Market pressure not to ease anytime soon: Munich Re

Reinsurer Munich Re does not expect significant growth in insurance or reinsurance demand, according to the company’s Board. This is suggestive that excess capital issues in the market will not ease market pressure any time soon.

Board member Tosten Jerrowek told a media briefing at the 2016 Monte Carlo Rendez-vouz that reinsurers analyses suggest a moderate outlook for market demand.

“No significant growth is expected in insurance and reinsurance,” Jerrowek said, adding that while growth might be higher in emerging markets, developed markets would see relatively static demand for re/insurance protection, according to a report in Artemis.

For the reinsurance market in particular, Jerrowek said that Munich Re only anticipates one percent growth in the coming years, a level that will not be sufficient to soak up any of the excess capital or alternative capital in the market today.

For some years the market has been looking to China as a potential source of growth, but Jerrowek said that Munich Re expects reinsurance cessions in China will slide, due to the new solvency regulatory regime.

There will be a “negative impact on capital levels required” Jerrowek said, adding that the result will be a lower demand for reinsurance in the country.

With the reinsurance market awash with traditional capital while alternative capital continues to grow, this situation of sluggish growth is likely to exacerbate the pressure on reinsurers at a time when profits have been dropping. For the smaller reinsurers lack of demand growth could be fatal though, as they may not be able to devote such high levels of capital to innovation to help them profit and survive.

Less growth will also make things difficult for alternative capital and ILS providers, perhaps pushing them to ramp up price competition again. However the lower cost-of-capital and efficiency of ILS capital could help them to benefit from this trend, taking business away from some of the small and mid-tier of the reinsurance market.