Manfred BRANDMAIER, Client Manager South Europe, MUNICH Re

XPRIMM: The balanced reinsurance pricing in 2009 doesn't necessarily mean the market is stable as rates are being pulled in opposite directions by counter-current forces. Which are these opposite forces that put reinsurance prices under upward vs. downward pressure? How did the crisis affect the reinsurance market, on one hand, and the buyers' attitude, on the other?
M. B.: In a global economy there are the first signs that the negative trend is leveling off now. Many indicators for economic confidence have shown a better picture during the last few months. But the markets are still far from achieving the growth rates recorded before the financial crisis.

In the event of a prolonged and strong recession, the insurance industry will be affected. There will be a claims-related impact on lines of business like directors and officers and professional indemnity. On the revenue side, fields such as engineering could suffer from declining premiums as a consequence of reduced activities in the building sector, for example. You can say there are push and pull pressures on reinsurance pricing. Reinsurers may want to increase rates to ensure that they achieve the necessary margins, but with shrinking demand threatening to chase down primary rates and with buyers of insurance looking to cut costs in the current economic climate, there is pressure to keep prices down. Certainly, from our point of view, we will not follow such negative developments.

XPRIMM: How would you describe current market conditions and what is the biggest issue the reinsurance industry is facing right now?
M. B.: The financial crisis and its impacts on the insurance industry still remain the biggest issues for 2009/2010. Reinsurers' perspectives for profit and growth are clearly affected by the economic situation on the primary insurance side. There are higher costs of capital, capacity reductions and lower interest rates. But both commercial and private customers are generally unwilling to pay more premium for insurance products.

On the other hand, reinsurance has become an important and flexible alternative for refinancing. Then there is the growing demand for security and customized solutions from quality reinsurers. Last but not least, highly sophisticated enterprise risk management is necessary. This means finding the right balance between control and enterprise.

XPRIMM: Given the recently sales of IPC Holdings and PARIS Re, how much consolidation of the reinsurance market is to come and what drives this trend upward?
M. B.: I cannot comment on the plans of other market players but only for MUNICH Re. Acquisitions are in general part of MUNICH Re's strategy, but only if two prerequisites are met. One is they must fit into the strategy and second, the price must be attractive. With MUNICH Re's highly diversified portfolio from all regions and all lines of business the probability of an overlap with the portfolio of another reinsurance company would be high. So, the acquisition of a big composite reinsurance company is not very likely.

XPRIMM: What are your expectations regarding the reinsurance demand in Romania for this year and for which lines of business do you think this demand would increase?
M. B.: The largest reinsurance demand will certainly emerge from the new Insurance Pool against Natural Disasters, which is just about to be established and which shall become operative with the beginning of next year. In addition, it is expected that this shall also trigger more insurance demand by e.g. owners of flats as their insurance awareness will increase. From our point of view, very challenging will be the future reinsurance of Motor Own Damage and, to a certain extent, Motor Third Party Liability business. Claims experience is very unsatisfactory and signs for improvement so far are not sufficiently noticeable. Hence reinsurance companies will need to analyse very carefully the extent of engagement they will be ready to offer next year.