* Munich Re sees own portfolio stable in January renewals
* Institutional investor money squeezing reinsurance prices
* Munich Re's own book has limited exposure to competition
(Adds Munich Re quotes, broker comment)
By Jonathan Gould
FRANKFURT, Sept 8 Munich Re played
down the threat to its reinsurance portfolio from insurance
investors like pension funds, saying it expected a stable
outcome when it renews contracts with its insurance company
clients in the coming months.
The world's biggest reinsurer on Sunday said it was seeing
increasing price competition from institutional investors, who
are buying into the securitisation of insurance risks such as
hurricane damage in the United States, in direct competition
with traditional reinsurers like Munich Re.
These investors pumped around $44 billion into the lucrative
market for natural catastrophe risk cover last year,
representing about 17 percent of worldwide reinsurance capacity
for those risks.
But the figure is expected to grow to $75 billion in 2016,
or about 25 percent of global capacity, Munich Re board member
Torsten Jeworrek told a news conference at the annual meeting of
the reinsurance industry in Monaco.
This new supply of reinsurance was putting continuous but
moderate pressure on the price of traditional reinsurance,
particularly in catastrophe markets, Jeworrek said.
"We have a concern. We take a very serious approach here,
particularly when the new capacity undermines current price
levels," Jeworrek said, adding that the company was actively
managing its book to keep it profitable.
However, the natural catastrophe segment makes up only 1.5
billion euros in premiums or less than 10 percent of Munich Re's
17 billion euro property and casualty book, Jeworrek said.
"The general impact is manageable and one should not
exaggerate," he said.
Institutional investors hungry for yield have been
increasingly attracted to insurance "catastrophe bonds" because
they pay high returns compared with other bonds available in the
The downside of the bonds for investors is that they risk
losing some or all of their capital to pay damage claims in the
event of a big storm or earthquake.
Jeworrek said it was unclear how long traditional
reinsurers, who help insurance companies shoulder the risk of
big damage claims in exchange for part of the premium, would
have to face the competitive threat from pension funds.
Institutional investor interest in catastrophe bonds might
diminish if general interest rates start to rise, and the "cat
bond" investors have yet to face big losses, which might one day
dampen their enthusiasm, Jeworrek said.
Big reinsurers like Munich, Swiss Re or Hannover
Re can also diversify their risk through other lines
of business, rather than concentrate on catastrophe risk.
Jeworrek said there was no clear trend for the market when
reinsurers renew annual contracts with insurance companies for
risk cover starting on Jan. 1, 2014.
"All in all, we expect still very fragmented and
heterogeneous markets and profitability levels," he said.
The effect of third-party investors on reinsurers' prospects
is a major theme of the industry gathering.
Broker Willis Re said the new money may "crowd out"
"The influx of third-party capital into the reinsurance
market may displace up to $40 billion of traditional equity
capital, which could either be returned to shareholders or
redeployed elsewhere in the reinsurance market," Willis Re said
in a statement on Sunday.
Munich Re has already said it is contemplating buying back
its own shares.
(Editing by Christoph Steitz)