Global reinsurance giant Munich Re has reported that its reinsurance operation is set to book COVID-19 related losses of €3.4 billion in 2020, while additional burdens of roughly €500 million are anticipated to come from the pandemic in 2021.
For Q3 2020, the reinsurer announced a further €800 million of losses from the pandemic, which took its total for the year to €2.3 billion following a €700 million burden in Q2, and claims of €800 million in Q1.
Today, in announcing its profit target for 2021 and profit outlook for the current year, Munich Re has provided an update on its claims experience from the ongoing pandemic.
For 2020, the reinsurer notes €3.4 billion in reinsurance losses arising from COVID-19, of which €360 million relates to life and health reinsurance business, and more than €3 billion relates to property / casualty reinsurance.
So, this means that the firm is expecting to add a further €1.1 billion of COVID-19 losses in its reinsurance operations in the fourth-quarter of 2020, taking its total for the year to a significant €3.4 billion.
The carrier states that the largest slice of pandemic claims within property / casualty reinsurance relates to contingency lines, of €1.66 billion, a segment of the market which Munich Re was the leader. The firm also anticipates property/business interruption claims of €965 million from the pandemic in 2020, D&O/workers comp claims of €200 million, credit claims of €170 million, and marine/aerospace losses of €25 million.
As a result, Munich Re advises that the 2020 combined ratio in property / casualty reinsurance is expected to reach 106%, with a normalised combined ratio of 97%. According to Munich Re, these estimates assume that further major losses not related to the pandemic through the end of the year will total around €225 million, which the firm says is approximately 1% of property / casualty premium income.
All in all, Munich Re is expecting a profit of €1.2 billion for 2020, with a profit of €200 million forecast for Q4, of which €100 million is attributable to reinsurance and €100 million to ERGO. The reinsurance field of business is expected to contribute €700 million to the consolidated result in 2020.
Munich Re withdrew its €2.8 billion profit guidance earlier in the year in light of the pandemic, but states today that excluding these losses, it would have reached this target.
Interestingly, the reinsurer has also revealed that it expects the COVID-19 pandemic to adversely impact its performance in 2021 as well, although on a considerably smaller scale than this year.
In its reinsurance business, the firm expects additional claims from the pandemic of €500 million in 2021, and a further €100 million negative effect in the ERGO field of business as a result of claims, foregone premiums resulting in a profit setback and capital market effects.
Of the additional reinsurance losses, the firm notes that approximately €300 million relates to property / casualty reinsurance, split €200 million contingency, €50 million property/business interruption, and €50 million credit reinsurance. The remaining €200 million of 2021 COVID-19 losses are expected to be seen in the firm’s life and health reinsurance operation.
So, overall, Munich Re has estimated COVID-19 related claims of around €4 billion for 2020 and 2021, the large majority of which falls within its reinsurance operations.
For 2021, the company is targeting a profit of €2.8 billion, with the reinsurance segment producing a profit of around €2.3 billion. The firm notes that given the substantial level of rate increases for reinsurance protection, it will continue to spur its dynamic and profitable growth in reinsurance.
Munich Re’s Chief Financial Officer (CFO), Christoph Jurecka, commented: “We expect to generate a profit of clearly above €1bn this year. The pandemic has naturally had a considerable impact on our result. But the burdens arising from COVID-19 are financially manageable for Munich Re. By covering insured losses totalling billions, we are playing a substantial role in helping the economy and society cope with the pandemic.
“Our business is clearly on track. In the absence of COVID-19, we would have been able to achieve our original result target for 2020. Thanks to our strong balance sheet, we are in a very good position to exploit current market opportunities. In the coming year, we plan – despite anticipated further COVID‑19 losses – to meet the profit target of €2.8bn as envisaged prior to the pandemic.”
In 2020, Group premium income is anticipated to reach €54 billion, which is the highest figure in the reinsurer’s history and the result of capitalising on profitable growth opportunities. Next year, Group premium income is again expected to set a new record at around €55 billion, alongside a return on investment of above 2.5%.