Munich Re is widely praised for having come through the financial crisis relatively unscathed. But Herbert Fromme finds out why some clients are now walking away.

Being disciplined in a market that has not yet turned upwards does not come free, as Munich Re is finding out. The company has made it clear that it wants price increases – and that it wants them now. It is also taking a much tougher line on claims.

Some customers are walking away. This usually does not become public, but in one case it has. Germany’s second-largest motor insurer HUK-Coburg has not renewed its property and casualty business, although it has continued the life business.

Munich Re had a 5% share of the HUK-Coburg’s outgoing reinsurance bouquet, led by Hannover Re with 40%. (The mutual HUK-Coburg is one of the minority shareholders in Hannover’s E&S subsidiary, which caters for German customers only, so its leading position is no surprise.)

Yet, given the introduction of Solvency II and the need to diversify reinsurance, it seems the decision for the HUK-Coburg management to break with Munich Re – at least for this year – must have been a difficult one.

The decisive point was Munich Re’s price increase. The reinsurer fears that current rates and reserves do not cover medical inflation and general price rises affecting bodily injury claims.

It seems that some European reinsurers sail nicely behind Munich Re. They accept business for moderately increased prices, but don’t earn the anger of their customers the way Munich Re does.

“Their self-esteem borders on arrogance,” says the CEO of a medium-sized German insurer who does not want to be named. He believes that Munich Re will feel the full brunt of customer dissatisfaction in the 2010 renewal. “Everyone agrees that they did a marvellous job coming through the crisis the way they did, but they should not confuse that with appreciation for their stance on the current market situation.”


Inflation was high on the agenda at two recent continental reinsurance meetings. At the Euroforum Reinsurance Summit in Zurich in early May, Scor chief executive Denis Kessler gave a keynote talk on the challenges for insurers and reinsurers, including worldwide deflation. “Its impact is mainly on assets,” he told delegates. “Revenues of insurers and reinsurers are negatively hit, their values are diminishing because of higher corporate spreads, lower stock prices, falling real estate and dislocated markets for structured products.”

But he said the massive printing of money to cure deflation, exploding public debt and the fact that globalisation provided less deflation meant that inflation would reappear as soon as the present crisis was over.

Raw materials prices would rise, and wages would catch up. “Not every reinsurer will be ready to avoid the negative consequences of a resurgent inflation,” he warned. “There will be a depreciation of existing portfolios of bonds with fixed remuneration, due to rising interest rates.” Equity portfolios would depreciate over two to three years and there would be an inflation of property & casualty and health claims.

The reinsurers most likely to be affected were those with long durations on both assets and liabilities. They had to anticipate the risk by integrating potential inflation in pricing and by implementing a contingency strategy – caps or inflation indexed bonds.

Inflation was also discussed at the annual reinsurance symposium of the Cologne University of Applied Sciences in May. “If we see an inflation, reserves lose value while claims costs rise,” said Manfred Seitz, chief executive Europe of Berkshire Hathaway.

Markus Hofmann, a board member of Axa Versicherung, said that inflation of 10% or more “could mean the next crisis for insurers”.

So, Munich Re has good cause to ask for more money. But perhaps the market leader needs a refresher course in customer relations to get the message across properly.