Global reinsurance giant Munich Re turned a €579 million profit in the second-quarter of the year despite suffering around €700 million of losses from the Covid-19 pandemic during the period.
Munich Re’s Covid-19 losses have now risen to €1.5 billion for the first-half of the year and there’s likely to be further for this to run as additional losses are booked in coming quarters.
The company has continued to expand its underwriting portfolio in the hardening market, with premium growth accelerating at the July renewals where the company underwrote around 8.3% more risk at prices roughly 2.8% higher across the book.
In fact, 2020 could see Munich Re writing the biggest portfolio of risks in its history, with premium volume as high as €54 billion anticipated by the end of the year.
The €579 million of Q2 profit brings the half-year figure to €800 million for Munich Re.
The company explained the business development in the current hardening market in “encouraging” with the only drag on business being the continued coronavirus related losses and impacts.
Of the total €1.5 billion of Covid-19-related losses Munich Re has suffered since the pandemic began, around €1.4 billion was attributable to its property-casualty reinsurance business, while only €100 million fell to its life and health reinsurance operations.
The firms ERGO primary arm has only seen low double-digit million euro losses from the pandemic, the company said this morning.
“The world is far from defeating the coronavirus. That is why we have been doing everything in our power to protect staff and their families as well as clients and contractual partners from COVID-19. Munich Re will emerge from this crisis economically stronger. We are growing profitably, while taking steps to benefit from the significantly improved market conditions for reinsurers.
“In addition, we are utilising the capital originally earmarked for the 2020/2021 share buy-back programme – which we will not implement – to invest in profitable reinsurance growth. Prices have risen in nine consecutive renewal rounds, and premium income has grown correspondingly. With our high-quality portfolio, we expect to post a premium volume of €54bn in 2020 – which would set a new record in the 140-year history of Munich Re,” explained Joachim Wenning, CEO and Chairman of the Munich Re Board of Management.
Reinsurance contributed €407 million to Munich Re’s consolidated result in Q2, taking the first-half of the year to €555 million.
P&C reinsurance drove the majority of this, at €348 million for the quarter, while premium volumes rose significantly to €5.524 billion (up from €4.842 billion).
But the P&C combined ratio was close to break-even, at 99.9% and this was helped by Munich Re’s roughly 4% of reserve releases that it tends to leverage across the year.
The combined ratio in P&C reinsurance was 103% for the first-half of 2020.
Major losses were far above average, elevating the combined ratio, with the Covid-19 pandemic the main driver of this.
While lines of business like event cancellation drove the largest share, Munich Re has also taken losses from business interruption claims as well.
Given the anticipation among reinsurers that some of their Covid-19 losses will fall to catastrophe treaties and so be recoverable to a degree from their retrocession provisions, it’s likely Munich Re will also experience this and there is a chance that some of the pandemic losses fall to third-party investors backing its quota share sidecar structures such as Eden Re and Leo Re.
Natural catastrophe losses were relatively low for the reinsurer, at €167 million, although slightly up on the prior years €155 million.
Reserve releases totalled €217 million during the quarter, around 4% of net premiums.
Munich Re has ceded more of its claims expenses than in previous years, it seems. Which suggests retrocessionaires taking a share of the Covid-19 impacts.
However, a full picture on this is unlikely to be possible until losses are converted from IBNR to actual reported claims, at which point it may be clearer how much in terms of retro recovery companies like Munich Re are able to make.
At the July 1st renewals, Munich Re wrote some €3.8 billion of premiums, up 8.3%, with price increases of 2.8% on a risk adjusted basis.
“It was possible to tap into growth opportunities, especially in North America and with global clients. Prices increased overall. Price trends varied among market segments in accordance with varying levels of capacity, claims experience, and demand. Prices rose – considerably in some instances – for reinsurance cover in regions and classes of business with high claims experience. This was true, for example, of natural catastrophe covers in North America and the Caribbean, where overall prices rose by high single-digit percentages. In some cases, price increases were even greater. Prices also went up slightly in regions and classes of business with low claims experience, due to a generally improving market environment for reinsurers,” the company explained.
The July renewal result for Munich Re marks an acceleration in growth and firming of reinsurance rates, as over the first-half premium growth was 7.6% and price increases 1.8%.
While Munich Re has retracted all of its profit targets for the year, the reinsurer remains confident in its opportunities for continued growth.
Overall, the company expects to underwrite a record €54 billion of premiums over the course of 2020, with premium income of €36 billion. Both of these figures are up some €2 billion on previous forecasts, as the company looks to capitalise on the hardening reinsurance market to deliver its largest portfolio ever.