Munich Re's chief executive said his company is interested in reviewing some assets of American International Group for possible acquisition and that the credit crisis is already working to push up reinsurance rates.
Nikolaus von Bomhard also confirmed that the German reinsurer's exposure to bankrupt Lehman Brothers is $500 million. His comments came in a television interview on Bloomberg Live yesterday.
Explaining that the Lehman figure is a gross number--before any recoveries or taxes--he said, "We think this will never be the money at stake."
At this point, he said, it is too early to come up with a net figure because "the markets are still unwinding the different derivative structures" related to Lehman.
As for his interest in AIG businesses, while he said Munich Re has not been in any talks with AIG yet, he expects to be approached when packages are put together documenting assets for sale, possibly today.
"AIG has a wonderful reputation as an underwriting company," he said, noting that its problems "did not come from that corner."
He said that Munich Re, which wants to develop its primary business in Asia and Eastern Europe, would be particularly interested in AIG assets put on the block in those regions.
On Tuesday it was announced that AIG-Financial Products' 50 percent interest in London City Airport was sold for an undisclosed amount.
The credit crisis, Mr. von Bomhard said, will not affect Munich Re's ability to make acquisitions, noting that the company is well-capitalized.
"That is why we do not feel the crisis will hinder us....Rather we consider the crisis for us, since we got through so well, as an interesting opportunity," he said. "We have the means in place to do some M&A" in an environment where merger and acquisition activity has been slowing down.
Asked for his forecasts with respect to reinsurance rates, he said, "We absolutely believe" not only that the declines in reinsurance rates will slow, but that "we will now leave the bottom of the valley [and] see an increase in prices," attributing the hikes "not so much" to natural catastrophes but instead to the financial crisis.
"The capital of many important players is shrinking dramatically" as a result of the crisis, he said.
"We are sure prices will move," he said. While the magnitude of rate changes is difficult to predict based on a handful of renewals so far, "it could well be double digits in the 10-ish, up to 20" range, he said.
Suggesting that a flight to quality and security is at work, he said, "Quality now is of [the] essence [and] the longer-tail business probably may react more strongly than the shorter-tail business."
As for Munich Re's security, Mr. von Bomhard said that a threat by rating agency Standard & Poor's to lower its ratings if the threat of lower reinsurance prices persisted "is now off the table" given recent insurance market developments.
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