Munich Re Sees Growth in Renewable Energy; Comments on Renewals

October 26, 2010

According to a report from Munich Re, “renewable energies are gaining in significance.” The reinsurer noted that “the share of renewable energies in power generation in Germany is expected to increase from a current 10 percent to 60 percent by the middle of the century. This will create opportunities for the German insurance industry as well. Munich Re anticipates that premium volume for renewable energy insurance will significantly grow by 2020.”

The emerging importance in this sector includes not only cleaner power generation, but also more employment. Munich Re indicated that as of the end of 2009, “there were nearly 340,000 people working in the renewables sector in Germany, a figure that has more than doubled within a period of six years. The industry’s turnover totaled €36 billion [$50.14 billion] in Germany for 2009, compared with €18 billion [$20.89 billion] for 2005.”

The developing sector “also benefits the insurance industry. In 2009, premium income from the insurance of renewable energy facilities totaled approximately €186 million [$259 million] in Germany.”

However, Munich Re’s study indicates that by 2020, “premium volume to reach around €440 million [$613 million], equivalent to growth of nearly 240 percent. At the same time, business potential should rise from €19 million [$26.5 million] to around €50 million [$70 million] owing to the construction of new facilities. Renewable energies are therefore a growth area in a generally stagnating German insurance sector, with wind power, photovoltaics and biomass playing a central role.”

Ludger Arnoldussen, member of Munich Re’s Board of Management, stated: “We are excellently equipped to support the structural transformation of the energy supply sector by offering customized risk transfer products. Our spectrum ranges from traditional coverage for industrial facilities to complex solutions, such as performance guarantee covers enabling capital providers to reduce their investment risks.

“Over the next few years we will continue to expand this product range.” The most recent example is the performance guarantee insurance concluded in October 2010 to cover so-called concentrator photovoltaic modules manufactured by US company SolFocus. Similar performance guarantee products are being planned for wind power and solar thermal systems.”

Outlook for Reinsurance Renewals
Munich Re also commented on the outlook for the forthcoming renewals of reinsurance treaties in the property-casualty segment, which begins January 1. It stuck by its assessment, as presented at the industry conference in Monte Carlo in mid-September 2010.

Arnoldussen indicated: “We are expecting our portfolio prices, terms and conditions to remain stable. We will withdraw from business where we cannot realize risk-adequate prices. This applies all the more in the current low interest rate environment, where investment income on premiums earned is decreasing.

“Very low interest rates make price increases necessary, especially in business involving long-term risks.” He added that prices in the reinsurance market were generally likely to tend to move sideways if claims experience has remained within normal bounds.

Source: Munich Re

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