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Mike Kerner joined Munich Reinsurance America Inc. in December 2018 as CEO of its specialty commercial insurance unit, Munich Re Specialty Insurance in New York. Before joining Munich Re, he served as executive vice president, risk management and strategy, at Everest Re Group Ltd. and prior to that spent 23 years at Zurich Insurance Co. in a variety of senior executive roles, including CEO of general insurance. He recently spoke with Business Insurance Deputy Editor Claire Wilkinson about Munich Re’s commercial insurance strategy and how the hardening market is affecting its business and policyholders. Edited excerpts follow.
Q: What type of business is Munich Re Specialty Insurance writing today?
A: We build off the strong legacy we’ve had at Munich Re for a long time. Most of the business is and remains business that we’ve been doing for a while, including our programs business, so delegated authority to program administrators both in the U.S. and Canada. We’ve also been in the public entity business for decades as Munich Re, so that’s a big chunk of the business, and then, of course, we’ve been working to build out our internal underwriting and claims capabilities. We started with an offering of primary casualty, expanded last year into excess casualty, (excess and surplus lines) property, and then as well into miscellaneous professional liability, employers professional liability and senior living and medical malpractice. And this year at Jan. 1 we rolled out an allied health care malpractice product line.
Q: How big is the book of business? What are the biggest lines of business?
A: Last year MRSI’s gross written premium was $1.4 billion. If we look at the portfolio by line of business, we have a substantial portfolio of property, and probably neck and neck with that is our general liability business. We also do a little bit of workers comp and some commercial auto business, and then we round it out with professional liability. We’re a little bit more general liability than property, but we have been growing the property portfolio quite aggressively.
Q: How are policyholders responding to rate increases?
A: Policyholders in general don’t like rate increases, but the marketplace is allowing for rates to go up and correction to take place, which is absolutely necessary. Having said that, it’s not consistent across the board, so there are different pockets of business that are performing in different ways. Probably the biggest highlight on the downside is workers comp, where we continue to see rate decreases in the market. In general, primary casualty is among the lines of business without very significant rate increases. Then in some of the property lines and some of the excess business we see very significant rate increases. More than the rate increases, we see incumbents pulling back on the amount of limit that they’re providing and that provides an opportunity for us to step in and fill the void that the incumbents have left.
Q: Are you seeing any pushback from policyholders?
A: We’re not seeing an awful lot of pushback, especially in the areas where we’ve entered as a new market because we’re not looking for an increase year after year in our premium; we’re looking to fill the voids. But what we do see is that certain clients buy less coverage. If they’ve got a budget for what they’re prepared to spend, maybe they bought a bigger limit last year than they’re buying this year, so they’re cutting back on capacity and they’re taking deductibles up to keep the costs of coverage reasonable.
Q: Where do you see opportunities for growth?
A: The most significant opportunities are in our in-house underwriting capabilities because we start there essentially at zero and we’re building out new product capabilities, we’re hiring new teams of people, we’re building new relationships with brokers. In a market that is firming you can get some growth pretty quickly. We expect within the next five years or so to build a leading specialty commercial insurer in North America. We think we’re going to have the opportunity over the next couple of years at least to grow significantly because we think the market will remain firm throughout 2021 and likely into 2022. Some areas in some segments will be a hard market. The market will determine where the opportunities are and the exact amounts, but we are going to stay focused on the bottom line. We’re not going to grow for growth’s sake.
Q: What coverages are you looking to add?
A: Surety, nonprofit directors and officers liability for example are things we are looking at right now as potential market entry as we go through the rest of the year. We also see a lot of opportunities in the program space, particularly as incumbents reevaluate their underwriting appetite and if something has a catastrophe exposure. The market is struggling to digest the amount of cat exposure out there so we will look at opportunities on a selective basis and deploy capacity where we think it makes sense.
Q: Where are you adding capacity in the catastrophe space?
A: We’ve added exposure and added capacity to California earthquake over the last couple of years. We also see opportunities in the tropical storm, windstorm area. We’ve added capacity to windstorm-exposed property programs and in the individual risks space as well. The way the group looks at capacity, we want to try to avoid peaks and valleys. We like plateaus a lot better, so we like to have a relatively equal amount of capacity exposed to different kinds of catastrophe perils.
Q: Has Munich Re Specialty changed wordings in light of COVID-19?
A: Absolutely. When we entered the senior living professional liability space we did that with a communicable disease exclusion. We have in certain circumstances deployed either pandemic exclusions or communicable disease exclusions for other classes of business as well. That’s clearly a reaction to the events of 2020.
Q: Are you writing any pandemic covers?
A: Through Munich Re Specialty Insurance we are not writing anything that we consider to be a pandemic cover.