Munich Re E-Book

Johannes Bähr

• Herausgeber: C. H. Beck
• Kategorie: Fachliteratur
• Sprache: Englisch
• Veröffentlichungsjahr: 2016

Beschreibung

"Reinsurance has to be international in accordance with its nature." This is the well-known viewpoint of Carl von Thieme, one of the founders of Munich Re, who also served as its general director for many years. Thus, it was not a coincidence that the company rose to become the world market leader rather quickly after its founding in 1880. In the following period, Munich Re stayed on top or was occasionally second to Swiss Re. Nonetheless, the broader public does not know much about the company. Johannes Bähr and Christopher Kopper now present the first history of the reinsurer from its beginnings into the 1980s. Few companies have risen to become world market leaders as quickly as Munich Re, and only the fewest have succeeded in remaining at the top of the world market for as long. The company’s history reveals how insurers reacted to major catastrophes and technological shifts. Without sharing risks with reinsurers, countless direct insurers would not have survived the economic consequences of major natural catastrophes and would have been forced into bankruptcy by the weight of their payment obligations. Consequently, reinsurers even made coverage for some risks possible in the first place. Yet Munich Re itself also repeatedly contributed to the introduction of new segments of insurance, such as in the case of machine insurance or high-risk life insurance. Thus, the history of this pioneer of globalization is, at the same time, a history of dealing with risks and managing the distribution of risk. Last but not least, it is also the history of a German company that profited from the National Socialist dictatorship and, with great effort, had to find its way back into the world market after the two world wars.

Leseprobe

Johannes Bähr, Christopher Kopper

MUNICH RE

The Company History 1880–1980

Translated into English by Patricia Casey Sutcliffe

C. H. Beck

About the Book

«Reinsurance has to be international in accordance with its nature.» This is the well-known viewpoint of Carl von Thieme, one of the founders of Munich Re, who also served as its general director for many years. Thus, it was not a coincidence that the company rose to become the world market leader rather quickly after its founding in 1880. In the following period, Munich Re stayed on top or was occasionally second to Swiss Re. Nonetheless, the broader public does not know much about the company. Johannes Bähr and Christopher Kopper now present the first history of the reinsurer from its beginnings into the 1980s.

Few companies have risen to become world market leaders as quickly as Munich Re, and only the fewest have succeeded in remaining at the top of the world market for as long. The company’s history reveals how insurers reacted to major catastrophes and technological shifts. Without sharing risks with reinsurers, countless direct insurers would not have survived the economic consequences of major natural catastrophes and would have been forced into bankruptcy by the weight of their payment obligations. Consequently, reinsurers even made coverage for some risks possible in the first place. Yet Munich Re itself also repeatedly contributed to the introduction of new segments of insurance, such as in the case of machine insurance or high-risk life insurance. Thus, the history of this pioneer of globalization is, at the same time, a history of dealing with risks and managing the distribution of risk. Last but not least, it is also the history of a German company that profited from the National Socialist dictatorship and, with great effort, had to find its way back into the world market after the two world wars.

About the Authors

Johannes Bähr is Associate Professor of Economic and Social History at the Goethe University Frankfurt am Main.

Christopher Kopper is Associate Professor of Economic and Social History at the University of Bielefeld.

Contents

1. Introduction

Part I: The Company’s Rise, Acid Tests, and Setbacks (1880–1932)

2. The Beginnings of Reinsurance: The Long Path to Equality

3. Founding and Beginnings of Munich Re

Carl Thieme and the Founding of Munich Re

The Rise of a New Kind of Reinsurer

“The Founding of a Casualty Firm along with Our Reinsurance Company”: How Allianz Versicherungs-AG Came into Being

4. Conquering the World Market and the Earthquake of San Francisco

Business Dealings and Investments in Russia, Great Britain, and the U.S.

The Earthquake of San Francisco and Other Major Losses

5. Munich Re before the First World War

Employees and Management

Business Development, Capital Investments, and New Insurance Segments

6. The First World War and the Restructuring of the World Market

7. Banned from the World Market: The Development of the Corporation in Central Europe during the Inflation Period

8. “Insurance Has Its Own Economy”: Munich Re in the Great Depression

Part II: Munich Re during the National Socialist Regime (1933–1945)

9. The National Socialist Takeover and Munich Re: Business Development, Political Ties, and Management

10. Munich Re in the Economy of the Third Reich: Business Policy, Foreign Currency Restrictions, and Participation in Financing Armaments

11. Foreign Business, Foreign Investments, and the Expectation of War

Relations to Swiss Re under the Conditions of Foreign Exchange Control

The Phönix Scandal and Its Consequences

Disguises and Expectations of War

12. Occupation Rule and the War Economy: Munich Re in the Europe of the Third Reich

“Prudent Cooperation”? The Company’s Involvement in Vienna, Prague, and Southeastern Europe

The Group Companies in Occupied Poland

The Subsidiaries in the West and the Association for the Coverage of Major Risks

The Hub of Masked Business and Window to the World: Union Rück in Zurich

Part III: Back to the Top of the World Market (1945–1980)

13. Starting Anew under the American Occupation: The Consequences of War and Denazification

14. Finding a Way Back into the International Reinsurance Market

15. Rebuilding the Capital Basis: Munich Re and the Consequences of the Currency Reform

16. New Challenges in the International Reinsurance Business

17. Continuity and Change in the “Alzheimer Era” (1950–1968)

18. The Progress of Globalization in the Reinsurance Business

19. The Crises of the 1970s and the Challenges of Modern Risk Management

20. Conclusion

Appendix

Notes

Part I: The Company’s Rise, Acid Tests, and Setbacks (1880–1932)

