Increase of stake in
Key takeaways
- Acquisition of
NEXT Insurance marks a big step to enter the so far untapped and attractive SMB1 market in the US with a market premium volume of~US$ 175bn - ERGO to become the business owner, gaining access to a relevant, digital-based technology with entirely digital underwriting
- Strong complementarities in underwriting and distribution will fuel future earnings growth and significant value creation
- NEXT’s business effectively diversifies the
Munich Re Group’s global insurance portfolio, making it possible to drive the business in a highly capital-efficient way - At the same time,
Munich Re further expands its share of less cyclical and less volatile businesses – in the medium term, NEXT will contribute significantly to ERGO’s net result
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1 SMB: Small and medium-sized businesses (0-100 FTEs). |
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2 |
NEXT is an emerging leader in the US SMB insurance segment
Company background
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Founded in 2016 |
~700 employees |
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Headquartered in |
>600k customers |
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Leading technology-first |
Through its proprietary technology |
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P&C insurer focusing on |
stack and its digital |
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the specific needs of US |
underwriting/pricing platform, |
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small business owners |
NEXT offers simple, digital |
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insurance coverage |
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Shareholder structure prior to the acquisition
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ERGO |
Other shareholders, |
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~29% |
including large |
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insurance companies |
NEXT transforms insurance experience for SMB owners
Exceptional client experience
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Leading digital underwriting platform |
Mission: |
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to empower |
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small business |
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Strong multi-channel distribution |
owners |
Proprietary technology platform
- Traditional insurance has left small businesses underserved and, in some cases, underinsured due to complex products, unclear requirements, and outdated processes
- NEXT provides a digital “one-stop” insurance experience with on-the-spot underwriting/policy issuance, delivering simple and tailored insurance solutions for entrepreneurs
Small businesses make up 99% of companies in the US, playing essential roles across the country
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US commercial insurance market (2024) |
Main competitors |
Total US commercial
insurance market
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NEXT US |
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US SMB (0-100 FTEs) |
market |
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coverage |
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commercial market |
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Small SMB |
NEXT |
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(0-19 FTEs) |
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extended |
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Direct |
sweet |
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spot |
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(online |
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0-19 FTEs) |
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NEXT’s competitive advantage
- Exclusive focus on small businesses that legacy carriers – designed for higher-premium accounts – struggle to service efficiently
- The data-driven approach and its early adoption for small business insurance allows NEXT to tailor coverage and to build significant operational leverage
NEXT’s product portfolio targets small business insurance and is evenly allocated across distribution channels
Target customers
Small businesses (<20 employees), representing 44% of the US GDP – NEXT is currently serving >600,000 active customers
Product portfolio
>300 different professions across various product lines with focus on general liability and workers’ compensation
Distribution channels
Balanced mix of direct-to-business, embedded partnerships and agents
Reinsurance
So far, NEXT has worked with a panel of reinsurers, including
NEXT has successfully scaled its business, while further improving key KPIs
Top line1,2
US$ m
548
438
367
202232023 2024
- Growth above market based on a clearly differentiated market position, with:
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- Market-leadingbrand awareness
- Enhanced conversion rates
- Higher customer feedback
- Sustainable customer retention
- In addition, NEXT earns commissions for customers connected to third-party carriers,
Loss ratio2,4
%
78
6965
- Successfully enhanced underwriting over time
- Positive development in all major lines of business
- Exploiting further opportunities for improvement in close collaboration with
ERGO and Global Specialty Insurance
Net result5
US$ m
-94
-130
-211
2022 2023 2024
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▪ Improved profitability while significantly |
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growing above-average |
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▪ So far, NEXT has ceded a significant |
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margin via reinsurance due to its capital- |
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light business model |
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▪ Post acquisition, a substantial portion of |
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this margin will be internalised, improving |
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the profitability in addition to economies of |
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scale |
generating other operating income (
1 Insurance revenue and MGA premiums. 2 Calculation based on US-GAAP.
3 Non-insurance accounting applicable for MGA business. 4 On insurance revenue and MGA business. 5 According to US-GAAP.
NEXT strategically fits very well into
- Attractive US SMB market that
Munich Re does not currently have access to, providing a growth opportunity in a less volatile/less cyclical segment - ERGO/
Munich Re have a good understanding of the business model and the company as an investor in NEXT since 2017 - Viable ERGO footprint in the largest insurance market in the world
- Access to a relevant, digital-based technology with entirely digital underwriting
- Attractive retuon investment to clearly exceed
Munich Re’s cost of equity - Capital efficiency, as NEXT business is effectively diversified by the
Munich Re Group’s global insurance portfolio - Internalisation of reinsurance margin
- Unwinding of fronting business and access to available licences
- Operational integration into existing US structures, leveraging efficiency
- Capitalising on
Munich Re’s portfolio management experience to maximise retuon investment
In the medium term, NEXT will contribute significantly to ERGO’s net result
Net result ambition
Short-term
Break-even
Medium-term
Mid–triple-digit US$ m
Long-term Further significant increase of earnings potential
- NEXT will continue its growth outperformance over the next few years, based on its differentiated market positioning and its broad business model
- NEXT has achieved a competitive loss ratio in recent years through targeted measures, and will continue to pursue this approach in the future
- Through its digital business model, NEXT will generate operational leverage and significantly reduce its expense ratio – in addition, business for which currently fronting fees are expensed will be fully written on its own books
- With the full support of ERGO/
Munich Re , NEXT will increase its retention and internalise reinsurance margins
NEXT will be fully integrated into ERGO’s management structure
Integration approach
Financial impact
Transaction structure
- ERGO will fully integrate NEXT into its management structure, with direct functional reporting lines
- NEXT will have the necessary leeway to further develop the digital business model and leverage its positioning in the US SMB market
- Certain non-market-facing functions will be performed through service level agreements with Munich Re America Services
- Acquisition price is based on a valuation of
US$ 2.6bn for 100% shareholding - Transaction will lead to a positive one-off accounting effect at
ERGO International segment - No impact on
Munich Re’s financial targets for 2025 - Acquisition will lead to a decline in
Munich Re Group’s Solvency II ratio of ~10%-points after closing Munich Re America Corporation (MRAC) will legally acquire NEXT; ERGO will transfer its current shareholding in NEXT to MRAC, which will own 100% of shares in NEXT- ERGO to become the business owner,
Munich Re America will provide substantially all reinsurance for NEXT’s business going forward - Closing expected by Q3 2025
Disclaimer
This presentation was prepared exclusively for investors in financial instruments issued by
Disclaimer
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.