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Munich Re adds €700m of COVID-19 losses in Q2 as profit falls to €579m

6th August 2020 - Author: Luke Gallin

Global reinsurance giant Munich Re added roughly €700 million of COVID-19-related losses in the second-quarter of 2020, contributing to a decline in profit for the quarter to €579 million, compared with €993 million a year earlier.

Munich ReThe additional €700 million of COVID-19 losses takes the reinsurer’s H1 2020 impact from the ongoing pandemic to €1.5 billion, of which approximately €1.4 billion was attributable to property-casualty (P&C) reinsurance and roughly €0.1 billion to life and health (L&H) reinsurance.

Regarding COVID-19, Munich Re notes that the most significant losses were related to the cancellation or postponement of major events, while to a lesser extent, there were also losses in other lines of P&C business, such as business interruption.

Overall, Munich Re’s major losses of over €10 million each amounted to €799 million in Q2, which is way up on the €202 million reported in the second-quarter of 2019. The reinsurer notes that man-made major losses totalled a considerable €632 million in Q2, with major losses from natural catastrophes being fairly low in the quarter, at €167 million.

As a result of the higher loss experience in Q2, Munich Re’s P&C reinsurance business contributed €348 million to the result. Premium volume here increased to more than €5.5 billion, although the combined ratio in this segment deteriorated from 86.9% in Q2 2019 to 99.9% in Q2 2020. For the half-year period, the unit’s combined ratio deteriorated to 103%.

The company’s L&H reinsurance operation produced profit of €59 million in Q2, down from the €154 million announced in the same period last year. Premium income in this business improved significantly in the quarter to €3.332 billion against €2.74 billion in Q2 2019.

The coronavirus pandemic also had an impact on the technical result of Munich Re’s L&H reinsurance business, with the result reflecting an increase in losses as a result of COVID-19 deaths. The technical result amounted to €48 million in Q2 2020, which is down on the €72 million posted a year earlier.

All in all, Munich Re’s reinsurance operations contributed €407 million to the consolidated result in Q2, which is a dip on last year’s €858 million. For the first six months of the year, reinsurance operations contributed €555 million to the result, compared with €1.4 billion in H1 2019.

ERGO, Munich Re’s primary insurance arm, has reported an increase in profit to €173 million for the second-quarter of 2020, and €220 million for the first half of the year. Munich Re attributes this growth to the unit’s International segment, which produced a higher result of €59 million in Q2 2020.

So, in total, Munich Re’s profit has fallen from €993 million in Q2 2019 to €579 million in Q2 2020, and for the first half of the year, the reinsurer’s profit has reached €800 million in 2020, compared with €1.626 billion in H1 2019.

The operating result also fell year-on-year to €755 million compared with €1.419 billion in 2019, while the other non-operating result totalled -€6 million.

Overall, the firm saw gross written premiums (GWP) increase by 8.7% to €12.827 billion in Q2 2020, while for H1 2020, GWP hiked by 7.7% to €27.112 billion.

Joachim Wenning, Chairman of the Board of Management at Munich Re, commented: “The world is far from defeating the coronavirus. That is why we have been doing everything in our power to protect staff and their families as well as clients and contractual partners from COVID-19. Munich Re will emerge from this crisis economically stronger. We are growing profitably, while taking steps to benefit from the significantly improved market conditions for reinsurers.

“In addition, we are utilising the capital originally earmarked for the 2020/2021 share buy-back programme – which we will not implement – to invest in profitable reinsurance growth. Prices have risen in nine consecutive renewal rounds, and premium income has grown correspondingly. With our high-quality portfolio, we expect to post a premium volume of €54bn in 2020 – which would set a new record in the 140-year history of Munich Re.”

In its results announcement, the reinsurer also provides an update on its experience at the recent July 1st reinsurance renewals. According to the firm, it was able to increase the volume of business written by 8.3% to €3.8 billion. Munich Re highlights opportunities to tap into growth opportunities across North America at the recent renewals, with prices increasing overall.

“Price trends varied among market segments in accordance with varying levels of capacity, claims experience, and demand. Prices rose – considerably in some instances – for reinsurance cover in regions and classes of business with high claims experience. This was true, for example, of natural catastrophe covers in North America and the Caribbean, where overall prices rose by high single-digit percentages. In some cases, price increases were even greater. Prices also went up slightly in regions and classes of business with low claims experience, due to a generally improving market environment for reinsurers,” explains Munich Re.

In total, Munich Re reports that prices increased by 2.8% across its portfolio at the July 1st, 2020 reinsurance renewals. Furthermore, in light of market conditions, the reinsurer expects to see further year-on-year improvement at the January 1st, 2021 reinsurance renewals.

Towards the end of June, Munich Re said that owing to losses and high levels of uncertainty surrounding any further economic and financial impact of the current crisis, it is not providing a new profit guidance for the year. This stance remains unchanged and now, the reinsurer has also withdrawn its guidance for the technical result including business with non-significant risk transfer in its L&H reinsurance arm.

However, and driven by profitable growth, Munich Re says that it now expects to generate premium income of roughly €54 billion in 2020, up from the previous €52 billion. In the firm’s reinsurance segment, premium income for 2020 is now expected to amount to €36 billion against the previous €34 billion.

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