Munich Re expands to cover disaster risks
While other companies are cutting staff, the world's largest reinsurer is hiring people from different professions to deal with disaster losses
Perfect storms and unpredictable economic crises that dent investment income are the stuff of nightmares for Nikolaus von Bomhard.
As chairman of Munich Re, the world's largest reinsurer in terms of premium income, von Bomhard sits atop a company that covers losses resulting from natural catastrophes, such as heavy rain that may lead to floods, earthquakes and other unexpected disasters. His challenge is to hire the right people to manage these risks.
Many companies are trimming staff these days, particularly banks. But Munich Re is doing the opposite: hiring. The company has been steadily investing in expansion in the Asia-Pacific region, increasing staff numbers by almost 20 per cent since 2009 to about 800, excluding employees of joint ventures.
In von Bomhard's view, professionals from many different disciplines can be successful in the insurance industry. The most important factor is having an inquiring mind. Reinsurers buy policies from insurance companies and share the payout when claims arise.
Munich Re needs people to work with over 4,000 corporate clients from more than 160 countries to ascertain risk profiles and alert customers to new products. It also sells direct insurance products to clients through its ERGO brand in more than 30 countries.
Von Bomhard, who lives in Munich, studied law. He joined Munich Re as a trainee 27 years ago and relishes the challenging work environment.
On a recent visit to Hong Kong to mark the 50th anniversary of the company's branch in the city, he shared his views on what it takes to manage a business that is subject to everything, from the vagaries of the weather to volatility in the financial markets.
What are the keys to successfully managing an international reinsurance company?
The most important goal is to share the right perspective. We need a team of people who understand how to identify and evaluate risks and take a long-term view of business development. It is, basically, very simple: we concentrate on selling the right product to the client at a price commensurate with the risk. In this way, we are able to manage our business sustainably and achieve long-term growth.
What is your management nightmare?
A perfect storm, a devastating event or chain of events which we did not foresee. Any such nightmare will come from the realm of the unknown unknowns. But, the ongoing development of risk know-how to discover emerging, new risks early on should help to protect us. So do investments, which replicate the structure of our liabilities.
Only this way can we justifiably feel we are well-prepared to deal with a great variety of scenarios. They might come in the form of record annual natural catastrophe losses such as those last year, with the earthquakes in Japan and New Zealand and the floods in Thailand. It could be an economic crisis or a combination of huge losses and tumbling markets. To be prepared for such events and be able to fulfil our obligations for our clients, employees and shareholders is what insurance is all about.
What sort of people are suitable to working in reinsurance?
They can come from very different backgrounds. We have staff who are former lawyers, doctors, engineers or members of about 100 other professions. The insurance industry covers risks connected with all types of industries and products. That is why we need employees who understand the risks associated with a variety of issues such as politics, technological progress, climate change, demographic developments and many more. They need to ask the right questions faced with changing situations, and draw the conclusion appropriate to the risk concerned.
We also need experts who deeply understand clients' needs and can come up with a suitable solution.
Insurance is not something you can touch or see. But it offers peace of mind and security. We need talented staff to explain the sometimes not so obvious value proposition to clients, so that they appreciate the products.
How do you manage such a vast worldwide network?
We have subsidiaries, branches and representative offices in many countries. We sometimes also follow a hub model, like in Singapore, where our staff service neighbouring countries like Indonesia, Thailand and Cambodia.
We believe direct contact with our clients is crucial and try to be as closely in touch with them as possible. This requires more staff in direct insurance than in reinsurance, where we rather look after few but very specialised experts for specific natural catastrophe or health-care risks.
Given the current weak investment market sentiment, how can insurance companies make money from their investments?
I believe the ongoing low-interest rate environment is the biggest challenge facing insurers. We adopt an investment approach where we try to match the structure of our liabilities with the appropriate assets, be it duration, currency or inflation sensitivity. Asset diversification is key in uncertain and volatile markets.
During a low-interest rate phase, the most important thing is to focus on profitability in your core business. In that way, you can ensure you achieve both a reasonable net income and meet the liabilities with your clients. The new solvency insurance regulation, to be introduced in Europe in the medium term, is an appropriate basis for this.
You have been with Munich Re for more than 27 years now. Has the market changed significantly since you first joined?
Yes, communication has made our world a much smaller place. Everything is more connected nowadays. But the basics have not changed: an insurer always has to understand the risks, find ways to manage them professionally, and allocate the right capital. The challenge we face today is how to keep up with the pace of technical development and keep track of the interdependencies between businesses when, for instance, a flood in one part of the world can halt the manufacture of a product somewhere else. Another concern is climate change. In Asia alone, weather-related catastrophes such as floods, typhoons and droughts have quadrupled over the past 30 years, and with the region's increasing wealth and development, economic and insured losses are rising as well.