Hannover Re and Munich Re, two of Europe’s big four reinsurance companies, are awaiting regulatory approvals for an alternative investment joint-venture, designed to increase the diversification of a combined private equity portfolio, while likely leading to better terms and conditions on new investments.
On a recently held earnings call to discuss Hannover Re’s Q3 and 9M 2022 results, announced early this morning, Chief Executive Officer (CEO), Jean-Jacques Henchoz, confirmed reports of an alternative investment joint-venture with global reinsurer Munich Re.
He explained that while the joint-venture is lined up, there are still some regulatory hurdles to overcome, with the current plan being to launch the initiative in the fourth-quarter of 2022.
“The intent is really to provide, particularly as I mentioned, our private equity portfolios, as you know that is historically a growing portfolio in our book; it’s quite diversified across regions, currencies and industries, etc.
“However, as we were looking into 2023 and going forward, also with respect to the new accounting standard IFRS 9, which forces us to evaluate those investments through the PML, we’ve tried to find ways to reduce volatility, future volatility in the valuation of those portfolios,” said Henchoz.
“And, therefore, we thought about further increasing the diversification of the combined portfolio together with Munich Re, and that seems to be the main intent going forward,” he added.
So, in the main, this sounds like Hannover Re and Munich Re will collaborate on private equity investing, with both likely to benefit from economies of scale and also from diversification through the larger portfolio they can allocate to in partnership.
According to Henchoz, this joint-venture really only concerns a small portion of Hannover Re’s investments as it’s really solely private equity for the firm, but other benefits are expected to be realised from the arrangement.
“And then, of course, there are further advantages coming along with it. For example, to further expand the access to top tier funds to obtain more significant co-investment rights or larger allocation in individual private equity funds, and also probably to achieve better terms and conditions on new investments,” explained Henchoz.
It sounds like an interesting venture between two of the world’s largest reinsurers, but it’s important to remember that this is all subject to a number of outstanding regulatory approvals.
