The world's second-largest reinsurer by premium income after Swiss Re Co., Munich Re stated that beginning January 1 it’s establishing a client-centered structure. The company’s current structure operates along distribution and product lines.
Munich Re’s goal under the new structure is to significantly increase profitability in the U.S., both in its direct- and broker-reinsurance business and in the primary-insurance business. Munich Re's U.S. business has suffered from a legacy of reserve boosts for long-term asbestos and workers' compensation claims.
Designed to boost profit and efficiency, the changes are part of a global program that Munich Re began undertaking in the spring. The initiatives include insuring new risks and sharpening marketing, with more securitization both for Munich Re's business and for clients' business.
The company said its strategy for the U.S. operations includes "building a dominant presence in niche primary insurance segments" by pursuing new business segments that promise above-average profitability and allow cost-sharing across segments. The plan includes both organic growth and strategic acquisitions, such as managing general agents and specialized primary insurers, Munich Re said.
The U.S. operations, which Munich Re bought for $3.3 billion in 1996, posted a net loss of $1.04 billion last year, hit by additional reserves for expected asbestos-related claims and a negative tax effect.
On a group level, 2006 earnings weren't affected by the reserve increase in the U.S. because the company had previously made a so-called incurred-but-not-reported provision for possible asbestos claims, which was released in 2006. Munich Re reported 2006 net profit of €3.44 billion ($4.83 billion), up 28% from €2.68 billion in 2005.
Since the acquisition, Munich Re America -- previously called American Re Co. -- has required significant increases in provisions at the unit and the group level for expected asbestos and workers' compensation claims. The long-term claims are related to policies dating from 1997 to 2002.