Munich Re profits soar despite cat losses as it eyes better pricing in 2020

Munich Re beat its profit target and increased its dividend in 2019, but its property/casualty combined ratio worsened, reflecting high major losses. Chairman of the board of management Joachim Wenning hailed the 2019 as a great step forward while the company also indicated it anticipates further improvements in pricing.

Munich Re generated profits of €2.7 billion in 2019, beating its original profit guidance by €200m. Its reinsurance unit contributed some €2.2 billion of this profit, €1.5 billion from the P&C unit and €706 million from life and health.

Its gross premiums written increased by 4.9 percent year on year to €51.4 billion. Its property/casualty unit contributed €33.8 billion.

The property/casualty reinsurance combined ratio was 101 percent, up from 99.4 percent in 2018, reflecting a year of high major losses.

Major losses of over €10m each totalled €3.1 billion for the full year. These figures include gains and losses from the settlement of major losses from previous years. Major-loss expenditure for the full year corresponds to 15.2 percent of net earned premiums, and was thus well above the long-term average expected value of 12% percent. Man-made large losses were comparatively high at €1 billion due in particular to aviation/space and fire losses. The impact of large losses from natural catastrophes was €2 billion. The most expensive natural catastrophes for Munich Re in 2019 were the typhoons Hagibis (ca. €780 million) and Faxai (ca. €530 million).

The combined ratios for Munich Re’s ERGO subsidiary were better. The property/casualty Germany segment improved significantly to 92.3 percent, as compared to 96 percent in 2018, due to what the company called operative improvements. The combined ratio in the international segment improved slightly to 94.3 percent, compared to 94.6 percent in 2018.

Commenting on market conditions in the reinsurance unit, Munich Re said that in the renewals as at 1 January 2020, it was able to increase written business volume to €10.6 billion (+4.4 percent). Around half of property/casualty business was renewed, with a focus on Europe, the US (mainly excluding nat cat) and global business.

“In this context, price trends varied among the different market segments in line with different claims experience. In turn, prices rose – considerably in some instances – for reinsurance cover in regions and classes of business with high claims experience, with the Caribbean and aviation and space being two examples,” the company commented.

“Conversely, prices remained mostly stable in regions and classes of business with low claims experience – such as Europe and Asia (excluding Japan). Munich Re takes the different price trends into account when it underwrites policies. In the United States, for example, Munich Re has withdrawn from business that no longer met price expectations. All in all, prices for the Munich Re portfolio increased by 1.2 percent. This percentage is, as always, risk-adjusted. In other words, price increases will be offset if they are associated with increased risk and consequently elevated loss expectations.”

The company added: “Munich Re anticipates that the market environment will improve in the next renewal rounds in April and July, as treaties in regions with significant claims experience in 2019, such as Japan, will be up for renewal.”

Looking forward, Munich Re said it aims to increase its profits to €2.8 billion. Of this, around €2.3 billion will be generated by the reinsurance field of business, and around €530 million by the ERGO field of business.