2. The Beginnings of Reinsurance: The Long Path to Equality

3. Founding and Beginnings of Munich Re

4. Conquering the World Market and the Earthquake of San Francisco

5. Munich Re before the First World War

6. The First World War and the Restructuring of the World Market

7. Banned from the World Market: The Development of the Corporation in Central Europe during the Inflation Period

8. “Insurance Has Its Own Economy“: Munich Re in the Great Depression

Part II: Munich Re during the National Socialist Regime (1933–1945)

9. The National Socialist Takeover and Munich Re: Business Development, Political Ties, and Management

10. Munich Re in the Economy of the Third Reich: Business Policy, Foreign Currency Restrictions, and Participation in Financing Armaments

11. Foreign Business, Foreign Investments, and the Expectation of War

12. Occupation Rule and the War Economy: Munich Re in the Europe of the Third Reich

Part III: Back to the Top of the World Market (1945–1980)

13. Starting Anew under the American Occupation: The Consequences of War and Denazification

14. Finding a Way Back into the International Reinsurance Market

15. Rebuilding the Capital Basis: Munich Re and the Consequences of the Currency Reform

16. New Challenges in the International Reinsurance Business

17. Continuity and Change in the “Alzheimer Era“ (1950–1968)

18. The Progress of Globalization in the Reinsurance Business

19. The Crises of the 1970s and the Challenges of Modern Risk Management

List of Tables and Diagrams

Picture Credits

List of Abbreviations

List of Primary Sources and Bibliography

Archival Collections

Contemporary Newspapers and Professional Journals

Source Collections and Law Gazettes

Annual Reports

Bibliography

Internet Sources

Index of Persons

Index of Companies

1.Introduction

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.

Part I: The Company’s Rise, Acid Tests, and Setbacks (1880–1932)

2.The Beginnings of Reinsurance: The Long Path to Equality

It is known that insurance contracts are not a modern invention. Even in ancient times there were contracts to provide in case of emergency and also to cover the risks of seafaring. Mostly, these involved the allocation of loans that did not have to be repaid in the event of loss or damage.[1] Not until much, much later, in 14th-century Italy, did premium insurance contracts come into being. They were the prerequisite for the emergence of the reinsurance principle, in which an insurer transfers a portion of the assumed insurance risk to another insurer, giving this insurer a corresponding share of the premium. The first known reinsurance contract was taken out on 12 July 1370 in Genoa for the freight of a ship sailing from there to Bruges.[2] Since insurance companies did not yet exist, the parties to the contract were individual merchants and ship owners. In the Genoese reinsurance contract of 1370, the merchant Guilano Grillo assumed the risk for the ship’s passage through the Mediterranean and transferred the risk for the further passage from Cadiz to the two first reinsurers, the merchants Goffredo Benaira and Martino Sacco. These sorts of contracts can only be found in the following centuries in the field of marine insurance, which, to a certain extent, formed the starting point of reinsurance. Reinsurance contracts, however, were by no means the rule in this area. The risk was mostly shared in the form of a coinsurance agreement in which the insurer took on other merchants – often a large number of them – as further direct insurers along with the customer.[3] Reinsurance contracts were almost only arranged if an insurer expected loss or damage to occur or retrospectively regretted having made the contract for other reasons.[4]

This illuminates a fundamental problem that plagued reinsurance for a long time and explains why it took about another 500 years after the Genoese contract of 1370 for this form of insurance to become firmly established. No other insurance segment had such a long and difficult start-up period. On account of the specific character of reinsurance as insurance for insurers, the initiative in this case always came from the direct insurer (the ceding company), which usually had an information advantage over the reinsurer because, after all, he knew the customer or his products or the transport conditions. The reinsurer took on the greater peril, for which he was compensated with a sizeable premium.

For example, it was often the case that a merchant who had insured a ship’s freight would reinsure this risk if he did not receive any news about a plan for the course of the trip. Even greater was a direct insurer’s readiness to reinsure if he found out that storms were brewing in the respective area or pirates had been spotted. In such cases, the reinsurer was taking over a bad risk. Already in the Genoese contract, the risk was very unevenly distributed. The direct insurer reserved the passage across the Mediterranean Sea for himself and reinsured the more dangerous part of the passage, the stretch across the Atlantic. It took a certain daring to take on a bad or even a totally unknown risk for the prospect of a premium. So it is not surprising that reinsurance attracted speculators and gamblers. Little of this changed when the focal point of European marine trade shifted – along with maritime insurance as well – from Genoa and Venice to the Netherlands and Great Britain.

