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COVID-19 uncertainty remains a key risk for 2021: Munich Re CFO

6th May 2021 - Author: Luke Gallin

While the global vaccination effort is enabling parts of the world to open up and providing people with vital protection against COVID-19, all of which means reduced exposure for re/insurers, uncertainty remains for both the months ahead and the 2020 run-off, according to Christoph Jurecka, Chief Financial Officer (CFO) at Munich Re.

covid-19-coronavirus-pandemicEarly this morning, the German reinsurer announced a profit of €589 million for the opening quarter of the year, as operating income also improved significantly, year-on-year, to €798 million.

In its announcement, Munich Re attributed the improvement to the reduced impact of the COVID-19 pandemic during the period when compared with the burden experienced in 2020.

Within property and casualty reinsurance (P&C Re), the carrier reported COVID-19-related losses of around €100 million for the first quarter. In life and health reinsurance (L&H Re), COVID-19 losses totalled €167 million for the period. And, at ERGO, Munich Re actually reported a positive impact from the pandemic in the quarter, on the back of lower travel claims in light of restrictions around the world.

But while the company’s future pandemic-related costs are slowing as the vaccine rollout accelerates in many parts of the world, the company’s CFO has warned that much uncertainty remains.

“There’s a lot of uncertainty still around these losses. Going forward, our exposure is of course much lower than it was last year, as we took really significant measures in underwriting, so we have exclusions more or less across the board now,” said Jurecka. “But, there’s some multi-year contracts still in place so that might still be some claims.”

Additionally, he continued, higher uncertainty from the crisis still relates to 2020 and the run-off.

“As you know, we built up significant provisions for the claims in 2020. We still have 73% IBNR in these provisions, so unallocated reserves. And, so, it remains to be seen if claims notifications are in line with the provisions as we build them up, or if they are higher or even lower than our assumption for the year 2020. And there is still significant uncertainty around that topic as well,” said Jurecka.

As of February 25th, 2021, Munich Re had reported COVID-19 losses of an estimated €4.15 billion for 2020.

For 2021, Munich Re’s initial guidance for COVID-19 losses sits at €300 million in P&C Re, €200 million in L&H Re, and €100 million at ERGO, so an estimated addition of €600 million across its operations.

Regarding P&C Re, Jurecka said that the €100 million expenditure in Q1 2021 is in line with guidance and where it expected it to be, as it was always clear that the first half of the year would see the higher claims load.

However, for L&H Re, €167 million of the €200 million guidance has already been booked in Q1 2021, which means Munich Re can’t rule out exceeding the initial guidance by “a couple of tens of millions of Euros”, explained Jurecka.

Adding: “But that very much depends on really the success of vaccination campaigns on the one hand, and on the other hand, also on what’s going on in India and Brazil… that remains to be seen.”

With ERGO recording a positive impact from the crisis during the period owing to travel restrictions, Jurecka said that it could be the case that it experiences a lower impact than the €100 million guidance for the year.

“Overall, if you look at reinsurance P&C, reinsurance life and ERGO, all together, we are pretty sure that the overall guidance is still intact,” he said.

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