Munich Re, the world’s biggest reinsurer, plans to increase its investments in renewable energy operations such as wind parks and solar plants to help boost its investment returns.
“Assuming our profitability expectations are met, we plan to invest about 2.5 billion euros ($3.6 billion) in renewable energy assets over the next five years,” Munich Re management board member Thomas Blunck, who is responsible for special and financial risks, said in an interview in Munich.
Insurers, and the reinsurers that help them shoulder risks for clients, are coping with reduced investment results as low interest rates hurt returns from bonds and as equities and real estate become less attractive following proposed regulations that will increase capital requirements.
Munich Re invested about 40 million euros in 40 wind turbines in Germany at the beginning of 2011. The Munich-based firm’s first major investment in the segment brought total holdings in renewable energies to a “low three-digit-million-euro range,” Blunck said.
“We are close to signing two more projects and some more are lined up for evaluation this year,” Blunck said. Renewable energy investments “are attractive for insurers and reinsurers as they offer cash flows that are to a large extent predictable in the long term,” Blunck said.
Munich Re had total investments of 191 billion euros at the end of March. It cut the ratio of stocks among its holdings to 4.5 percent at the end of the first quarter from 13.8 percent at the end of 2007, following writedowns in 2008. Munich Re said in May it expects a return of “just under” 4 percent on its investment portfolio this year.
Allianz SE, Europe’s biggest insurer, also aims to increase its investments in renewable energy this year, according to comments by finance head Paul Achleitner. The Munich-based company targets an internal rate of return of 7 percent to 8 percent from renewable energy investments, it said in a presentation to investors earlier this year.
Apart from investing in renewable energy, Munich Re is also seeking to sell more coverage for the industry. The reinsurer’s premium income in that area currently stands at about 50 million euros, Blunck said. “Double-digit” annual growth rates are likely to increase premium income to a “mid-three-digit-million-euro range by 2015,” he said.
Munich Re offers performance guarantees for wind turbines and photovoltaic panels, coverage on exploration risks of geothermal energy drilling and insurance for wind and solar parks that compensates for reduced earnings when weather conditions fail to produce enough power.
Ships and Satellites
The reinsurer is developing products to help guarantee the performance of specialist ships used to build offshore wind parks, Blunck said. “We are adapting what we learned when we first developed coverage for satellite launches, where we are still earning very nice margins on about 100 million euros in annual premiums,” he said.
Plans for offshore wind parks in Europe’s northern and eastern seas could add more than 100 billion euros to insured values, resulting in a bottleneck in terms of insurance and reinsurance capacity, Blunck said.
“This will add to insurers’ and reinsurers’ already high exposure to storm risks in Europe, but also provide new chances for new insurance solutions,” he said.