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Munich Re, Hannover Re Eye New Opportunities in the Americas

Posted on Jun 01, 2011 by Sergio Ulloa ()  | Tags: Latin America, Munich Re, Reinsurance, United States

Munich Reinsurance Co., the world's largest reinsurer, could be seeking to expand its operations in the United States. Citing a recent interview with management board member and CEO Torsten Jeworrek, the German reinsurance giant would be inclined to buy companies that insure industry or are active in niche markets in the country, although no specific targets have yet been named. According to Mr. Jeworrek, Munich Re has felt underrepresented in the United States and would be on the lookout for ways to further expand its presence in the country in a similar fashion to the other American acquisitions it has made in recent years. In April 2008, Munich Re acquired specialty insurance provider Midland Co. for US$1.3 billion. A year later, they also purchased Hartford Steam Boiler and Inspection Co., a subsidiary of HSB Group, for an undisclosed amount. Earlier this month, Munich Re posted a quarterly loss of €948 million (US$1.37 billion), owing to heavy claims burdens caused by the devastating natural catastrophes in the Asia Pacific region, particularly the March 11 earthquake and tsunami in Japan, upon which Munich Re was left exposed. Although these first quarter losses were in fact narrower-than-expected and Munich Re still expect to record a profit for the current financial year, these catastrophes "have made this the most difficult start to a financial year we have experienced for a long time," according to Mr. Jeworrek. Munich Re chief financial officer Joerg Schneider reaffirmed the company's outlook at the release of their quarterly figures "Despite these devastating natural catastrophes, we can still achieve a profit for the year as a whole." Reinsurers, which act as financial support for insurance companies in the event of large natural disasters like earthquakes and hurricanes, expect to now cumulatively pay an estimated US$50 billion in damage claims from the catastrophes in the early months of this year, including earthquakes in Japan and New Zealand and flooding from Cyclone Yasni in Australia. Munich Re officials have further noted that prices for catastrophe insurance and reinsurance cover have been increasing by double-digit percentages in affected areas and that these hikes for this type of cover could soon be expected worldwide. Industry observers have also stated that any further extraordinary loss claims this year, a possibility given the onset of the oft-tumultuous US Hurricane season, could prompt additional broad-based increases in reinsurance premiums and a hardening of the market. It is because of these oncoming challenges that Munich Re is actively looking to expand its portfolio in the United States. Mr. Jeworrek added that Asia and Latin America are also important growth markets. Hannover Re, another leading German reinsurance company, have similar expansion objectives and are currently in talks with Argentine authorities to set up a local reinsurance subsidiary in the South American country in order comply with new regulations. A company spokesman confirmed these proceedings in an interview "We are in talks with local authorities and are optimistic about finding an agreement in this case," but declined to comment further as discussions are still ongoing and remain confidential. Last February, Argentina's insurance regulator, Superintendencia de Seguros de la Nacion (SSN), approved a raft of changes to the local insurance market that will force the multinational players active in the country to restructure their operations. The new SSN regulations, which come into effect September 1st, will require Argentine insurers to exclusively purchase their reinsurance coverage from companies domiciled within the country. The regulator also mandates that foreign reinsurers who wish to operate in Argentina's reinsurance market will now have to establish a domestic subsidiary subject to local requirements, including a minimum US$5 million in paid-up capital. The February announcement took the market by surprise and was roundly rejected by both local and foreign insurers, who alleged that there is virtually no reinsurance capacity currently in Argentina, and that added restrictions were not necessary as ceded premiums amount to only 13 percent of the Argentine's market total. Similar protests have been levied recently at Brazilian regulators who have also attempted protectionist tactics. Last week the SSN responded to critics and relaxed the regulations by declaring that local insurers would be able to reinsure contracts abroad if their risk surpasses US$50 million. So far, only Brazilian government-run reinsurer IRB has declared that it will open a reinsurance unit in Argentina as part of its expansion abroad. Zurich Financial Services, the Swiss based multi-national insurer, announced plans in February to increase its presence in the Latin America insurance market by entering into an agreement with Banco Santander but has yet to establish its own Argentine reinsurance subsidiary. Hannover Re already operates in Argentina, where it mainly does business via reinsurance brokers. It commands some 20 percent market share, according to the company spokesman. The reinsurer operations in Latin America also include branches in Brazil, Colombia, Ecuador, Mexico and Venezuela. Insurance Companies Mentioned Hannover Re Hannover RE Hannover Re is the third-largest reinsurer in the world, with a gross premium of around EUR 10 billion. It transacts all lines of non-life and life and health reinsurance and maintains business relations with more than 5,000 insurance companies in about 150 countries. Its worldwide network consists of more than 100 subsidiaries, branch and representative offices on all five continents with a total staff of roughly 2,100. Munich Re Munich Re Munich Re focuses on providing financial stability, and consistent risk management based on its extensive solution-based expertise. It operates in all lines of insurance, with around 47,000 employees throughout the world. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. The primary insurance operations are mainly concentrated in the ERGO Insurance Group. ERGO is one of the largest insurance groups in Europe and Germany and 40 million clients in over 30 countries place their trust in the services and security it provides. In international healthcare business, Munich Re pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand. Zurich Zurich Headquartered in Zurich, Switzerland, Zurich Financial Services Group is an insurance-based financial services provider with a network of subsidiaries andoffices in North America and Europe and also in Asia-Pacific, Latin America and other markets. Zurich is one of the world's largest insurance groups, and one of the few to operate on a truly global basis. With 60,000 employees serving customers in more than 170 countries, our business is concentrated in three business segments: General Insurance, Global Life, and Farmers.
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