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Even Munich Re’s normalised combined ratio nears breakeven

8th December 2016 - Author: Luke Gallin

International financial services ratings agency, Fitch Ratings, has commented on the impact the softening reinsurance market is having on the underwriting profitability of reinsurer Munich Re, stating that the company’s P&C reinsurance normalised combined ratio deteriorated to 99.9% in the first nine months of 2016.

Lower than expected losses from natural catastrophe events and strong reserve releases helped Munich Re’s P&C reinsurance segment report a combined ratio of 93.7% in the first nine months of the year, says Fitch.

However, with conditions in the global reinsurance industry remaining competitive and profit margins thinning, the ratings agency notes that on a normalised basis the reinsurer’s combined ratio deteriorates further still.

The normalised combined ratio, adjusting back for variations in reserving and major losses versus budget, deteriorated to 99.9% for 9M16, reflecting the effects of a protracted soft market,” said Fitch.

With the challenging conditions in the global reinsurance industry expected to persist into 2017, Fitch warns that underwriting profits are likely to become even more sensitive in the coming months, “to even a modest rise in major loss claims.”

We expect that the P&C reinsurance segment will continue to account for a major part of the company’s operating earnings in the foreseeable future,” said Fitch.

The operating environment is challenging for all in the reinsurance space, and low interest rates combined with reduced underwriting margins are likely to continue driving the softening market cycle.

That a company with the scale of Munich Re is seeing its P&C reinsurance combined ratio move closer to 100%, essentially becoming unprofitable, underlines just how challenging conditions are. And with pricing widely expected to fall further at the key January 1st 2017 renewals, reinsurers could find themselves with little room to manoeuvre should a major loss event take place.

Efficiency remains key for all in the reinsurance space, and it will be interesting to see how companies like Munich Re, and the broader industry navigate the protracted softening reinsurance marketplace.

 

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