Well into the 18th century, insurance contracts were generally only to be found in trade, and particularly in maritime trade. For the most part, people relied upon assistance in emergencies from family members and charitable support from church institutions. In the Reformation period, the first fire guilds were formed in German-speaking Europe; these were rural cooperatives whose members mutually supported one another if loss occurred. Fires were no longer regarded as God’s punishment – and thus as an unpredictable danger – but rather as a manipulable risk.[5] The reinsurance concept was not relevant in this case because this form of assurance was not based on contractual relations. The first German insurance companies, too, which emerged in the Enlightenment era, had managed without reinsurance. These companies under public law were fire insurance funds established by cities or feudal lords, such as the Hamburger Feuerkasse founded in 1676 – the self-declared oldest insurance company in the world – and the Feuersozietät Berlin established in 1718, later known as Berlin-Brandenburgische Feuersozietät.[6] These companies insuring buildings against fire did not need to fear expensive losses because they had solid support from their municipal or state carriers. But private fire insurance companies, the first of which emerged in England after the Great Fire of London in 1666 as joint-stock companies or mutual companies, did not take out any reinsurance either. They protected themselves by classifying the risk and setting the premium accordingly.[7]

With the rise of overseas trade, the importance of shipping and transit insurance in Great Britain also grew. Almost all international insurance transactions transpired in London, particularly in the coffee house of Edward Lloyd, first mentioned in 1688, where shipowners and wealthy merchants met to negotiate insurance contracts carried out in the form of coinsurance contracts.[8] Reinsurance contracts were not primarily a means to share risks in England in this era but rather were increasingly used for dealing in speculative premium differences. Direct insurers tried to conclude insurance contracts with high premiums in order to then completely reinsure the risk for a lower premium. Reinsurers entered into these agreements in the speculative expectation of finding an insurer to whom they could transfer the entire risk in retrocession for an even lower premium.[9] Often, English merchants had business associates on the continent conclude insurance contracts in order to reinsure these in London for a lower premium.[10]

The first half of the 18th century was a time of heavy speculation in Great Britain, as in France and the Netherlands. Thus, the London stock exchange experienced one of the first big speculative bubbles of the early modern era in 1720 on account of the dirty stock trading of the South Sea Company. After the resulting crash, the British government felt obliged to prohibit trade with stocks,[11] which probably drove speculation in marine insurance and reinsurance contracts. Ships now were frequently overinsured by several speculators together as a bet on their sinking. Among other things, these sorts of overinsured ships set sail without any freight at all.[12] Since these practices came to threaten overseas trade, the British government felt obliged to prohibit reinsurance contracts in the Marine Insurance Act of 1746. The law did allow for some exceptions, to be sure – in the case of the death of the direct insurer, for example – and only applied to marine insurance, yet it actually amounted to a prohibition on reinsurance in Great Britain, the leading insurance market in the world at the time. Lloyd’s, above all, profited from this, because in this highly capitalized market even larger risks could be shared among members in the form of coinsurance. The prohibition lasted for 118 years and was not lifted until 1864 by Queen Victoria.[13]

In Hamburg, the Senate prevented the planned founding of a stock-based insurance company in 1720 in order not to encourage speculation. Only 45 years later did the first private insurance company in the German-speaking world come into being, a marine transportation insurer in the British mold. In 1779 a private fire insurance company was also founded in Hamburg.[14] After the Napoleonic Wars, large transregional companies of this type emerged, such as the Gothaer Feuerversicherungsbank (founded in 1820) and the Aachener Feuer-Versicherungs-Gesellschaft (founded in 1825). For the first time, risks were also reinsured in the fire insurance sector. In 1825 the Vaterländische Feuer-Versicherungs-AG in Elberfeld took out the first reinsurance of a fire insurance policy in the world with the Compagnie Royale d’Assurance Contre l’Incendie in Paris.[15] Reinsurance was now no longer an object for speculative transactions but became an instrument for fire insurers to share risk with one another.

In contrast to previous reinsurance contracts or to coinsurance, reinsurance contracts between direct insurers could be detrimental to the cedent if the two companies were competitors. The policy gave the reinsurer insight into the direct insurer’s business – knowledge the reinsurer could use for its own direct insurance business. As a result, German fire insurers preferred to take out reinsurance policies with companies that operated in other markets, increasingly choosing foreign ones.[16] In this way, reinsurance policies contributed early on to an intertwining of insurers within Europe, but in an asymmetrical form: German direct insurers reinsured a significant share of their policies in France and Belgium, whereas French insurers hardly transferred any policies to German companies. British fire insurers had a relatively strong presence in the German states but took out no fire insurance policies there, instead sharing risk by means of coinsurance.

The outflow of a considerable portion of German insurers’ profits to foreign economies burdened the trade balance of the states in the German federation. Moreover, it was also a disadvantage for the customers that they could get practically no information about the reserves and business conduct of the foreign insurers. Consequently, Prussia passed a law about personal property and fire insurance providers in May 1837 that subjected foreign companies to rather strict controls and implemented a licensing requirement. Nonetheless, this actually augmented the outflow of premiums abroad because several British and French insurance companies that did not receive a license for direct insurance in Prussia then operated as reinsurers in this market for domestic companies.[17]

The founding of the Kölnische Rückversicherungs-Gesellschaft (Kölnische Rück) should be viewed in this context. The initiative came in December 1842 from several influential Rhenish bankers, merchants and industrialists, including Gustav Mevissen (from 1884: von Mevissen) and Simon Oppenheim (from 1867: von Oppenheim). The great fire of May 1842 in Hamburg may have encouraged the project because the claims settlement process demonstrated how important reinsurance policies were. However, in contrast to a common view, the Hamburg fire was not the decisive factor.[18] The founders of Kölnische Rück rather wished, above all, with their appeal on 22 December 1842 to ensure that “the profit of the German insurance industry be kept” in Germany.[19] Previously, an insurance company in Wesel in the Lower Rhine region had already created a reinsurance association out of its stockholders after negotiations with a French insurer had failed to secure a reinsurance policy.[20]

