Munich Re reveals €700m of Q2 Covid-19 losses in reinsurance

Global reinsurance player Munich Re has revealed that it has suffered €700 million of losses in its reinsurance business from the Covid-19 coronavirus pandemic in the second-quarter of 2020.

Despite the high loss burden, Munich Re still expects to report an above consensus €600 million net result for the quarter, citing lower-than-average major losses from sources other than the pandemic, as well as good performance from its primary carrier arm ERGO.

Earlier this year, Munich Re had reported what it called a “financially manageable” hit of around €800 million of losses caused by the Covid-19 pandemic to its first-quarter 2020 results.

That caused the reinsurer to say that while it believes it has the financial strength to withstand the economic hit from the Covid-19 pandemic, Munich Re would not put in place any profit guidance for the full-year, saying the uncertainty over losses remains high.

So that takes the total pandemic losses so far suffered by one of the largest reinsurance entities in the world to €1.5 billion.

For the second-quarter reinsurance losses, Munich Re said that the majority are from covers for major events (so cancellation claims), with some impact to its life and health business and certain other lines of property-casualty insurance, including business interruption.

Munich Re also said today that it will not implement its share buy-back program for 2020/2021, as it still “perceives considerable ongoing uncertainty with respect to the macroeconomic development and the financial impact of COVID-19, and does not expect that uncertainty will subside between now and early 2021.”

In addition, the company said that it has found profitable uses for its capital in reinsurance, having “identified truly favourable conditions for growing its reinsurance business,” which also plays into its decision to confirm the suspension of buy-backs.

However, the company said that it “continues to stand for active capital management,” saying it paid an increased dividend for the last financial year and that it will “continue to pursue a shareholder-friendly dividend policy going forward.”

Savvy shareholders should be pleased the company is finding profitable avenues to deploy its excess capital in a hardening reinsurance market, as over the long-term that should benefit Munich Re’s investors.

It’s possible Munich Re may have been able to receive some support from its retrocessionaires, in paying its Covid-19 claims. However, whether this will have included its sidecar and quota share partners, which include third-party investors, is not clear at this time.