Sidecars & retro won’t pick up many COVID losses from Munich Re: CFO

Munich Re does not expect its collateralised reinsurance sidecar vehicles or its retrocession program to pick up much of its losses from the COVID-19 pandemic, according to the reinsurers CFO.

Speaking during a media call this morning, Christoph Jurecka, CFO of Munich Re said that Munich Re continues to focus on being a gross underwriter and retaining as much of its risk as possible, hence sidecar and other retro support is less likely for its claims from the COVID-19 pandemic.

“Retrocession does not play that much of a role for Munich Re overall, we run the business as a risk taker on our own,” Jurecka explained.

As a result, “We don’t expect neither sidecars or retrocession to pick up much of our losses from COVID-19,” he continued.

Munich Re has taken roughly US $2.7 billion of losses from the COVID-19 pandemic, the majority of which fell to its P&C reinsurance arm.

In announcing its results today, Munich Re revealed around EUR 1.5 billion of major losses in Q3, with the majority coming from the pandemic and the remainder from losses caused by U.S. hurricanes, wildfires and other severe weather catastrophes.

But it seems that the potential to pass on some of these losses to sources of third-party reinsurance capital through the sidecars Munich Re operates, or to other retro sources, is limited at best.

For 2020, Munich Re sponsored a $400 million sidecar issuance for its Leo Re partnership with significant ILS investor PGGM, the Dutch pension manager, as well as around $285 million through its own syndicated sidecar Eden Re.

It seems these structures won’t be particularly exposed to COVID-19, Munich Re believes at this stage, although Jurecka did note later in the call that property business interruption remains an unknown, given the legal cases still ongoing around the world.

But either way, the impacts to the sidecars from COVID-19 losses would be expected to be attritional at most, it appears.

On the catastrophe losses that Munich Re suffered in the third-quarter, Jurecka’s comments suggest that the reinsurance sidecars are naturally more exposed, given the property catastrophe nature of the risks and losses.

“We have some sidecars in place,” Jurecka said, Adding that, “If triggers will be met or not remains to be seen, given further development of the hurricane season which has not come to an end yet.”

Which suggests that some of Munich Re’s sidecar investors could see their capital come into play in supporting the reinsurer, should its catastrophe losses continue to rise as we move towards the end of 2020.