13 September 2012

Risk managers face potentially tougher liability renewals as Munich Re vows to 'adjust' underwriting strategy

Torsten Jeworrek, Reinsurance CEO of Munich Re, used the Monte Carlo Rendez-Vous to warn customers that it is adjusting its underwriting strategy to help it cope with the impact of increasingly scary existing and potential economic scenarios.

In short this means that the world’s biggest reinsurance company is lowering its appetite for ‘reserve-intensive’ business, notably longer tail liability lines, in the face of a negative interest rate environment and threat of higher inflation.

It is probable therefore that corporate risk and insurance managers, particularly those who work for financial firms such as banks, may well find themselves in increasingly difficult discussions with their lead insurers in coming renewals about more restricted wordings and limits for their liability coverages.

During the Munich Re press conference in Monte Carlo, Mr Jeworrek naturally said that the lack of decent investment returns and threat posed by the effective negative interest rate environment have put pressure on rates. But he really focused on the need for tighter wordings and limits, particularly in ‘reserve intensive’ liability lines.

He added that the uncertain economic environment poses ‘major challenges’ for insurers and reinsurers and said that very different scenarios, some with ‘grave consequences’ for insurance business, currently have to be considered in risk management.

Mr Jeworrek continued: "More than ever, our industry faces the challenge of achieving stable earnings in its core business and further reducing its dependency on the investment result. The key question will be how quickly and to what extent insurers and reinsurers will succeed in factoring the low interest-rate level into their price calculations."

Mr Jeworrek said that reinsurers and insurers are currently staring at a series of risk scenarios for which they must brace themselves. These include the withdrawal of individual member states from the eurozone, the insolvency of states and a giant leap in inflation, or deflation.

The reinsurer said that the banking industry is in the ‘spotlight’ currently because of business practices, for example following the Libor scandal, and politicians and the press are watching the sector very closely.

As a direct result of this, Munich Re has a ‘reduced appetite’ for professional indemnity in the financial markets for example. “We differ depending upon the model of the banks but in general our underwriting strategy is restrictive…products have been modified to control our reserve portfolio”, explained Mr Jeworrek, who added that wordings need to be looked at more closely.

Full article

© Commercial Risk Europe