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Munich Re SWOT & PESTLE Analysis

ID : 52213653 | Jun 2017

OVERVIEW

Name of the Company: Munich Re

Business Sector: Insurance and Healthcare

Operating Geography: Europe, Germany, Global

About the Company: Munich Re is one of the world’s leading reinsurers. The company established in 1880 is involved in wide range of insurance products with an employee base of around 43,000 people globally. The Group strives to create value for all the stakeholders ranging from the clients, the staff and the shareholders. Munich Re’s subsidiary, ERGO insurance group handles the primary insurance operations.

Revenue: 48.9 Billion Euros (Gross premiums written) - FY ended December 31st, 2016

SWOT & PESTLE Analysis

The SWOT analysis for Munich Re is presented below:
Strengths
Weaknesses
1. Strong capitalization allows attractive shareholder returns
2. Excellent credit ratings over the years
3. Development of digital capabilities through teams
4. Grouping of insurance and reinsurance business
1. Reduction in the sales force
2. High investment in government bonds in weak EU economies.
3. Negative impact of legal disputes
Opportunities
Threats
1. Generation of business needs according to the market environment
2. Identifying the opportunities in Developing countries
3. Digital and analytics insurance offerings to be a growth driver
1. Challenging competitive environment in the insurance sector
2. Weak global outlook with slowdown in growth
3. Impact of appreciation of Euro
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Strengths

1. Strong capitalization allows attractive shareholder returns: Munich Re has strong capitalization which is reflected in its IFRS statements and Solvency II ratios. It Solvency II ratio stood at 267%, well above the target capitalization as of 31st march, 2017. Its debt leverage stood at 12.6% which is one of the lowest in the insurance industry. The balance sheet is also well positioned regarding prudency of claims reserve and tax provision. It paid a dividend of €8.60 per share in April 2017 which translated to an attractive 8.5% cash yield.

2. Excellent credit ratings over the years: The financial ratings for an insurance player gives an assessment of its ability to meet its obligations towards the policyholders. Munich Re has consistently enjoyed top credit ratings over the years by leading agencies. Its ratings as of 2017 according to Fitch is AA (Very strong); A.M. Best is A+ (Superior) and according to Moody's is Aa3 (Excellent). Fitch describes Munich Re’s reinsurance business as a select group having global scale, diversity and financial capabilities to get top quality business in the reinsurance sector.

3. Development of digital capabilities through teams: Munich Re is a company undergoing transformation through digitization. Digitalization has changed the way the insurance industry operates and the company is going through a comprehensive reorganization to meet the customer needs and demands. To help leverage the digitization of economies on the product side and also to help the clients, teams have been set up across the Munich Re group for these purposes, contact has also been established with the start-ups and the small and the large companies to tap into the business opportunities which are present.

The strategic plan for Munich Re’s group company ERGO will cover all the material activities ranging from sales, products. ERGO will invest up to the tune of €1bn till 2020 which will modernize the company’s IT systems and help it undergo a digital transformation and enable it to become a customer centric organization.

4. Grouping of insurance and reinsurance business: The combination of the insurance and the reinsurance has allowed Munich Re Group to cover all sections of the insurance businesses value chain. This allows Munich Re to offer customized solutions to the individual customers because of the added capabilities and scope of the business functions.

Weaknesses

1. Reduction in the sales force: The group company ERGO will implement the new sales structure with effect from 1st January, 2017. This exercise would involve combining of the individually managed sales units into a tied agency sales force. Hence there would be a reduction in the sales force staff in Germany also because of the Strategy program. A total of 1800 jobs will be cut, majority of which will be in the sales organization.

2. High Investment in government bonds: A sizeable chunk (approximately 53%) of the fixed-interest portfolio has been invested in the government bonds of various countries such as Italy, Germany, Portugal and the UK. Though Munich Re looks to invest in countries whose bonds have a high credit rating, the income of the company is significantly determined by the yield of the Bonds. Such a skewed investment can affect future investment plans.

3. Negative impacts of legal disputes: In various countries during the normal business recourse many of the Munich Re Group companies are involved in arbitration, regulatory and court proceedings. Thought the Group affirms that none of the proceedings will impact the financial position of the company. With the expansion of business and exposure legal costs can crop up.