The founders of Kölnische Rück at first debated whether the company should be an independent enterprise that was not part of a direct insurance company or a subsidiary of the Cologne-based fire insurance company Colonia. In the following decades, the issue of which form was more advantageous for a reinsurer remained debatable. In the case of Kölnische Rück, Mevissen, as an entrepreneur and politician, prevailed with the argument that primary insurers would prefer a reinsurer not affiliated with a competitor.[21] The license was granted in April 1846, but Kölnische Rück was unable to do anything at first because of conflicts concerning its capital resources, the economic crisis of 1847/48, and the revolution of 1848 and its consequences. Not until 1 July 1852 was Kölnische Rück able to launch operations as the first reinsurance company in the world. The Rothschild bank in Paris had traded the company’s capital free-floating shares, largely to French investors.[22] Then, as early as 1853, another reinsurer was founded on a different model in Aachen – not as an independent company but as a subsidiary of Aachener und Münchener Feuer-Versicherungs-Gesellschaft.[23] By 1870, a total of 12 professional or pure reinsurance companies had been founded in Germany, Austria-Hungary and Switzerland.[24] These differed from other reinsurers in that, like Kölnische Rück, they engaged exclusively in the reinsurance business.

The Schweizerische Rückversicherungs-Gesellschaft AG (hereafter: Swiss Re; the company, formerly typically referred to as Schweizer Rück, has gone exclusively by the English version of its name since 1999), which came into being in 1863 likewise as a professional reinsurance company, became one of the most important competitors of market leader Kölnische Rück. Moritz Grossmann, the director of Helvetia Feuerversicherung, had founded this enterprise in December 1863 with the support of the Swiss Credit Institute (Credit Suisse). Helvetia, Credit Suisse and the Basler Handelsbank each took over one-third of the capital stock and later sold these shares largely to corporate customers.[25] A great fire is also often seen as the cause of Helvetia’s founding, the fire in Glarus in 1861. However, the new study on the history of Swiss Re shows that this is no more true than in the case of Kölnische Rück. Swiss Re also primarily resulted from a desire to keep reinsurance policies at home rather than allowing them to continue to flow abroad.[26]

The founding of Swiss Re marked the arrival of the professional reinsurance company as a specialty of the Central European insurance industry. When the first professional reinsurance company in Great Britain was founded in 1867, the Reinsurance Company, Ltd., the German Federation already had five such enterprises, Austria-Hungary had two, and Belgium and Switzerland each had one.[27] The lag in Great Britain is especially conspicuous because it was, as before, the leading insurance nation in the world. The reason for this was not the prohibition on reinsuring marine transit insurance policies in effect until 1842, but rather because coinsurance had proven to be an effective form of sharing risk in the United Kingdom and, extending from there, in the United States. Economic historian Robert Pearson lists other reasons beyond “underwriting traditions” for British insurers’ weak involvement in the European reinsurance market: opportunity costs, low profit margins, and obstacles relating to state regulation.[28] But the fact that the banks in the German states, in Austria-Hungary, and in Switzerland had entered the insurance industry early on was also decisive. Unlike in Great Britain, the joint-stock banks and some private banks in Central Europe were important financiers of industrialization. They also invested in insurance companies and had no interest in capital flowing abroad by means of reinsurance premiums – capital that was abundantly needed at home. The Sal. Oppenheim bank was among the founders of Kölnische Rück; and the Schweizerische Kreditanstalt was among those of Swiss Re. Of course, it was by no means certain that these would turn out to be good investments for the banks or whether the Central European model of companies engaging exclusively in reinsurance would last.

Although reinsurance policies meanwhile had come to be regarded as indispensable in the insurance industry because the size of damages for fire and transit insurance had grown ever larger with industrialization, the first professional reinsurance companies found themselves in a difficult position. After a good start, Kölnische Rück discovered that German direct insurers were continuing to choose foreign companies for their reinsurance needs. Other direct insurers themselves acted as reinsurers or shared risks via coinsurance policies. Kölnische Rück had to give up its hail and life insurance segments after just a few years.[29] In the 1860s, when claims for fire insurance rose, some at Kölnische Rück briefly contemplated withdrawing the company from this segment and transforming it into a direct insurer.[30] Swiss Re was having no more luck than the German market leader; five years after it was founded, a crisis generated by heavy losses for fire insurance abroad threatened its very existence. At Swiss Re, too, some considered giving up the fire insurance segment and making it a direct insurance company. In the end, however, company officials decided to restrict it to a smaller and qualitatively better portfolio.[31]

On 25/26 November 1868 representatives of seven independent European reinsurers – that is, those that were not also direct insurers – came together in Munich to discuss the critical situation in their branch. They were not interested in setting prices but in talking about the fundamental relationship between direct insurers and reinsurers. They complained bitterly and quite justifiably about direct insurers, who, like their predecessors in the 14th century, tended now, too, to share only bad risks with reinsurers and not good ones, and to exploit their information advantage over the reinsurer when they did. The direct insurer’s assessment of the risk could usually be seen in the portion of the risk he kept for himself, although most direct insurers kept reinsurers in the dark about this so they could more easily dispatch their bad risks. They perceived reinsurers “as a welcome depot for disagreeable risks,” Friedrich Wallmann, the editor of one of the leading trade journals (Wallmann’s Versicherungs-Zeitschrift), stated in 1874.[32] Austrian insurance expert Adolf Ehrenzweig characterized reinsurance policies at that time as “leonine,” referring to the figure of speech “societas leoninis” that had been introduced by Ancient Roman lawyers alluding to the well-known animal fable by the Greek writer Aesop. In a “societas leoninis,” one party to a contract receives all the profit (the “lion’s share”). The lion in this metaphor was the direct insurer, while the reinsurer was the sheep that the lion could treat however he wished.[33] The emergence of independent professional reinsurance companies in the 1850s and 1860s in no way overcame the asymmetry in the relationship between direct insurers and reinsurers that had existed from the beginning. Enterprises, like Kölnische Rück and Swiss Re, in order to balance their risks, depended on rapidly issuing a large number of reinsurance policies because they operated exclusively within this segment. Thus, at first, they could not afford to refuse to take on bad risks.

