Subprime crisis may aid reinsurer prices-Munich Re
MONACO, Sept 7 (Reuters) - Reinsurance companies may benefit indirectly from the downturn in capital markets that has hit investment income in the sector because it may prevent them from lowering prices for the risk cover they provide to insurers, Munich Re (MUVGn.DE) said on Sunday.
The world's biggest reinsurer said the drop in investment income this year due to fallout from the subprime crisis has caused profit shortfalls and dented equity capital in the insurance industry.
"This will have a positive impact on the cycle and accelerate a turnaround in the trend," it said in a statement.
Reinsurance players from around the world are gathering in Monte Carlo this weekend to kick off crucial pricing discussions with their insurance clients, wondering if the trend toward too much reinsurance supply and growing competition will continue to push down reinsurance prices.
Munich Re promised it would not indulge in price-cutting and would only accept risks if prices and conditions were right.
"Munich Re will maintain its underwriting discipline in every phase of the cycle," board member Torsten Jeworrek said.
But analysts have warned the constraint from subprime-related writedowns probably would be limited and that reinsurance prices were still likely to fall 4-5 percent in the coming negotiations with insurers, only slightly less than the 6-7 percent expected without the financial market impact.
Profits at the top five reinsurers fell nearly 40 percent in the first half of the year, while the capital base of the global reinsurance industry looks set to shrink for the first time in five years, Munich Re said.
Cheap refinancing using equity capital is difficult given currently shaky capital markets, which is helping to make reinsurance look more attractive as an alternative form of financing for insurance companies, particularly in growth markets, it added.
Global claims costs from business interruption, natural disasters and personal injuries are soaring, underscoring the need to obtain appropriate prices for underwriting insurance risks, the company said.
Concerns about reinsurer's exposure to investment writedowns, the downtrend in reinsurance prices and the prospect of huge payouts due to an active hurricane season have kept reinsurers' shares under pressure this year.
Munich Re has fallen by 23 percent so far this year, while No. 2 reinsurer Swiss Re (RUKN.VX) has dropped by nearly a fifth and Hannover Re (HNRGn.DE) is down by 12 percent.
The DJ Stoxx index of European insurance shares .SXIP has fallen by a fourth so far this year.
(Reporting by Jonathan Gould)
