Munich Re CFO expects prices, interest rates to boost 2018 results

After an unusually tough 2017, Munich Re is facing tailwinds from increasing prices on the back of high catastrophe losses from hurricanes Harvey, Irma and Maria, as well as climbing interest rates.

For 2017, Munich Re posted a profit of €392 million, a sharp decline from the €2.58 billion registered in 2016.

But during a Feb. 6 presentation, Munich Re’s chief financial officer Jörg Schneider was optimistic about the outlook for 2018.

While the price hike of 0.8 percent achieved in the January renewals was lower than expected, Schneider guided for further rate improvements in the upcoming renewals. In the January renewals the share of nat cat business is relatively low with 10 percent for Munich Re. In April renewals the share amounts to 25 percent and in July it is 19 percent, he explained.

“There we will see a relatively stronger effect from the recent natural catastrophes,” Schneider said. Munich Re’s underwriters are therefore optimistic that the market environment will improve further during the year.

In addition, Munich Re faces tailwinds from higher interest rates which are set to have a positive effect on its investment returns. Historically low interest rates have been pressuring the investment side of the reinsurance business in addition to low prices. But interest rates are now expected to climb particularly in the US and increasingly also in Europe.

For Munich Re this would mean a profitability boost from higher interest rates in short and medium-duration investments in the reinsurance business.

As a result of higher prices and interest rates, Munich Re may be able to post a net profit in excess of €2.4 billion in 2018.

This news story is a snapshot of a longer feature on the Intelligent Insurer website, which you can read here.

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