Board member letter: expects further hardening of markets
- Low interest rates are impacting the profitability of reinsurers
- Recent experiences following the lockdown in many countries have been a wake-up call regarding systemic risks
- The market for cyber risks remains one of the most important strategic growth areas
Following years of eroding rates caused by excess capacities and low major-loss expenditure, particularly in European markets, low interest rates - likely to remain even lower for even longer due to the coronavirus pandemic - are impacting the profitability of reinsurers. Insurance covers are therefore likely to become more expensive, particularly for long-term risks in third-party liability and other lines. Munich Re will consistently ensure that prices, terms, and conditions are commensurate with the risks in the next renewal round.
The gradual erosion of rates and the softening of terms and conditions - caused by excess capacities and randomly lower major-loss expenditure, particularly in European countries - have for years been making profitability a challenge for reinsurers. Interest rates have dropped to record lows once again in 2020. Against the backdrop of the coronavirus crisis, it is increasingly likely that the current interest-rate environment will continue to affect low-risk investments for the foreseeable future. These circumstances mean that sustained profits, in long-tail business and elsewhere, will only be possible if prices match the assumed risks.
Interest rates will remain low for quite some time. In turn, income for insurers must come from risk assumption itself, and that includes long-tail business. Relying on interest income, or hoping that statistically likely losses will not occur, is an unsuitable basis for the long-term assumption of major risks. We want to support our clients reliably and in the long run with our financial capacity and our knowledge of risks. We devote considerable attention at Munich Re to sound underwriting as well as appropriate prices, terms, and conditions.