Munich Re profits plummet 55% in 2020; CEO insists 'all pieces in place' for 2021

Munich Re’s reinsurance business dragged the company’s 2020 results due to high pandemic-related losses and natural catastrophes, but the rate improvements allowed the company to grow its business in the January renewals. The German reinsurer anticipates the market environment to remain positive and offer attractive growth opportunities in 2021.

Munich Re generated a full-year profit of €1.2 billion in 2020, down more than 55 percent from €2.7 billion reported a year ago. For the fourth quarter of 2020, the profit was down by €5 million (€212 million) from €217 million in Q4 2019.

However, its gross premiums written increased by 6.7 percent year on year to €54.9 billion, compared with €51.45 billion in the prior year.

The reinsurance field of business contributed €694 million to the consolidated result in 2020, and €75 million in Q4. This was significantly down from €2.27 billion in 2019, and €116 million in Q4 2019.

Similarly, life and health reinsurance business also generated a lower profit of €123 million in 2020, compared with €706 million in 2019.

In its ERGO field of business, the reinsurer generated a profit of €517 million in 2020, up from €440 million in the prior year. In Q4 2020, it posted a €136 million profit, compared with €101 million in Q4 2019. The segment's gross premiums written, however, decreased to €17.57 billion in 2020, from €17.65 billion in 2019.

In the property-casualty Germany segment, the combined ratio came in at 92.4 percent, almost meeting its 2020 target. The combined ratio in the ERGO International segment amounted to 92.7 percent, which was even better than the target of 94 percent for 2020. The company attributed the improvement to lower claims frequency in motor insurance.

Munich Re noted that the 2020 financial year was marked by high losses in connection with COVID-19. The most significant losses were incurred in connection with the cancellation or postponement of major events. On a smaller scale, there were also losses in other lines including business interruption.

In reinsurance, pandemic-related losses totalled €3.4 billion, of which €370 million was attributable to life and health reinsurance, and slightly over €3 billion to property-casualty reinsurance. At ERGO, the negative impact on the result arising from COVID-19 totalled €64 million.

Nevertheless, Munich Re achieved 10.9 percent premium growth at the January 1, 2021 reinsurance renewals. The volume of business written increased to €11.6 billion.

Around half of property-casualty business was renewed, with a focus on Europe, the USA (mainly excluding hurricane cover) and global business. Overall, prices for the Munich Re portfolio increased by 2.4 percent (risk-adjusted).

Munich Re stated that it is aiming for a profit of €2.8 billion in 2021. The group expects the financial consequences from COVID-19 to be on a considerably smaller scale than in 2020.

Commenting on the results, Munich Re's chairman of the board of management Joachim Wenning, said: "In spite of the tremendous challenges posed by COVID-19, Munich Re closed out 2020 with a clear profit – and our dividend remains dependable. In 2021, we expect to meet the profit target that we envisaged prior to the pandemic. All the pieces are in place.

"Our reinsurance business is ideally positioned to resolutely exploit opportunities for profitable growth in the improved market environment. And ERGO is performing well following the successful conclusion of its Strategy Programme.

"We are refraining from launching a new share buy-back programme at this time, because our shareholders will benefit more from investments in the attractive business opportunities now emerging."

According to Moody’s analyst Christian Badorff: “Munich Re reported good profitability in 2020, which albeit depressed by a €3.4 billion negative Covid-19 impact, was better than that of some of it peers. The results also benefitted from strong contribution by ERGO, which proved to be a good diversifier in 2020."

"Group Solvency II at 208% continues to be strong, but we note a material weakening from the pre-crisis levels of 237% at year-end 2019, driven mainly by the growing book of business, low yields and increasing credit risk,” he added.

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