Manfred BRANDMAIER, Client Manager South Europe, MUNICH Re
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.
XPRIMM: What do you expect will happen to pricing at the beginning of
Manfred BRANDMAIER: For the insurance industry as a whole, something
new is observable: a world of two different markets. Insurance and reinsurance
companies are increasingly able to achieve higher rates in capital- intensive
fields such as cat business, offshore energy and credit, or in loss-affected
lines of business like aviation and space. But rates in the "other" market – for
medium-sized and personal lines segments – have not increased so far.
Nat cat is especially promising. We have seen rate increases in the double-digit
range, depending on individual markets. Some reinsurers have reduced their
capacities. In this situation, MUNICH Re has been one of the companies providing
unchanged capacity. Consistently adhering to our profit-oriented policy,
we have achieved the prices we require. Of course, in particular for the
Romanian market the establishment of the local Insurance Pool against Natural
Disasters (PAID) will need particular consideration in terms of capacity
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?
| Published on 11.11.2009
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.