Munich Re to get tough with French personal injury risks

MONTE CARLO, Monaco—Munich Re Group has identified the French personal injury market as a particularly challenging area for the coming year-end renewals and plans to introduce radical new terms and conditions to address rising claims.

The Munich-based reinsurance company says that the personal injury market in general has suffered "hyperinflation" over the last 15 years because of technical and medical advances, changes in legal parameters, soaring nursing and health care costs and a "heightened claims mentality" among individuals.

The French market is a particular worry for the reinsurer, which plans to introduce a range of radical new measures designed to share the burden more with primary insurers and tackle its rising claims costs.

One leading French broker said, however, that while such action may be needed, there will be sufficient alternative capacity available to reinsurance buyers to enable them to go elsewhere for coverage if Munich Re firms up rates.

Dr. Nikolas von Bomhard, chairman of the board of management at Munich Re, yesterday told a press conference at the 50th annual Rendez-Vous de Septembre in Monte Carlo that he is determined to proceed with the measures to ensure that his company's capital is sufficiently protected from adverse results.

"Inflation of serious personal injury losses has been noticeable in some markets; the causes are partly of a global nature (technical and medical advances) and partly as a result of national developments," such as legislative reforms, changes in legal conditions, and the organization of health care systems.

"These challenges exemplify the fact that risks and loss potentials are steadily changing. The permanent analysis of such changes means that models and calculations—and this means also prices, terms and conditions—have to be constantly adjusted. In view of expected developments, forward looking or 'prospective' underwriting is necessary so that the risk carriers can do justice to future demands—in the best interests of their clients," said Dr. von Bomhard.

He said that Munich Re had recently experienced a personal injury claim that had been re-opened 27 years after it had originally been closed and for which there was consequently no reserve for the subsequent payment.

Dr. von Bomhard said that the risk has to be more fairly spread between the cedant and reinsurance company. In non-proportional treaties, for example, once the loss level is exceeded the "interest for the insurer is not great," he said. "We have to ensure the primary insurers are interested," he added.

Munich Re has come up with a number of solutions to this problem including: earlier commutations; price adjustments; new risk sharing structures and increased retentions by cedants; and the introduction of so-called dismemberment schedules in reinsurance treaties which are designed to ensure coverage decision are not left up to the courts.

Vincent Redier, chairman and CEO of Paris-based broker Aon France, later said that he understands why Munich Re seeks to change the way French personal injury business is underwritten but does not think that it will achieve a great deal at this renewal at least.

"This is a real problem. The level of (auto) claims is very high and getting higher because nobody knows where it is going to be. Therefore we will have difficult discussions with reinsurers at this renewal," said Mr. Redier. "But I don't see these models coming into force because there is alternative capacity and so insurers just won't place the business with Munich Re. I don't expect it this year," he added.

Munich Re's overall forecast for the coming renewal was not particularly encouraging for insurance or reinsurance buyers that may have been expecting reductions following a relatively benign year for losses in Europe.

Dr. von Bomhard said that he expects "sustained" price levels for natural catastrophe business and largely "risk adequate" reinsurance prices and conditions in areas that are not exposed to natural catastrophe losses.

This healthy outlook for reinsurance companies is partly driven by the very tight retrocession and catastrophe bond markets, which means that smaller and medium-sized reinsurance companies will find it more difficult to expand their books and drive down prices as in previous underwriting cycles at this stage.

Relatively low global interest rates and increased capital requirements from rating agencies also mean that reinsurance companies must maintain discipline, added Dr. von Bomhard.