Hardening Reinsurance Market Seen Continuing in Europe into 2022

Reinsurance price increases are likely to continue in Europe at January renewals as reinsurers respond to a number of recent major losses and inflation, according to Munich Re.

Munich Re noted that this year's most serious losses were in connection with the floods that struck Central Europe in mid-July. In Germany, the flooding was the most expensive natural catastrophe in history, producing overall losses of €33 billion with insured losses of at least €7 billion.

"In addition to improved preventive measures, the influence of climate change, which makes precisely this type of regional extreme rainfall more probable, has to be taken into greater account in risk assessments," the Munich Re statement said.

Munich Re also cited the inflation currently being experienced in the eurozone, more than 3 percent in September and over 4 percent in Germany. Higher inflation leads to higher claims costs, the reinsurer said, and while, in the long-term, inflation rates will likely normalize, they'll remain above pre-COVID-19 pandemic levels. At the same time, interest rates have remained virtually unchanged, Munich Re noted, with the two factors together producing upward pressure on insurance prices.

"Rising prices for various assets and the latest major losses make considerably higher reinsurance rates in Europe likely," Doris Höpke, member of the Munich Re board of management, said in a statement. "The major losses produced by extreme flooding in Central Europe and the rise in weather events like droughts and wildfires affect regions that, in some cases, are not characterized by risk-adequate prices and conditions. In addition, the higher inflation is accompanied by continuing low interest rates for investments. Accordingly, I see a number of indicators for prolonged market hardening when the renewals come."

The character of risks like natural catastrophes, the COVID-19 pandemic, and cyber attacks is leading to the role of reinsurance moving beyond just risk transfer, Munich Re said, increasingly including consulting on risk prevention and support with disaster recovery.