Munich Re puts Sandy loss in “mid three digit million Euro” range

Munich Re, the largest reinsurance company in the world, has told its investors that it currently expects to suffer a loss from hurricane Sandy in the “mid three digit million Euro” range. That could put their losses around the $640m mark, which is a fairly significant impact to the firm if this is the case. Munich Re said that they are basing their estimate on the currently estimated industry loss range, but if the industry loss rises their ultimate net loss estimate will likely rise too.

Announcing their third-quarter 2012 results, the reinsurer said “Munich Re is now looking at a consolidated profit of around €3bn for the year as a whole, providing the burdens from Hurricane Sandy and other potential major loss events remain within the currently expectable range.”

CFO Jörg Schneider said; “The result for the first three quarters is more than pleasing. Despite Hurricane Sandy, we are very optimistic of realising a profit in the region of €3bn for 2012.”

Schneider continued; “The high number of individual losses and the vast extent of the storm make loss estimation very difficult. Based on a provisional estimate characterised by a high degree of uncertainty, we anticipate Munich Re’s share of the losses to be in the mid three-digit million euro range.”

It is usually the case that reinsurers the size of Munich Re have to increase their loss estimates as the industry loss becomes clearer from large catastrophe events, however in the case of Sandy they may have over-estimated purposefully to avoid that. When Munich Re restated their losses from hurricane Katrina in 2005, they said that a $30 billion industry loss estimate led them to estimate $500m of losses from the storm. Munich Re will likely have more exposure in the New York and New Jersey area than they perhaps had in New Orleans, but their estimate of mid three digit million Euros does seem quite a substantial loss for an early estimate that has a good chance of rising further. It will be interesting to see how this develops.

On the potential impact Sandy could have at the January renewals, reinsurance CEO Torsten Jeworrek said; “Currently, there is still sufficient capacity available in the reinsurance markets. We estimate that prices, terms and conditions will at least remain stable in the forthcoming renewals in most markets. In particular, the low interest-rate level needs to be considered in pricing.” Munich Re did say that it considers it possible that the current economic environment will result in an increase in prices for long-tail business in future, especially in the casualty sector. Jeworrek continued specifically on Sandy; “It is also foreseeable that Hurricane Sandy will lead to a further rise in prices in US property business and for non-proportional natural catastrophe covers.”

It’s been a very good year for reinsurers and the comments we are seeing suggest that they are not unduly concerned by the prospect of losses from Sandy. Other reinsurers have not made any forecasts for losses yet, Hannover Re said in their quarterly results announcement that they expect to post a substantial rise in profits in 2012 despite the prospect of losses from Sandy. Hannover Re said it is too early to give an estimate of losses, but they expect to be able to absorb losses, including those from business interruption, within their projected budget for the year.

These reinsurers loss estimates are going to be under scrutiny as new industry loss information becomes available in the coming weeks. Business interruption and contingent business interruption could be a key component of these losses for reinsurers, as we saw with last years flooding in Thailand. It could be some time until we have a really good picture of the impact Sandy has had on reinsurers balance sheets.