Storms, crisis lift reinsurance

Evidence that the major Continental reinsurers are not immune from the troubles in the world markets was on show last week, with Munich Re absorbing a 46% first-quarter profits slide.
Munich Re, which is also one of the leading global reinsurers in the marine market, saw its first quarter net income fall €415m (US$557m) from €767m, with investments down 19% to €1.4bn.
However, chief financial officer Jrg Schneider remained upbeat. “We take a resolute approach and are able to absorb the burdens, thanks to our good capitalisation,” he said.
Last week, Germany’s second largest reinsurer, Hannover Re, delivered a 42% rise in first quarter 2009 profit to €216m, up from €152m in the same period last year.
With the primary insurance industry faced with a shortage of capital due to the financial market crisis, Hannover Re said there was now extra demand for reinsurance, which is allowing providers to push rates higher.
Optimism displayed by Germany’s two largest reinsurers will also translate into an ability to be more selective approach to business as well as higher prices, according to brokers, which will filter in to a further mix of pressure for marine and energy insurance costs in 2009.
Willis Re Specialty chief executive Chris Clark said that the marine reinsurance market was a “tale of two halves”, divided between those with Gulf of Mexico exposures ratcheting up prices by 25%-50% and those without this burden pushing for anything between 10%-25%.
“This is mostly as a result of Hurricane Ike,” he said. “But there are other risk losses kicking around – Mississippi pollution, International Group maritime losses and Californian bush fires. There is a focus now on casualty business slipping in to the marine market.”
Prices and reinsurance levels across the reinsurance sector would continue to rise for the foreseeable future, as the sector dealt with this bundle of risks, Mr Clark said. His comments came as Munich Re revealed its operating results were down €385m to €746m, of which its non-technical result plunged to €195m from €590m on significant losses in the capital markets.
Munich-based Merck Finck & Co analyst Konrad Becker said: “The worst should be behind them, unless we get a second Lehman disaster.”
Munich Re’s reinsurance business performed satisfactorily in the first quarter of 2009, with its operating result inching up by just under 1% to €851m as the diversified portfolio sustained a smaller number of major losses over the period.
Rates in marine reinsurance softened slightly in 2008 worldwide, with the Asian market seeing a reduction of 20%. Torsten Jeworrek, a member of Munich Re’s board of management said the market had not yet hardened in all segments but an overall price increase of 7.2% showed that the upward trend in prices is accelerating.
“We are pursuing our previously announced policy of reducing liabilities in business that is highly exposed as a result of the recession,” Mr Jeworrek said.