Direct insurers’ interest in “leonine policies” may also have been the reason that most of them continued to transfer their policies to foreign reinsurers. They were not particularly concerned that it was in the national interest to keep reinsurance premiums within the domestic economy because the outflow of premiums deprived the capital market of means and burdened the trade balance. The direct insurers, rather, focused on their business interest, and it was easier, after all, to unload their bad risks on foreign reinsurers than domestic ones. An insurance company in Paris, Brussels, or London had less precise information about the risks taken on by a German fire or transportation insurer than Kölnische Rück or Aachener Rück did. This circumstance presented an especially big problem for Swiss Re because it conducted the greater part of its business with foreign insurers on account of its small domestic market. As the history of Swiss Re written by Tobias Straumann demonstrates, this enterprise’s heavy losses in the 1860s derived without exception from policies with foreign insurers.[34]

The outcome of the aforementioned Munich meeting of 1868 was a catalog of wishes for direct insurers. These included that direct insurers and reinsurers should not henceforth compete with one another, that reinsurance premiums should be raised for risks that were especially great, and that reinsurers should always be informed of how great the portion of the risk was that they were taking on. Reinsurers were no longer to take on sums that were higher than those the direct insurers retained for themselves. Conference participants even considered it “not doable” to pay commissions for direct insurers.[35] The Munich conference likewise failed to solve the 500-year-old problem of reinsurers overreaching. Although direct insurers had long since acknowledged the necessity of reinsurance, they were not particularly impressed by the resolutions put forward in Munich and could not be forced to change their behavior toward reinsurers.

In the economic upswing after 1870, the so-called founding boom, Germany’s reinsurers experienced a certain rise, also because French reinsurers had temporarily lost some market share due to the Franco-Prussian War. But, meanwhile, the prohibition on reinsurance in England had been abolished, and there were numerous new companies being founded in Germany. In 1871/72 alone, a total of 13 reinsurance companies were founded in Germany, Switzerland, and Austria-Hungary – more than had previously existed in the market. Most of these newly founded companies did not last, but the heightened competition among reinsurers pushed down premiums and reduced profit margins. Ten years after the reinsurance conference in Munich, German reinsurers were consistently making a profit, but the loss ratio for reinsurers, according to a survey of the Prussian Statistical Office, was significantly higher (68 %) than for direct insurers (57.5 %).[36] The model of an independent insurance company exemplified by Kölnische Rück, after the experiences of the 1860s, was regarded as flawed. Many experts recommended a return to coinsurance.[37] As before, the majority of German reinsurance business went to foreign companies.[38] And reinsurance companies still lacked a secure foundation in the form of generally accepted rules that would have made it possible for them to be equal business partners with direct insurers.

3.Founding and Beginnings of Munich Re

Carl Thieme and the Founding of Munich Re

The Münchener Rückversicherungs-Gesellschaft AG (hereafter MR) was founded on 15 March 1880. On this day the Royal Bavarian State Ministry of the Interior granted the banking house Merck, Finck & Co. and lawyer Hermann Pemsel a concession to establish a joint-stock company “which has the aim of providing reinsurance on the fire, life, transportation and hail insurance policies taken out on associations, corporations, companies and individual persons.”[1] Anyone who has much to do with the history of MR will quickly determine that the two recipients of the concession are hardly remembered as the founders of the company anymore. Instead, this achievement is mostly attributed to an insurance agent from that time, Carl Thieme (from 1914: von Thieme), and major industrialist Theodor Freiherr von Cramer-Klett. Thieme had suggested the foundation of a reinsurance company, but he did not possess the necessary capital, nor would he, in all likelihood, have been able to apply for the concession without giving up his position as the Munich representative of the Thuringia Versicherungs-AG. The founding was only made possible because Freiherr von Cramer-Klett, probably the richest man in Bavaria at that time, supported the project and was prepared to contribute enough capital into the new reinsurance company. His financial holding company, Klett & Co., and two banks close to him, the Merck, Finck & Co. bank and the Bank für Handel und Industrie, together came up with more than 80 % of the capital stock with a nominal value of 3 million marks.[2] Cramer-Klett did not deal directly with applying for the concession himself but left this to chief representative Hermann Pemsel and his financial advisor Wilhelm Finck (from 1905: von Finck), the controlling partner of Merck, Finck & Co.

