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No diversification benefit if pricing is inadequate: Munich Re’s Golling

There is little benefit in writing a diversified nat cat book unless all areas of the portfolio are priced adequately, according to Munich Re board member Stefan Golling.

The executive said that it was much better to have a diversified nat cat book and it helped to lower capital costs, but that profitability across the board was important.

“I think what is important is that true diversification benefit comes only if the risks are adequately priced,” he said.

Golling made the comments during Insurance Insider’s (Re)Connect conference, where he remarked on the pricing outlook for the reinsurance sector.

He said the market had been “quite disciplined” in the past 12 months and that he expects the trend to continue.

“That is because I think nothing of the underlying factors, and the underlying trends, have really changed over the last 12 months,” he said, adding: “You could even argue that some of those trends may be even more obvious or stronger.”

Golling cited a continuing increase in both the frequency and severity of natural catastrophes as a major factor in ongoing pricing correction.

The beginning of 2021 was a “pretty bad start to the year”, he said, thanks to losses from the Texas freeze, Storm Bernd in Europe and Hurricane Ida.

Golling, whose role incudes responsibility for global clients and North America, expressed cautious optimism about the outlook for the US casualty market, but caveated that a drop-off in claims deterioration could have resulted from court closures during the pandemic.

“One could be a bit more positive on US casualty business over the last 12 months, but the big question there is how much was influenced by Covid and the courts being closed and how will that continue,” he said.

“Will the loss trends that we have seen 12 months ago, 24 months ago, come back as soon as the courts resume the work?”

Golling acknowledged that recent loss activity from secondary perils had been high and that demand for aggregate cover was increasing.

He said there was “some friction about what the correct price should be”.

“I think there is a clear tendency that the loss potential of secondary perils is underestimated, especially in those areas, whether geographic regions or specific perils, where we don’t really have reliable natural catastrophe models,” he said.

(Re)Connect is running until Thursday and registration is free. The agenda is available online.

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