Munich Re’s asset manager MEAG benefits from growing ILS market

by Artemis on April 15, 2014

The growth of the insurance linked investment asset class and issuance of insurance-linked securities and catastrophe bonds has given MEAG, the asset manager of reinsurer Munich Re and its insurance subsidiary Ergo, a boost.

According to an article in the German newspaper Börsen-Zeitung at the weekend the booming catastrophe bond market has brought strong new business to MEAG, the asset management arm of the world’s largest reinsurance firm Munich Re and its insurance subsidiary Ergo.

MEAG had a good year in 2013 reporting €1.5 billion of net new inflows of capital under management across its business, according to Director of Sales Robert Helm. Approximately one-third of this, or €500m, is attributable to business won from the catastrophe bond market, through the provision of collateral asset funds.

The proceeds of the sale of catastrophe bond or insurance-linked securities (ILS) are typically invested in short-term U.S. treasuries and money market funds, something MEAG facilitates by structuring collateral funds for cat bond issuers.

The provision of collateral facilities and funds for the catastrophe bond market is a competitive segment, said Helm, although that competition if primarily from abroad. Helm noted that 2013 was a particularly strong year and that 2014 may not see the same level of inflows from cat bonds.

At the end of 2013 MEAG managed approximately €12 billion of assets for investors such as insurers, pension funds and other institutions. A further €1 billion of growth could be expected for 2014, said Helm, with additional collateral funds playing a role in MEAG’s continued growth.

MEAG manages the investments of Munich Re and Ergo, meaning that a lot of its catastrophe bond collateral fund business has been sourced directly from the reinsurer. An increased focus on securing third-party mandates is part of MEAG’s future however as the asset manager looks to grow its third-party assets under management.

The collateral fund business is an important part of the ILS and catastrophe bond market, with significant amounts of the $50 billion of alternative reinsurance capital in the market held in a variety of collateral trust type funds for the duration of securities or collateralized reinsurance contracts. It would be natural for MEAG to seek further growth from this market given its reinsurer parent and Munich Re and other reinsurers growing role in risk transformation for ILS as well.

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