Munich Has Developed a Unique Approach to Carving Out a Competitive Position in Certain Lines

Munich Re is the largest reinsurance company in the world, yet that size has its drawbacks. We think the company has some really nice and moaty business lines, that seem almost unrivaled, yet the impact that those lines can have on the overall business is not enough to sway it into moaty territory. Munich has a strategy to drive growth in its Global Specialty Insurance and cyber lines. In the context of the property and casualty reinsurance division, gross premiums written in these two lines are growing faster than the underlying traditional reinsurance. Munich’s expansion of an inspection-based model combined with insurance yields superior underwriting results, in our opinion. And we believe its traditional area of expertise in providing these inspection-based services utilizing historical records and specialized industrial engineers is probably the most moaty way the business has been able to develop good underwriting earnings. There are likely underwriting benefits to be had in developing that model into the Internet of Things. We think Munich is one of the few reinsurers developing specialist insurance and reinsurance with this combination. However, when we think more broadly about the competitive dynamics of that approach versus an engineer-based model, we think the new IoT model holds lower barriers to entry and is more replicable. While Munich may be able to gain insights from these peripheral technologies and may have a first-mover advantage in rollout and integration, we see little reason another reinsurer could not replicate this. We think a purer focus on research and development of proprietary technology would be a more durable way to develop an underwriting-based competitive advantage.