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Munich Re’s Q2 profit rises to €993mn on low losses & reserve releases

7th August 2019 - Author: Luke Gallin

Global reinsurance giant Munich Re has announced its highest quarterly profit for four years of €993 million in the second-quarter of 2019, driven by low major losses and reserve releases.

Munich ReMunich Re’s profit in the second-quarter of 2019 increased from the €728 million recorded in the second-quarter of 2018, underpinned by a strong result of €858 million in reinsurance, led by its property and casualty (P&C) unit which more than offset a decline in life and health (L&H).

Overall, the reinsurer recorded gross premiums written of €11.8 billion in the second-quarter of 2019, which is up 5.5% on the same period in 2018. The overall return on equity totalled 13.6% for Q2 and 11.5% for the first-half of the year. The group’s investment result increased to €1.9 billion in Q2 2019, while regular income from investments also increased year-on-year, to €1.84 billion.

By segment, and P&C reinsurance generated a profit of €704 million in Q2 2019, up from €335 million a year earlier, while premium volume increased from €4.6 billion to €4.8 billion.

At 87.7%, the P&C segment’s combined ratio improved significantly from the 102% recorded in the same period in 2018. For the first six months of the year, the P&C combined ratio totalled 92.8%, which is on track to achieve the firm’s full-year target of around 98%.

The total cost for major losses in excess of €10 million in the quarter reached just €202 million, which is down on the €605 million posted in the same period in 2018. For the half-year, this totalled €680 million. Munich Re notes that these figures include run-off profits and losses for major losses from prior years, including additional costs of roughly €80 million for losses from typhoon Jebi.

Man-made major losses amounted to just €47 million in Q2 2019, compared with €501 million in Q2 2018.

The reinsurance giant reveals that during the period it was able to release reserves of roughly €360 million for basic losses from prior years, which equates to 7.3 percentage points of net earned premium. This is far above the full-year forecast of 4%, and was in part a result of the firm successfully concluding a portfolio transaction and the release of corresponding reserves. Favourable claims development in a number of classes also contributed to the strong result.

Munich Re notes that the recently observed market recovery continued at the July renewals, with the most notably recovery occurring in loss-affected lines. At the same time, Munich Re witnessed increases in loss expectations and stable renewals in unaffected regions and markets. Munich Re states that the risk-adjusted price increase for the July renewals was 0.5%, while premium volume grew by 8.9% to €3.5 billion.

Offsetting the strong result in P&C, Munich Re’s L&H reinsurance segment saw its profit fall from €285 million in Q2 2018 to €154 million in Q2 2019, while premium volume increased to €2.7 billion compared with €2.3 billion a year earlier. The segment’s technical result fell to €64 million in Q2 and to €169 million in H1 2019.

The reinsurer expects higher earnings volatility to impact its L&H reinsurance segment in the upcoming quarters, and notes that it is working to rehabilitate the existing portfolio. Depending on claims experience for the rest of the year and the outcome of the annual reserve review, the firm says there is a substantial risk that it will fail to hit its €500 million profit target for the year.

Chairman of the Board of Management, Joachim Wenning, commented on the firm’s performance: “We are delighted to have generated our highest quarterly result in four years. And we are confident that we will reach our profit guidance of €2.5bn for 2019 and €2.8bn for 2020 as set out in our multi-year ambition for 2018–2020. At the halfway stage of this programme, Munich Re is both strategically and financially on track.”

Munich Re’s ERGO business generated a profit of €135 million in Q2 2019 compared with €108 million in Q2 2018.

Looking forward, and Munich Re states that it remains on track to achieve a consolidated profit of around €2.5 billion for the 2019 financial year.

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