Traditional reinsurance still the backbone despite alternative capital influx: Munich Re’s Blunck

Traditional reinsurance capital remains the driving force and foundational backbone of the global risk market. While the use of alternative capital is increasing, it cannot function in isolation, Thomas Blunck emphasised during Munich Re’s recent Baden-Baden Reinsurance briefing.

Traditional reinsurance capital has increased relative to alternative capital from a factor of 3.5 in 2017 to almost 4 in 2026, Munich Re states.

Blunck, a Member of the Board of Management at Munich Re, noted that alternative market solutions typically emerge only after the primary insurance and reinsurance sectors have developed the necessary data, modelling and coverage structures, and thoroughly tested market appetite.

Consequently, the commonly cited industry narrative that alternative capital accounts for 20% of reinsurance exposure fails to reflect market realities, according to the executive.

“We won’t find an alternative solution unless the insurance and reinsurance industry has built the data, the modelling and the coverage specifics, and has tested the market as well. So, this really tells you that reinsurance capital in our industry is the backbone and the driving force. The figure of 20% for the share of exposure covered by alternative capital is not the real message,” Blunck stated.

While overall industry capital continues to expand, with growth across both traditional balance sheets and alternative vehicles, Blunck cautioned against treating the headline figures as directly comparable, describing it as “comparing apples with oranges”.

The disparity lies in the fundamental composition and scope of the underlying portfolios.

“The traditional capital of reinsurance companies backs a huge, diversified global portfolio of perils and natural catastrophe scenarios — more than 50 natural catastrophe scenarios — as well as property, casualty, marine and specialty exposures. And, of course, this diversification creates a lot of efficiency,” Blunck explained.

By contrast, the alternative capital sector, often cited as representing roughly one-fifth of total reinsurance capital, tends to focus on individual perils or comparatively small, concentrated portfolios he said.

“So, if you were to measure the share of alternative capital relative to the exposure, it’s only a fraction, much lower than 20%. Only a fraction of the exposure is supported by alternative capital,” Blunck added.

He also emphasised the complementary role of alternative capital, explaining: “Another element that I find important is that typically, alternative solutions come into play as a complementary solution, but they are based on the foundations that have been built beforehand by the insurance and reinsurance industry.”

While alternative capital provides a valuable complement to the market, it does not replace the breadth and capacity of traditional reinsurance, Blunck concluded.

Of course, Blunck has the interests of his employer at heart and we’ve heard such statements from Munich Re before.

The reinsurer has pulled-back on its own use of alternative capital, insurance-linked securities and even shuttered its sidecar program, but it does still have a capital solutions focused unit and works to help clients access the capital markets for protection where it makes sense, including through supporting catastrophe bond issuances.

It’s perhaps yet another signal of how competitive the market could get, as traditional reinsurers look to promote their own risk capital over that from the ILS marketplace.