Munich Re’s P&C combined ratio rises on large losses, but still on-target

Reinsurance giant Munich Re was driven to a technical underwriting loss in its property and casualty reinsurance division after large catastrophe and man-made losses took the combined ratio to 10.4.7% for the third-quarter.

Despite this, the group profit was particularly strong at €865 million for Q3, not far off double the prior year, while the year-to-date profit is now €2.49 billion.

Christoph Jurecka, CFO at Munich Re said, “We are very pleased to have achieved extremely good results for two quarters in a row now, despite costly hurricanes and typhoons. We now expect to surpass our initial profit and revenue targets overall for 2019.”

The high quarterly profit was due to a decent operating result, high investment returns and currency factors, but these were offset somewhat by the particularly high loss activity suffered across the P&C reinsurance business, including major impacts from hurricane Dorian and typhoon Faxai.

Reinsurance drove a higher operating result at €746 million, more than double the prior year, while gross premiums written were up 11.9% to more than €9.5 billion for the quarter.

Contract restructuring and favourable claims experience drove a much better life reinsurance result for Munich Re, beating the prior year considerably.

However, after a few more challenging months in life reinsurance, Munich Re continues to warn that there remains a risk that it won’t reach its annual target of around €500 million for the unit.

In P&C reinsurance, the operating result was again very positive, up on the prior year at €464 million, much better than the prior years €151 million.

Premiums written rose to an impressive almost €6.6 billion, which should continue to see operating contributions remaining high thanks to the consecutive quarters of growth in the P&C portfolio.

But major losses dented this result considerably, rising to €981 million in total, and €1.662 billion for the year to date, both up on the prior years.

Major loss expenditure was 18.4% of net earned premium, up from 12.5% in the prior year and significantly higher than the projected long-term average of 12%.

Man-made major losses in Q3 drove a particularly large €404 million impact, mainly due to aviation and space as well as fire losses.

Large natural catastrophes cost Munich Re €577 million, with Hurricane Dorian roughly €360 million and Typhoon Faxai roughly €380 million.

Munich Re warns that it expects that Typhoon Hagibis will be even more costly, when it reports those in Q4.

So these major losses drove the combined ratio to the technical underwriting loss level of 104.7%, even despite a €200 million release of reserves during the period.

For the first-nine months of the year, Munich Re’s P&C combined ratio was 97%, just below the prior year and on track to meet its 98% target, although Hagibis will have a bearing there of course.

Munich Re believes that, even accounting for Hagibis, it will post a positive profit above target, aiming for it to exceed €2.5 billion for the group and €2.1 billion in reinsurance.