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Munich Re opts against providing fresh profit guidance for 2020 on COVID-19

23rd June 2020 - Author: Luke Gallin

Global reinsurance giant Munich Re has said that while it continues to stand on firm economic footing, the losses and uncertainty being caused by the ongoing COVID-19 pandemic means that it will not meet its previously announced profit guidance for 2020.

Munich ReThe reinsurer announced on April 1st, 2020 that it had withdrawn its €2.8 billion profit guidance for 2020 as a result of the significant macroeconomic and financial uncertainty caused by the pandemic.

Today, the reinsurer has reiterated this and 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.

Munich Re notes that, despite the challenges, it continues to stand on firm economic footing and is confident that it will be able to bear the economic impacts of this pandemic.

Looking at the liability side of the balance sheet, and the reinsurer notes that while common to exclude pandemic from insurance covers in many lines of business in the P&C space, COVID-19 is driving insured losses owing in particular to the cancellation or postponement of events, such as the Tokyo Olympics.

“Losses are also being seen in other lines of business as a result of the economic downturn,” says Munich Re.

For Q1 2020, Munich Re announced COVID-19 related losses of roughly €800 million, leading to a 65% year-on-year decline in net profit to €221 million.

Within life and health business, Munich Re notes that the size of its loss experience depends largely on the development of death rates around the world, particularly in North America.

On the asset side of the balance sheet, the reinsurer highlights ongoing high levels of capital markets volatility coupled with extremely low interest rates that will persist for the foreseeable future.

“This affects our solvency ratio, though the effects have been successfully mitigated through hedging and the broad diversification of our investments,” explains Munich Re.

As at the end of March 2020, Munich Re’s solvency ratio stands at 212%, so comfortably within the optimum range of 175% to 220%.

“The losses caused by the coronavirus and the economic downturn caused by the pandemic will have a significant short-term impact on Munich Re, too. That said, the coronavirus has clearly demonstrated the value of insurance, and this is likely to open up good business opportunities to Munich Re in the medium and long term. We are optimistic about the future,” says the firm.

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