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Munich Re profits fall, reports stable pricing at 1/1

6th February 2019 - Author: Charlie Wood

Global reinsurance giant Munich Re saw fourth quarter profits fall 56% year-on-year to €238 million following the impact of the California wildfires in November and volatile financial markets towards the end of year.

Munich ReThe company’s net profit of €2.2 billion for the year was, however, in line with its target of €2.1 billion to €2.5 billion.

“We are very satisfied with the overall result for 2018. We increased our profit and achieved our result target – despite the volatile capital markets and high losses from natural catastrophes in the fourth quarter,” said chief financial officer Christoph Jurecka.

Meanwhile, compared with the previous year, Munich Re said that prices of the renewals in January were stable but that the market was expected to improve during the next round in April, which focuses on Japan.

Approximately half of Munich Re’s property-casualty reinsurance business was up for renewal at 1/1, representing a premium volume of €9.4 billion.

Of this, 8% was not renewed, set against new/additional business with a volume of approximately €1.4 billion. The volume of business written at 1/1 therefore increased to around €10 billion.

Munich Re’s primary insurer Ergo recorded full-year profits rising 51% to €412 million, compared to the target of between €250 million and €300 million.

Ergo’s gross premiums written (GPW) increased to €17.7 billion, roughly the same as the €17.5 billion recorded the year previous. The combined ratio in the property-casualty Germany segment came to 96.0% for the year and 97.9% for Q4.

The CR for the Ergo’s International segment improved to 94.6% from the previous 95.3% for the full year and amounted to 94.5% for Q4.

Munich Re’s combined ratio (CR) was 105.1% in Q4 for its reinsurance business, a drop from 103.9% compared to a year previous.

With costs of €440 million, Typhoon Jebi which hit Taiwan and Japan in September, was the costliest natural disaster. The two wildfires in California in November caused losses of €430 million.

Meanwhile, the company says that a decline in premium income in its life and health reinsurance segment, attributable to the expiry or restructuring of large-volume capital-relief treaties, was largely compensated for by “partly” robust growth in P&C reinsurance.

Munich Re’s reinsurance segment contributed €1.8 billion to the consolidated result and says the operating result climbed significantly from €73 million to €2.4 billion.

Gross premiums written were down slightly to €31 billion.

At €26.5 billion equity was lower than the €28.1 billion at the beginning of the year (€28 billion), since the good balance sheet result and positive currency translation effects were more than offset by the dividend payment, share buy-backs and lower unrealised gains due to the rise in interest rates.

Return on risk-adjusted capital (RORAC) amounted to 9.1% ( compared to 1.5% a year ago) the return on overall equity (RoE) to 8.4% ( against 1.3% a year ago).

In addition, Life and health reinsurance contributed €729 million to the consolidated result and the technical result, including the result from business not recognised in the technical result owing to insufficient risk transfer, was €584 million.

Munich Re says favourable claims experience in the US was one of the contributing factors to the very good result.

P&C reinsurance rose to €1.1 billion with a CR of 99.4% of net earned premium, with 105.1% (103.9%) in the fourth quarter owing to the especially high major losses from natural catastrophes in that quarter.

Munich Re was able to release loss reserves for basic losses of approximately €860 million for the full year; the figure for the fourth quarter was around €290m.

This corresponds to 4.6% of the CR for the full year, and 5.8% for Q4.

Also, Munich Re announced plans to increase dividend payouts to €9.25 a share, up from €8.60 last year.

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