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Higher losses hit Munich Re’s Q1 2019 performance

8th May 2019 - Author: Luke Gallin

Global reinsurance giant Munich Re has maintained its full-year 2019 profit target of around €2.5 billion, despite recording a decline in first-quarter net income as a result of higher basic losses and greater expenditure for claims from previous years.

Munich ReMunich Re’s Q1 2019 income totalled €633 million, compared with €827 million in the first-quarter of 2018. The operating result also declined for the firm, falling from €1.3 billion to €875 million in Q1 2019.

The firm’s reinsurance segment contributed €548 million to the result in Q1, which is someway lower than the €750 million recorded a year earlier. The reinsurance segment operating result also fell to €633 million, while the segment recorded gross written premiums of €8.3 billion, up 2.4% year-on-year.

In the first-quarter, Munich Re’s property/casualty reinsurance business contributed €420 million to the results. The premium volume increased to €5.4 billion, while the combined ratio weakened from 88.6% to 97.9% of net earned premiums.

Losses hit Munich Re’s P&C reinsurance segment in the first-quarter of 2019, with the total cost for major losses in excess of €10 million each, amounting to €479 million. This is a significant increase on the €62 million reported a year earlier. Munich Re explains that this includes run-off profits and also losses from major claims from previous years, including an additional cost of €267 million for losses from Typhoon Jebi in Japan.

As a result, major loss expenditure is equivalent to 9.7% of net earned premiums for the first-quarter of 2019, compared with just 1.4% in Q1 2018.

Munich Re states that major loss expenditure from natural catastrophes totalled €195 million in Q1, while man-made major losses amounted to €283 million.

In light of the recent loss experience and the fact that claims expenditure for basic losses in prior years remained well below the expected level, Munich Re was able to release reserves of around €200 million in the quarter. The reinsurer states that this equates to roughly 4% of net earned premiums.

Commenting on the recent April 1 renewals, Munich Re says that it witnessed price increases in the markets and risks affected by recent natural catastrophe events. Price increased by 1.4% for Munich Re at the April 1 renewals, while premium volume increased by 10.3% to €1.8 billion.

“Munich Re has begun 2019 with a good first quarter. Munich Re continues to grow organically in its core business of property-casualty reinsurance. The April renewals were the sixth consecutive round of renewals in which we are able to expand our business robustly in some areas. Prices for reinsurance coverage have continued to rise following the high losses in previous years. In primary insurance, the implementation of the ERGO Strategy Programme is making good progress,” said Christoph Jurecka, Munich Re’s Chief Financial Officer (CFO).

Staying with reinsurance, and Munich Re’s Life and Health reinsurance segment also saw its profit decline in Q1 2019, to €128 million. At the same time, premium income increased to €2.89 billion, while the technical result hit €105 million, compared with €155 million in Q1 2018.

Munich Re’s ERGO business unit recorded a profit of €85 million in the first-quarter of 2019, which is up on the €77 million recorded for the same period in 2018.

The firm’s investment result for the period represents an overall return of 2.9% on the average market value of the portfolio.

Looking forward, and Munich Re expects that for the full-year 2019, it will achieve a consolidated result of roughly €2.5 billion.

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