SPIEGEL: Mr. von Bomhard, Munich Re is among other things the world's largest reinsurer. Is it fair to say that your company is involved in calculating all sorts of risks and probabilities?
Nikolaus von Bomhard: Sure, you could say that.
SPIEGEL: Well, then, you must be in a position to say who'll win the World Cup.
Bomhard: Ah, well that's a pretty tall order to fill diplomatically. Our corporate group is active around the world; so, regardless who wins, someone in one of our offices will be able to celebrate. And, of course, we are very involved in South Africa in business terms, as well.
SPIEGEL: When it comes to the World Cup, what exactly are you insuring?
Bomhard: We were already involved when it came to the occasionally very large risks involved in building and expanding infrastructure. At this point, however, our services are primarily engaged should games and their associated television advertisements be cancelled. The total amount of insurance that has been taken out for the World Cup lies somewhere around $5 billion (4 billion). We alone have roughly $350 million in play, and that figure doesn't even include the wide range of individual insurance policies that have been taken out for star players and their clubs and associations.
SPIEGEL: You have people working for you who specialize in calculating the economic, political and weather-related risks associated with major sporting events like this. Do they also calculate the dangers associated with a terrorist attack?
Bomhard: Of course. And, in the case of South Africa, we consider them to be very low because the country isn't really all that threatened by terrorism. At the same time, since there's always the potential for danger, we've also been in regular contact with security officials from a number of countries.
SPIEGEL: Matches played by the US team must have entailed the most risk.
Bomhard: That's right. And especially the match it played against England, seeing that it involved having the teams of two of the countries some terrorist groups hate the most standing on the field at the same time. For this reason, the security measures taken around the stadium during this match were heightened.
SPIEGEL: Munich Re will surely also play a role in settling claims related to the Deepwater Horizon oil platform disaster.
Bomhard: It's fairly safe to assume that there is hardly any catastrophe around the world that we aren't involved in to some degree when it comes to resolving financial claims. That's just how it is when you have our market position.
SPIEGEL: In the case of the Deepwater Horizon, the damages have climbed to breathtaking heights. There's already talk of $40 billion, $60 billion, even $80 billion.
Bomhard: Indeed. And, in comparison, this makes the roughly "only" $600 million in costs associated with the sunken platform itself seem pretty paltry. Our in-house damage estimates put the figure in the lower hundreds of millions of euros. In this case, the issue of material damage is fairly clear, but things are still completely up in the air when it comes to third-party damages and how responsibility for their compensation will be allotted. Although BP has voluntarily set up a $20 billion claims fund, it has nothing to do with liability issues and the related insurance.
SPIEGEL: But, rather, with decency.
Bomhard: Yes, that's the way I view it as well. There are obviously a very large number of people filing claims, and we all know that BP didn't have liability insurance. From the point of view of the insurers, the relevant question is who acted where in a way that makes him or her legally liable. And those are very difficult questions.
SPIEGEL: Were the risks associated with this kind of off-shore drilling simply underestimated?
Bomhard: Whatever the case may be, everyone involved -- including us insurers -- needs to reassess and reappraise the risks. We could implement safety standards, such as one stipulating that only double-hulled oil tankers be used. When it comes to off-shore drilling, everyone involved has learned some new things that they haven't been able to process yet. It's ultimately about figuring out the type and number of safety nets oil-platform operators need to use at the same time in order to prevent these kinds of disasters from happening in the future.
SPIEGEL: As an insurer, which of these events makes you most nervous: an oil catastrophe, a terrorist attack, an earthquake or comparatively more gradual climate change?
Bomhard: I'm less frightened by the magnitude of an event. For us, earthquakes and other natural disasters are events that can be calculated to a certain extent, though of course not the tragic consequences they have on people.
SPIEGEL: In any case, your corporation alone has had to pay out almost $1 billion as a result of the earthquake that struck Chile a few months back.
Bomhard: Even so, in such cases, at least we know where we stand. For us, the larger challenge is presented by more gradual developments and trends. This becomes particularly clear in liability-insurance cases involving damages that take a long time to develop and be settled. The best-known example would be the consequential damages related to asbestos. But even property-related insurance can be affected by things like climate change -- which presents an undeniably massive challenge to the global community.
SPIEGEL: Your corporation was one of the first to issue warnings about the effects of climate change. Recently, however, several climate-change researchers have been discredited. Do you still personally believe in global warming?
Bomhard: It's not a question of belief but of fact. We can substantiate this warming and its effects. For example, there has been a measurable increase in both the intensity of storms and the extent of flooding. Granted, in the recent past, some researchers have made mistakes when it comes to individual cases of presentation. But the data we have sends us a clear message.
SPIEGEL: Do you pay any attention to the findings of studies published by avowed opponents of the climate-change theory?
Bomhard: Of course. We consider it important to do so because we in no way want to expose ourselves to accusations of being one-sided or close-minded.
SPIEGEL: The whole issue seems to have evolved into a religious war of sorts.
Bomhard: We just don't have any more time for these discussions. If we are looking to have 100 percent certainty about each and every detail, it'll be too late to find solutions. As a company, we see ourselves as the voice of reason on this matter.
SPIEGEL: As insurers you have to continually make your risk assessments higher than they might actually be.
Bomhard: More than anything, we have to be realistic. Risks are overestimated just as often as they are underestimated. When it comes to climate change, we face a possible situation where individuals and companies might not be able to insure themselves anymore because the risks are getting too big and the necessary premiums are getting too expensive. And that's why we need to do everything we can to confine global warming to the oft-quoted 2 degrees Celsius (3.6 degrees Fahrenheit).
