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Parametric, green energy covers 1st out of the 'box' for Munich Re syndicate

Parametric weather cover and green energy insurance are likely to be the first products out of the gate for Munich Re Co.'s new Lloyd's of London's syndicate, according to its active underwriter, Stuart Newcombe.

The new venture, Munich Re Innovation Syndicate 1840, is the pilot for Lloyd's "syndicate-in-a-box" concept, part of the 330-year-old market's modernization plans. It will be managed by Munich Re's Lloyd's managing agency, Munich Re Syndicate Ltd., alongside its existing Syndicate 457, and start underwriting Jan. 1, 2020.

The syndicate-in-a-box program is designed to allow those with fresh business and ideas to set up at Lloyd's more quickly and easily than establishing a full-blown syndicate from scratch.

Munich Re said the syndicate would focus on emerging risks, green energy solutions, autonomous vehicle development and mitigating the financial risks of extreme weather events, including the use of parametric products.

Non-traditional coverage

With parametric insurance, payment is triggered automatically by variables such as loss size or wind speed, rather than waiting for a post-event assessment of an insured party's loss. Newcombe, also Munich Re Syndicate Ltd.'s head of underwriting development, said in an interview that parametric weather cover "is likely to be the early mover" for the new syndicate, and that the company is "already dealing with inquiries from that in anticipation of a [Jan. 1] start."

The green energy product, also likely to be an early release, will not cover traditional physical loss or damage to wind farms and solar farms, "which is already well-covered by various specialists in the market," according to Newcombe. Instead, it will cover the risk associated with borrowing money to invest in green energy, for example if equipment fails and there is no recourse to the original manufacturer, leaving the investor with the debt.

The product is designed to support investment in new and emerging green energy technology "because it gives the lender some comfort that there will be some protection in place if there is a systemic failure in a couple of years' time," Newcombe said.

The emerging risks element of the proposed offering, which includes cover for the sharing and gig economies, and the autonomous vehicle development are still under discussion and "a little further down the line," Newcombe said, adding: "We are certainly hoping to get them going at some stage next year."

'Significant piece of work'

Newcombe and Munich Re Syndicate Ltd. CEO Thomas Artmann declined to provide numbers for Syndicate 1840's planned gross written premium or capacity because the process of building the operation is at an early stage and conversations are continuing about product lines.

Newcombe said the new syndicate is going through a "making-it-happen" process, during which Lloyd's and Munich Re are "testing and challenging some of the early assumptions from both sides to try and refine what it looks like for the next tranche [of syndicates-in-a-box], which are likely to start coming through early 2020." He said the process is running "pretty much as expected" but warned those following Munich Re not to expect an easy ride.

"Don't underestimate the work involved for anyone hoping to go this route," he said. "It is still a significant piece of work even though it is lighter and faster than setting up a full syndicate."

Artmann added that so far "it is a very constructive and fruitful dialogue we are having with Lloyd's."

Munich Re chose to number its syndicate 1840 because it coincides with the year the U.K.'s Queen Victoria and Germany's Prince Albert were married, which Artmann described as "a very fruitful alliance" for the two countries.

According to Lloyd's plans, syndicates-in-a-box must be profitable by the end of their third year at the latest, with a combined ratio of less than 100% and an expense ratio of less than 35%. They "should aspire to become a full syndicate" but not exceed £100 million of gross written premium in their first year.