There are no signs of a crisis. The figures presented by Jörg Schneider, chief financial officer of the world’s biggest reinsurance company Munich Re, look pretty good at first glance. Profits well above his own forecasts, a higher dividend than the previous year – it wasn't hard to see Munich Re's 58-year-old numbers man was satisfied at the early figures of the insurance giant.
And yet even Mr. Schneider's soft voice couldn't hide the fact that the Munich-based company has seen better years. The company's profits have decreased more than analysts expected and outgoing Chief Executive Nikolaus von Bomhard is leaving Munich Re with modest figures after more than 12 years at the helm.
The new boss clearly won’t hesitate to act if something's not working.
Mr. von Bomhard will be able to live with this. He did, after all, lead the DAX heavyweight successfully for more than a decade, and the man with a PhD in tax law is beyond reproach, with a reputation not even the problems of Munich Re's subsidiary Ergo could affect.
Investors are also probably satisfied with his time in the top job. Unlike rivals Swiss Re or AIG, he managed to steer the the company comparatively unharmed through the financial crisis and generated a total of €21 billion ($22.45 billion) in profit from 2009 to 2016. So when Mr. von Bomhard goes, he's chosen just the right time from his view.
However, his successor should not have any false sense of security. A closer look reveals that the figures have an unsettling message or two for Joachim Wenning, who takes charge after the annual general meeting at the end of April. Things are unlikely to improve for Munich Re in the near future.
The bottom line is that last year saw the company’s profits fall for the third in a row. Premium volumes and return on equity in core business remain under pressure. Low interest rate policies adopted by central banks to combat the financial crisis are a heavy burden for both the insurance and reinsurance industry. Another reason for the pressure on prices is a big oversupply of reinsurance cover on the market.
Many direct insurers have huge reserves of capital behind them and now prefer to take bigger risks themselves, rather than seek reinsurance. And for years there have been increasing numbers of pensions and hedge funds on the market offering their own reinsurance.
So Mr. Wenning, who was responsible for the life reinsurance sector up to now, will have to find a new growth story for the company. Even if continuity continues to be the company mantra, the new man at the top will not be able to rely solely on what is tried and tested to realign the company. He has to find new types of insurance and new risks which will not be easily accessible for industry newcomers.
First steps have been taken. The big players in the industry are focusing on tailor-made solutions rather than transactions for the masses, and they are searching for new business areas. For the future, Munich Re managers expect a lot from cyber insurance and protection policies for big companies, which will entail losses when epidemics break out. But the success of these ideas cannot be taken for granted, as Munich Re itself has just shown.
The closing down of the health section “Munich Health," which was just announced a few days ago, unmistakably shows two things: not every new venture can fulfill high expectations and that the new boss clearly won’t hesitate to act if something's not working.
Ergo boss Markus Riess has likely taken careful note of this. What to do with the struggling subsidiary Ergo, which Munich Re founded in 1997 by merging its affiliates Victoria and Hamburg-Mannheimer, could be a first important decision for the new chairman of the board. The billion euros the parent company is putting up to restructure the Düsseldorf-based company is likely to be the last show of support.
Mr. von Bomhard has tasked new Ergo boss Mr. Riess with restoring profitability this year and making the company a stable source of earnings again by 2020. It is a gamble that has been made by the outgoing boss, but his successor will be judged on its success or failure – and whose patience Ergo would be well advised not to test. Mr. von Bomhard has always refused to give in to the demands of his investors and sell Ergo’s activities. If he is disappointed, the new boss might just be more open-minded.
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