SPIEGEL: Critics have accused you of using your Cassandra-like prophecies of doom to bump up premium prices.
Bomhard: That's absurd. On the contrary, we want to make sure that the risks are lower and remain insurable -- and that our premiums remain affordable.
SPIEGEL: So you can be socially conscientious while pursuing profits at the same time?
Bomhard: By all means, I consider that to be simultaneously credible and economically sensible. Our job is to put a price tag on the consequences of climate change that can make things easier for decision-makers in politics and business, in particular.
SPIEGEL: Munich Re is also one of the main organizations backing the Desertec solar power project in the deserts of North Africa. Would it be fair to interpret this as an attempt to capitalize on climate change?
Bomhard: Everything can be misinterpreted. In this case, even when you take all the indirect business interests into consideration, we are performing a completely civic role. Without our involvement, this idea, which is almost 100 years old, would not have been embraced so wholeheartedly, at least not now. Time is running out. We've obviously had the technology for a long time, but the breakthrough came when the current group of companies came together. And even we were surprised by the response it elicited around the world.
SPIEGEL: The final price tag for the wind and solar-energy systems is estimated to be 400 billion ($505 billion).
Bomhard: That, of course, sounds pretty breathtaking. But when you take a look at the budgets of the major European energy corporations, it's manageable. In fact, the hardest thing to manage is the political aspect because the countries that might be involved have very different interests. Still, the fact that countries in Europe, Africa, the Near East and the Middle East want to work together on concrete business projects like Desertec provides an enormous political opportunity. It entails a development and security policy dimension.
SPIEGEL: Your political contacts also worked to your advantage when it came to government bonds. Your company has about 2 billion in Greek bonds on its books, and it has even lent a total of 12 billion to the so-called PIIGS countries -- Portugal, Ireland, Italy, Greece and Spain. Are you a little bit worried about the money these days?
Bomhard: No. As a major investor, we have to spread our capital around. And by far the largest proportion of our investments are in German and American bonds. The same factors that are putting a strain on the PIIGS bonds are also generating tidy profits from the German and American bonds.
SPIEGEL: Do you think it's right that the European Central Bank (ECB) is essentially providing your company with a financial assistance package worth billions?
Bomhard: In what way?
SPIEGEL: The ECB is buying up all the European bonds coming into the market that are difficult to sell.
Bomhard: As a general rule, insurers hold on to their bond investments for a very long time. And what the ECB is doing is primarily and directly helping the financially stressed euro-zone countries…
SPIEGEL: … and, indirectly, the banks and, with them, the insurers.
SPIEGEL: You would only bleed with a so-called "haircut" or, in other words, if all creditors had to wave a certain proportion of their claims, such as those having to do with Greece.
Bomhard: In principle, that's also correct. Creditors have to stay exposed to the risk that they might lose their money. In return they get higher yields. In the concrete case of Greece, however, there were political reasons not to go down this path, as the consequences would have been impossible to predict.
SPIEGEL: As the head of your corporation, would you be willing to take a financial hit yourself?
Bomhard: Of course. I can't just share in the profits during good times and call on the state for help in the bad times.
SPIEGEL: But a lot of bankers do that.
Bomhard: I've heard that, too, but that's not our concern. Whoever takes a risk has to accept the costs of doing so. In political terms, the important thing now is to make a decision, strictly implement it and not waver from it. When it comes to developments in the capital markets, wavering is poison.
SPIEGEL: Still, at the beginning of the Greece crisis, the reactions of politicians were nothing but wavering.
Bomhard: I don't want to hand out any grades to politicians, but it should also be noted that there have been and continue to be a lot of very different opinions being voiced from the choir of economists. In any case, a solution that isn't completely correct is still better than one that is 100 percent correct but not strictly implemented.
SPIEGEL: You must be worried to death about all the cheap money the central banks are flooding the markets with.
Bomhard: It's a fact that we don't find this enormous liquidity good. For us insurers, in particular, the low interest rates present a challenge. When it comes to the issue of liquidity, you also have to be allowed to ask how much, for whom and how long.
SPIEGEL: Why is there still so much nervousness in the financial markets?
Bomhard: Because confidence hasn't returned yet. Moreover, one fundamental question continues to remain unanswered: What will the banking system of the future have to look like to be both effective and efficient, and how are you supposed to manage it? In this case, we also need to think about more radical approaches. And, at any rate, the extremely close ties between banks continue to be a problem.
SPIEGEL: The recent G-20 summit in Toronto hardly achieved anything when it comes to the future regulation of financial markets. Was that a disappointment or a relief?
Bomhard: More of a disappointment. But the dilemma is a bit like the one involved in the climate discussion: Whenever you bring so many and such different countries to the table, it's unrealistic to expect to make the one big breakthrough. You have to lower expectations. Likewise, politicians shouldn't feed this hope that global solutions are within reach. When it comes to the regulation of financial markets, it's going to be very hard to achieve global change. Regional and national regulations are more likely -- and they don't always hurt one's ability to compete.
SPIEGEL: While the financial markets continue to falter, the economy is blooming. Can you explain this discrepancy?
Bomhard: The financial-assistance measures adopted during the crisis are just now having their effect. But I am considerably more skeptical about the second half of the year. Current growth rates look better than the demand trends in many countries would suggest.
SPIEGEL: Are you particularly worried about Greece?
Bomhard: Due to their size, I am much more worried about Great Britain and the United States. The growing state and high private debt as well as the implicit social-security deficits, for example, makes me view the situation there with concern.
SPIEGEL: Mr. von Bomhard, thank you very much for speaking with us.
Interview conducted by Thomas Tuma and Christoph Pauly and translated from the German by Josh Ward
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