Profits and GWP fall at Munich Re as it retracts from unprofitable business

Munich Re’s gross written premiums and profits fell in 2016 on the back of “low interest rates and intense competition in the reinsurance markets” but the company said it was satisfied with the result, which was higher than its stated profit target of “well over €2.3 billion”.

The company made a net profit of €2.6 billion for 2016, a sharp drop on the €3.1 billion it made in 2015. Its reinsurance field of business contributed €2.5 billion of this. In the fourth quarter alone, its profits dipped to €0.5 billion, compared with €0.7 billion a year earlier.

It notes that major-claims expenditure was high in the fourth quarter, with claims costs of €232m for Hurricane Matthew and €251m for an earthquake in New Zealand. On a twelve-month basis, major losses were lower than expected, but nevertheless significantly higher than in the previous year.

Munich Re’s combined ratio for 2016 was 95.7 percent, a sharp increase on the 89.7 percent it posted in 2015. Munich Re release loss reserves worth €1.1 billion for the full year, and €0.4 billion for the fourth quarter alone.

ERGO, its primary insurance arm, posted a small loss for the year but Munich Re stressed that in the fourth quarter alone it made a small profit and that it is making good progress under a new strategy set out in June 2016.

CFO Jörg Schneider said: “We are satisfied with the result for 2016. Thanks to our strong market position, client proximity and successful investment management, we were largely able to counter the effects of low interest rates and intense competition in the reinsurance markets.”

The company’s gross written premiums for the year fell to €48.9 billion compared with €50.4 billion a year earlier. It said this was mainly because of reduced shares in large-volume treaties and the sale of ERGO Italia. Gross premiums written in the reinsurance unit alone declined to €27.8 billion compared with 28.2 billion in 2015.

Torsten Jeworrek, member of the board of management of Munich Re, said: “Market conditions for the renewals were once again challenging, even though the trend towards price reductions had continued to slow. So skilful cycle management is still extremely important, and Munich Re was once again able to react with flexibility in relation to changes.

“We withdrew from business that no longer met profit expectations – for instance, in China – and built up or expanded profitable business, either through new acquisitions or by strengthening existing client relationships.”

Munich Re added that it is proceeding on the assumption that the market environment will not change significantly in the subsequent renewal rounds in 2017, unless extraordinary loss events occur. The renewal date of 1 April is mainly for reinsurance treaties in Japan, whereas 1 July is the renewal date for the USA, Australia and Latin America.

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