Nikolaus von Bomhard has rescued Munich Re from losses, risky investments and a sex scandal
Nikolaus von Bomhard is Mr Munich. He grew up in Bavaria. He studied there. He lives there. He is involved in local hospitals, art galleries and choirs. And he has spent his working life at Munich Re, the insurer and reinsurer that is one of the city’s biggest companies, which he joined as a graduate trainee in 1985.
However, he is about to strike out elsewhere. After more than 30 years at Munich Re, the past 12 of them as chief executive, Mr von Bomhard will step down in April. That retirement could involve stints in Paris, Madrid or Rome. Not exotic for a European, perhaps, but relatively far for a person who has spent most of his working life (with the exception of a spell in Brazil in the 1990s) in the same city.
Why has he stayed so long in one place? “It was always interesting and intellectually challenging,” he says. “I never felt that I had to leave the company.”
But along with his long loyalty to the company comes a view that, especially in an industry where decisions made today can have consequences for years, leaders should stick around to take responsibility for long term contracts. “In reinsurance,” he says, “you should eat all your own cooking.”
The German media portrays Mr von Bomhard as an unassuming figure who cycles to work despite his multimillion-euro salary, always keeping his cool. One magazine described him as “a nobleman among the company men of the Dax-league”.
Certainly, as befits a prominent citizen of one of Germany’s most conservative cities, Mr von Bomhard has brought a strait-laced, no-nonsense approach to running Munich Re. When he stepped in to the chief executive role in 2004, the company was in trouble. It had invested heavily in equities during the tech boom and was hurt badly when the bear market hit. A €3.8bn rights issue was necessary, and Munich Re lost its prized AA- credit rating from Standard & Poor’s.
His first job, then, was to get the balance sheet under control and bring the company back to its roots. “The most relevant change is the revival of the art of underwriting. When I took over, the asset side of the balance sheet was dwarfing the underwriting result,” he says, adding that about 30 per cent of the assets were held in equities. “Thanks to the return on these assets the relevance of underwriting was dwarfed.”
Mr von Bomhard says he has turned that on its head, changing the underwriting side of the business from a sideshow to the main event. “The asset side of the balance sheet is purely servicing the liabilities,” he says. “We’re not chasing alpha or trying to earn extra dollars with the assets. We take that very seriously. We’re ayatollah-like.”
These days, only 5 per cent of the group’s portfolio is in equities and the AA- credit rating, so important to win the trust of customers in the primary insurance world, is back in place.
His approach has not worked everywhere though. Ergo, Munich Re’s life insurance business, has been a sore point throughout Mr von Bomhard’s tenure. The year before he became chief executive the business lost €1.4bn. By 2015 this had been pared back but the business still lost €227m.
Despite the problems he insists that Ergo is still a core part of Munich Re: “We think it’s a great asset for the group, strategically,” he says, pointing out that it gives diversification from the group’s reinsurance business.
Still, he admits that he could have done better. “Ergo has been a rollercoaster,” he says, adding that the business has recently been hurt by low interest rates. “With the benefit of hindsight, we probably would have been harsher cutting back the traditional life insurance business. In 2003 we questioned the German life business but we didn’t, to the extent necessary, walk the talk. We cut back too slowly.”
The latest turnround plan, unveiled in June, involves investing €1bn and cutting 1,800 jobs to return Ergo to profitability. Mr von Bomhard has brought in Markus Riess, formerly head of Allianz’s German business, to run the unit. The aim is to get the business to deliver a €500m annual profit by 2021. “I’m convinced the programme will be a game changer,” says Mr von Bomhard.
He does not speak for everyone, however. Ingo Speich, a portfolio manager at Union Investment, one of Munich Re’s top 20 shareholders, is one of the sceptics. “Ergo is clearly the black spot on his otherwise white shirt. For a decade the restructuring was tackled only halfheartedly and the situation deteriorated. The new plan is disappointing, at least from an investor’s perspective. Five years without a dividend is too long and shows just how weak the business is,” he says.
The other side of the business, reinsurance, takes risks that primary insurance companies do not want to shoulder. This operation is no less challenged. New capital coming into the industry in search of profits has been driving down prices, putting reinsurers’ own returns under pressure: profits from reinsurance slipped by 32 per cent in the first quarter of this year.
“People feel rich,” says Mr von Bomhard. “Capital is inflated by higher asset values, and that increases supply.”
Those high asset prices are themselves a consequence of low interest rates, and here Mr von Bomhard allows himself to display just a little passion. He is not, it turns out, a big fan of the policy.
“The question is what monetary policy can achieve today and what are the collateral effects,” he says. “What you can achieve is not worth the collateral effects. The 2 per cent inflation target is too high in today’s world. There is so much downside for risk and reward in financial markets. We have a hard time investing because we don’t think the risk is appropriately paid for.”
Ultra-low interest rates are, he believes, holding back the economy. “People feel they don’t get enough back [from savings]. The German reaction is to save more, not to free up money for consumption.”
He would prefer a dose of harsh medicine to get the European economy moving again. “We have to restructure in order to restart the engine. There are businesses that should not exist.”
Trenchant views on the state of the wider economy are perhaps an early sign that Mr von Bomhard sees his future away from insurance. Although he may return to Munich Re as chairman in 2019 — after a statutory cooling off period — he would not countenance a move to a rival insurer. “I’d never like to compete with this company and endanger the work we did here,” he says.
Instead he will look elsewhere, perhaps a charity or academia. The world of logistics, which he has observed from his recent election to the board at Deutsche Post, prompts the usually serene Mr von Bomhard to display what can only be described as boyish enthusiasm. “What Deutsche Post does is unbelievable. It is the largest logistics group in the world. That is interesting intellectually to me. I want to stay challenged — I’m getting older and slower so I need to fight that.”
He is, he says, looking for freedom. But it is liberty with limits. “I will always have one foot in Munich. Both, I’m not so sure.”