Although Cramer-Klett’s, Pemsel’s, and Finck’s participation can hardly be overstated, Thieme deserves the top billing among the founders of MR. Not only did the idea come from him, but he was the only founder familiar with the insurance industry. He took over the management of the new company and built it up according to his own conceptions. Whereas Thieme was operating out of a pioneering entrepreneurial spirit, Cramer-Klett was concerned with diversifying his already very considerable ownership of companies. At that time, he understood just as little about reinsurance as Pemsel, who came at it from a legal perspective, and Finck, who managed the firm’s capital.[3]

Thieme’s motives become clear from a glance at his background. Born on 30 March 1844 in Erfurt, Thieme practically grew up in the insurance industry because his father Julius worked for Thuringia Insurance from 1853.[4] Carl Thieme knew early on that, professionally, he wanted to follow in his father’s footsteps. After completing his schooling and military service, he began working for Thuringia Insurance, where he worked his way up from apprentice to inspector in Breslau and Hanover, and finally to general agent in Munich.

Although Thuringia Insurance was not a predecessor of MR, the latter’s foundation and beginnings were significantly influenced by Thieme’s actions in this insurance company. Thieme’s experiences as an agent at Thuringia played an important role in his later behavior on the board of management at MR. Karl Ferdinand Wehle, a head clerk of the Thuringian Railway Company, founded Thuringia Insurance as the “Railway and General Reinsurance Company” in 1853. It soon expanded its business to include fire and life insurance, but in the 1860s, it suffered losses like many other insurers. At that time, Wehle tried in vain to offset the losses by expanding the business to Russia and France.[5] In 1866 Thuringia completely gave up on reinsurance because this segment – as the Festschrift for the 100th anniversary of the company put it – “had generated losses over the course of time.”[6]

As an inspector for Thuringia, Carl Thieme had followed the downfall of its reinsurance from close up. A few years later, one of the most difficult missions that the board of management had to dole out was entrusted to him: At the turn of the year from 1869/70, he was transferred to Munich to the general agency in charge of all of Bavaria. Thuringia had had to pay high claims in the fire branch there because the number of fires in Bavaria had climbed with the increase in fire insurance policies.[7] It was obvious that many cases involved arson, but this could seldom be proved. The director of the Munich general agency, Gustav Knote, was apparently rather helpless in dealing with this development, so the board of management in Erfurt felt compelled to transfer responsibility for the Bavarian fire and transit insurance segments to 27-year-old Carl Thieme. Later, it was said that the management had thus “sent its best horse out of the stall.”[8]

Thieme rapidly surprised general agent Knote not only with his business skills. In February 1870 he was associating with Knote’s sister-in-law Marie von der Nahmer, whom he had met on an outing to the Kleinhesseloher Lake. Only a few months later, on 10 Mai 1870, the two were married.[9] In February 1871 the first child was born to Carl and Marie Thieme, a son Friedrich (Fritz), followed by six siblings over the next twelve years. Already in 1863, at 19 years of age and out of wedlock, Carl Thieme had fathered his son Oskar, who grew up with his mother in Werneuchen near Berlin.[10]

The economic boom in Germany that followed the founding of the Reich in 1871 was also beneficial to Thieme’s business dealings. Like many of his contemporaries, the young family man allowed himself to be seduced by the extremely optimistic mood of the “founding boom” into speculating with his private money on the stock market. When the boom ended in a market crash in the fall of 1873, he lost a considerable fortune.[11] By contrast, Thieme’s involvement in relatively risky fields turned out to be quite successful. For example, he introduced Thuringia fire insurance in Lower Bavaria, as well, which most competitors had avoided because of the numerous cases of arson.[12] As early as spring 1873, in addition, he had taken over the representation for the Österreichische Hagelversicherung [Austrian Hail Insurance Company] in Bavaria. To be sure, he was less successful with this, but this also demonstrated his high risk tolerance as Bavaria was considered to be an area particularly susceptible to hail.[13] Thieme’s successes in the fire insurance business prompted the Munich general agency to develop into Thuringia’s largest branch office. In Bavaria, there were soon entire villages exclusively insured by Thuringia.[14] The management rewarded Thieme by transferring leadership of the general agency to him in 1874. His counterpart Knote had already left the company a few years before.[15]

At the end of the decade, Thieme, who was only 35 years old, had achieved a great deal. He had a certain amount of wealth and enjoyed a high status because of his professional accomplishments. Yet the success came at a price. Thieme’s health was poor; he suffered from inflammation of the vocal cords and had to stay at a health spa in Bad Ems in the early summer of 1879.[16] At that time, he was already thinking about founding a new insurance company. It is no longer possible to determine exactly what prompted him to do so. Perhaps the successful general agent felt compelled to manage a company himself. At Thuringia he could not hope to be appointed to the board of management because his father was a member of this body and the supervisory board would probably not wish to have two Thieme’s in the management. In addition, Carl von Waldow, at that time the head of Thuringia, had a rather strained relationship with both Thiemes. He envied Carl Thieme’s successes and believed – as Julius Thieme wrote to his son in May 1879 – “the general agents were sometimes far better off than he.”[17]

Against this backdrop, it made sense for Carl Thieme to seek other opportunities. As the manager of one of the largest insurance agencies in Bavaria, he had a variety of contacts, including lawyer Hermann Pemsel, who had only recently begun to work in Munich.[18] Through Pemsel and banker Wilhelm Finck, Thieme found out that people in the circle around the major industrialist Cramer-Klett were thinking about founding an insurance company. Cramer-Klett and his advisers viewed this step as a sensible complement to the two banks they had built up in Munich: the private bank Merck, Finck & Co. (originally Merck, Christian & Co.) founded in 1870 by Cramer-Klett’s chief representative of many years, Hermann Merck, and the Süddeutsche Bodencreditbank [Southern German Mortgage Credit Bank] that came into being one year later.[19]

