For over 100 years, they have played a major role in the insurance industry, but they are less familiar than the large general insurers. What we are talking about here are reinsurance companies. Founded in 1880, the Münchener Rückversicherungs-Gesellschaft AG (Münchener Rück) was the largest reinsurance firm in the world up to 1914, during the 1930s, and from the late 1960s, but the broader public seldom took notice of it. This was due, first of all, to its reserved press and public relations work, which the company limited for more than a century to the reporting of figures from its balance sheets. Secondly, lack of familiarity with the company derived from the nature of its business: reinsurers only enter into insurance contracts with the primary or direct insurers and insurance brokers. In contrast to direct insurers, they do not appear in the public eye through mass advertising and a visible sales network. Only against this backdrop does it make sense that Münchener Rück has been so silent in dealing with its own, significant history. This book, whose original German edition was published 135 years after the company’s founding, constitutes the first comprehensive company history of Münchener Rück, which has been called Munich Re worldwide since 2009 and thus will be referred to as such hereafter.

The economic function of reinsurers is not well known, either. Without sharing risks with reinsurers, countless direct insurers would not have survived the economic consequences of natural catastrophes like earthquakes and hurricanes and would have been forced into insolvency by the burden of their payment obligations. Reinsurance against events resulting in catastrophic damages made a concentration of high values in the form of residential and commercial buildings, machines and infrastructure possible in many states and in regions that tend to be hit regularly but unpredictably by natural catastrophes. Even in less spectacular business segments such as fire and motor insurance, the reinsurers evened out claims management for direct insurers and simplified the calculation of insurance premiums. This book will also address the question of whether and how reinsurers made insurance for specific risks possible in the first place.

This does not mean that the existence of independent reinsurance companies was functionally required and thus brooked no alternative. In Great Britain and the U.S., the task of sharing risk was not primarily handled by reinsurers but rather by cooperation among direct insurers in the form of joint insurance policies and insurance syndicates. The Lloyd’s insurance syndicate in London is the best-known example of this. At the same time, the information gap between the direct insurer and the reinsurer generated the latent danger of bad risks being transferred to the reinsurer. For this reason, this study looks into the means Munich Re used to reduce this information deficit and how it attempted to prevent one-sided risk transfers to its detriment in the way it formulated the policies. It shall investigate how the relationship between reinsurers and direct insurers was changed by shifts in economic performance, new risk-assessment techniques, and new forms of cooperation.

Particular attention will be paid to the evolution of scientific risk assessment. Whereas the assessment of insurance risks was based on experiential knowledge into the 1960s and risks were quantified by means of comparatively simple statistical (actuarial) methods, Munich Re shifted to forward-looking and scientifically-based risk assessment earlier than many competitors. Above all, it grounded the assessment of georisks like earthquakes and storms in natural science, and in the 1970s, it introduced mathematical models for risk assessment in the property insurance segment.

For various reasons, hardly any reinsurance company is more suited to a long-term study than Munich Re. Munich Re founded Allianz Versicherungs-AG in 1890 and enabled this company, with a high rate of reinsurance, to become by far the largest direct insurer of Germany. Yet the relationship between the two companies was by no means static. Through its increasing size and financial strength, Allianz was able to adjust its relationship to Munich Re and reinsure smaller portions of its business. Still, Munich Re’s close tie to the largest German direct insurer generated a considerable volume of premiums, which promoted its growth. The close cooperation between Munich Re and Allianz was regulated by means of an association agreement and was also created through mutual capital holdings (crossholdings). Each insurance company had representatives on the supervisory board of the other, generating a close intertwining of personnel that lasted until the association agreement was dissolved in 2003.

Using the examples of subsidiaries MR held in common with Allianz and its own capital stocks in direct insurers, this book pursues the question of the means MR used to secure long-term ties. In addition to its capital assets, its well-endowed reserves, and its reputation as a competent and productive insurer, Munich Re’s capital investments in direct insurers served as an instrument of customer loyalty that is worthy of systematic analysis. In this context, this study is dedicated to the question of whether Munich Re as a (co-)owner of other companies aimed to improve short-term yields or whether it concentrated on a longer-term ownership strategy as a typical stockholder in the economic order of “Rhenish Capitalism” (Michel Albert).

Reinsurers differentiated themselves from direct insurers early on with their much higher proportion of foreign business. The spatial distribution of the reinsurance business across more than one continent was not primarily due to the fact that even a large, national insurance market like Germany quickly became too small for an expansive business strategy. The transcontinental spatial distribution of insured risks served, above all, as a means of balancing regional risks and as protection against a possible spatial accumulation of risks. There were few barriers to internationalization. In contrast to the direct insurance industry, a reinsurer did not need authorization from the national regulatory body for insurance nor a costly sales network. Thus, Munich Re managed even before 1900 to extend its business from its core area of continental Europe (above all, the German Reich and Austria-Hungary) across the Atlantic to North America, the largest growth market of this era.

