Munich Re falls to P&C Re underwriting loss on catastrophes

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Global reinsurer Munich Re’s property and casualty reinsurance division fell to a technical underwriting loss on the back of significant catastrophe losses in the third-quarter, but despite the heavy burden the companies full-year targets remain in sight.

Munich Re signThe third-quarter of 2021 remained profitable for Munich Re, with a €366 million consolidated results recorded for the period.

The company reported 12.4% growth in reinsurance premiums underwritten, as it continues to grow its business in the improving price environment, but the P&C reinsurance unit reported a combined ratio of 112.8%, so fell to a technical loss on its underwriting.

The driver for that technical underwriting loss was, of course, the significant catastrophe loss activity, with Munich Re reporting €1.8 billion of nat cat losses from hurricane Ida and the flooding in Europe, the same figure as its pre-announcement a fortnight ago.

Hurricane Ida was the main cause of these, at €1.2 billion, while the European flooding cost the reinsurance firm €600 million.

There was also some effects from the pandemic to deal with in the quarter, with Munich Re reporting that higher than expected costs of around €170 million related to COVID-19 losses in its life and health reinsurance business.

For the first nine-months of the year, the P&C Reinsurance combined ratio also stands elevated at 100.9%, but still the company is on-track in this division with 12.7% ROE reported for the year to end of September.

Because of the challenging catastrophe loss environment, while Munich Re is still forecasting a full-year profit of around €2.8 billion, with €2.3 billion coming from its P&C reinsurance unit, the forecast for the P&C reinsurance combined ratio is now for a result of around 100% of net earned premium, so breaking even on a technical underwriting basis.

That’s up from a P&C reinsurance combined ratio forecast of 96% earlier this year, lowering its forecast for a technical result that has now halved from €400 million to €200 million.

The Q3 catastrophe losses are the sole driver of this increase in combined ratio forecast for the P&C reinsurance business, which suggests any further significant loss activity over the fourth-quarter could drive the technical underwriting performance to negative levels.

This really demonstrates the severity of loss activity in Q3 and how it has hurt even the largest companies.

Munich Re’s reinsurance sidecar investors will undoubtedly have taken their share of the catastrophe loss burden.

Christoph Jurecka, CFO of Munich Re, commented on the result, “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”

Major losses including man-made reached almost €2 billion during the third-quarter for Munich Re, so were significantly elevated over forecasts, with the catastrophe burden the main cause, as man-made major losses dropped to €245 million.

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