Munich Re buying RenaissanceRe’s weather and energy risk unit

by Artemis on September 3, 2013

Interesting acquisition news today as the world’s largest reinsurance firm Munich Re announced it has reached an agreement with Bermudian reinsurer RennaissanceRe to acquire RenRe’s weather and weather-related energy risk management unit, RenRe Energy Advisors Ltd.

RenRe Energy Advisors has a strong position in the weather and weather-related energy risk management market, focusing on instruments such as weather derivatives alongside reinsurance and other weather contingent protections, for business in many sectors but primarily in the energy space.

The bulk of its clients are in the energy sector, but it also serves others where the weather can impact on the bottom line. It also offers commodity trading for oil and natural gas, aiming to provide a one-stop shop for weather and energy solutions. Munich Re has been working with RenRe Energy Advisors as a risk capacity provider for three years.

“With the acquisition of REAL, we are actively expanding our know-how and product range of weather risks and investing in a promising and profitable market. The new unit is an ideal complement to our expertise in the field of weather trends and weather risks, and also to our existing business model with solutions for weather risks”, said Munich Re board member Thomas Blunck.

According to the announcement from Munich Re, acquiring RenRe Energy Advisors will enhance its diversification in the weather derivatives market as it covers new regions and sectors.

Munich Re’s announcement said; “Its experts have monitored global weather trends and loss developments for nearly 40 years and devise risk solutions – for example, for utilities companies and other energy providers. Munich Re already offers solutions for weather risks. In conjunction with REAL, it will be able to cover not only traditional energy companies but also, to an increasing extent, investors in renewable energies – against lack of wind or sunshine, for instance.”

Kevin O’Donnell, CEO of RenaissanceRe Holdings Ltd., commented; “Our decision to sell this unit reflects our commitment to a focused strategy of expanding our underwriting platforms in Bermuda, London, the U.S. and Asia.”

This suggests that RenaissanceRe is returning to its core focus of reinsurance underwriting which is perhaps a sensible approach at a transitionary point in the market where focus will be required in order to capitalise on the changing, and converging, reinsurance landscape.

Mr. O’Donnell added; “Munich Re has been working with REAL for over three years as a risk capacity provider, and we are pleased to consummate this transaction with a valued long-term trading partner.”

The acquisition is expected to be completed in the fourth quarter of 2013. The cost of the acquisition, how it’s being structured and how much money is changing hands has not been disclosed. RenaissanceRe said in its announcement regarding the sale that neither the sale of nor the results from the unit are material to RenaissanceRe

This is an interesting announcement as RenRe Energy Advisors has been a successful part of the RenaissanceRe family of brands since its launch and is highly regarded in the sector. However the division posted two consecutive quarterly losses due to one of the warmest winters on records in 2011/2012, a season that hit most weather risk firms, so perhaps the unit has been deemed less valuable and a step too far away from the core focus of reinsurance at RenaissanceRe.

RenRe Energy Advisors has a strong and highly respected team in the weather derivatives space, including stalwarts such as Mark Tawney and Bill Windle. It won a number of awards for weather risk transaction of the year in the past, so Munich Re is getting an extremely viable and competent business and team which will complement its own weather risk management initiatives extremely well.

It sees RenaissanceRe move back to more of a focus on reinsurance provision, weather derivatives and energy risk management was always a slightly unusual fit at the Bermudian reinsurer. RenRe still owns Weather Predict Consulting, which provides analysis to help clients make decisions about weather related risk management and reinsurance. It will be interesting to see whether RenaissanceRe hold onto that unit as well or choose to move away from weather risk management completely.

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