Losses will not deter veteran ILS investors: Jeworrek
More experienced alternative investors in the reinsurance space will not be put off by losses in the sector, but less experienced participants will disappear over time, believes Torsten Jeworrek, member of Munich Re’s Board of Management.
He told Monte Carlo Today that there are also many unanswered questions around the potential behaviour of these investors and this will determine the true shape of the industry in years to come.
Questions include how the relationship between third party capital providers and traditional reinsurers might evolve, whether the relationship could in fact strengthen and whether investors will find new ways to utilise the reinsurance industry as an uncorrelated area to invest in.
He added that alternative capital provides helpful diversification on some peak risks.
“Due to the low interest rates and low spreads, there is a shortage of investment opportunities, and investors are looking for alternative asset classes that meet their return requirements,” Jeworrek said.
“So a considerable amount of alternative capital is invested in vehicles that today predominantly cover top US nat cat scenarios. In this area, alternative capital supports further diversification for very large accumulation scenarios.”
In terms of the upcoming renewals negotiations, Jeworrek added that in the absence of a big loss for the industry, he expects competition to remain intense but pressure on pricing to ease after such a long period of softening.
“I expect the general environment to be mainly unchanged,” he said. “Competition should remain intense as long as there are no extraordinary loss events or other major market upheavals during the last months of the year, but the pressure on prices should ease still further after two years of price deterioration.”
Against this backdrop, he said, Munich Re’s strategy is twofold: to write business only at adequate prices and to use its expertise to support fast-growing industries, and thus its own growth.
“We will continue to write business only at adequate prices, terms and conditions. As a well-diversified reinsurer with extensive know-how, we are well positioned and able to offer tailor-made solutions, for example multi-year treaties, retroactive reinsurance solutions, transactions for capital relief, and the insurance of complex liability, credit and industrial risks,” he said.
“Second, with our technical expertise and risk knowledge, we are in a position to support rapidly growing industries and to judiciously extend the boundaries of insurability with needs-based covers. That means we emphasise innovation.
“In today’s rapidly changing business environment, ever more complex processes give rise to previously unforeseen risk scenarios. New technologies always harbour new risks, whether we are talking about digitalisation, robotics or new materials such as nano composites in our daily lives.
“The insurance industry has to find products and solutions for these risks. Insurers and reinsurers have to be up to date about what is going on in the underlying businesses but also in terms of social and political developments, and think about re/insurance solutions that will keep pace.”
Jeworrek added that the company also faces macroeconomic risks including the prolonged low interest rate environment, which has led to a reduction in investment earnings and has increased the importance of underwriting results.
