Nat cat renewal failures drive spill-over gains in casualty: Munich Re

The capacity crunch in reinsurance renewals is pushing a “take-it-where-you-can-get-it” approach to reinsurance purchase that has shifted demand into casualty and liability lines to spread the rate hardening, the chief executive officer of  Munich Re in the US has said.

“Insurance companies who experience difficulties in placing their cat XL programmes need to solve the resulting pressures on their regulatory and solvency capital,” CEO Marcus Winter said in his company's insurance podcast.

“That means it is very attractive for insurance companies to buy more casualty quota shares and proportional covers in other lines of business,” he said.

That demand shift is seemingly unavoidable amidst the degree of the capacity crisis, Winter indicated. Supply has “significantly reduced” as reinsurers review a long-ish list of unprofitable lines and, where possible, re-allocate capital towards their own primary.

The root of the capacity crisis can be found in a certain complacency in the industry after high-tech models side-lined some elements of traditional risk assessment, Winter argued.

The confluence of heavy nat cat, secondary perils, macroeconomic problems and geopolitical conflict has since generated “apparent uncertainty on the modelling side” which Winter noted has “generated numerous discussions by insurance company management about the proper use of reinsurance as a tool to effectively manage earnings volatility and ensure capital adequacy.”

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