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Munich Re exceeds profit guidance in 2022 as premiums swell

23rd February 2023 - Author: Luke Gallin

German reinsurer Munich Re has exceeded its profit guidance for 2022 with a result of €3.4 billion, as the reinsurance division performed well despite the impacts of large losses and the war in Ukraine.

munich-re-logo-buildingGroup-wide, profit increased from more than €2.9 billion in 2021 to just over €3.4 billion, beating the guidance for the year by around €100 million. The reinsurer’s profit for the fourth quarter of 2022 was €1.5 billion versus €871 million in the prior year period.

For the year, the operating result reached €3.6 billion compared with €3.5 billion in 2021, as the other non-operating result improved from -€91 million in 2021 to -€81 million in 2022.

Across the business, gross written premiums (GWP) increased by almost 13% to more than €67 billion.

Within its reinsurance business, property and casualty (P&C) contributed €1.9 billion to the 2022 result, which is down slightly on the previous year. Premium volume expanded from €28.8 billion in 2021 to €34.4 billion in 2022.

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Major losses did have an impact on the German carrier during the year, with losses of over €10 million each totalling €4.2 billion for 2022 and €615 million for Q4, and include gains and losses from the settlement of major losses from previous years.

In total, major loss expenditure corresponded to 12.8% of net earned premiums, which is below the long-term average expected value of 13%.

Major loss costs from natural catastrophes amounted to €2.43 billion, the costliest of which was Hurricane Ian with losses of roughly €1.6 billion. Man-made major losses reached €1.7 billion in 2022, driven in part by costs related to Russia’s invasion of Ukraine of €475 million.

Munich Re also released reserves of €1.3 billion for basic losses from prior years in 2022, which corresponds to 4% of net earned premiums.

Despite the high level of catastrophe losses experienced in 2022, Munich Re’s P&C combined ratio strengthened from 99.6% in 2021 to 96.2% in 2022.

In its life and health (L&H) reinsurance arm, profit hit €737 million in 2022, compared with just €325 million in 2021, while premium income increased to €13.7 billion. Munich Re explains that the technical result, which includes business with non-significant risk transfer, jumped from €218 million to €918 million.

Losses related to the COVID-19 pandemic fell from €797 million last year to €344 million in 2022.

All in all, the reinsurance field of business contributed €2.6 billion to the consolidated result in 2022, and €1.4 billion in Q4. The segment’s operating profit came down slightly from €2.7 billion to €2.6 billion. Although, and as expected, GWP increased substantially, year-on-year, to €48 billion as a result of the firm’s growth strategy in an improved market environment and due to positive currency translation effects.

At the January 2023 reinsurance renewals, Munich Re says that it was able to increase written business volume to €15.3 billion. The firm reduced the share of proportional business and grew in non-proportional natural catastrophe covers in particular.

In fact, the reinsurer grew in nat cat property XoL by 40% in terms of premium volumes. As a result of the growth in exposure, the firm has increased its major loss assumption to 14% of the combined ratio for 2023, which is a 1% rise.

Munich Re pronounced this morning that natural catastrophe risks are “one of the most profitable lines of business despite high industry losses in recent years,” with risks well captured in models and in 2022 the nat cat ratio coming out below budget even with Ian.

Overall, prices for the Munich Re portfolio increased by 2.3% at the January 1st, 2023, reinsurance renewals.

Turning to Munich Re’s ERGO business, and profit reached €826 million in 2023, compared with €605 million a year earlier. During the year, ERGO grew successfully in all three segments. In the P&C Germany segment, ERGO’s premium growth once again outstripped expected market growth. Overall premium income across all segments rose substantially to €20 billion, as GPW increased to €19 billion.

The result in the ERGO L&H Germany segment increased considerably to €485m, driven by good operational performance and a high currency result.

On the asset side of the balance sheet, the investment result fell from more than €7 billion in 2021 to €4.9 billion in 2022, representing a return of 2.1% on the average market value of the portfolio.

Looking ahead, Munich Re is targeting profit of €4 billion in 2023, and expects its insurance revenue to reach roughly €58 billion in 2023, with a return on investment of at least 2.2%.

In reinsurance, the company expects insurance revenue of about €39 billion and a profit of around €3.3 billion in 2023. It also expects the P&C combined ratio to fall to around 86%, chiefly due to the disclosure method used under IFRS 17.

In L&H reinsurance, Munich Re is aiming for a total technical result of around €1 billion.

“Munich Re absorbed the crises of 2022 well and continues to grow profitably. We are robust, both financially and in terms of capital. Our broadly diversified business portfolio not only makes us more resilient, but also opens up new earnings prospects. In times of great uncertainty due to war and volatile capital markets, our clients value reliability. Our shareholders will benefit from both an increased dividend and a new round of share buy-backs. Munich Re also takes its social responsibilities very seriously. That is why I am pleased about the progress we have made in the areas of decarbonisation and diversity.

“With regard to climate change and digital transformation, we are still fully committed, offering new solutions to cover insurance needs. In addition, all fields of business are focusing on achieving the goals of our Ambition 2025. In the current year, we intend to generate a consolidated profit of €4.0bn,” said Joachim Wenning Chair of the Board of Management.

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