Munich Re Reduces Activity In Israel: The Global Reinsurer Recently Stopped Reinsuring Medical Malpractice In Israel.

Nov. 10--Global reinsurance giant Munich RE AG (DAX: MUV) is substantially reducing its activity in Israel. Local insurance industry sources say that the company will probably continue this policy in future.

Sources inform "Globes" that Munich RE recently stopped reinsuring medical malpractice in Israel, which accounted for half of the company's business in Israel. This activity was handled through Madanes Group and Harel Insurance Investments and Financial Services Ltd. (TASE: HARL).

Local insurance industry sources note that this was a clear sign that Munich RE was gradually quitting the Israeli market, even before the onset of the global financial crisis. "This is disappointing for the entire Israeli insurance market. They've been here for over 50 years," said one source.

This is the dominant perception in the Israeli insurance market about Munich RE's sentiment toward the Israeli market, based on the high competition in it, which is affecting prices and underwriting terms. This sentiment goes beyond Munich RE's recent announcement that it was tightening of policies worldwide on the grounds that the "soft market is over".

Munich RE recently issued a profit warning for the third quarter, announcing that it will report a profit of just €7 million, compared with €1.2 billion for the corresponding quarter of 2007. This was the company's second profit warning this year, after announcing that it will report a profit of less than €2 billion for 2008 as a whole.

On the face of it, the departure of such a major player in the Israeli reinsurance market will affect the insurance capacity for reinsurance by Israel's insurance companies, resulting in higher prices. Industry sources say, however, that Israel has no capacity problem, and that the reduction of Munich RE's share of the Israeli market will be filled by other reinsurers.