Rates to return to risk-adequate levels
Although Munich Re issued a profit warning in September as a result of the Fall nat cat events in Mexico and the US, it is still not ready to release figures for the losses. Hermann Pohlchristoph, a member of Munich Re’s Board of Management, said in a press briefing at Baden-Baden that the company was reluctant to be the first to release such figures.
“When we come up with first loss estimate we want to be on the safe side,” he added. “These losses are highly complex, so to come up with a reasonable estimate is very dificult.”
Asked how he expected the events to impact pricing outside the affected areas, he noted that in the last few years the softening of the market has taken nat cat rates to levels that are not risk-adequate.
“Therefore we would expect pricing to come back to risk-adequate levels,” Pohlchristoph said. “There has been a lot of debate about whether the impact of this series of events was more regional or global. Losses might be regional in terms of location but at the end of the day reinsurance is a global business model.
“I would expect, especially in property cat, some price effect spillovers from this event into other regions.”
Regarding Munich Re’s appetite for these risks, he added: “At Munich Re extreme events such as Irma are fully taken into account in our risk strategy; due to our strong capital base we are in a position to maintain our risk appetite provided that prices are technically sound.
“The huge gap that still exists between economic and insured losses following natural catastrophes, particularly in emerging countries but even in highly developed countries, is evidence of the great potential that companies and countries have to improve risk management.”
Talking more generally about emerging business opportunities, he said that companies must analyse their risks in a global economy that is increasingly interconnected and identify interactions that could, for example, create a risk of business interruption.
“In the interconnected world in which we live, risks are becoming increasingly complex. In order to develop comprehensive risk management solutions to deal with them, an in-depth knowledge of risk is not enough—you also need to have a holistic view of the risk landscape and to make use of the very latest technologies.”
Pohlchristoph explained that Munich Re’s new Risk Management Partners unit exists to develop tools that follow this approach.
“Digital change and transformation keep us on our toes—the world is changing rapidly and we must keep pace,” he said.
He identified cyber risk as the business area with the highest market potential going forward, and emphasised the important of technological sophistication when addressing this risk.
“Cyber as an insurance product is still underdeveloped. The market is very much dominated by the US. The awareness in the US is bigger because they have had the regulatory framework in place for many years dealing with cyber, with data protection breaches, and describing the security framework you need to have in place.
“Increased risk awareness is leading to higher demand on the client side. We consider cyber risk to be insurable, although we are well aware of the unknowns and the accumulation risks.
“We are learning by doing and by investing in ourselves and in cooperation with universities,” he concluded.
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