Speaking today during Munich Re’s 2025 Investor Day event, Thomas Blunck Member of the Board of Management, explained that he considers the insurance-linked securities (ILS) market and its respective sub-segments are more vulnerable to price reductions compared to insurance and reinsurance.with the firm citing an expectation that its reinsurance return on equity (ROE) would land at over 18% and its earnings per share will grow annually by over 8% on average by the end of 2030.Munich Re also said that it feels well prepared for a more competitive property and casualty (P&C) reinsurance market environment, touting the significant diversification within its business and commenting and its ability to manage the cycle.

During a presentation this morning with analysts, the topic of returns required by ILS investors was brought up, specifically regarding how they’ve gone materially down from its peak in 2024.An analyst particularly asked whether the relationship between rates and ILS required returns still holds true, with insurance rates holding up stronger than they have done in the past, and whether Munich Re foresees that rates will stay stronger for longer.“What we have seen is that the ILS investors, also within the different alternative solutions move from one to another, and the recent development has been especially moving away from sidecars and moving into cat bonds.

And that has depressed the cat bond market even more than the insurance market,” Blunck explained.He continued: “So, I think yes, the ILS market and the respective sub-segments are more vulnerable to price reductions than the normal reinsurance or insurance relationships.” Interestingly, while the catastrophe bond market has certainly softened first and faster, which is typically the case given it trades through most of the year, unlike reinsurance, we have also seen meaningful expansion of the reinsurance sidecar sector and collateralized reinsurance managers have also been growing again this year.In fact, .

This included new casualty focused sidecar strategies, an area still growing strongly.But it did not include the equally strong growth seen in life and annuities reinsurance structures.All of which suggests Munich Re’s diversified model may come under pressure from alternative capital sources in more areas than just catastrophe risks over-time.

With projections of the industry seeing a softening of retrocession prices within the next phase of the cycle, Blunck also addressed whether this could create a scenario where Munich Re’s return on deployment may be lower than its peers that are heavier users of retrocession.“One core element of us Munich Re in the reinsurance P&C market is the capacities that we provide to our clients.We don’t make it dependent on retrocession.

Why is that so important? Because we want to be and we are the most reliable and consistent player in the market, and especially this feature of our strategy has given us in 2022 the huge opportunity to grow our natural catastrophe book.” Blunck continued: “Could it be then, in a very cheap retrocession cycle, that we then have a drag compared to others using strong retrocession? I can’t give you numbers, but we look at the whole cycle, over a period, depending on how it develops, seven or eight years, and then you always pay the full retrocession costs, plus the margin for the one taking the retrocession.“So, on average of a cycle, you don’t have a benefit, you have to pay the normal risk adequate price for retrocession.And that’s how we look at it, and combined with our strategy, we want to be able to give the capacity in each and every single year, independent of retrocession.

That’s how we act in the market.”.All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.