Cedants are getting smarter—and more demanding

Cedants have become smarter and more challenging in their demands around risk transfer solutions, believes Ludger Arnoldussen, member of the board of management of Munich Re. It is thus becoming increasingly important for reinsurers to offer bespoke solutions suited to individual clients’ requirements.

This is a dynamic that will suit the larger players, Arnoldussen said. “Operational excellence, diversification and specialised risk expertise for complex tailored solutions is key. Munich Re demonstrates its advantage in complex risks and non-standard segments such as agriculture and aviation.

“We can create solutions tailored to the individual client’s risk profile and balance sheet. This could include capital relief or innovative covers for new technologies,” he said.

He admits that this is a challenging time for the reinsurance industry, but says Munich Re considers itself well positioned “due to its strict cycle management and broad diversification”. On this basis, large players will also maintain their positions even on increasingly commoditised lines such as cat business, he said.

He continued: “In particular, companies with a broad geographical spread across all lines of business, and with expertise in both primary insurance and reinsurance, are able to react more quickly and with greater flexibility.

“Diversified in this way, reinsurers will preserve their long-term role in nat cat business, as they take up a wide range of risks, providing capacity and capability to serve clients across all lines of business. Based on experienced underwriting know-how, we provide claims services and above all we are a sustainable, long-term partner supporting the business development of our clients with customised solutions.

“We’ve proved for a long time that clients can rely on us, when it is really decisive, even after severe nat cat events.”

Arnoldussen believes the main talking points in Baden-Baden will be the market conditions in reinsurance and the pressure on prices, terms and conditions, but also solutions for emeging risks and new technologies. “We have to develop innovative products which expand existing market boundaries and create new opportunities for profitable growth,” he said.

Arnoldussen said that in addition to ensuring Munich Re maintains sound technical underwriting and a focus on keeping profitability stable, it is also focused on “maintaining our leading position in offering tailor-made and innovative insurance solutions”.

These could take a number of forms, he said, including transactions offering solvency relief, if a client needs capital at short notice, or covers for new technologies such as renewable energies, as well as cyber risks or entrepreneurial risks.

“We are certainly prepared to take up opportunities if they arise and if they look profitable,” Arnoldussen said. “Our focus in the future clearly is to offer our insurance intelligence, be it from the traditional lines (loss driver analysis or nat cat know-how) or to help clients identify and assess in particular their new types of risk such as cyber, reputation, non-property damage and business interruption.”

He gives a number of other examples of areas that can create opportunities in the longer term. Under the banner of technology, he names cyber risks, energy risks, supply chain risks, non-damage business interruption, autonomous vehicles, drones and project risk rating.

Under the umbrella of what he terms society, Arnoldussen names increasing medical costs and reputational risks. Under environmental, he mentions increasing severe weather events, geophysical risks and flood. Finally, under the umbrella of politics he notes regulatory changes and public-private partnerships in infrastructure projects.

Munich Re’s open and progressive attitude to new risks also applies to its view on the role so-called alternative capital plays in the industry, he said.

“Munich Re has embraced this side of the market and is able to leverage this form of capital in several ways,” Arnoldussen said.

“We do not have to change or adapt our business in general to react to the rising issuance of alternative capital. For several years now Munich Re has had an expert team for ILS and retrocession in place. Hence Munich Re is able to benefit on the retro side from reduced alternative capital market prices and we are able to support clients accessing the alternative capital market.”