Munich Re’s CEO admits mistakes as he leaves the company

Munich Re's departing CEO Nikolaus von Bomhard has admitted that he had not succeeded with all his plans during his time in charge, especially with struggling primary subsidiary Ergo.

Von Bomhard is stepping down after 13 years at the helm of the reinsurance giant to make room for Joachim Wenning, who is taking over on April 27.

Speaking at his last press conference as Munich Re CEO he said that one mistake was the failure to integrate the Ergo group quickly and decisively following its creation.

Ergo was formed in 1997 through the merger of D.A.S., DKV, Hamburg-Mannheimer and Victoria and has since been Munich Re’s primary insurance business segment.

Ergo has been loss-making for many years and Von Bomhard has been criticized for not having successfully tackled the problem earlier. In 2016 Ergo recorded a net loss of €40 million after a loss of €227 million in 2015.

The integration only truly started in 2004, Von Bomhard said. “But even then, and there it would have been my fault, it did not happen at the necessary speed,” Von Bomhard explained.

“While it is extremely tough for all stakeholders at the beginning, within hindsight it is now clear that in such a case one needs to immediately, within months, push through the integration,” Von Bomhard said.

He also admitted failure with Munich Re's IT strategy. “If you want to be market leader, you have to deal with this better,” he said. We failed in this respect and still suffer the consequences today, he noted.

Furthermore, Von Bomhard admitted mistakes in the strategy regarding interest rates. “We were not consequent enough in the restructuring of the portfolio and the life business,” he said. “We have for a decade underwritten business under old conditions,” he said.

But, at the same time, Von Bomhard defended his strategy to keep the primary business in the Munich Re group:

“If we had sold Ergo in 2003 we could probably have bought it back now for less. However, we would have to deal with the same complexity of an acquisition of a company of this size,” Von Bomhard noted.

The primary business remains a core part of Munich Re’s strategy.

“Having a primary and a reinsurance business under one roof is necessary to develop the business in an agile way,” Von Bomhard said. As a result, “we can operate in any segment of the value chain with confidence,” suggesting that this is not the case if a company has no experience in sales and distribution or does not know how to manage a retail insurance business.

Von Bomhard also regrets not having made acquisitions at the beginning of the financial crisis because for fear of uncertainty over the global financial and economic system. Munich Re was at that time loaded with cash and in an extremely conservatively structured financial position, he explained.

“We were looking at acquisitions in double-digit billion figures at that time,” he said.

But because of the crisis, Munich Re decided not to sign any deals as it did not want to have to rely on the capabilities of governments and central banks to re-establish financial stability. The decision was supposed to show that Munich Re is self-reliant and to underline its conservative market approach.

“Within hindsight we should have betted on the state rescues that followed. […] This was a judgment error,” he said.

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