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
More on Structured Products
UBS bolsters New York equities desk, among other moves in June
Product will pay 5.95% annually if FTSE 100 or Euro Stoxx 50 are above 65% barrier on coupon date
Lack of liquid options on European mid-cap benchmarks leaves investors stuck with the blue chips
New product issuance in Europe could dry up as result of overbearing new rules, says Graf
Sign up for Risk.net email alerts
Sponsored video: MarketAxess
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.