Munich Re collateralised sidecars hit $650m in 2024, as retro program grew
Munich Re’s collateralised reinsurance sidecar structures grew to $650 million in 2024, as the company elevated its use of retrocession, aligned with its growth in natural catastrophe exposure from its underwriting.
With the reinsurance market having been deemed hard over the last few rounds of renewals, Munich Re had increased its appetite for natural catastrophe risks as it grew its P&C reinsurance portfolio.
But, measures taken actually reduced Munich Re’s exposure to one of its key peak perils in recent years.
The increased use of retrocession at Munich Re had helped the reinsurance company to reduce its Atlantic hurricane exposure in 2023, year-on-year.
The company cited today “extended retrocession instruments and a more balanced portfolio” as key drivers of its Atlantic hurricane risk being managed down. The company has not reported its 2024 exposure to peak perils yet, but the retrocessional protection continued to grow this year.
Critical within that retrocession program is the collateralised reinsurance sidecar structures where Munich Re partners with third-party capital and institutional investors.
This year, Munich Re said its retrocession saw “successful placements in a challenging, but orderly market.”
Maximum in-force protection per-major peril scenario has increased year-on-year on all fronts, as can be seen below.
Munich Re said today that its traditional retrocession for 2024 amounted to around US $600 million, saying this “placement benefited from a more favourable marketplace.”
The program for 2024 utilised indemnity retrocession, industry-loss warranties (ILW’s), risk swaps, catastrophe bonds and Munich Re’s sidecars such as the multi-investor structure Eden Re and the PGGM backed Leo Re.
The reinsurer looks to balance price and placement volume of its retro program, which is also assisted by the fact the company has its collateralized sidecar vehicles as well.
In 2024, the sidecar provided almost US $650 million of quota share cession support for the reinsurer.
It signals growth in the sidecar platform for Munich Re, as the company had reported that for 2023 the sidecars only totalled $513 million of collateralised capacity.
Which suggests the sidecar platform has been a key driver of the growth in Munich Re’s retro program for 2024, as the company sourced more supportive capital from investors.
Today, Munich Re said that, with the quota share sidecars it targets, ” long-term partnerships with institutional investors, predominantly pension funds.”
Overall, the “multi-format” retrocession arrangements provide Munich Re with “material scalability and access to rated-paper capacity, as well as multiple and diverse investment buckets,” the company explained.
Munich Re had also sponsored a catastrophe bond in 2023, the $300 million Queen Street 2023 Re dac issuance that is one added source of US hurricane retrocession for the company.
This year, Munich Re lifted its Eden Re collateralized reinsurance sidecar to $150 million, through the listed not issuances that we get to see.
But, in addition and as we reported this October, investor PGGM lifted the target allocation range for its Munich Re sidecar partnership, the Leo Re structure.
The target allocation range for Munich Re’s Leo Re sidecar vehicle for the PGGM managed allocation for pension PFZW was doubled to between EUR 500 million and EUR 1 billion, which suggests this vehicle is a key source of retrocession partner capital for the reinsurer now.
Increased use of retrocession helps major reinsurers manage their nat cat peak exposures as they grew into the hard market and the relationships being built with sidecar investors, as well as through other ILS structures, is helping companies like Munich Re maximise their growth opportunities, while managing their downside risk.
For details of many reinsurance sidecar investments and transactions over the history of the ILS market, view our comprehensive list of collateralized reinsurance sidecars transactions.