It is no longer possible to reconstruct what happened between Thieme, Pemsel, Finck and Cramer-Klett in the months before MR’s founding. The reports that have survived stem entirely from a later period and are contradictory in some ways. Hermann Pemsel’s son Wilhelm writes in his memoirs that his father, at Cramer-Klett’s behest, approached Thieme at that time: “In 1879 or at the start of 1880, Herr v. Cramer-Klett had mentioned to my father that he wished to use a large sum for the foundation of a fire insurance company. My father discussed this project with Thieme, who, however, said that fire insurance was not a nice business and that he would suggest that Herr v. Cramer should rather found a reinsurance company.”[20] A different narrative can be found in Bernhard Hoffmann’s biography of Finck. Hoffmann refers to a no longer extant letter from 1917 according to which Thieme submitted the suggestion to Finck for the founding of a reinsurance company in Munich in the winter of 1879/80.[21] Cramer-Klett’s biographer Johannes Biensfeldt, in turn, reports that Thieme approached Cramer-Klett with a suggestion to found a company for hail insurance, which Cramer-Klett supposedly rejected. When the two met up again in the summer of 1879 while staying at a health spa,[22] Cramer-Klett apparently asked Thieme for figures because Friedrich von Schauss, the director of the Süddeutsche Bodencreditbank, had suggested that he found a personal property and fire insurance company. The data Thieme presented discouraged Cramer-Klett from pursuing this project. In the winter of 1879/80, Thieme had then suggested founding a reinsurance company to Cramer-Klett and had been able to persuade him that Germany had a gap in this area because German insurers, for the most part, as before transferred their policies to French and British reinsurance companies.[23] According to later statements by Hermann Pemsel, Thieme claimed at that time that a single Berlin agency annually transferred premium revenues of 20 to 25 million marks to British reinsurers.[24] If these statements are true, then Thieme was exaggerating in order to impress Cramer-Klett.[25] Nonetheless, the argument that founding a new reinsurance company would reduce the outflow of premiums abroad must have been just as decisive in this case as it had been for the founding of Kölnische Rück and Swiss Re.

Theodor von Cramer-Klett had moved from Nuremberg to Munich in 1878 and had brought along Pemsel, his proxy with general power of attorney, to the Bavarian capital. His entrepreneurial rise had begun more than thirty years before with a marriage to Emilie Klett, the sole heir of Nuremberg industrialist Johann Friedrich Klett. Prior to this marriage, the son of a textile salesman was known as Theodor Cramer. He had sold books but also had completed a training program at a bank. Cramer-Klett built up the iron foundry and engineering factory that his father-in-law had founded, Klett & Comp., into the largest company in Bavaria. The king of Bavaria then raised him to the peerage for the construction of the glass palace in Munich. As his wealth increased, Cramer-Klett grew less and less interested in the inherited company, which was now called Maschinenbau-Actien-Gesellschaft Nürnberg and later became MAN. He purchased shares in railway companies and worked closely with the Bank für Handel und Industrie in Darmstadt through his financial holding company Klett & Co. This bank was one of the first German joint-stock banks, whose founders (Gustav von Mevissen, Simon and Abraham von Oppenheim) had already played a major role in the founding of Kölnische Rück. In Munich, Cramer-Klett was significantly involved in the founding of the Merck, Finck & Co. bank and of the Süddeutsche Bodencreditbank. In 1878 he was granted a hereditary seat on the Imperial Bavarian Council.[26] This prince of industry and bank founder possessed what Thieme lacked: capital and high-ranking connections.

The reports that have survived of the discussions among Cramer-Klett, Pemsel, Finck, von Schauss and Thieme in the year before the founding of MR suggest that these men at first were in no way set upon founding a reinsurance company. Cramer-Klett and von Schauss were clearly leaning toward a fire insurance company; Thieme, according to Biensfeldt’s statements, at first preferred the idea of a hail insurance company. Wilhelm Kißkalt, Thieme’s successor, also recalled this later.[27] Deciding to set up a reinsurance company seems to have been a sort of common denominator that all the participants could agree upon.

Thieme was not as free to decide as Cramer-Klett, Pemsel, and Finck, however, on account of his job. Practically speaking, he could only consider a reinsurance or hail insurance company since fire, transportation, or casualty insurers would have presented competition to his employer, Thuringia, which would hardly have allowed its general agent to do this. Thieme was not willing to give up his lucrative position as a general agent of Thuringia in Munich in order to found a new insurance company. After all, one could not predict whether this project would be a success, nor how long 62-year-old Cramer-Klett, who was in poor health, would be able to exert control over it. Consequently, Thieme continued to manage Thuringia’s general agency for another six years after the founding of MR. As was typical for general agents at that time, his family lived in an apartment in the same building as the office, on Glückstraße. Since Thuringia had stopped selling reinsurance in 1866 already, Thieme was able to manage a reinsurance agency also as a general agent for Thuringia without a conflict of interest.

