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Munich Re reduces risk appetite after credit losses

Munich Re has withdrawn from writing most structured trade credit reinsurance and reduced its appetite for all credit risks after the recession drove this part of its business to EUR510mn losses in 2009.

The German (re)insurer noted that increased losses in lines of business affected by the recession were offset by low natural catastrophe claims, which contributed only EUR196mn for the year.

The company had hoped for a lighter loss experience for credit and surety lines in the fourth quarter of 2009, after claims reached EUR343mn by the end of the third quarter.

However, the final quarter contributed more than 30 percent of total claims for the year. Despite the hit, Munich Re was still able to exceed its target of EUR2.5bn profit for the year.

Overall, the combined ratio for reinsurance in 2009 came to 95.3 percent - down 4.1 percentage points from 2008, with natural catastrophes contributing only 1.4 percentage points.

The financial crisis - which prompted bank defaults in Ukraine, Kazakhstan and Bahrain - has triggered a mixed response from the (re)insurers writing trade credit and surety reinsurance.

Although some insurers, most notably Hiscox are looking to write bigger lines, reinsurers have been wary for the most part.

Munich Re has reduced its overall appetite for the business and is no longer writing any business where the risk is exclusively attached to banking.

Swiss Re has also re-evaluated its position "substantially reducing capacity in credit and surety" as part of efforts to de-risk its portfolio in 2010.

Contrarily, Hannover Re has seen opportunities in the sector, indicating at the end of last year that it would be expanding its credit and surety reinsurance unit, unlike its rivals.

Jan Mueller, head of Hannover Re's credit and reinsurance surety unit, commented: "We expect a notable improvement in earnings and premiums next year."

However, he added: "While we want to further expand our market share, you shouldn't expect us to grab as much business as we can get, since we'll continue to write business very selectively."

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