Munich Re likes property XoL in race to capture rate over inflation

Munich Re bought up loads of property excess of loss (XoL) to help buoy its aggregate pricing conditions at the mid-year renewals while proportional books in property and casualty struggled to avoid adjusted rate slippage.

Risk- and inflation-adjusted prices rose a fractional ca 0.1% at the July renewals as the larger proportional books could not keep pace with both inflation, measured for both current and loss-trend, plus any shift in risk exposure, officials admitted during the company’s Q2 earnings call.

“It’s a great market environment,” CEO Joachim Wenning (pictured) told analysts. “We have taken advantage of the hardening market.” Wildcards like inflation and the war in Ukraine have proven supportive to date. “These factors so far brought more tail than head wind.”

Nowhere did Munich Re take more advantage of a hardening market than in excess of loss treaties for property. At the July renewals, Munich Re added some 25% in such volumes where it could secure an average (risk and inflation-adjusted) price change near 8%.

Munich Re took that growth all around the globe. “Pretty much coming worldwide: a big chunk in North America, but also the far east and Latin America, so pretty widespread,” Wenning said.

Pinched capacity could fuel further rate growth and possible margin expansion. “With regard to peak risks, particularly in this nat cat framework, there is a shortage of capacity,” Wenning said. “With regard to peak risks, I would not exclude a further margin gain.”

Increased demand further outstrips continued tightening in alternative capital, a trend particularly visible on the Florida cat market, Munich Re believes.

Munich Re will fill that gap in the non-proportional space and claims capacity “still within its overall appetite for nat cat business in a healthy pricing environment.”

Munich Re trimmed proportional property where rate was also down after adjusting for inflation and risk-exposure and claims is wary to the US proportional property market.

For the larger book, total volumes grew some 6.4% on an average rate and inflation-adjusted price increase of a fractional 0.1%. Munich Re added to proportional casualty books, but at a loss in adjusted rate and management claims to remain “cautious” on US casualty.

With concerns over runaway inflation focused chiefly on long-tail casualty lines, Munich Re claims to have stuck to a very picky approach. “We continue to choose increasingly cautious loss picks for long-tail casualty lines,” Wenning said. “Our growth was quite selective to preserve profitability.”

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