According to Munich Re’s CEO, price pressure in reinsurance from alternative capital and insurance-linked securities (ILS) investors is “simply non-existent” with no major build-up of ILS capital seen and Joachim Wenning also does not believe reinsurance is soft.In fact, Wenning’s comments this morning suggest that his view is that reinsurance prices are fluctuating based on the loss experience of the industry and that in the current more loss-heavy environment seen over recent years, price declines are likely only temporary anyway.As we reported earlier, , as it manages its business for profitability and portfolio optimisation.But the global reinsurance firm’s CEO does not appear phased, with his comments suggesting a view that recent price declines should be seen more as a temporary feature of the market, expecting that losses and ongoing systemic pressures or threats will boost prices again in future and prevent them declining too far, this time.

Wenning said this morning, “We believe the market environment remains attractive.The risks that we have underwritten, we believe, generate good margins for us, while at the same time, looking at the improved contract conditions of the last year that we are going to defend.“When it comes to the renewals on the 1st June and 1st July, I can tell you that we are steering the portfolio based on risk and profit, risk and reward, and where business doesn’t meet our lofty expectations here, for example, with certain nat cat coverages, that’s where we will reduce and divest of exposure.

“On the flip side, this is also going to be materialising through growth that we use to compensate it, especially, of course, by selectively increasing the proportional property business and also slight increases in the liability business.” Asked about how low pricing would have to go for Munich Re to more significantly reduce its appetite for writing reinsurance risk, Wenning suggested he does not feel that stage of the cycle will ever be meaningfully reached.“How much buffer do we have until we’ve hit our non-attractive business levels in property casualty reinsurance? I think the questions suggest that you assume that we are coming from a very high price level, which we did have, and that we’re coming down to a pain point.That’s not what I’m seeing,” Wenning explained.

Continuing, “What I am seeing is that there is a margin reduction at a minuscule level, and this year that was a little bit more than 1%.If you actively manage your portfolio according to risk and income, like we’re doing, we actually see a stabilisation on this level.“The so called soft market, there is no soft market.” He went on to provide further supportive comments, as to why Wenning does not believe the market will continue softening to levels where rates prove more broadly unattractive.

“The phases where there were no major losses for reinsurance companies, that time is over.Every year is full of major losses, and that, of course, has a price, and that alone will prevent prices from slipping too much,” Wenning said.Moving on to comment on the role of the capital markets and ILS by saying, “The so called alternative capital that I keep reading about, you know that there’s now so much new capital? The fact is, there’s almost no alternative new capital, or if anything, it’s coming in at the speed where all the markets are growing as well.

“Also expiring cat bonds are being replaced by new ones, but that doesn’t increase the overall inventory.“So the alleged large or significant price pressure from that side is also simply non-existent.” Wenning also does not believe that reinsurance is heading towards a soft market similar to those experienced in the past.He stated, “The historic soft markets have also been supported occasionally by primary and reinsurance companies becoming a little bit more open to risks due to larger reserve payouts.

But, just think of US casualty, think of social inflation, if you think of PFAS, there are many reasons as to why the market is dealing with smaller movements, quite rationally I believe.But like I said, active portfolio management is still contributing to a very positive business case.” Of course, there’s always an element of talking your own book, when it comes to earnings commentary and statements.But, Wenning’s comments should also provide some comfort for the ILS market, as it shows large reinsurance underwriters are telling their shareholders conditions remain and are expected to stay attractive, which could suggest we won’t see the same trend as the early 2010’s where traditional reinsurance capital chased pricing down and accelerated the softening trend as a result..

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