BADEN-BADEN, Germany (Reuters) - Reinsurer Munich Re expects to keep its pricing power steady in renewing risk cover contracts with insurers in the coming weeks, playing down the competitive threat from pension fund investors that may undermine prices.
The world's biggest reinsurer said it was well positioned for negotiations with insurance companies for new contracts for reinsurance cover that take effect on Jan. 1, as talks with insurers get underway in this southern German spa resort.
"Munich Re expects prices for business in its own portfolio to remain largely stable," Munich Re board member Ludger Arnoldussen told a media briefing.
Many observers have suggested reinsurance prices would be under pressure in 2014 from an inflow of capital from pension funds, which is increasing the supply of reinsurance available in the market.
Reinsurance prices in Europe's largest market, Germany, would reflect loss claims for flooding and hail storms in June and July that cost insurers billions of euros, much of which they passed on to the reinsurance companies like Munich Re, Swiss Re and Hannover Re.
Reinsurers provide a financial backstop against such claims in exchange for part of the profit.
"I would expect prices to reflect the loss experience, so an upward movement in prices," Arnoldussen said.
While some insurers had very high local exposure to the hail storms and were hit particularly badly by claims, Arnoldussen said the event was likely to prompt a wider review by insurers of the amount of reinsurance cover they buy.
Munich Re itself has pencilled in claims of 180 million euros ($247 million) for the hail storms in late July, of which 160 million was allocated to its reinsurance business and 20 million to its insurance unit Ergo.
For the June floods, Munich Re sees its share of insured damage at 230 million euros, with a hit of 180 million euros in reinsurance and 50 million at Ergo.
It is due to update the figures with its third-quarter results on Nov. 7.
Rival Capital
Pension funds have had a significant effect in the U.S. reinsurance market, particularly for covering risks such as hurricanes in Florida, Arnoldussen said.
"In European markets, I think this is going to be limited," he said, mainly because the relative price level for reinsuring European wind storm risks was much less attractive than U.S. wind storm exposures.
"The U.S. is basically the home turf of alternative capital. There will be some effects in other peak exposures as well but to a much lesser extent," he said.
Munich Re renews about half of its 17 billion euro ($23.3 billion) global property and casualty book as of Jan. 1 each year, mainly for contracts affecting Europe and central Asia.
($1 = 0.7302 euros) (Reporting by Jonathan Gould; Editing by Maria Sheahan and Patrick Lannin)
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.