Munich Re’s CEO Joachim Wenning told employees that it would “make no sense” for the firm to pull out of investment activities, but that a partnership with an asset manager could be positive, according to a report.
Last week it was widely reported, including by us, that Munich Re was considering a sale of its asset management arm, Munich Ergo Asset Management GmbH (MEAG).
Those reports appear to have elicited an internal communication and Reuters reports that Munich Re CEO Wenning sent an internal memo to staff on Friday explaining that the reinsurance firm wanted to strengthen its asset management capabilities.
“Investment will remain an integral part of the value chain in primary insurance and reinsurance in the future,” Reuters reports the internal note as saying.
Wenning went on to write that as a result it would make no sense to withdraw from asset management, rather it was important to continually develop the firms asset management capabilities.
Wenning said that partnerships could be one way to strategically strengthen Munich Re’s asset management capabilities, citing positive experienced with partnerships in the digital and primary activities of the reinsurer.
As we highlighted in our article last week, it would likely come down to outsourcing, as a sale of the asset manager is not going to return a significant amount of cash.
Enabling external asset managers to look after all or even chunks of the MEAG asset portfolio may be a way for Munich Re to add some efficiency to its operations and even perhaps better match different business segments liabilities with appropriate investment strategies.
Our sister publication Artemis also discussed this in a much wider ranging article about the evolution of the reinsurers’ strategy last week:
There could also be other efficiencies to be gained, by handing the Munich Re investment float to an external manager, as it’s clear this isn’t a sale being considered for the immediate monetary gain.
An external manager, like a Guggenheim, could have greater flexibility to match investments to risk premiums, enabling returns to be managed more closely to the underlying books of business the float is generated from.
In effect, Munich Re could begin to operate at a higher investment return if the correct steps were taken in managing the huge portfolio and a little less conservatism applied, resulting in a boost to that side of the business which could add efficiency across the enterprise and take a little pressure off the underwriting side.
It’s also a more modern structure, enabling Munich Re to continue its focus on technology and digitalisation, alongside innovation and service provision, as well as its core risk management and underwriting expertise, which should all help it to generate higher margins from its business, as well as greater customer loyalty and retention.
Partnerships make a lot of sense and the offloading of the asset management day-to-day resposibility likely has greater benefits than a full sale anyway, enabling Munich Re to remain aligned with asset manager partners while it focuses on the risk business.
