Munich Re results hit by “manageable” €800m of Covid-19 losses

Reinsurance giant Munich Re has reported a “financially manageable” hit of around EUR 800 million to its first-quarter 2020 results, from losses caused by the Covid-19 pandemic.

The reinsurer reported much lower profits for the period with a net result of EUR 223 million across the business for Q1, down on the prior years EUR 633 million.

On the positive side, Munich Re has clearly been taking advantage of improved reinsurance market conditions, with its premiums underwritten rising 6.8% year-on-year to EUR 14.284 billion in the first-quarter.

Christoph Jurecka, CFO of Munich Re, commented on the results, “The impact of the coronavirus pandemic on lives and economies is on our minds every day. We express our sympathy for the victims and their families. Munich Re is doing everything it can to protect the health of its clients, staff members and their families. The high losses due to COVID-19 are financially manageable for Munich Re. Thanks to our strong balance sheet and our prudent risk management, we remain a reliable partner to our clients – even in these challenging times.”

The hit from the Covid-19 pandemic to both the asset and liability side of Munich Re’s balance-sheet caused its solvency ratio to dip from 237% at the end of 2019, to 212% at the end of Q1 2020, still well within the ideal range of 170–220%, the reinsurance company said.

In the reinsurance business, profit for Q1 amounted to EUR 149 million, well down on the prior years EUR 548 million due to the impacts of the Covid-19 losses. But premiums written rose to EUR 9.235 billion, up from EUR 8.38 billion.

The combined ratio for the property and casualty reinsurance business was also significantly elevated at 106%, again due to the impacts of Covid-19.

Both life and health reinsurance and property and casualty reinsurance results were down on the prior year, however on the life and health side Munich Re said this was “attributable mostly to negative developments in North America that are altogether unrelated to the coronavirus pandemic.”

Interestingly, Munich Re cites higher mortality in the U.S., but not due to Covid-19. Which is unlike RGA Re who said that they believe Covid-19 had an influence in their elevated mortality result in Q1.

The P&C reinsurance unit is where most of the pandemic claims have fallen, with Munich Re reporting P&C profit down at EUR 141 million, compared to EUR 367 million last year.

Major losses totalled EUR 1.181 billion for the quarter, more than twice the prior year and corresponding to 21.1% of earned premium, well up on Q1 2019’s 9.7% of earned.

Man-made major losses came out at EUR 973 million, as this includes the majority of he EUR 800 million of Covid-19 related claims which are “mostly due to losses stemming from the cancellation or postponement of major events on account of the coronavirus pandemic,” Munich Re said.

Natural catastrophe losses were also elevated at EUR 208 million, compared to EUR 195 million in the prior year. This will largely have come from Australian loss events, European windstorms and winter weather, as well as severe weather in the United States, we assume.

Munich Re also released a relatively significant amount of reserves in the quarter, at EUR 224 million, which will have helped the P&C result to a profit it seems as without them it could have fallen to a loss.

Munich Re also gave an update on the April renewals, saying that it significantly grew its premium volumes by 25.7%.

The company commented that, “It was possible to tap into growth opportunities, especially in Asia and with our global clients. By contrast, Munich Re once again selectively discontinued business including third-party liability in the United States, which no longer met risk/return expectations.”

Prices across Munich Re’s April reinsurance renewal portfolio rose by some 3%, helped it seems by Japanese rates in particular.

Looking ahead to the mid-year renewals, “Munich Re anticipates that the market environment will improve year on year in the next renewal round in July, as was the case with previous renewals in the current year.”

Looking ahead, Munich Re said that it will not reinstate a profit target for 2020, having withdrawn it recently.

The company has also withdrawn its targets for reinsurance profits and combined ratio for the year as well.

“Given the considerable uncertainty pertaining to further developments in the coronavirus pandemic and its economic impact, Munich Re faces a significantly higher risk of all its target figures not being attained,” Munich Re explained.

With one of the largest reinsurance portfolios in the world and being a conservative company, Munich Re was always going to reveal one of the largest impacts from the pandemic today.

It seems largely contained to the specialty side, with no mention of property losses at all. However, there remains a chance of some claims leakage through the reinsurers quota shares and possibly also its sidecar, we imagine.