With the great earthquake of San Francisco in 1906, Munich Re was confronted, for the first time, with great risks that did not exist in its European business. Consequently, the history of Munich Re is almost a textbook history of globalization up to the beginning of the First World War (1914). The forced disintegration of the world market resulted from this war. With the military expansion of the Third Reich, Munich Re came to dominate the European reinsurance industry, but this ended when all of its foreign assets were seized and Munich Re was prohibited from engaging in foreign business. In the 1950s, Munich Re managed to internationalize once again. Since the Asian and North American markets became increasingly important, this could rightly be called globalization. By the end of the 1970s, Munich Re had established business relations with insurers in almost all the countries of the world. The globalization of the reinsurance business compelled the company early on to push the limits of what was insurable. Munich Re had initially treated earthquake and flood losses as incalculable and thus uninsurable risks. After Munich Re entered the U.S. and Japanese markets, it had to adapt to the conventions of these insurance markets and reinsure these risks. This proved to be a catalyst for the scientific understanding and assessment of risks.

The First and Second World Wars resulted in the loss of a considerable portion or even all of the company’s foreign assets and pushed Munich Re back to the area of the German Reich, its allies, and neutral states. The shift in the political regime from the Weimar Republic to National Socialist rule was associated with the transition to a rigid autark policy. The extensive chapter on Munich Re during the National Socialist era deals, among other things, with the question of to extent to which National Socialist economic policy restricted options in the international reinsurance business and confronted insurers with plans for the nationalization of the insurance industry. This context raises the issue of how Munich Re responded to the conflicting politics of competing actors in the Nazi regime, and how the primacy of financing arms and the war restricted its investment options. This is tied to the question of how Munich Re’s leadership utilized the chances and risks of National Socialist politics and what means it used – also on the symbolic level – to shape its connections to the political elite.

One of the specific risks of business behavior under National Socialism was the challenge presented by its racist politics, above all the step-by-step expropriation of Jewish property. In this context, the study examines whether Munich Re consciously exploited the business opportunities associated with these practices, such as the distressed sales of Jewish-owned life insurance policies and real estate, even if these opportunities would have been regarded as morally problematic, unethical, and damaging to the firm’s reputation under ordinary circumstances. A similar challenge arose in the course of the German occupation of Western and East-Central Europe through the sharply asymmetrical power relation, which favored German companies.

Aside from the risks it had insured and the risks of war and dictatorship, Munich Re was also confronted with macroeconomic risks. Among the significant macroeconomic shocks to the insurance industry that have not yet received much scholarly attention is the hyperinflation of 1923, which ended with the complete devaluation of financial assets. The consequences for (re-)insurers of the world economic crisis that began in 1929 have not been studied much, nor have the effects of the collapse between 1971 and 1973 of the system of fixed exchange rates (the Bretton Woods system). This book shall clarify which strategies Munich Re employed to try to protect itself from external shocks like inflation, restrictions on the circulation of money and movement of capital, and currency fluctuations. Particular attention is paid to the firm’s investment strategy, which involved investing in fixed-interest securities in crises of deflation and covered payment obligations in fluctuating foreign currencies through monetary investments in the same currencies.

As research into the history of reinsurers is not yet well developed, this study is based primarily on our own studies in the files of the Historical Archive at Munich Re. To complement these, files in the archive of the current subsidiary ERGO, in the Swiss Re Company Archieves and in state archives were analyzed. The present book, which adheres to scholarly standards, is the most comprehensive study on the business history of a reinsurance company to date. Earlier studies concentrated on actuarial practices and insurance markets but pursued historical questions only to a limited extent. This is also true of the multiple volumes of the unpublished documentation written by Martin Herzog in the 1980s on the history of Munich Re. The authors of this book were able to gather a wealth of information from this documentation. The 2014 study on the history of Swiss Re provided some important indications of the long history of relations between the two largest competitors in the worldwide reinsurance industry and imparted methodological suggestions on the history of risk. For the history of the insurance industry and state insurance policies under National Socialism, Gerald D. Feldman’s comprehensive history of Allianz from 2001 continues to be fundamental and exemplary.

There are some problems with the source material on the history of Munich Re. Some of the files from the period before the First World War were destroyed in the winter of 1946/47 when Munich Re’s main building at Königinstraße 107 was seized by the American military government, requiring the clearing of the attic. After Herzog, a former member of the Allianz board of management, had completed his voluminous manuscript on the history of Munich Re by the end of the 1970s, the board considered the investigation of the company’s history to be finished and had the greater part of the historical files destroyed. A company archive was not formed until the year 2000, combined with the collection of more recent files.

This book begins in 1880 with the founding of Munich Re and ends with its centennial in 1980. It would not have been possible to write about the restructuring of the company in the 1990s because the necessary temporal distance and access to company files still in use are lacking.

The authors wish to thank a number of people for the support they provided during the various stages of the project. Particular thanks are due to the long-term manager of Munich Re’s Historical Archive, Lic. Phil. Zoran Andric, who helped to launch the project and supported it all along the way. Markus Holmer, M. A., the director of the ERGO Archive, deserves thanks for his cooperation and important tips. The archival research conducted by Michael Bermejo-Wenzel, M. A., Ramona Bräu, M. A., and Mathias Irlinger, M. A., both in Germany and abroad was of valuable assistance. Dr. Patricia C. Sutcliffe did an outstanding job with the translation of the manuscript. The authors are also very grateful to Dr. Tanja Roos for editing the translation with amazing diligence and to Laura Pöhler, M. A., for the excellent supervision.