Munich Re expects stability, Swiss Re and Hannover Re see price increases for January 2013 renewals

Reinsurer Munich Re expects largely stable rates for contracts up for renewal in January 2013, while Swiss Re and Hannover Re predict moderate price increases for the same timeframe.

The three companies announced their outlooks during the reinsurance industry’s annual conference in Monte Carlo, which runs until Sept. 13.

Munich Re’s outlook also applies to natural catastrophe business, provided there are no major loss occurrences over the next few months of 2012.

The general improvement in primary insurance prices in the United States and in auto liability business in parts of Europe should have a positive impact on reinsurance rates, Munich Re said. In terms of casualty policies, it expects prices to stabilize, with a trend toward slight increases.

Despite a strong capital base of insurers and reinsurers, Munich Re highlighted remaining risk factors, including the euro-zone crisis and sustained low interest rates. The latter factor was particularly crucial, the company said.

“More than ever, our industry faces the challenge of achieving stable earnings in its core business and further reducing its dependency on the investment result,” Munich Re management board member Torsten Jeworrek noted. “The key question will be how quickly and to what extent insurers and reinsurers will succeed in factoring the low interest-rate level into their price calculations.”

Contrasting Munich Re’s outlook slightly, Swiss Re expects reinsurance prices to increase moderately. Lower interest rates and higher solvency requirements should lead to firmer pricing, while low inflation rates, reserve releases and excess capital speak to lower prices, according to Swiss Re. 

Hannover Re also expects price increases when it renews contracts at the beginning of 2013. That outlook is based on positive renewals in the first half of this year, driven by heavy losses from natural disasters in 2011. 

The positive factors that have already shaped previous renewals, including the adjustments made to natural catastrophe models and the low interest rate level, will have a favourable effect on pricing as of January 2013, and will prevent market softening, Hannover Re said in a statement.