Opportunities

1. Generation of business needs according to the market environment: The uncertainties which are occurring in the environment present new business opportunities for the Group. Hence the Group uses innovative solutions and modern data analysis to address the revised client requirements and the new risks which occur. The new risks which the banks aim to address ranges from cyber, reputational, business continuity or terror attacks.

2. Identifying the opportunities in emerging economies: In challenging market conditions in developed markets, the emerging economies are the new growth markets for Munich Re Group. Indian government is expected to open up the insurance sector in late 2017 with more liberalized FDI policies which will change the insurance landscape. Munich Re has got the regulatory approval in India and also has opened a branch office in 2016. Munich Re has also registered a growth in the Chinese markets with premiums increasing in motor business with the medium term business prospects also quite encouraging.

3. Digital and analytics insurance offerings to be a growth driver: Insurance market offerings have been increasingly shaped by the new digitization trends. Munich Re offers digital transformation services to its SME clients to help them integrate the insurance solutions with their business through its newly established unit, Digital Partners. Digital customer engagement, Internet of Things, insurance analytics are the areas which will witness growth in the insurance technology segment. Munich Re has partnered with insurance accelerators such as “Axel Springer Plug and Play” and “startupbootcamp” and also has expert presence in tech hubs in Silicon Valley, London and Tel Aviv. Munich Re will launch its fully digital insurer “nexible” in late 2017 targeting its tech-savvy customer segment.

Threats

1. Challenging competitive environment in the insurance sector: The below average losses and lack of opportunities to invest in other businesses, has led to the outside investors enter the insurance market. This has put a pressure on the terms and conditions and prices which Munich Re Group charges, especially in the property casualty reinsurance segment. The Group will find it difficult to maintain the very high profitability of the property casualty reinsurance. In the specialty business segments such as agricultural business, marine, direct industrial business and aviation segments, the market is also characterized by intense competition.

2. Weak global outlook with slowdown in growth: Low inflation, a slow global economic growth and an expansive monetary policy has caused great challenges for Munich Re in terms of the investment it can make. The Chinese economic growth has been sluggish and Brazil and Russian economies are in a recessionary phase. The yield on the German government bonds has remained negative for most part of the 3rd quarter of 2016 and the Interest rates in the U.S economy has also remained low.

3. Impact of appreciation of Euro: Since Munich Re writes a large portion of the business outside the Eurozone an appreciation of the Euro causes a negative impact on the development of the premium income, whereas the premium income increases if there is a devaluation of the Euro. There are severe currency translation effects which occur, pushing down the profitability of the company.

To get the complete detailed SWOT report on Munich Re please mail us at: support@swotandpestle.com. or contact us here.

Munich Re Group SWOT analysis has been conducted by senior analysts from Barakaat Consulting.
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The PESTLE analysis for Munich Re is presented below:
Political
Economical
1. Uncertainty around Brexit negotiations may have negative implications for Munich Re
2. Political improbability in Europe, developments in US and conflicts in Middle East and Ukraine to impact Munich Re’s risk profile
1. Global insurance markets expected to grow strongly in 2018.
2. Low-interest-rate environment globally posing a challenge to insurers like Munich Re
Social
Technological
1. Low insurance penetration in emerging and developing economies provide good scope for business expansion
2. Population dynamics and a growing demand for old-age provision life insurance and reinsurance
1. Investments in major tech start-up hubs to fuel insurance innovation and research
2. Growing market for insurance covers cyber risks and data breaches
3. Blockchain technology to be a game changer for insurance
Legal
Environmental
1. Stringent capitalization requirements to force conservative business decisions
2. Evolving regulatory mandates on usage of big data
1. Climate change may trigger an increase in weather-related natural calamities
2. Implementation of group wide environmental management system and carbon neutral operations
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Political

1. Uncertainty around Brexit negotiations may have negative implications for Munich Re: Munich Re has considerable UK exposure across insurance segments. Motor insurance is a major business segment in UK. A “Hard Brexit” may further cause depreciation in the UK pound and even a short term recession in the UK economy. There may also be some regulatory changes which may impact insurers. Thus the uncertainty prevailing around Brexit is slowing down investment decisions and may hurt Munich Re’s UK market growth.

To get the complete detailed PESTLE report on Munich Re please mail us at: support@swotandpestle.com. or contact us here.

Munich Re Group PESTLE analysis has been conducted and reviewed by senior analysts from Barakaat Consulting.
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