Munich Re’s Q3 Profit Falls as Man-Made Losses Exceed €1B

Reinsurer Munich Re has announced a decline in profit to €199 million for the third-quarter of 2020 as its major loss experience swelled to €1.5 billion and its property and casualty (P&C) business fell to an underwriting loss.

Source: Reinsurance News | Published on November 5, 2020

Munich Re Q1 profits

Munich Re’s profit in Q3 fell from the €865 million posted for the same period in 2019, while profit for the nine month period ended September 30th, 2020, declined to €999 million from almost €2.5 billion in the prior year.

For Q3, the operating result decreased from €844 million in 2019 to €353 million this year, while the other non-operating result amounted to -€31 million in Q3 2020, compared with -€10 million in Q3 2019.

Turning to the company’s different operating segments, and Munich Re has reported that its reinsurance business contributed just €63 million to the consolidated result in Q3 2020 and €619 million in 9M 2020, against €746 million and €2.2 billion, respectively, in 2019. Additionally, the operating result within reinsurance in Q3 declined to €55 million from €690 million in 2019, while gross written premiums increased to almost €10 billion, against €9.6 billion a year earlier.

Within reinsurance, Munich Re’s P&C business contributed -€23 million to the Q3 result, which compares to a positive contribution of €464 million a year earlier. Premium volume here jumped to €6.8 billion. Overall, the P&C segment fell to an underwriting loss in the period with a combined ratio of 112.2% of net earned premiums, versus 103.9% for Q3 2019.

As the company pre-announced, the major loss experience was significant for Munich Re in the third quarter of 2020, with major losses of more than €10 million each totalling €1.518 billion against €981 million a year earlier. Munich Re explains that these loss numbers include gains and losses from the settlement of major losses from prior years.

In total, major loss expenditure corresponds to 26.7% of net earned premiums, which is more than double the long-term average of 12%. Primarily, says Munich Re, this was a result of man-made major losses in the period, which totalled a substantial €1.045 billion, compared with €404 million in Q3 2019. Of this total, Munich Re says that around €700 million relates to COVID-19 losses.

The reinsurer explains that Q3 2020 again saw losses incurred related to both the cancellation and postponement of major events, alongside losses in other lines of business, such as business interruption.

As well as COVID-19 pandemic losses, man-made major losses for Munich Re in the period also include losses from the Beirut port explosion. In addition to the more than €1 billion of man-made major losses, Munich Re has announced major loss expenditure from natural catastrophes of €474 million, driven mostly by windstorm and wildfire losses in the U.S.

Reserve releases for basic claims from previous years totalled €226 million in Q3 2020, which the firm says corresponds to 4% of net earned premiums.

In life and health reinsurance, profit for the third-quarter of 2020 fell to €86 million from the €282 million posted a year earlier. Premium income increased to €3.1 billion, and the technical result, including business with non-significant risk transfer, reached €56 million.

The ongoing COVID-19 pandemic also had an impact on this part of the business during Q3 2020, with deaths from the pandemic, especially in the U.S., driving losses of around €100 million.

Christoph Jurecka, Munich Re’s Chief Financial Officer (CFO), commented: “In reinsurance, the third quarter is often characterised by above average losses – and that was again the case this year. On top of manmade major losses and natural catastrophes in the USA, ongoing high COVID-19 claims affected the result. A gratifying aspect is that ERGO once again delivered a strong quarter. Given Munich Re’s dynamic growth and the recent considerable price increases for reinsurance cover, we can look to the future with confidence.”

While the company’s reinsurance operation suffered from the elevated level of cat losses in the period, its ERGO business generated an increased profit of €136 million for the third-quarter of 2020, and €381 million for 9M 2020.

Munich Re attributes the solid performance to the International and P&C Germany business segments, with the former recording a result of €57 million and the latter a result of €48 million, both of which represent year-on-year improvements. The combined ratios of the segments also remain at a solid level, improving to 90.9% in the P&C Germany business, and declining slightly to 92.5% in the International segment.

Turning to investments, and Munich Re has reported an investment result of €1.7 billion for the third-quarter of 2020 against €2.2 billion a year earlier.