Mike Kerner joined Munich Reinsurance America Inc. in December 2018 as CEO of his specialized commercial insurance unit, Munich Re Specialty Insurance in New York. Prior to joining Munich Re, he was Deputy CEO, Risk Management and Strategy, at Everest Re Group Ltd. and before that he spent 23 years at Zurich Insurance Co. in a variety of senior positions, 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 affects its business and policyholders. Edited excerpts follow.
Q: What type of business does Munich Re Specialty Insurance write today?
A: We build on the strong legacy we have had at Munich Re for a long time. Most of the business is and remains business that we have been doing for a while, including our program business, so delegated authority to program administrators in both the US and Canada. We have also been in the public sector for several decades as Munich Re, so that is a big part of the business, and then we have of course worked to expand our internal guarantees and claims. We started with an offer of primary accidents, expanded last year to surplus accidents, (surplus and surplus) property, and then also to various professional responsibilities, employers' professional responsibilities and nursing homes and medical malpractice. And this year, on January 1
Q: How big is the business book? What are the largest business areas?
A: Last year, MRSI's gross premium was $ 1.4 billion. If we look at the portfolio by industry, we have a significant real estate portfolio, and probably neck and neck with it is our general responsibility business. We also do some worker companies and some commercial car deals, and then we end it with professional responsibility. We are a little more generally responsible than properties, but we have increased the property portfolio quite aggressively.
Q: How do policyholders respond to interest rate increases?
A: Policyholders generally do not like interest rate increases, but the market allows interest rates to rise and the correction to take place, which is absolutely necessary. That being said, it's not consistent across the board, so there are different business pockets that perform differently. Probably the biggest highlight of the disadvantage is worker skills, where we continue to see interest rate cuts in the market. In general, the primary injury among the industries is without very significant interest rate increases. Then we see very significant interest rate increases in some of the property lines and some exaggerated business. More than the interest rate increases, we see that the existing operators withdraw the limit they provide and which gives us the opportunity to go in and fill the void that the existing ones have left.
Q: Do you see any return from the policyholders?
A: We do not look back very much, especially in the areas where we have entered as a new market because we are not looking for an increase year after year in our premium; we want to fill the gaps. But what we see is that some customers buy less coverage. If they have a budget for what they are willing to spend, they may have bought a larger limit last year than they bought this year, so they are lowering capacity and taking up the deductible to keep reasonable coverage costs.
Q: Where do you see opportunities for growth?
A: The most important opportunities lie in our internal insurance opportunities because we start there in principle at zero and we expand new product functions, we hire new teams of people, we build new relationships with brokers. In a market that is strengthening, you can grow quite quickly. We expect to build a leading specialized commercial insurance company in North America within the next five years. We believe that in the next few years we will have the opportunity to at least grow significantly because we believe that the market will remain stable throughout 2021 and probably until 2022. Some areas in some segments will be a tough market. The market will determine where the opportunities are and the exact amounts, but we will focus on the end result. We will not grow for the sake of growth.
Q: What coverage do you want to add?
A: Security, non-profit board members and officers' responsibilities are, for example, things we see right now as a potential market entry as we go through the rest of the year. We also see many opportunities in the program space, especially when dominants reevaluate their insurance appetite and if something has a disaster 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 use capacity where we think it makes sense.
Q: Where do you add capacity to the emergency room?
A: We have added exposure and increased capacity to the earthquake in California in recent years. We also see opportunities in the tropical storm, the windstorm area. We have added capacity to windswept property programs and there is also a risk in the individual. As the group looks at capacity, we want to try to avoid peaks and valleys. We like plateaus much better, so we like to have a relatively equal capacity exposed to different types of disaster risks.
Q: Has Munich Re Specialty changed its wording in the light of COVID-19?
A: Absolutely. When we entered senior life for professional responsibility, we did so with a contagious exclusion. In some circumstances, we have deployed either pandemic exemptions or communicable disease exemptions for other business classes as well. It is clearly a reaction to the events of 2020.
Q: Are you writing any pandemic covers?
A: Through Munich Re Specialty Insurance we do not write anything that we consider to be a pandemic protection.