Speaking from reinsurance meetings being held in Monte Carlo in September, Munich Re experts say the company is ready to further increase capacity, but warns that underwriting will matter more than ever before to make a difference in performance.

“Underwriting matters again. We had a number of years with rather weak underwriting results in the primary insurance market, but especially within the reinsurance market. We had disappointing returns on equity. We had some price losses in the market and we also had discussions about wording, ambiguity and so on,” says Munich Re’s management board member responsible for North America and global clients, Stefan Golling. “So for many years the focus in the industry was on innovation, on disruptions, on digital capabilities, on distribution. And they are all important topics and will stay important in the future as well. But there’s also a focus on the basics. The basics, from my point of view, is the art of underwriting.” 

Against a backdrop where companies in the industry have reduced their exposure or exited the catastrophe business altogether, the company’s CEO of reinsurance, Thomas Blunck says with the right rates and right conditions, the company is ready to further increase its capacity. In a statement about the briefing, however, they warn that it remains particularly important for insurers and reinsurance to be accurate in their estimates of how inflation will develop – while inflation is falling, they say it remains a source of uncertainty.

“Average consumer price inflation in industrialized countries is likely to still be above central banks’ targets of around two per cent in the coming years, even in the baseline scenario, and thus well above the inflation rates seen in previous years. The uncertainty involved is considerable – appreciably higher inflation rates are a much more likely risk scenario than lower, less pronounced rate increases. At the same time, many risks are changing,” they write.

Those changing risks include natural hazards, namely thunderstorms, which are causing damages akin to those which occur during major hurricanes. Moreover, they say these have practically become the norm, rather than the exception.

To address the risk, Munich Re says it is investing in expanded risk modelling to better reflect increasing risks from natural hazards, it is investing in resources to provide complex coverage for climate and energy technologies and it plans to make greater utilization of data and technology in the future, investing in expertise in generative artificial intelligence. 

The presentation also addressed social inflation in the United States, political risks and policy wording, and cyber coverage, saying economic losses from cyber attacks are expected to triple to US$24-trillion by 2027. Although they say uninsurable risks – attacks on critical infrastructure, cyber warfare – will continue to be explicitly excluded from the coverage Munich Re provides, it concludes saying it is committed to facilitating a sustainable and profitable cyber insurance market going forward.