Re/insurance is not a growth industry: Munich Re
Munich Re’s projections for the reinsurance industry show little growth for the sector as excess capital continues to compete for business. But the reinsurer also believes that the losses generated by the recent hurricanes will trigger more demand.
Total global property/casualty premiums ceded in 2016, including premium ceded by subsidiaries to the parent and therefore not available for external reinsurers, were at around €222 billion ($267 billion), according to Munich Re. Total reinsurance growth is estimated at 1 percent compound annual growth between 2017 and 2019; primary insurance is expected to grow by 2 percent during the period.
“Insurance and reinsurance is not a growth industry,” said Torsten Jeworrek, head of reinsurance at Munich Re.
In the past, reinsurance could generate better growth than the primary insurance sector but this is now set to change, Jeworrek noted.
“There are not many growth opportunities in our worldwide markets. This is basically why we see so much competition today,” he added.
While traditional reinsurance capital remained fairly stable over the past few years at between $300 billion and $350 billion, alternative capital increased to $81 billion in 2016 from $71 billion in the previous year. In the first six months of 2017 it is estimated to have grown further to $89 billion, as investors continue looking for investment opportunities which are hard to find in the traditional capital markets, Jeworrek noted.
Reinsurers therefore face few growth opportunities and excess capital remains available. Nevertheless, hurricanes Harvey and Irma are likely to boost demand for coverage and improve pricing in parts of the P&C sector in the upcoming renewal season.
“These events will trigger demand for back-up covers because the original cover might be exhausted,” Jeworrek said.
“We will see an impact on prices particularly in nat cat, particularly in the US,” he noted.
The impact of the hurricanes may also affect the dynamics in the alternative capital industry.
“It is the first stress test for their sustainability in our industry,” Jeworrek said.
The reinsurer also discussed the protection gap and the fact that many natural catastrophe losses remain largely uninsured worldwide—even in highly developed markets. Although the exact level of losses from Harvey and Irma and the severe monsoon flooding in India are not yet detailed, it is already clear that there is a considerable gap between economic losses suffered and the amount covered by insurance, the company said.
Jeworrek said: “Governments and private industry need to work together to find solutions to reduce risk and strengthen the basis for prosperity in these countries.”
He added that while the demands placed on insurers are changing rapidly, their fundamental role remains the same: to secure value in order to promote prosperity and preserve livelihoods. New technologies are giving rise to novel opportunities to do just that. Alongside loss indemnification itself, the importance of loss mitigation and avoidance is increasing.
“Assessing, managing and accepting risks in order to promote entrepreneurial activity is, and always will be, our most important role,” Jeworrek said.
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