Reinsurance News

Munich Re posts robust Q2 with strong organic growth in P&C

9th August 2022 - Author: Luke Gallin

Reinsurer Munich Re has announced a profit of €768 million and €1.4 billion for the second-quarter and first half of 2022, respectively, driven by a solid performance across the Group as it took advantage of growth opportunities at the mid-year renewals.

Munich ReThe Q2 profit figure of €768 million compares with €1.1 billion in the prior year period, while the H1 2022 total declined from €1.7 billion to roughly €1.4 billion.

In terms of premiums, Group-wide gross written premiums (GWP) increased by more than 8% in Q2 to €15.9 billion and by 12% in H1 2022 to €32.7 billion, driven by strong organic growth, notably in property and casualty (P&C) reinsurance.

The company’s reinsurance segment contributed €608 million to the consolidated result in the quarter and €1.12 billion in the first half of the year, compared with €951 million and €1.36 billion in 2021, respectively. Munich Re attributes the decline to the negative investment result within reinsurance.

Within its reinsurance business, P&C contributed €462 million to the result in the second quarter, down from the €858 million seen a year earlier. However, premium volume grew from roughly €7.2 billion to €8.1 billion, as the combined ratio improved from 90.1% to 89.7%.

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Major losses had more of an impact this year than last within reinsurance, with losses of over €10 million each reaching €575 million, compared with €432 million in 2021, and which includes gains and losses from the settlement of major losses from previous years. According to Munich Re, major loss expenditure corresponded to 7.5% of net earned premiums.

At the same time, man-made major losses increased to €322 million from €229 million, and includes €90 million of losses from Russia’s invasion of Ukraine. Major losses from natural catastrophes increased from €203 million to €253 million, with the costliest event for Munich Re being the drought in South America at a cost of €130 million.

In addition, the firm also released loss reserves of €308 million in Q2 2022 for basic losses from prior years.

Within its life and health (L&H) reinsurance business, profit increased from €93 million in Q2 2021 to €147 million in Q2 2022, as premium income grew to €3.3 billion. Munich Re notes that business with non-significant risk transfer continued to see “very pleasing growth.”

All in all, the L&H segment’s technical result moved from €64 million in Q2 2021 to €240 million in Q2 2022.

Losses related to the COVID-19 pandemic reached €100 million in Q2 and €259 million in H1 2022.

According to Munich Re, it exploited growth opportunities at the July 1st, 2022, reinsurance renewals, and managed to increase the volume of business written by 6% to €4.4 billion.

“Prices were up overall in the sectional markets, with significantly different trends dependent upon claims experience, future loss expectations and the situation in each individual market. Prices for reinsurance cover rose considerably in some markets, including the US, Latin America and Australia. These increases were sufficient overall to offset elevated loss expectations owing to inflation or other developing trends,” says the firm.

Adding, “All in all, prices for the Munich Re portfolio continued to be at a high level (+0.1%). This figure is, as always, risk-adjusted. In other words, price increases are offset if they are associated with increased risk and, consequently, elevated loss expectations.”

Turning to its ERGO business, Munich Re has announced a rise in profit to €160 million in Q2 and a decline to €256 million in H1 2022. The business saw significant growth in Q2 with total premium income of €4.8 billion, and a rise in gross written premiums to €4.5 billion.

On the asset side of the balance sheet, Munich Re has reported a decline in its investment result from €1.93 billion in Q2 2021 to €971 million in Q2 2022. At the same time, regular income from investments jumped to €1.8 billion, while net gains and losses on disposal excluding derivatives amounted to €727 million.

All in all, the second-quarter 2022 investment result represented a return on equity of 1.6% on the average market value of the portfolio.

Following its second quarter results, Munich Re says that it now expects its investment result to represent a return of more than 2% for 2022, compared to the previous guidance of over 2.5%.

All other targets set out for 2022 in the company’s 2021 annual report, such as a consolidated result of €3.3 billion for the 2022 financial year, remain unchanged.

Joachim Wenning, Chair of the Board of Management, Munich Re, commented: “Munich Re has posted a solid quarterly result despite fierce headwinds from inflation, the cooling economy and the war in Ukraine. The profitability of our business is very good, and we again saw clear and profitable growth. Our clients are all the more appreciative of our strong balance sheet in these uncertain times. Now is the time to seize opportunities in markets that are continuing to harden.

“At the same time, we are systematically increasing the share of earnings generated by less-cyclical business. The rise in interest rates will give us tailwind in the long term by allowing us to benefit from higher running yields. Our annual target and our objectives for our “Ambition 2025” medium-term strategy are firmly in sight.”

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