Time to seize opportunities in hardening markets: Munich Re CEO

In announcing its second-quarter results this morning, global reinsurance giant Munich Re highlighted continued strong growth and its CEO laid out a plan for further expansion, as markets continue to harden.

Munich Re reported EUR 768 million of profit for the second-quarter of 2022, considerably lower than a year earlier when profits reached EUR 1.106 billion.

The decline in profits year-on-year was largely due to a significant drop in investment income, with losses on fixed-interest derivatives and equity write-downs denting that side of the business.

Annualised return on equity (RoE) dropped to 12.3% in Q2 2022 (19.2% for Q2 2021) and 11.2% for the first-half of the year (down from H1 2021’s 15%).

Gross premiums written across the Munich Re business rose by 8.3% to EUR 15.85 billion in Q2, and by 12% to EUR 32.683 billion for the first-half, which the company said was driven by strong organic growth, especially in property and casualty reinsurance.

The Munich Re reinsurance division delivered the bulk of the quarterly profit, at EUR 608 million, but more impressively the property and casualty reinsurance unit expanded its Q2 premiums written by 18.6%.

Munich Re, like most other reinsurers, has been growing while the market hardens and sees an opportunity to continue doing so.

Commenting on the quarterly results, Munich Re CEO Joachim Wenning commented, “Munich Re has posted a solid quarterly result despite fierce headwinds from inflation, the cooling economy and the war in Ukraine. The profitability of our business is very good, and we again saw clear and profitable growth. Our clients are all the more appreciative of our strong balance sheet in these uncertain times.”

Explaining the strategy to continue expanding the business while market conditions are good, Wenning said, “Now is the time to seize opportunities in markets that are continuing to harden. At the same time, we are systematically increasing the share of earnings generated by less-cyclical business.”

The P&C reinsurance business at Munich Re delivered EUR 462 million of profit for the quarter, well down on the prior year’s EUR 858 million.

But with a combined ratio of 89.7%, the P&C reinsurance underwriting business was more profitable than a year earlier. For the first-half, the combined ratio was 90.5%, much better than H1 2021’s 94.3%.

Munich Re experienced EUR 575 million of major losses during the second-quarter of 2022, with man-made losses of EUR 322 million and natural catastrophe losses of EUR 253 million, which were both up on the prior year.

The costliest catastrophe event for Munich Re in the last quarter was the drought in South America which drove some EUR 130 million of losses.

At the mid-year reinsurance renewals, Munich Re grew its book by 6%, writing roughly EUR 4.4 billion of premiums, with a focus on North America, South America, Australia, and with global clients.

“Prices were up overall in the sectional markets, with significantly different trends dependent upon claims experience, future loss expectations and the situation in each individual market. Prices for reinsurance cover rose considerably in some markets, including the US, Latin America and Australia. These increases were sufficient overall to offset elevated loss expectations owing to inflation or other developing trends,” the company explained of renewal market conditions.

Risk adjusted, Munich Re said price increases were +0.1% at the renewals across its book, although with significant variation.

Looking towards the next key reinsurance renewal season, Munich Re is positive on market conditions.

“For the next round of renewals in January, Munich Re expects that the market environment will remain favourable and should offer attractive business opportunities,” the company said.

Munich Re is still targeting its EUR 3.3 billion profit target for the full-year, despite the investment declines suffered.

Supporting that is the fact the company has around EUR 2.7 billion of its major loss budget remaining for the second-half of the year.

Looking forward, Munich Re CEO Wenning said, “The rise in interest rates will give us tailwind in the long term by allowing us to benefit from higher running yields. Our annual target and our objectives for our “Ambition 2025” medium-term strategy are firmly in sight.”