Insurance: Munich Re maintains its profit target despite hurricane damage

Estimates differ widely on how much Hurricane Ian will cost insurers in Florida. Germany’s industry leader is now roughly quantifying its costs.

The destruction caused by Hurricane “Ian” in Florida is expected to cost the world’s largest reinsurer, Munich Re, billions. The Executive Committee estimates the burden at about 1.6 billion euros. That’s even more than second in the industry, Zurich’s Swiss Re, which estimated its damage on Tuesday at US$1.3 billion (a good €1.3 billion).

However, unlike Swiss Re, the Munich group is sticking to its profit target of 3.3 billion euros for 2022, as it announced on Friday. Whether it succeeds, however, depends on positive special effects on capital investment, which the Board of Directors currently expects. The recently shaken Munich Re stock surged after the news.

Munich Re board member Thomas Blunck said Thursday it was too early for a reliable estimate of the hurricane’s damage. The group also stressed on Friday that the €1.6bn sum was still subject to “considerable uncertainties”. However, the group has already calculated such damage that it was reinsured with other companies or transferred to the capital market, for example, in the form of catastrophe bonds.

Major damage expected in Florida

Estimates of how much the hurricane will cost the global insurance industry also differ widely. Munich Re assumes an insured market loss “within a broad current range” of around $60bn. The portion of the US National Flood Insurance Program (NFIP) is excluded. Swiss Re had estimated the insured loss, including the NFIP, at between $50 billion and $65 billion.

“Ian” made landfall in Florida in late September as a level four of five hurricane. During its journey through the southern US state, it caused extensive damage and dozens of people were killed. When it came to quantifying the financial damage, risk experts initially differed widely. In its most recent estimate, insurance services provider Corelogic, which specializes in underwriting, went from $31 billion to $53 billion for wind and flood damage, including the NFIP share.

There should still be profit

Munich Re expects a profit of around 500 million euros for the third quarter, despite an expected charge of 1.6 billion euros. Analysts expected an average loss of 167 million euros. As a result, they had already canceled the board’s profit target for the full year. On average, Munich Re-registered experts only had a surplus of €2.76 billion on receipt for 2022, €500 million less than the company was seeking.

However, according to Munich Re, the mentioned earnings in the third quarter and the confirmation of the earnings target are based on positive special effects. In the months of July to September, the positive effect came from the life and health segment of the direct insurance subsidiary Ergo in Germany. And whether the profit target for the year as a whole will be achieved does not only depend on the expected evolution of significant losses in the fourth quarter. In addition, the one-off effects that are currently expected should materialize, especially in the case of equity investments.

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