Interdisciplinary cooperation leads to measurable positive effects for both: insurer and client

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Corporate Responsibility News

4 February 2016

Interdisciplinary cooperation leads to measurable positive effects for both: insurer and client

To what extent can the proprietary know-how of the insurance colleagues be used to help decide whether or not to make infrastructure investments? And can existing projects benefit from this expertise? The Marchwood Power example provides answers to these questions.

In theory, the USP or competitive advantage vis-a-vis other investors is quite obvious: How many companies have so many international experts in various different fields at their disposal under one roof? Here, the asset liability management department (ALM) is the transmission belt between the Munich Re departments and the asset manager MEAG. Alongside strategic objectives for the asset manager, identifying and making the Group’s expert know-how available is one of the key responsibilities of ALM. The difficulty here lies in particular in the fact that neither the duration nor the required specialist field can be planned before a transaction. This means that the insurance colleagues have to be highly flexible when supporting due diligence for an investment opportunity. The only factor that remains constant when assessing risk is the typically short time-frame. The projects also require ongoing technical support throughout the operational phase.

A good example of interdisciplinary and cross-divisional cooperation is the investment project "Marchwood", a modern combined cycle power station commissioned in 2009 (combined gas and steam-turbine power plant) with 880 MW of output in south England. During the acquisition phase in 2013, the technical risk assessment was provided by US colleagues from our subsidiary HSB/Solomon. Since having won the bid for a 50% stake in the plant, Munich Re's interests have been represented on the company's Board of Directors by colleagues from MEAG and an expert of Munich Re’s global industry insurance market division (CIP - Corporate Insurance Partner) in Munich. While MEAG concentrates on the financial aspects, CIP focuses on technical issues. As these two aspects often go hand in hand, intense collaboration is decisive in order to make a successful decision.

© Marchwood Power Limited, Marchwood, Southampton/UK

A measurable result of this excellent cooperation is the technical modification that has just been completed, which includes an upgrade of the gas turbines into which the two owners Munich Re and Scottish and Southern Energy have invested more than GBP30 million, to make the plant the thermal power station with the currently highest electrical efficiency level in all of Great Britain.

In addition to the financial improvements achieved by raising the total output and the reduction of risk accomplished by installing newly designed last-stage steam turbine blades, important ecological aspects have also been improved in the upgrade: The CO2 emission has been reduced and modifications to the hard and software enable the extremely flexible operation of the plant in the future.  

The investment in this technology is a perfect fit for Munich Re's strong commitment to renewable energy sources. Combined cycle power stations are an ideal complement to generating electricity from renewable sources because of their flexibility and low specific pollutant emissions. This balances out production fluctuations and guarantees stable grid operation.

Investments in infrastructure are generally attractive for insurance companies because their highly predictable long-term cash flows are perfectly suited to a cash-flow match of liabilities. In addition to diversification benefits for the overall portfolio, we also expect this investment to generate excess returns due to our technical know-how and the opportunity it offers us to act as a long-term investor.

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