Profits at Munich Re plummet 65% after high COVID-19 losses

Profits at world's second largest reinsurer  Munich Re plummeted 65 percent in the first quarter of 2020 driven by staggering COVID-19 related losses, which the company says are "financially manageable". Chief financial officer Christoph Jurecka highlighted "strong balance sheet and prudent risk management" during challenging times.

The Germany-headquartered reinsurer generated a profit of €221 million in Q1 2020, 65 percent down from €633 million in the first quarter of 2019.

Gross premiums written increased by 6.8 percent year on year to €14.28 billion.

COVID-19-related losses totalled nearly €800 million, particularly in event cancellation insurance. The reinsurer earlier revealed that it has huge potential exposure to the Tokyo 2020 Olympics which has been cancelled due to the coronavirus outbreak.

Overall, the reinsurance business contributed €149 million to the consolidated result in Q1, compared with €548 million a year ago. Major losses totalled €1.181 billion, significantly higher from €479 million in Q1 2019.

Property/casualty reinsurance contributed €141 million to the result in Q1, down nearly 62 percent from Q1 2019. The segment's combined ratio rose to 106 percent, compared with 97.3 percent in the prior year quarter.

Life and health reinsurance business generated a profit of €8 million in Q1, a sharp decline from €180 million in Q1 2019. However, the gross premiums written for the unit rose to €3.079 billion, compared with €2.896 billion in Q1 2019.

Despite the turmoil in the capital markets, the company managed to post strong investment results. The group’s investments (excluding insurance-related investments) result increased to €1.920 billion, versus €1.757 billion in Q1 2019. Munich Re credited "prudent risk management and wide-ranging hedging strategies" for the improvement.

Despite the weak start to 2020 in this segment, Munich Re still continues to assume that achieving its annual target of a technical result of €550m, including business with non-significant risk transfer, is still within reach.

Finally, the ERGO property/casualty Germany segment generated a profit of €21 million, versus €14 million in the prior year quarter.

In the renewals as at 1 April 2020, Munich Re was able to increase written business volume to €2.1 billion.

Jurecka, CFO of Munich Re, said: "The impact of the coronavirus pandemic on lives and economies is on our minds every day. We express our sympathy for the victims and their families. Munich Re is doing everything it can to protect the health of its clients, staff members and their families. The high losses due to COVID-19 are financially manageable for Munich Re. Thanks to our strong balance sheet and our prudent risk management, we remain a reliable partner to our clients – even in these challenging times."