Munich Re has no need for cat bonds
Munich Re’s CFO, Andrew Buchanan, explained during an earnings call that the company has reduced its retrocessional protection considerably, as it puts effort into underwriting to keep the risk and has the financial strength to warehouse it.
The company showed its desire to retain more of the economics of its insurance and reinsurance underwriting business by slashing its retrocession arrangements and scrapping its collateralized reinsurance sidecar programme.
Munich Re allowed its last in-force catastrophe bond under the Queen Street program to mature without renewal, while certain investors declined allocations to its sidecar.
This gives the company the ability to retain more of the economics of its underwriting, to extract greater profits.
The company’s half-year results show significantly lower ceded revenues for the second-quarter of 2026, a signal of lower reliance on retrocession.
In response to a question during the media call, Buchanan explained that Munich Re does not currently have a cat bond in issue, having sponsored cat bonds in the past as part of its Queen Street series.
Buchanan explained Munich Re’s financial strength, saying the Solvency II ratio has now gone above 300%, and the company is extremely well capitalised, with the capacity to warehouse and keep all of the risks that it writes.
Buchanan continued, “We underwrite risks very much with the conviction that we underwrite them in such a way that we can keep them for ourselves.”
The reinsurance company feels no need to utilise parametric insurance for smallholder farmers with international help to support its underwriting, but it will be interesting to watch whether that changes over time should pricing continue to decline.
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There may come a point where the economic benefits are greater to offload some peak risk again for the reinsurer, either as Munich Re’s portfolio outgrows the levels of risk it can retain, or as the cost of sponsoring catastrophe bonds becomes too attractive to ignore.
Retrocession and use of ILS instruments such as cat bonds are a lever for reinsurers, that can be used to provide protection, or enable risk sharing with investors to fuel expansion and growth.
They feel the need for neither at this time, but, as we’ve seen before, that will inevitably change over-time as the market moves.
Munich Re remains active in ILS as a structurer and arranger, and continues to derive profits from ILS market activity.
It is essential for Munich Re to adapt to changing market conditions to maintain its position.
The company’s decision to reduce its reliance on retrocession arrangements and cat bonds may be seen as a strategic move to maximise profits, given its strong financial position and the current market conditions.
Their approach to risk management will likely continue to evolve in response to changing circumstances.
Andrew Buchanan.