Reports about the first contacts between Thieme, Pemsel and Finck indicate that Cramer-Klett’s circle was entirely dependent on the expertise of Thuringia’s general agent for insurance questions and trusted his judgment. Hermann Pemsel was a capable lawyer who had specialized in trade law. As Cramer-Klett’s proxy with a general power of attorney, the educated, social upper middle class citizen was a member of several supervisory boards.[28] But he had never had anything to do with reinsurance before; it was an entirely new field for him. Nonetheless, he familiarized himself with the material very quickly. His son Wilhelm commented on this in his memoirs: “My father, who later enjoyed being an authority on reinsurance questions …, did not know at that time what this word meant and arranged for Thieme to come up with a proposal.”[29]

Banker Wilhelm Finck – at age 32 the youngest of MR’s founders – was the financial expert in the group. After absolving an apprenticeship in a bank in Frankfurt and a job at an import firm in London, Finck had joined the Munich bank Merck, Christian & Co. as an authorized representative with power of attorney in 1870, later becoming a partner and gaining so much influence that the bank changed its name to Merck, Finck & Co. in 1879. He had won Cramer-Klett’s trust through his support in the founding of the Süddeutsche Bodencreditbank and in the transformation of the early enterprise Klett & Comp. into a stock corporation. For this, Cramer-Klett had granted him a loan that enabled the young banker to purchase partnership shares in Merck, Christian & Co. Finck was known for his conservative business principles. He was considered the “archetype of solidity.”[30] During the founding boom of 1871/72, he had not succumbed to the temptation to engage in speculative transactions, which paid off after the following stock market crash and contributed to the renown of the young banking company.[31]

Alongside Cramer-Klett, Thieme, Pemsel and Finck, Friedrich von Schauss, the director of the Süddeutsche Bodencreditbank, and Philipp Nicolaus Schmidt-Polex were also members of MR’s founders’ circle. Von Schauss was simultaneously a representative in the Reichstag. Belonging to the National Liberal faction, he temporarily fell out with his party because he supported Bismarck’s policy of protective tariffs. Von Schauss had first-class connections in Munich and also, through his relatives, to the industrial magnate Hugo von Maffei. For his part, Schmidt-Polex, a retired private banker from Frankfurt, represented the Bank für Handel und Industrie, where he was deputy chairman of the supervisory board. Also, as a co-owner of the Philipp Nicolaus Schmidt bank, he had once been Finck’s supervisor during his apprenticeship.[32]

Thus, MR’s formation was due to Thieme’s and Cramer-Klett’s common – though variously motivated – interest in founding an insurance company. That the enterprise emerged in Munich had to do with Cramer-Klett having cofounded two banks there, to which an insurance company was now to be added. Unlike the case of Kölnische Rück, this location did not yet have an insurance company founded by merchants, industrialists, or bankers. The most important companies in this sector had been founded in the leading economic regions of the Reich, in the Rhineland, in Saxony, Thuringia, and Berlin. Munich had lacked the private capital for this. The Bavarian capital had become a site for insurance companies through initiatives of the monarch that had led to the founding of the public Allgemeine Brandversicherungsanstalt (1811), today’s Bayerische Landesbrandversicherung, and the Bayerische Hypotheken- und Wechselbank [Bavarian Mortgage and Exchange Bank] (1834) including its insurance business, later known as the Bayerische Versicherungsbank.[33] Not until the period of the Reich’s founding was there enough capital available in Munich for founding private banks on the basis of joint stocks. Now three joint-stock banks emerged, the Bayerische Vereinsbank (1868), the Bayerische Handelsbank (1869), and the Süddeutsche Bodencreditbank (1871). In addition, there were the Merck, Finck & Co. bank (1870) that ran the Bank für Handel und Industrie as well as several private banks, including Aufhäuser & Scharlach (1870).[34] MR emerged several years later as a direct consequence of this as the first insurance company in Munich founded on private initiative.

On 3 April 1880 the official constitutive act of MR took place in the office space of the Merck, Finck & Co. bank. The enterprise was provided with nominal share capital of 3 million marks, 40 % of which its founders put in (1.2 million). Unlike at Thuringia or Kölnische Rück, MR shares at first continued to be wholly owned by the founders. Cramer-Klett’s financial holding company Klett & Co. and the Bank für Handel und Industrie each took on a third of the share capital, and Merck, Finck & Co. took on a sixth. The remaining sixth went in equal parts to Wilhelm Finck, Hermann Pemsel, Friedrich von Schauss, Philipp Schmidt-Polex and Carl Thieme. Not until eight years later were MR shares offered publicly.

Figure 1  The letter of 1880 granting the concession for Munich Re

Table 1  Founding shareholders of Munich Re in 1880[35]

Shareholder

Nominal investment in marks

Number of shares

Freiherr Theodor von Cramer-Klett für Firma Klett & Co.

1,000,000

1,000

Bank für Handel und Industrie

1,000,000

1,000

Merck, Finck & Co.

500,000

500

Wilhelm Finck

100,000

100

Dr. Hermann Pemsel

100,000

100

Dr. Friedrich von Schauss

100,000

100

Philipp Schmidt-Polex

100,000

100

Carl Thieme

100,000

100

Total share capital

3,000,000

3,000

From the beginning, it was clear that Thieme would take over the management of the new reinsurance company. Clearly no one saw his ongoing position as a general agent for Thuringia as a problem. Rather, his close tie to this direct insurer was more likely regarded as an advantage because it secured MR its first serious cedent, just as Colonia had been for Kölnische Rück and Helvetia for Swiss Re. Yet the founders did not wish for this tie to be too close lest doubts arise about its being an independent pure reinsurance company that was not controlled by a direct insurer and did not engage in its own direct insurance business. Thieme, Finck and Pemsel assumed that direct insurers would be more likely to transfer their policies to a reinsurer that did not belong to another direct insurer. This argument had already proved decisive in Kölnische Rück’s founding as an independent reinsurance company.[36