Further hardening expected: Munich Re

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, stated Munich Re. Insurance covers are therefore likely to become more expensive, particularly for long-term risks in third-party liability and other lines.

The phenomenon has been attributed to 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. This has, 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.

The coronavirus pandemic has also indirectly affected the rapidly growing insurance segment for cyber risks: the lockdowns forced most office staff to work from home and a lot of companies to migrate many business operations online, followed by a sharp rise in cyber attacks. In order to ensure sustained growth of cyber business, Munich Re is pursuing a comprehensive strategy of assessing existing risks individually; identifying systemic trends; and pursuing risk-commensurate prices, terms, and conditions.