Swiss Re Insurance-Linked Fund Management

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Munich Re says Covid-19 means no profit target for 2020


While global reinsurance giant Munich Re said that it has the financial strength to withstand the economic hit from the Covid-19 pandemic, the reinsurer will not put in place any profit guidance for the full-year, saying the uncertainty over losses remains high.

Munich Re signPreviously, Munich Re had withdrawn its target for €2.8 billion of profit for 2020, saying it could not attain it after the pandemic.

The reinsurance company reiterates that today, while also saying that it won’t put any new guidance in place.

In addition, the reinsurer has said that the full impacts of the pandemic in insurance and reinsurance are going to take some significant time to be understood, as loss activity is expected to continue throughout the coming quarters.

“Owing to losses and high levels of uncertainty regarding the further economic and financial impact of the pandemic,” Munich Re said the guidance remains withdrawn, adding that “In light of this uncertainty, Munich Re is not providing a new profit guidance for 2020.”

The company also explained that, “It will not be possible to determine the true extent of the pandemic’s impact on the insurance sector for some time.”

While pandemic exclusions are largely in place for many lines of property and casualty insurance and reinsurance, Munich Re highlights that, “Covid-19 is causing insured losses owing in particular to the cancellation or postponement of large events. Losses are also being seen in other lines of business as a result of the economic downturn.”

In the life side of Munich Re’s business the company said, “Our loss expectations in life and health insurance depend heavily on the development of death rates, particularly in North America. While we still cannot fully rule out the possibility of the kind of death toll expected for a 200-year event – this would be equivalent to the claims expenditure associated with a medium-sized natural disaster – many factors currently indicate that the impact of this pandemic will be less dramatic.”

On the capital and investments side of the balance-sheet, Munich Re said, “We are still observing ongoing high levels of volatility on the capital markets, alongside extremely low interest rates that will persist for the foreseeable future. This affects our solvency ratio, though the effects have been successfully mitigated through hedging and the broad diversification of our investments.”

The reinsurance company said that its solvency ratio sits at 212%, easily within the 175% to 220% range it has previously communicated as optimal.

While the economic impacts and insurance market losses from the Covid-19 pandemic are expected to be significant enough to miss this years target for Munich Re and the uncertainty enough to ward it off from setting a new guidance figure, the reinsurer remains positive on opportunities going forwards.

Like many, Munich Re expects that the world will have a different perception of risk and appreciation for insurance after the pandemic, which is likely to drive more risk management and risk transfer going forwards.

“The losses caused by the coronavirus and the economic downturn caused by the pandemic will have a significant short-term impact on Munich Re, too. That said, the coronavirus has clearly demonstrated the value of insurance, and this is likely to open up good business opportunities to Munich Re in the medium and long term. We are optimistic about the future,” the company said.

But the reinsurer is also wary of the exit from the world’s state of pandemic saying, “The threat of a second wave of infections still looms and the situation remains precarious. It will not be possible to determine the true extent of the pandemic’s impact on the insurance sector for some time.”

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