Munich Re posts strong Q2 result despite burden of pandemic

Munich - In its second quarter results released Tuesday 10 August, Munich Re stated that it had generated a profit of €1,106m (579m), and a total of €1,695m (800m) for Q1 - 2. Munich Re, a leading global provider of reinsurance, primary insurance and insurance-related risk solutions, stated that below-average overall expenditure for major losses, which totalled 6.8% of net earned premiums, contributed to the Q2 result, and the impact of COVID-19-related losses on reinsurance business came to €241m (700m) for the quarter and €505m (1,500m) since the beginning of the year. 

“We are on track to meet our target of €2.8bn for the year, the Group is showing a very solid profit for the first half of the year. All areas of our operation are helping deliver on our strategic objectives: Munich Re is growing profitably,” said Joachim Wenning, Chairman of the Board of Management. “Our reliability and expertise are in demand, and we are making good use of the positive market environment – always balancing healthy growth and strict risk management.”

The company stated that of this, in the first half-year €203m (1,395m) was attributable to the property-casualty segment and €302m (105m) to life and health reinsurance. Munich Re pointed out that in its ERGO field of business, COVID-19-related effects had a negative impact of €6m on the Q2 result after the previous year had seen limited repercussions; there was a positive effect of €7m since the start of 2021. 

Munich Re’s operating result in Q2 increased year on year to €1,554m (755m), and in addition, the other non-operating result amounted to -€9m (-6m). The currency result totalled -€117m (23m), and the effective tax rate was 19.6% (19.3%). Compared with Q2 2020, gross premiums written moved up notably by 14.2% to €14,642m (12,827m), and in Q1 - 2 by 7.7% to €29,193m (27,112m). Equity was almost at the same level at the end of the reporting period (€29,920m) as at the start of the year (€29,994m). The global reinsurer said that its solvency ratio was 225% (208% as at 31 December 2020), which is slightly above the optimum range (175–220%). In Q2 2021, annualised return on equity (RoE) amounted to 19.2% (10.4%); the RoE for the half year was 15.0% (7.1%).

Reinsurance: Result of €951m 

The reinsurance field of business contributed €951m (407m) to the consolidated result in Q2 and €1,361m (555m) in the first half-year. In Q2, the operating result swelled to €1,274m (465m) and gross premiums written increased markedly to €10,299m (8,856m). Life and health reinsurance business generated a profit of €93m (59m) in Q2. The technical result, including the result from reinsurance treaties with non-significant risk transfer, was €64m (48m). Premium income amounted to €3,144m (3,332m), with the decrease due primarily to negative currency translation effects. 

The company said that COVID-19-related losses of €140m impacted the quarterly result, a higher amount than initially projected. These were dominated by the developments in India and South Africa and by the diminishing trend in anticipated expenses for mortality covers in the US. Apart from the impacts of COVID-19, Q2 went well overall, mainly owing to retroactive increases in premium for the Australian disability business and a positive one-off effect pertaining to a large North American reinsurance treaty. Given the significant COVID-19 losses of €302m in HY1 2021, Munich Re said it is increasing its loss expectation from COVID-19 for life and health reinsurance business for 2021 as a whole to approx. €400m (previously approx. €200m) and thus for the reinsurance field of business overall to approx. €700m (previously approx. €500m). 

For property-casualty reinsurance, Munich Re said the COVID-19 loss expectation remains unchanged at approx. €300m. Property-casualty reinsurance contributed €858m (348m) to the result in Q2. Premium volume surged to €7,155m (5,524m) - despite counter-effects from currency translation. The combined ratio improved considerably to 90.1% (99.9%) of net earned premiums and in Q1 - 2 to 94.3% (103.0%). Major losses of over €10m each were down significantly in Q2 and totalled €432m (799m). These figures include gains and losses from the settlement of major losses from previous years. Major-loss expenditure corresponds to 6.8% (14.8%) of net earned premiums, and was thus below the long-term average expected value of 12% both for Q2 and for the half-year (11.0%). 

Man-made major losses including COVID-19-related losses of €101m (Q2 2020: €595m) sank to €229m (632m). Major-loss expenditure from natural catastrophes increased slightly to €203m (167m). In Q2, loss reserves of €252m (217m) were released for basic losses from prior years, which corresponds to 4.0% (4.0%) of net earned premiums. Munich Re said it is still aiming to set the amount of provisions for newly emerging claims at the top end of the estimation range. In the reinsurance renewals as at 1 July 2021, Munich Re exploited growth opportunities successfully and increased the volume of business written to €3.9bn (+11.1%). The primary focus of the renewals was business in North America, South America, Australia, and with global clients. 

The company said prices continued to increase overall. The trend toward higher reinsurance prices persists, owing to claims in various markets and lines of business, including COVID-19-related claims. Primary insurance prices are also increasing in many markets. The company said overall, prices across its portfolio renewed as at 1 July 2021 were up by 2.0%. This figure is, as always, risk-adjusted. In other words, price increases are offset if they are associated with increased risk and, consequently, elevated loss expectations. Similarly, changes are offset by the composition of different classes of business in the portfolio so as to make valid comparisons possible. Munich Re anticipates that the market environment will continue to improve year on year in the next major renewal round in January – also in view of the current claims burden, e.g. from extreme weather events in America or Europe in Q3.

Munich Re Outlook

For its outlook, Munich Re said it anticipates advantageous business opportunities also in the second half of 2021 and is thus raising its gross premium forecasts: by €1bn to €40bn for reinsurance, and by €0.5bn to €18bn for the ERGO field of business. At Group level, gross premiums of €58bn are hence projected for 2021. The global reinsurer further stated that it continues to aim for a consolidated profit of €2.8bn for the 2021 financial year, while other targets communicated for 2021 in Munich Re’s Group Annual Report 2020 remain unchanged. It said that all forecasts are made more difficult by the pronounced volatility of the capital markets and exchange rates and by the increased uncertainty with regard to potential claims in connection with the coronavirus pandemic. 

In conclusion, Wenning said: “Munich Re is tapping and shaping tomorrow’s new business: cyber, for example, shows how we can move from the role of pioneer to that of market leader. Munich Re assumes responsibility. We are more committed than ever to the sustainability of our business, from decarbonising our investments and treaty business to strengthening ESG governance at Board of Management level. Faced with challenges such as pandemics, floods and heatwaves, our aspiration as an insurer remains to contribute our part to the solutions of the future.”