Reinsurance chief tells GR that at the biggest reinsurance group in existence, flexibility is the name of the game
GR: What have been the biggest changes you have seen at Munich Re since you joined the company?
Torsten Jeworrek: Since I joined Munich Re some 25 years ago, the company has changed considerably: from what was formerly a discreet reinsurer in the background, Munich Re has developed into the globally positioned risk carrier of today. We combine primary insurance and reinsurance under one roof, thus making use of our risk know-how along the whole value chain. Besides this internal development, we have seen external events which influenced the whole industry.
For example, 9/11 fundamentally changed the world of insurance. What was surprising was not only the size of the losses, but also that a single event could cause losses affecting such a variety of different classes of business. This accumulation had not been considered possible before. In addition, the impact on the capital markets posed another challenge for the insurance industry. Insurance companies had to adapt to these new circumstances.
Then there have been the crashes on the capital markets since 2008, which ultimately led to a global recession and to historically low interest rates for low-risk investments. For life insurers with long-term guarantees, this is the greatest challenge of all.
In addition, we also had extreme natural catastrophes like Hurricane Katrina in 2005, the costliest natural hazard event ever for the insurance industry and Munich Re. Or the floods in Thailand in 2011. Such events have an impact on our industry as a whole, not only because of the high losses but also as a result of the experience we gain from such extreme occurrences.
Where can (re)insurers find credible, high-yielding investment options?
This is the million-dollar question. (Re)insurers are not investment companies. They always have to be able to indemnify their clients in case of losses at any time.
The overall situation for investors remains challenging. Monetary policy in the most important economies remains very expansionary.
We select our investments according to economic criteria and gear them to the characteristics of our technical provisions and liabilities.
In addition, we use derivative financial instruments for portfolio management and hedging against fluctuations on the interest rate, equity and currency markets.
What benefits do you derive from being the world’s largest reinsurance group (measured by GWP) and how do you plan to maintain that position?
Munich Re does not steer its business by volume targets. Our business strategy is to focus on profitable underwriting and liability-driven investment support. We are always prepared to give up business if it does not meet our profitability targets any longer – even if then we may lose the top position with respect to gross written premium.
The question should rather be, what benefits do clients derive from being reinsured with one of the world’s leading reinsurers? Besides our financial strength and significant capacity, we offer tailored solutions for our clients where we combine our expertise from all activities worldwide.
What do you think will be some of the main discussion topics at Monte Carlo this year?
As every year, there will be considerable discussion about reinsurance prices, terms and conditions.
Our main message for the renewals is: Munich Re is maintaining its clear, profit-oriented underwriting policy and accepts risks only at commensurate prices, terms and conditions.
Furthermore, I expect that the challenging market environment due to the slow recovery of the global economy will be a driver of the discussions, as well as the influx of alternative capacity. And I am sure we will also discuss topics like digitalisation, cyber risks and regulation issues.
What are your priorities for the next year?
In the given environment, sound technical underwriting is key to keeping profitability stable.
Besides this, we will focus on maintaining our leading position in offering tailor-made and innovative insurance solutions. These could be transactions offering solvency relief if the client needs capital at short notice, or covers for new technologies such as renewable energies, but also covers for cyber risks or evolving entrepreneurial risks.
What are the biggest risks facing the company, and how are you tackling them?
If you are talking about the biggest risks within our business operations, these are definitely nat cat and asset risks, which account for the highest share of our risk capital. But thanks to our know-how, modelling competence and integrated risk management, we can manage these risks well. We are not worried about them. Their volatility is within our risk tolerance.
Looking at macroeconomic risks, the prolonged low interest rate environment has led to a gradual reduction in investment earnings and has increased the importance of underwriting results.
Furthermore, the alternative capacity in the market is fuelling competition in some business segments. That is why we are steering our business with a focus on a stable profitability.
What are some of the emerging risks and opportunities for the reinsurance sector?
In today’s rapidly changing business environment, ever more complex processes give rise to previously unforeseen risk scenarios. New technologies always harbour new risks, whether we are talking about digitalisation, robotics or new materials like nano-composites in our daily lives.
The insurance industry has to find products and solutions for these risks. Insurers and reinsurers have to be up to date about what is going on in the underlying businesses but also in terms of social and political developments, and think about (re)insurance solutions that will keep pace.
What do reinsurance brokers need to do to stay relevant in the future?
The challenge brokers face is to articulate the value they bring to the table and to get paid for it. In a more complex world, it is about having the relevant knowledge and working efficiently with the best markets for their clients’ needs.
The focus has to be on creating differentiating value, which will not be achieved by a cheaper price.
The role of a reinsurance broker has to be that of a very professional consultant and innovator. Everybody is asking the question of how to grow the pot of available premium. Finding answers to that question is the challenge.
Additionally, in an environment that is growing in complexity and where the need for compliance is rising, clients will increasingly seek advice on their risk and capital management needs. Brokers will have to respond to that in their advisory role.