W.hen the reinsurance industry says that the Baden-Baden Week has now started, that is also true under Covid-19 conditions. Most managers in the industry hold intensive discussions with their primary insurance customers – some even at exactly the same dates as in previous years. Just from the home computer.
The battle situation is as always: reinsurers give reasons why prices should rise, brokers express doubts that the situation is really that difficult. For the Dax group Munich Re it is clear that 2020 will be a special year. Because the corona pandemic caused a lot of damage.
At this point in the year, the loss estimates at 30 to 107 billion dollars are still unusually wide. But together with the capital market interest rates, which have fallen once again, the supply of capacity in the market that has not grown any further and the increased risk awareness due to the pandemic, there is already a price-driving mix.
Investors have higher return expectations
“Further capital will only come into the market with higher expected returns,” says Doris Höpke, board member of Munich Re. Investors who wanted to earn money from insurance risks made the current situation more challenging. If any claims portfolio was still profitable five years ago, when 107 euros were spent on claims and costs for a 100 euro premium, this ratio is now 100 to 98.
The cause is the further fall in interest rates, which means that reinsurers can earn less money with their investments. “Because of the pandemic, considerable expenses were made, that shouldn’t be underestimated,” says Höpke. What does that mean in total for your company? “We expect a further hardening of the market, better contractual conditions and an appropriate risk awareness. We see growth potential with a disciplined underwriting approach, ”she says. Industry representatives mean rising prices by “hardening”.
She gets approval from the biggest competitor. “Everyone is talking about a hardening, so there must be something to it,” says Frank Reichelt, Head of Markets in Northern, Central and Eastern Europe at Swiss Re, only half jokingly. The reinsurers’ results have been modest for some time, the current year is not going well due to Corona, capital is almost stable, and competition has increased sharply in some primary insurance markets. “All of this suggests that prices will go up,” he says.
Reputation damage due to unclear conditions
The industry had to speak particularly intensely about the damage to its reputation that resulted from unclear contracts in the business closure insurance. Hoteliers and restaurateurs argue at various courts against insurers who fail to pay after a business has been closed. “The insurers’ intention was not to cover a pandemic. Unfortunately, that wasn’t reflected in the policies, ”says Reichelt. The industry must now formulate clearer model conditions. And find a pool solution with the state for pandemic protection.
Hannover Re estimates the damage in this area at between 750 million and 1.25 billion euros. The premium in the entire market is only below 50 million euros. The industry has miscalculated here. The industry could also face some costs in hospital damage liability insurance.
All of this will help reinsurance prices to rise – plus the storm situation in Europe. “Here we have a capacity bottleneck due to too many events,” says Group Board Member Michael Pickel. From his point of view, the increases could even be in the double-digit percentage range.