notable share relating to recent accident years underscoring the extent of social inflation and the fact that reforms are slow to come to pass.

“If we are looking at business which we don’t deem technically appropriate, we’re more than happy to walk away.”

No growth for growth’s sake

This is why Prussog’s watchwords on casualty are consistency and patience. Munich Re will only trade capacity where risk-adjusted returns clear its hurdle. It will walk away where they do not, he said.

“We’re very technically driven. We’re looking at where the opportunities are, but if we are looking at business which we don’t deem technically appropriate, we’re more than happy to walk away.”

Despite this hard line and caution, Munich Re does eye growth opportunities in some areas of the market. But it is looking for specific attributes.

“It’s a question of where we see sufficient profitability and return on capital. It’s hard to say where that will be – it might be regions, or specific clients,” he said. 

“Even within an industry, some clients may be extremely profitable, some less so. So it’s really then a client-by-client discussion of where we want to engage, where we can continue to grow. It’s difficult to say ‘property North America’, it doesn’t work that way.”

But he makes the point that where conditions are right, Munich Re is ready – and has the balance sheet to back this up. “We are in a good position to provide significant capacity, totally independent of retro for long-term partnerships.”

Munich Re’s balance sheet underpins that stance. Prussog pointed to the group’s Solvency II ratio of 287% at year-end 2024, well above its internal target range of 175%-220%. This figure is based on €54.3 billion in Total Eligible Own Funds (EOF) against a solvency capital requirement (SCR) of €18.9 billion as of December  31, 2024.

This is all “comfortably above the group’s optimal range” band, Prussog said. He highlighted that sensitivity tests indicate this ratio remains robust under interest rate, equity market and credit spread shocks, and even under a severe Atlantic hurricane. There is ample headroom to support clients through volatility, he said.

1/1 checkpoint

Turning to the January 1 renewal, Prussog is deliberately measured. It is “still early”, he points out, given active hurricane forecasts but the absence (so far) of major landfalls. 

That uncertainty matters in an industry focused on risk: competitively priced property layers in no-loss territories can whipsaw in pricing if a big event hits late. “There is capacity in the marketplace,” he concedes, “and we have seen [that] on the property side,” but the final tone for 1/1 might be event driven.

But there is a bigger picture he points to. There might be stiff competition in property-cat but a bigger strategic opportunity could sit in closing protection gaps – though ideally without importing undue systemic risk. Prussog highlighted that as much as 40% of natural catastrophe losses remain uninsured; when it comes to cyber risk, the insured share is in the low single digits. 

“There is a reason for it,” he cautioned. Unlike nat cat, cyber lacks global diversification; it is aggregation prone and potentially systemic. The industry’s instinct to be cautious is therefore justified, he believes, but so, too, is the need to innovate to stay relevant. 

“We as an industry should provide solutions to stay relevant and give the opportunity to insurance to provide respective cover.” 

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