Munich Re has a “strong appetite for nat cat” and believes they have the skills and capabilities to write it, according to a statement by Goldman Sachs, following a management meeting on June 30th.
However, investors have questioned whether reinsurance companies should decrease natural catastrophe exposure given increasing climate risk, with disappointing underwriting results in the last five years.
In response to this, Munich Re management explained that climate change will change the business gradually over time, and the company has time to continually react and adjust models and respond to evolving changes in climate risk (although the group has reduced its exposure for proportional covers to limit the risk of higher cat frequency)
The company also highlighted its strategy to increase capacity when the market is hardening while reducing in a soft market.
Munich Re has seen further market hardening in recent renewals, in line with the view from brokers. The market has seen rate increases of 5-15% year-on-year for loss-free accounts and of between 20 and 40% for cat-exposed accounts in US reinsurance renewals.
In Florida, in particular, loss-free accounts saw rate increases of 5-15% while cat-exposed accounts’ rate increased by 20-50%.
On the contrary, the industry’s appetite for casualty cat is higher, as casualty loss experience is more stable (with limited social inflation issues). Driven by higher capital supply, casualty rate increases were less steep with 5-15% increases for accounts with losses and -5% to 5% for no-loss accounts.
Munich Re believes the hard market will last for another two years and indicated this is a sweet spot for companies who can manage risk.
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