Munich Re boosts profits despite heavy burdens

Munich Munich Re was able to increase its profit in the first quarter despite the burden of the Ukraine war and a series of severe natural disasters. The world’s largest reinsurer on Tuesday reported a slight increase in net profit to 608 million euros for the first three months. Compared to the previous year, there was still €589 million at this point.

CFO Christoph Jurecka sees the world’s largest reinsurer staying on course despite many crises around the globe. The Dax group is sticking to its profit target of 3.3 billion euros for the full year.

One of the main reasons for this for the Group is the equally high contribution to profit from all business units. CEO Joachim Wenning recently emphasized that this helps offset the claims burden in individual areas with revenue from other areas. This was largely achieved in the first quarter.

Property and Casualty reinsurance, which is usually the largest contributor to profits, recorded fewer major claims than the previous year. This year alone, a total of 667 million euros was incurred for damages greater than ten million euros. Last year it was 892 million euros.

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The two winter storms Ylenia and Zeynep stood out as particularly damaging events. Added to this were the floods in Australia. The war in Ukraine had an impact of more than 100 million euros, which went mainly to special insurance in the areas of transport, aviation and navigation.

Munich Re boss Joachim Wenning indicated in an interview with Handelsblatt in April that he considered the likelihood of legal disputes to be relatively high. Due to the unresolved situation in many places, for example decommissioned aircraft leases in Russia, the coming quarters should bring more accurate figures on potential losses.

The Group re-registered senior positions in connection with the Covid-19 pandemic. A large number of deaths from the omicron variant cost a total of 150 million euros. This had notable consequences for reinsurance in the area of ​​life and health insurance, which fell into the red with less than 78 million euros.

Ergo has lost benefits

Düsseldorf-based primary insurer Ergo also had to accept a drop in profits. Although he earned 96 million euros in the first three months, in the same period last year he reached 178 million euros at this point. On the one hand, the investment result was lower than the previous year. On the other hand, after several closures, the travel and health business is normalizing again, which is generating higher claims payments there.

However, the fact that industrial and private customers are increasingly seeking insurance protection has a positive effect on the operating business. Therefore, Munich Re raised its forecast for premium income this year to €64 billion. The driver here is reinsurance, where premium income is now expected to be €45bn after €42.5bn previously.

This trend is likely to continue throughout the year. In the last round of renewals in April, in which the terms of customer contracts are renegotiated, the volume of business signed grew by 7.6% to 2.7 billion euros. Attention was especially focused on Japan, India and Latin America.

Sculpture in front of the Munich Re headquarters

The reinsurer has confirmed its profit target for 2022.

(Photo: imago/Ralph Peters)

However, the business remains challenging. This is reflected in the return on capital employed (ROE). This was 9.8 percent in the first three months after 10.4 percent in the same period a year earlier. The internal strategic plan Ambition 2025, which was presented a year and a half ago, sets an annual return target of twelve to 14 percent by 2025.

One of the reasons can be found in internal investment. The investment result of the portfolio, which is around 233,000 million euros in total, fell to 987 million euros in the first three months after 1,691 million euros in the same period of the previous year. At the current yield of 2.3 percent, Munich Re missed its own target of 2.5 percent.

Munich Re is doing better than the competition

In addition, gross redemptions of Russian and Ukrainian bonds amounted to almost €700 million, weighing on investment performance in both reinsurance and Ergo. However, there are signs of improvement elsewhere. The reinvestment of expired securities, which has always been a problem in recent years due to the persistent zero interest rate policy, increased significantly to 2.1 percent.

Despite numerous challenges in many areas, Munich Re fared better than its competitors in the first three months. Swiss Re and Hannover Re reported significantly higher loads in recent days.

At Swiss Re, number two in the industry, the war, catastrophes and the pandemic even caused a loss of 248 million dollars in the period from January to March. Among other things, the Swiss had set aside $283 million for the fallout from the Ukraine war. Although Hannover Re earned 14 percent less in the first quarter than in the same period a year earlier, it was still clearly in the black with a net profit of €264 million.

Plus: Hannover Re confirms profit target, despite burdens from natural disasters, war and pandemic

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