Munich Re CFO: Retro optional, no current need for cat bonds. We underwrite to keep the risk

Speaking this morning during an earnings call, Munich Re’s CFO Andrew Buchanan gave the clearest explanation for why the global reinsurance company has reduced its retrocessional protection considerably, saying the company puts the effort into underwriting so it can keep the risk and has the financial strength to warehouse it.

As we reported back in February, Munich Re showed its desire to retain more of the economics of its insurance and reinsurance underwriting business, by slashing its retrocession arrangements and scrapping its collateralized reinsurance sidecar programme.

The company also allowed its last in-force catastrophe bond under the Queen Street program to mature without renewal, while we had also reported on certain investors declining allocations to its sidecar.

Munich Re’s half-year results show significantly lower ceded revenues for the second-quarter of 2026, a signal of lower reliance on retrocession.

This gives the company the ability to retain more of the economics of its underwriting, to extract greater profits. However, naturally, it might mean certain major loss events could have a larger impact, with less protection available. But Munich Re feels more than adequately financially prepared and able to whether such effects, it seems.

In response to a question during this morning’s media call, CFO Buchanan explained, “On cat bonds, you are correct in your statement that we have sponsored cat bonds in the past, most recently a few years ago, as part of our Queen Street series. We do not currently have a cat bond in issue.”

Going on to explain Munich Re’s financial strength by saying, “You may have heard us comment in our remarks earlier, the Solvency II ratio has now gone above 300%. We are extremely well capitalised, and we certainly do have the capacity to warehouse and keep all of the risks that we write.

“So any form of ceding externally risk, that we do as part of our wider retrocession programme, I’d say is a somewhat optional activity for us.”

Buchanan continued, “We underwrite risks very much with the conviction that we underwrite them in such a way that we can keep them for ourselves.

“Certainly at the current point in the market, with rates still being adequate, we are quite happy to retain risk and to earn the full profit margin for risk-bearing ourselves. Rather than ceding profits to other parties, having done the hard work of actually assessing and underwriting the risk.”

While the reinsurance company feels no need to utilise insurance-linked securities capital to support its underwriting, it will be interesting to watch whether that changes over time should pricing continue to decline.

There may come a point where the economic benefits are greater to offload some peak risk again for the reinsurer.

Either as Munich Re’s portfolio outgrows the levels of risk it can retain, or as the cost of sponsoring catastrophe bonds, or reinstating other ILS structures such as reinsurance sidecars, becomes too attractive to ignore.

Retrocession and use of ILS instruments such as cat bonds are a lever for reinsurers, that can be used to provide protection, or enable risk sharing with investors to fuel expansion and growth.

Munich Re feels the need for neither at this time. But, as we’ve seen before that will inevitably change over-time as the market moves. While the reinsurer remains active in ILS as a structurer and arranger anyway, so continues to derive profits from ILS market activity.