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Munich Re sees Q3 profit rise despite cats denting its reinsurance result

9th November 2021 - Author: Luke Gallin

Global reinsurer Munich Re has reported an improved year-on-year profit for both the third quarter and first nine months of the year, of €366 million and €2.1 billion, respectively, although its property-casualty (P&C) combined ratio trended above 100% for the periods on the back of high catastrophe losses.

Munich ReFor the quarter, Group profit increased by €167 million on the prior year period, while Munich Re’s 9M 2021 profit jumped by more than €1 billion.

The operating result fell from €353 million to €204 million for the third quarter, while gross premiums written increased by a solid 9.4% to €15.5 billion. For the first nine months of 2021, Munich Re has reported premium growth of 8.3% to €44.7 billion.

The German reinsurer has achieved a better result in spite of elevated third quarter catastrophe losses, with the firm reporting Hurricane Ida losses of €1.2 billion and Storm Bernd losses of €600 million, of which €100 million is attributable to its ERGO segment.

As well as weather-related events, Munich Re’s 2021 performance has also been hit by the pandemic. In Q3, the company has reported higher than expected costs of roughly €170 million from COVID-19-related losses in its life and health (L&H) reinsurance operation.

Munich Re says that once again, high losses were occurred mostly in the U.S., India, and South Africa. In the P&C reinsurance business, COVID-19 losses were significantly below expectations, with virtually no pandemic losses incurred in the third quarter.

In total, losses related to the COVID-19 pandemic totalled €680 million in the reinsurance business for the first nine months of 2021, with roughly €470 million of this attributable to L&H and around €120 million to P&C reinsurance.

For the full-year 2021, within reinsurance, Munich Re now expects to incur COVID-19 losses of roughly €800 million compared with the previous estimate of €700 million. This is split €600 million L&H reinsurance and €200 million P&C reinsurance.

Looking specifically at Munich Re’s reinsurance business, and the segment contributed €232 million to the consolidated result for the quarter and €1.6 billion for 9M 2021, compared with €63 million and €619 million a year earlier, respectively.

For the quarter, the reinsurance operating result fell from €55 million in 2020 to €13 million this year, while gross premiums written improved significantly to €11.2 billion.

Within reinsurance, the L&H business generated profit of €94 million in Q3 compared with €86 million a year earlier. Premium income here reached €3.2 billion, while the technical result, including the result from reinsurance treaties with non-significant risk transfer, was €9 million.

The company’s P&C reinsurance division contributed €138 million to the result in Q3, compared with a negative contribution of €23 million a year earlier. Premium volume increased from €6.8 billion in Q3 2020 to almost €8 billion this quarter.

However, the P&C reinsurance combined ratio deteriorated slightly for the quarter, from 112.2% in Q3 2020 to 112.8% in Q3 2021. For the first nine months of the year, the P&C reinsurance combined ratio strengthened from 106.1% to 100.9%.

Catastrophes had a major impact on Munich Re’s P&C reinsurance operation in the third quarter of 2021. In fact, the reinsurer has reported that major losses of more than €10 million each were up in the quarter to €1.97 billion.

As a result, major loss expenditure corresponds to 29.6% of net earned premiums, which is significantly higher than the long-term average expected value of 12% both for Q3 and 9M.

Man-made major losses actually fell from more than €1 billion in Q3 2020 to €245 million in Q3 2021, mainly as a result of the decline in COVID-19 losses. Contrasting this, major-loss costs from natural catastrophes increased to €1.73 billion, mostly driven by Hurricane Ida.

During the quarter, Munich Re also released reserves of €265 million for basic losses from prior years, which corresponds to 4% of net earned premiums.

Christoph Jurecka, Chief Financial Officer (CFO) of Munich Re, commented: “The horrific images of the devastation wreaked by Hurricane Ida and Storm Bernd remain vivid in our minds. Business, government and individuals need to make every effort towards achieving the Paris climate goals in order to slow the pace of climate change and prevent the likelihood of natural catastrophes from increasing any further. It is imperative that the Climate Change Conference (COP26) in Glasgow be followed up with immediate action.

“Munich Re will rigorously implement its ambitious CO2 reduction targets in its investments, insurance business and own operations. Together, the two weather events – Ida and Bernd – are expected to cost Munich Re €1.8bn. Nevertheless, our annual target of €2.8bn remains within reach, thanks to a gratifying operational performance and high investment results.”

At ERGO, Munich Re has reported a profit of €134 million in Q3 and €467 million in 9M 2021. The operating result for this part of the business totalled €191 million.

Total premium income at ERGO increased to €4.5 billion in Q3, while gross premiums written increased to €4.3 billion.

On the asset side of the balance sheet, Munich Re has announced an improved Group investment result of €2.1 billion in Q3. Overall, the Q3 investment result represents a return of 3.3% on the average market value of the portfolio.

Looking forward, and Munich Re expects that for its L&H reinsurance operation, it will achieve a technical result of €200 million, compared with the previous estimate of €400 million, for the full-year 2021.

Within P&C reinsurance, the firm expects to achieve a full-year 2021 combined ratio of around 100%, compared with the previous estimate of 96%, as a result of the high natural catastrophes losses experienced in Q3.

Overall, Munich Re is still aiming for a consolidated profit of €2.8 billion for the 2021 financial year.

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