German reinsurer expands in US market
Munich Re (Münchener Rückversicherungs-Gesellschaft), the world's #2 reinsurance company (only Swiss Re is bigger), announced a major acquisition in the US. It will buy Midland Company, a specialist insurer for around $1.3 billion plus debt assumption.
Midland Company is a primary insurer, not a reinsurer, whose main interest is in the insuring of mobile homes and other manufactured housing, as well as high-risk vehicles including motorcycles, snowmobiles, and motorboats.
The German company has announced it will sell the barge insurance operations of Midland, estimated to be worth around $100 million.
Munich Re already has major operations in the US reinsurance business. It bought American Re in 1996 for $3.8 billion. However, the company's American division, Munich Re America, lost $1.03 billion in the US last year, following a similar loss the year before.
The midland acquisition is the old story of whether companies should expand horizontally or not. Midland's specialty insurance business may offer some diversity to the reinsurance holdings, but it is in fact a different, if related, businesses.
In fact, as Bloomberg News points out, one competitor has taken the opposite tack::
Munich Re rival Hannover Re, the world's fourth-biggest reinsurer, abandoned most of its specialty insurance operations with the sale of Praetorian Financial Group Inc. to QBE Insurance Group Ltd. of Australia in May.
The conflict between diversification and concentration on what you do best. Can Munich Re mend its American fortunes by taking on even more risk? Better hope that tornados and hurricanes bypass trailer parks.
