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Munich Re falls to -€1.4bn Q3 loss, expects small full-year profit

9th November 2017 - Author: Steve Evans

Reinsurance giant Munich Re has reported a third-quarter 2017 loss of -€1.4bn, reflecting the impact of high natural catastrophe losses that contributed over 70% to the reinsurers combined ratio.

Munich Re logo on a signMunich Re said that the impacts of hurricanes Harvey, Irma and Maria would total €2.7 billion of losses, while its total major loss bill for Q3 remains unchanged from the firms earlier estimate of €3.2 billion.

Jörg Schneider, Chief Financial Officer of Munich Re, commented on the results, “The major losses from natural catastrophes in the third quarter have had a substantial impact on our result. Despite business being otherwise good, this means that we can only post a small profit in 2017. But our capitalisation is strong, and we are able to take full advantage of opportunities arising from the likely market recovery.”

For the first nine months of 2017 Munich Re has reported a loss of -€146 million, but as long as fourth-quarter catastrophe and man-made losses remain within expectations the reinsurer expects to be able to claw back a small profit by the end of the year.

Munich Re continues to use its reserves prudently to soften the blow of losses and during Q3 the reinsurer released €250 million, equivalent to 6% of net earned premiums. For the year to date Munich Re has released reserves totalling around €740 milllion, or 5.9% of net earned premiums.

These amounts help the reinsurer to manage its ability to pay dividends, return capital and reduce the impact of attritional and major losses on its balance-sheet.

Munich Re has a strategy of setting reserves as high as it can, so it can release them to its benefit at a future date. It’s safe to assume that the reinsurer will have set high levels of reserves for the recent catastrophe events.

For the first nine months of 2017, Munich Re’s return on risk-adjusted capital (RORAC) declined to –0.7% and the annualised return on overall equity (RoE) was –0.6%.

Gross premiums written were roughly stable year on year at €12.279 billion.

Reinsurance saw an operating loss of –€2.029 billion for the quarter, and accounted for –€1.465 billion of the consolidated result for the reinsurer.

The ERGO primary insurance unit made a profit of €297 million for the quarter, helping to boost the overall performance of the company somewhat.

Munich Re said that it is, “proceeding on the assumption of generating a small profit for the year – on the proviso that business performs in line with expectations in the fourth quarter.”

The firm forecasts a combined ratio for property & casualty reinsurance for the full year of 112%, and a one percent improvement for ERGO to 97%.

However, Munich Re will hope to take advantage of market rates to help it as it navigates its business out of these losses, expecting a “significant market recovery.”

Looking ahead, Schneider said, “We expect prices to rise again in the forthcoming negotiations – particularly in the markets that have been hardest hit by recent natural catastrophes. But, regardless of this, we are continuing to press ahead with our initiatives for profitable growth – especially in connection with digitalisation.”

Read Munich Re’s full results statement here.

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