Munich Re’s Golling: (Re)insurers have tolerated soft casualty market for too long

Munich Re management board member Stefan Golling issued a call to action on casualty pricing as he addressed the media at this year’s Rendez-Vous in Monte Carlo, warning that rate increases to date have failed to keep pace with loss trends

Golling said the industry had been “too optimistic” on casualty claims trends, both for underlying claims inflation and what he described as “legal system abuse”.

He said that analysis of renewal submissions on excess casualty business showed that the market reacted to any crisis with strong rate increases then consistently let these rates slip behind exposure trends.

“We cannot continue like that. We need to stop fooling ourselves about rate increases,” said the Munich Re executive.

He said July renewals had seen reinsurers “celebrating” nominal rate increases of 8-10 percent when claims trends were up 10-12 percent.

Fellow Munich Re board member Thomas Blunck added that it should be remembered that casualty was a nuanced class of business and, in the case of motor liability, Munich Re had largely benefited.

However, he acknowledged that US liability – which accounts for no more than 6-7 percent of Munich Re’s entire premium – was problematic.

Golling’s warning follows comments from Hannover Re CEO Jean-Jacques Henchoz in an interview with The Insurer, in which he warned of the need for further pricing corrections within US casualty business.

Henchoz was also critical of the power of the litigation finance industry, describing it as “of detriment not just to the insurance industry but society at large”.

Frequency nat cat exposure is manageable

Much talk leading into Monte Carlo has been about the sustainability of the current split of high-frequency, low-severity losses between the reinsurance and insurance markets.

Golling was emphatic that such losses were manageable despite increases in both claims and nat cat exposure.

He continued that reinsurance continued to offer the best solution to manage non-peak perils. However, he said the insurance market must be adequate to begin with.

“If you know that some events occur almost every year, then you also need to focus on better risk prevention, you need to focus on exposure management, and maybe most importantly, you need to ensure that the original rates in the market are adequate.

“If original rates in the market are insufficient and the business is loss-making for our clients, before buying reinsurance, you will never be able to turn it around by buying more reinsurance, by buying more frequency covers, or by lowering down the retention,” he concluded.