Munich Has Developed a Unique Approach to Trying to Carve Out a Competitive Position

Munich Re is the largest reinsurance company in the world, yet that size has had its drawbacks. We think the company has some moaty business lines, that seem almost unrivaled, yet the impact those lines have on the overall business has not been enough to push it into moaty territory. Munich Re has a strategy to drive growth in its global specialty insurance and possibly cyberlines. In the context of the property and casualty reinsurance division, insurance revenue in global specialty is growing faster than the underlying traditional reinsurance lines. Munich Re’s expansion of an inspection-based model combined with insurance does yield 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. In developing that model into the Internet of Things, there are likely underwriting benefits to be had. We think Munich Re is one of the few reinsurers to be 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 has lower barriers to entry and is more replicable. While Munich Re may be able to gain insights from these peripheral technologies and may have a first-mover advantage in rollout and integration, we see risk another reinsurer could not replicate this. We think a stronger focus on research and development and proprietary technology could be a better way to develop a competitive advantage.