New Re targets weather products and parametric deals
New Re, the mid-sized Zurich-based reinsurer which is part of the Munich Re group, has developed a third pillar of its strategy, focusing on weather derivatives and agri derivatives, Andreas Molck-Ude, its chief executive, told Baden-Baden Today.
Two years ago, it split the business in two: pillar 1—vanilla property/casualty business; and pillar 2—structured reinsurance products, now part of Capital Partners.
The third pillar is staffed primarily by a team of weather derivatives experts who joined when Munich Re acquired RenRe Energy Advisors in 2013.
In a market struggling for growth when it comes to conventional business, Molck-Ude said, parametric covers under pillars 2 or 3 offer new revenue streams that are scalable and will grow over time.
“This is all business that was previously uninsured and so provides huge potential for us and our parent company,” he said. “Growth will not be that rapid as an extensive education process is often necessary. But it is starting to happen and we are seeing more and more deals completed in many different markets.”
The weather unit works closely alongside Munich Re’s experts. It covers all non-US geographies and has completed some interesting deals in recent years.
One such example was its involvement in African Risk Capacity (ARC), a catastrophe insurance pool that provides parametric drought cover to a number of countries in Africa. “This was a risk that was uninsured before and conventional products were not suited to this type of risk,” Molck-Ude said. “It is more like disaster relief financing but it represents a good opportunity for the industry.”
New Re was also involved in structuring a parametric insurance deal covering tropical cyclone risks for a group of South Pacific Islands. The deal was triggered this year after a cyclone hit the region.
“The great thing about these deals is the money was paid out 10 days after the storm,” Molck-Ude said. “This is not like traditional reinsurance where claims are investigated.” He notes that the Philippines is also currently considering buying a similar product after typhoons in the region.
In terms of the other parts of New Re’s business, Molck-Ude said the company is cautious on traditional business thanks to the intense competition and soft rates. The structured side is also enjoying growth. Some of its capital relief products are in demand thanks to Solvency II, and it has also been working with some start-up businesses.
“We have seen a few start-ups enter the market with internet-based business models,” he explained. “They have the access to the market and the technology and we have supplied them with a structured solution that provides them with capital and other forms of coverage,” he said.
