Munich Re reports flat reinsurance pricing, 6.3% book growth at 1/1

Global reinsurance firm Munich Re has reported that it found conditions at the key January 2019 renewals to be sufficiently attractive to underwrite a portfolio 6.3% larger than the prior year, despite pricing reported as flat.

Munich Re reports that pricing was absolutely flat across its reinsurance renewal book at 1/1 2019, reporting 0.0% in terms of rate movement across the portfolio.

But the reinsurer underwrote EUR 10 billion of gross premiums for its portfolio, adding EUR 600 million to the EUR 9.4 billion that came up for renewal at this juncture.

This renewal represented around half of Munich Re’s property-casualty reinsurance book coming up for renewal and while the reinsurer grew its portfolio, the conditions were not all attractive and the firm declined to underwrite around EUR 800 million of it.

But new or additional reinsurance business amounting to EUR 1.4 billion of premium was found to more than replace that which Munich Re did not find attractively priced.

Munich Re reported an expectation of a full-year 2018 profit of EUR 2.275 billion this morning, aligned with its targeted range of €2.1–2.5bn, with the fourth-quarter driving EUR 238 million of this.

The reinsurance firm managed an above target life and health reinsurance segment result at EUR 584 million, and reserve releases meant its property and casualty reinsurance unit managed an underwriting profit with a combined ratio of 99.4% of net earned premium and a result of EUR 1.135 billion for the year.

In addition, Munich Re’s primary insurance unit ERGO managed an ahead of target profit of EUR 412 million in 2018.

Munich Re’s CFO Christoph Jurecka commented, “We are very satisfied with the overall result for 2018. We increased our profit and achieved our result target – despite the volatile capital markets and high losses from natural catastrophes in the fourth quarter. The year was especially positive for life and health reinsurance and for ERGO, both of which surpassed their profit guidance for the year. Munich Re shares remain a reliable, high-return investment, which is again reflected in the significant increase in the dividend.”

The reinsurance firm also reported its losses for major events today, with typhoon Jebi denting its P&C reinsurance profits by EUR 440 million and the California Carr and Woolsey wildfires by EUR 430 million, the two most costly natural catastrophe events for the firm in 2018.

Total major-loss expenditure for 2018 reached EUR 2.152 billion, around half the loss burden of 2017, with EUR 886 million in the fourth quarter.

Natural catastrophe losses amounted to EUR 1.256 billion, while man-made major losses were EUR 896 million for the year.

Munich Re, like its competitor Hannover Re who we reported on yesterday, has been steadily growing its property and casualty reinsurance book over the last year or so, despite rates being at supposed rock bottom levels.

This morning the reinsurer confirmed this “partly robust growth in property-casualty reinsurance” as offsetting some premium decline in life and health.

Given how long major reinsurance firms, like Munich Re, have been pulling back and bemoaning the decline in reinsurance rates (since around 2014 or 2015), there is no way pricing has recovered, but now we see them having realised that bulking up and remaining globally and line of business diversified is enabling them to continue to grow.

The January renewals saw Munich Re writing broadly diversified business, with much less natural catastrophe renewals than at the junctures to come later in the year.

But it does remain fascinating to see that the major traditional reinsurers who for so long accused the ILS market of lacking discipline are the ones expanding in the still rock-bottom reinsurance rate environment.

It suggests a developing change in strategy, but also an increased exposure to perhaps significant tail events that the industry has yet to fully experience, but one day will strike and test even the largest companies.

Looking ahead, Munich Re believes that reinsurance market conditions will improve at the future renewals in 2019, citing an expectation of rate increases in April, as reinsurance treaties that have faced significant claims experience in 2018, such as from Japan, will be up for renewal.