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Munich Re’s profit rises to €1.1bn despite higher than expected COVID impact

10th August 2021 - Author: Luke Gallin

Global reinsurer Munich Re has announced profit of €1.1 billion for the second quarter of 2021, as profits improved in both its property and casualty (P&C) and life and health (L&H) reinsurance segments despite ongoing losses related to the COVID-19 pandemic.

Munich ReThe company’s reinsurance operation contributed €951 million to the consolidated result for the quarter, as the segment’s operating result increased significantly to approximately €1.3 billion.

For the first half of the year, a period which saw Munich Re’s overall profit improve to roughly €1.7 billion, reinsurance contribution €1.4 billion to the consolidated result.

For the quarter, Munich Re’s reinsurance segment has reported a marked improvement in gross premiums written (GPW) to €10.3 billion.

Within reinsurance, the P&C unit contributed €858 million to the result in the quarter. Premium volume spiked to €7.2 billion from €5.5 billion a year earlier. The segment’s combined ratio strengthened considerably, year-on-year, to 90.1% of net earned premiums and to 94.3% for H1 2021.

RMS

Major loss expenditure fell for Munich Re year-on-year, with losses over €10 million each totalling just €432 million, compared with €799 million for the prior year period. The total includes gains and losses from the settlement of major losses from prior years.

Major loss expenditure from natural catastrophe events increased from €167 million in Q2 2020, to €203 million in Q2 2021.

Man-made major losses, which includes pandemic losses of €101 million, declined to €229 million, compared with €632 million a year earlier.

Munich Re released €252 million of loss reserves in Q2 for basic losses from prior years, which translates to 4% of net earned premiums.

In L&H reinsurance in Q2 2021, Munich Re has reported a profit of €93 million, compared with €59 million a year earlier. The segment’s technical result also improved year-on-year, from €48 million to €64 million.

However, losses from the pandemic came in above expectations within L&H reinsurance for Munich Re, impacting the quarterly result by €140 million.

“These were dominated by the developments in India and South Africa and by the diminishing trend in anticipated expenses for mortality covers in the US. Apart from the impacts of COVID-19, Q2 went well overall, mainly owing to retroactive increases in premium for the Australian disability business and a positive one-off effect pertaining to a large North American reinsurance treaty,” explains the company.

For the quarter, the impact of COVID-19 losses on reinsurance totalled €241 million, and €505 million for the first half of the year.

While this is a decline from last year’s experience, it has led the reinsurer to increase its loss expectation from COVID-19 for L&H reinsurance for 2021 as a whole to around €400 million, which is double the previous €200 million impact.

For the P&C segment, the pandemic loss expectation remains the same, meaning that Munich Re has raised its loss expectation from COVID-19 for its reinsurance business as a whole to €700 million from the previous €500 million.

Turning to the reinsurer’s experience at the recent renewals, Munich Re says that it took advantage of growth opportunities successfully and grew the volume of business written to €3.9 billion. Prices continued to increase overall, with the trend towards higher reinsurance pricing persisting.

Overall, prices across Munich Re’s portfolio renewed as at 1 July 2021 were up by 2%, on a risk-adjusted basis.

At ERGO, Munich Re’s primary insurance arm, profit hit €155 million for the quarter and €334 million for H1 2021, compared with €173 million and €245 million for the prior year period, respectively.

ERGO’s operating result fell slightly in the second quarter, from €291 million in 2020 to €281 million in 2021.

COVID-19-related effects had a negative impact of €6 million on the Q2 result at ERGO after the previous year had seen limited repercussions; there was a positive effect of €7 million since the start of 2021.

“In view of the more favourable development overall in the first half-year, ERGO is now reckoning with a negative impact of €40–50m (formerly €90–100m) owing to COVID-19,” says the firm.

On the asset side of the balance sheet, the group’s net investment increased to €1.93 billion in Q2 2021, while regular income from investments fell to €1.7 billion.

Joachim Wenning, Chairman of the Board of Management, commented: “On track to meet our target of €2.8bn for the year, the Group is showing a very solid profit for the first half of the year. All areas of our operation are helping deliver on our strategic objectives: Munich Re is growing profitably. Our reliability and expertise are in demand, and we are making good use of the positive market environment – always balancing healthy growth and strict risk management. Munich Re is tapping and shaping tomorrow’s new business: cyber, for example, shows how we can move from the role of pioneer to that of market leader. Munich Re assumes responsibility.

“We are more committed than ever to the sustainability of our business, from decarbonising our investments and treaty business to strengthening ESG governance at Board of Management level. Faced with challenges such as pandemics, floods and heatwaves, our aspiration as an insurer remains to contribute our part to the solutions of the future.”

For the full-year, Munich Re has raised its GPW forecasts by €1 billion to €40 billion for reinsurance, and by €500 million to €18 billion for the ERGO business.

This means that at group level, Munich Re is expecting GPW of €58 billion for 2021. For Q2 2021, GPW increased by 14.2% to €14.6 billion, and by 7.7% in H1 2021 to €29.2 billion.

Munich Re has also provided some commentary on the severe storms and flooding that hit parts of Europe in July, notably Germany. While there is clearly still a high degree of uncertainty, Munich Re says that it expects overall claims for reinsurance and ERGO to be in the mid-three-digit million euros range.

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