Munich Re profits slump 30% on fierce market headwinds despite growth

Global reinsurance giant  Munich Re took a hit of almost €1 billion to its investment portfolio triggered by falls in equity markets, which ultimately dragged down its profits both in the second quarter and first half of the year, despite witnessing “clear and profitable growth” as well as vastly improved combined ratio in its core property & casualty (P&C) business.

The reinsurer generated a profit of €768 million in Q2 and €1.4 billion in the first six months of 2022, both down from €1.1 billion and €1.7 billion produced in the same periods a year ago.

Munich Re’s investment result decreased to €971 million in Q2, compared with €1.9 billion a year earlier. The net balance of write-ups and write-downs declined substantially to –€908 million, from –77 million in the same period of 2021, primarily due to impairment losses on equities, triggered by falling equity markets.

The company said the main reason for the decline in its investment portfolio as at 30 June 2022 declined compared with the 2021 year-end figure was the increase in interest rates.

Munich Re’s gross premiums written, however, saw a considerable rise year on year, by 8.3% to €15.8 billion in Q2, and by 12% to €32.7 billion in H1 – in both cases driven by strong organic growth, especially in property/casualty reinsurance, the company said.

The reinsurance field of business contributed €608 million to the consolidated result in Q2 and €1.12 billion in the first half-year, compared with €951 million in Q2 and €1.36 billion of 2021. Munich Re blamed the year-on-year decline on the negative investment result in this field of business.

The combined ratio of P&C reinsurance business amounted to 89.7% for Q2, and 90.5% (94.3%) for H1, compared with 90.1% and 94.3%, respectively, in the prior year period. The normalised combined ratio was 94.9%.

Major losses of over €10 million each totalled €575 million in Q2, including gains and losses from the settlement of major losses from previous years. Munich Re reported €90 million of losses caused by Russia’s attack on Ukraine. The costliest natural catastrophe for the reinsurer in Q2 was the drought in South America, with losses amounting to some €130 million.

In the reinsurance renewals as at 1 July 2022, Munich Re “exploited growth opportunities” and increased the volume of business written by more than 6% to €4.4 billion. The primary focus of the renewals was business in North America, South America, Australia, and with global clients. Munich Re noted that the increases were “sufficient” overall to offset elevated loss expectations owing to inflation or other developing trends.

For the next round of renewals in January, Munich Re expects that the market environment to remain favourable and offer attractive business opportunities.

In its ERGO field of business, the company generated a profit of €160 million in Q2 and €256 million in H1. Its total premium income climbed to €4.8 billion in Q2; gross premiums written rose to €4.5 billion.

Commenting on the results, Munich Re chief executive officer and chairman Joachim Wenning said: “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.”

“Now is the time to seize opportunities in markets that are continuing to harden,” Wenning noted.

“We are systematically increasing the share of earnings generated by less-cyclical business. 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.”

In light of the high impairment losses on equities and fixed-interest securities in the first six months of 2022, Munich Re now expects the investment result to represent a return of over 2%, compared to the previous forecast of over 2.5%.

Overall, the carrier is still aiming for a consolidated result of €3.3 billion for the 2022 financial year.