KBW’s Satkauskas: Munich Re remains standout stock among Europe’s big four reinsurers

Munich Re remains the standout stock among European reinsurers, according to KBW analyst Darius Satkauskas.

Speaking to The Insurer TV, Satkauskas highlighted the reinsurer’s ability to manage the property cat market and absorb volatility across the cycle, alongside its strong dependable capital returns.

“What helps is their ability to acknowledge how good the property cat market can be across the cycle rather than worry about volatility,” he said.

Satkauskas said Munich Re also had a solid back book compared with some of its peers, highlighting Swiss Re’s exposure to US casualty lines as a “worry to investors, irrespective of how good rates are on the property side”.

Looking ahead to the 1.1 renewals, Satkauskas said he expected reinsurers to “fight very hard” to maintain attachment points.

“Inflation will definitely dominate the discussions, but I don't see difficulties in reaching consensus on that between primaries and reinsurers.

“There is a clear equilibrium now in terms of the right price and the sorting market is way more orderly, so it will be a less challenging renewal than the one last year.”

Satkauskas said he expected primary companies to try and find ways to reduce some of the frequency exposure that they now hold, but said it remains to be seen how successful they will be given the scale of secondary peril losses.

He highlighted US liability exposures – where social inflation-driven loss cost trends still broadly exceed rate – as one area of concern for the reinsurance sector.

Improving performance

Satkauskas acknowledged that reinsurance results had improved in the first half of 2023 following measures taken to reduce exposures to frequency risk.

“There are signs that results are getting better. Rating agencies that we spoke to say they are finally seeing good underwriting results in aggregate following quite a few years of negative results.

“But it’s important to be conscious that we have only earned half a year of higher premiums – it takes two years to earn the business that you write today. So its too early to say that combined ratios will have gone down materially due to rate rises, and reinsurers will use some of the higher rates to build back buffers used during the soft phase of the cycle.

In a separate note KBW has highlighted how “low earnings multiples at present appear disconnected from the improving fundamentals” in the Lloyd’s market.

KBW said Lloyd’s companies – particularly Lancashire – offer almost unparalleled exposure to the property catastrophe markets, including primary lines in the US.

During the interview with The Insurer, Satkauskas highlighted a large divergence of valuations in the sector.

“Lloyd’s companies are very cheap. There’s a bunch of company-specific reasons out there, but at the same time they don’t give you really big capital returns.”

He said US investors also had more local options to deploy capital.

“US investors have so much going on in the back garden – whether it's Bermudian names or some of the American reinsurers. Why look across the pond?” he said.

Watch the 11-minute video with KBW’s Darius Satkauskas in full to hear more on:

  • How the industry is benefiting from higher investment yields
  • The divergence in valuations across the sector
  • His expectations for the upcoming 1.1 renewals
  • How the industry is addressing inflationary challenges
  • The potential for an upsurge in IPOs in the year ahead