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Munich Re’s profit falls in 2020; P/C combined ratio deteriorates on major losses

25th February 2021 - Author: Luke Gallin

German reinsurer Munich Re has reported profit of €1.211 billion and €212 million for the full-year and fourth-quarter 2020, respectively, in spite of a substantial level of claims related to major losses and the ongoing COVID-19 pandemic.

Munich ReFor the year, profit fell from the more than €2.7 billion reported a year earlier, while quarterly issuance was down by just €5 million from the level reported in 2019.

Munich Re’s performance in the year was heavily impacted by the coronavirus pandemic, which drove losses in reinsurance of €3.4 billion, of which €370 million was attributable to life and health reinsurance, and more than €3 billion to property / casualty reinsurance.

At ERGO, the primary insurance arm of reinsurance giant Munich Re, COVID-19 had a negative impact of €64 million for the year.

According to the reinsurer, when adjusted for the COVID-19 losses, the firm would have met its initial 2020 profit target of €2.8 billion, which the firm retracted in March 2020.

RMS

Across the firm, the operating result fell sharply to €1.986 billion in 2020 from €3.43 billion a year earlier, while the other non-operating result totalled -€83 million in 2020 against -€91 million in 2019.

At €54.89 billion, Munich Re’s gross written premiums for the year increased by 6.7% from the €51.457 billion posted in the prior year.

Within Reinsurance, the result for the year totalled €694 million, which is down significantly from the more than €2.2 billion posted for 2019. The operating result fell to €984 million, while gross written premiums increased to €37.321 billion.

In life and health reinsurance, Munich Re has reported a profit of €123 million compared with €706 million in 2019. Premium income jumped to €12.7 billion and the technical result totalled €97 million, versus €493 million a year earlier.

Munich Re’s property / casualty reinsurance contributed €571 million to the result, as premium volume jumped to more than €24.6 billion. However, the combined ratio deteriorated to 105.6% of net earned premiums, driven by high major losses.

During the year, major losses of more than €10 million each amounted to a huge €4.689 billion against €3.124 billion a year earlier. For Q4 2020, major losses reached €1.191 billion, which is down on the €1.462 billion posted in the prior year quarter. Within these figures, says Munich Re, is included gains and losses from the settlement of major losses from previous years.

The reinsurer explains that major loss expenditure corresponded to 20.8% of net earned premiums, which is someway above the long-term average of 12%. For the most part, major losses were driven by the pandemic, with Munich Re reporting significant losses in event cancellation / postponement sector.

These losses, as well as losses in other lines of property / casualty reinsurance, including business interruption, and also other man-made major losses, totalled a huge €3.784 billion in 2020, against €1.071 billion a year earlier.

Major losses from natural catastrophes actually fell from more than €2 billion in 2019 to €906 million in 2020, which Munich Re says is much lower than expected given the record number of events in some loss scenarios.

At €280 million, the impacts of Hurricane Laura turned out to be the costliest nat cat for Munich Re in 2020.

In the 2020 financial year, provisions for basic losses from prior years totalling around €938m were released; this corresponds to 4.2% of net earned premiums

“In spite of the tremendous challenges posed by COVID-19, Munich Re closed out 2020 with a clear profit – and our dividend remains dependable. In 2021, we expect to meet the profit target that we envisaged prior to the pandemic. All the pieces are in place. Our reinsurance business is ideally positioned to resolutely exploit opportunities for profitable growth in the improved market environment.

“And ERGO is performing well following the successful conclusion of its Strategy Programme. We are refraining from launching a new share buy-back programme at this time, because our shareholders will benefit more from investments in the attractive business opportunities now emerging,” said Joachim Wenning, Chief Executive Officer (CEO) and Chairman of the Board of Management at Munich Re.

Commenting on the important January 1st, 2021 reinsurance renewals, Munich Re says that it was able to increase the volume of new business written by 10.9% to €11.6 billion. Roughly 50% of property / catastrophe business was renewed, with a focus on Europe, the US, and global business.

The reinsurer notes improved pricing, terms and conditions, with rates increasing particularly in parts of the non-proportional business. While price movements varied by geography, all in all, prices for the Munich Re portfolio increased by 2.4% at 1/1.

Looking forward, Munich Re expects that the market environment will remain positive and offer attractive growth opportunities at the upcoming renewal rounds in April and July.

Turning to Munich Re’s ERGO unit, and profit increased year-on-year to €517 million for 2020, and increased to €136 million for Q4. As reported by Munich Re, this performance means that ERGO completed its Strategy Programme, almost meeting its €530 million profit guidance for the year in spite of the impacts of the pandemic.

Looking at investments, and the reinsurer’s investment result fell to €7.398 billion in 2020, as regular income from investments declined to €6.273 billion.

As announced back in December, Munich Re is still targeting for profit of €2.8 billion for 2021. Overall, the reinsurer expects that the financial implications of COVID-19 will dwindle and be less impactful than last year.

Group premium income is projected to increase to around €55 billion in 2021, and return on investment to come in above 2.5%.

In reinsurance, the firm expects premium income of around €37 billion and a profit of around €2.3 billion in 2021. The combined ratio is expected to improve to roughly 96% in P/C. In life and health reinsurance, Munich Re forecasts a technical result, including the result from reinsurance treaties with non-significant risk transfer, of roughly €400 million for 2021.

ERGO is targeting a 92% combined ratio in the P/C Germany segment and 93% in the ERGO International segment. Munich Re expects premium income here to total around €17.5 billion in 2021.

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