German reinsurer Munich Re is forming a group-wide alternative risk transfer (ART) unit, in a move designed to strengthen its position in the growing alternative markets business.The new entity – a combination of the ART businesses of Munich Re, Munich, and American Reinsurance Corporation – will be called Munich-American Capital Markets (MACM) and be headquartered in New York.
“The merger of the units to form MACM will enable the Munich Re Group to concentrate its existing know-how and generate synergies for optimising earnings,” said Munich Re in a statement.
Beat Holliger, a Munich-based senior ART consultant at the group, said MACM is currently gaining regulatory approval and should be trading within a few weeks. “We set up the company because we’ve seen an increase in demand for structured ART solutions,” added Holliger, who plans to move to New York towards the end of the year.
ART is an approach to risk management that combines capital markets, reinsurance and investment banking techniques. It involves the transfer of financial risks to the reinsurance industry and of non-financial insurance risks to the capital markets.
Munich Re said MACM will concentrate on the transfer of risks from the capital markets to the insurance markets. The group sees less potential in the transfer of insurance risks to the capital markets in the form of bonds or derivatives. "It is more economical in the current environment for the insured to procure capacity on the traditional reinsurance market,” the company said, adding that this was due to high premiums and transaction costs associated with the transfer of risks to the capital markets.
“The high premium is a request from investors to participate – they ask for a novelty premium,” said Holliger, adding that there are a variety of transaction costs, including legal costs and the need to be rated by a rating agency.
Topics: Munich Re
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