The world’s largest reinsurance company, Munich Re, believes that risk management associated with the primary insurance and reinsurance sectors needs to be “completely rethought”, following the terrorist attacks in the US last week. The German reinsurer, which today doubled its previous loss-before tax burden to Eur2.1 billion, said the attacks have revealed a “previously unimaginable risk potential”.“Munich Re expects a fundamental reassessment of the risk situation for the renewal of reinsurance treaties that traditionally take place in the last quarter of the year. Everybody working in risk assessment will have to find new ways of doing risk assessment. Risks that have never been probable up to now, now seem possible,” a Munich Re spokesperson told RiskNews.
But the reinsurer is still at the very early stages in determining exactly how it would alter its risk management modelling, contract exemptions and premium increases in the wake of the terrorist attacks. “The dimension is completely different and we not only have to think about terms and conditions, but also other things like what can be covered, how it can be covered, self-retentions, and so on,” the spokesperson said.
She added that Munich Re is likely to increase the amount of risk it can lay off in the capital markets. “Capital market solutions are more attractive,” she said.
Munich Re, whose loss-burden from the attacks represents 11.5% of its Eur18.3 billion in reinsurance premiums last year, said the losses were “by far the largest” in the company’s history. "Our conservative [loss] estimate includes all conceivable scenarios. Even against the background of the overall situation that is now becoming clearer, and the ensuing very considerable impact on results, we still expect to be able to pay a dividend of Eur1.25 per share for the business year 2001," said Munich Re chairman Hans-Jürgen Schinzler.
Given the unclear picture related to event definition and the full impact of the terrorist attacks, Munich Re said it has incorporated a buffer figure to cover uncertainty in liabilities in its latest loss figures. It said it had revised upwards its earlier estimates due to better information about adjacent building damage and business interruptions in the downtown Manhattan area.
Topics: Munich Re
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