Munich Re premiums surge, forecasts firming at January renewals

Global reinsurance giant Munich Re has reported further growth over the second-quarter and at the July renewal season, where it found prices 2% higher and now looks ahead to the rest of the year with a forecast for additional firming at the January 2022 renewals.

Munich Re has reported €1.106 billion of profit for the second-quarter of 2021, almost double the prior year, which it says puts it on-track to hit its full-year targets.

This is despite an expectation that recent severe weather will dent its third-quarter, as Munich Re said today that it anticipates mid-three- digit million euro losses from the July flooding in Germany and across Central Europe.

Joahim 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.”

Over the course of Q2 2021, Munich Re’s result was helped by a below-average overall expenditure for major losses, the company reported today.

The COVID-19 pandemic continued to hit the reinsurers life and health result though, adding €241 million of losses during the quarter.

Annualised return on equity (RoE) was impressive, amounting to 19.2% for Q2 2021 (10.4% in the prior year) and 15.0% for the first-half (7.1% in the prior half-year).

Reinsurance added €951 million to the second-quarter result, more than double the prior year.

Property and casualty reinsurance was €858 million of that, as Munich Re said premium volumes surged to €7.155 billion and the combined ratio fell to 90.1%.

The combined ratio has been helped significantly by lower major losses, as Munich Re reported that basic losses were actually up at 537.7% in Q2, but major losses only contributed 6.8%, which is just over half the budgeted 12%.

In fact, had major losses been on a par with either 2019 or 2020 in the first-half, Munich Re’s combined ratio for its P&C reinsurance unit would have been close to or just over 100.

Major losses actually came out at €432 million for the quarter, well down on the €799 million of the prior year quarter.

At the July reinsurance renewals, Munich Re said that it “exploited growth opportunities” to grow the renewal book to €3.9 billion, an increase of 11.1%.

This July renewal business was focused on North America, South America, Australia, and global clients, the reinsurer said.

Prices also continued to trend higher across many lines of reinsurance business, which Munich Re attributes to claims activity, including the pandemic, also noting that primary insurance rates continue to climb as well.

Overall, Munich Re said prices at thee July renewal for its portfolio rose by 2%, on a risk-adjusted basis.

Looking ahead, Munich Re said that it is positive on rates firming further at the next renewal season.

The company explained that it expects, “the market environment will continue to improve year on year in the next major renewal round in January.”

Contributing to this likelihood of firming is the recent claims burden, from extreme weather events in the United States or Europe in Q3.

Munich Re has raised its premium targets for the year, by €1 billion to €40 billion for reinsurance, and by €0.5 billion to €18 billion for the ERGO field of business, so group gross premiums are projected to reach €58 billion for 2021.

However, because of elevated COVID-19 losses in the life and health reinsurance division, Munich Re warned that “it is now more likely that the isolated partial objective of a technical result of €400m, including the result from reinsurance treaties with non-significant risk transfer, will not be met.”

On the recent European flooding, Munich Re notes “a very high degree of uncertainty” over the eventual size of losses it will suffer from this event, but says that it “expects overall claims expenditure for reinsurance and ERGO to be in the mid-three-digit million euro range.”

The reinsurer also noted that its 92% combined ratio target for ERGO may not now be met.

During a media call this morning, CFO Christoph Jurecka noted that because of the July flooding he would expect “positive rate dynamics” for European reinsurance treaty renewals at January 1st 2022.