Munich Re posted strong operating income in the fourth quarter and for 2023 but its net result fell as the group sought to strengthen its position amid uncertainty, said its chief executive officer.
Munich Re has taken actions to strengthen its balance sheet and future investment income, CEO Joachim Wenning said in an audiocast.
Given current geopolitical and economic uncertainties, he said it is imperative the group have a strong capital base.
Munich Re is also watching inflation with a view to adequately counter higher claims costs with pricing and setting reserves, he said.
Munich Re added €900 million ($976.2 million) to reinsurance reserving for prudency to protect against claims loss uncertainty, Chief Financial Officer Christoph Jurecka said in the audiocast. The added protection is for unexpected events and volatility, he said.
The reserving helps to smooth earnings in the future, he said.
Casualty, excluding motor, reflects prudent expectations that Wenning said “more than offset nominal price increases.” Munich Re substantially
cut its exposure to casualty lines, particularly in the United States, he said.
The casualty business the reinsurer retained is still considered to be attractive, he said.
Casualty prior-year development is a concern for Munich Re, particularly in the United States and in the 2015-2018 accident years, Jurecka said. In motor proportional business, the reinsurer saw significant volume increases.
Wenning said uncertainty is also giving Munich Re opportunities, particularly in the volatile natural catastrophe market, where the industry saw another $100 billion loss year in 2023. Munich Re expanded its exposure in property reinsurance as natural catastrophe business continues to offer good prospects, he said.
Higher inflation raised interest rates and also allowed Munich Re to reinvest assets at higher yields and increase investment income, he said.
Premiums are expected to grow about 25% in international specialty insurance over the next two years, Wenning said. Munich Re recently unified its primary specialty structure with an aim to become a leading global player in the field, he said
The reinsurer has not been seeing any significant new capacity flowing into the market nor any softening by its peers, so it remains confident the hard market will continue, he said.
Fourth-quarter net result fell to €1.00 billion from €1.14 billion a year earlier. Property/casualty reinsurance revenue from insurance contracts issued rose to €9.80 billion from €8.76 billion. The P/C reinsurance combined ratio improved to 91.6 from 93.8.
Fourth-quarter investment result rose to €2.41 billion from €1.72 billion.
Wenning noted while P/C reinsurance is Munich Re’s biggest growth engine, the hard market won’t last indefinitely, so the reinsurer is growing its specialty insurance, life/health reinsurance and Ergo primary insurance segments.
Reinsurance net income fell in 2023 and in the fourth quarter. The technical result rose for the year but the operating result fell, mainly on a negative currency result, Jurecka said.
Lower interest rates in the fourth quarter following interest-rate rises in the first three quarters of 2023, along with uncertainties about where claims may be booked, led to prudent reserving in the quarter, Jurecka said.
The technical result rose for the life/health reinsurance segment but insurance revenue from insurance contracts issued declined due to currency translation effects.
P/C reinsurance posted lower net income for 2023 while revenue from insurance contracts issued rose.
Major losses in 2023 from natural catastrophes rose to €2.34 billion from €2.12 billion, including the effects of discounting and risk adjustment. Munich Re’s largest individual loss in 2023 was the earthquake in Turkey, with a nominal value of about €700 million.
In Jan. 1 reinsurance renewals, Munich Re increased prices an average risk-adjusted 0.3% and volume of business written by 3.5% amid attractive opportunities in nearly all regions and lines. Wenning said the renewals were a success as higher pricing was sustained.
About two-thirds of nonlife reinsurance treaty business was renewed, with a focus on Europe, the United States and global business.
Primary insurance prices rose increased in many markets and Munich Re benefited from proportional reinsurance contracts.
Market pressure increased slightly but Munich Re expects the environment to remain positive in the upcoming April and July renewals.
Munich Re earlier said it was targeting a net profit of €5 billion in 2024 on strong operational performance in all business segments as the group’s insurance revenue is expected to reach €59 billion.