Global reinsurance giant Munich Re is bullish about the upcoming April and mid-year renewal seasons in 2021, forecasting a positive market environment and growth opportunities as it reported its 2020 results this morning (February 25th.)
The reinsurance firm has posted €1.2 bn (around $1.47bn) of profit for 2020 despite significant losses suffered due to the Covid-19 pandemic and natural catastrophe events during the year. This is substantially down from the $3.3bn figure for 2019. The reinsurer noted that the 2020 financial year was marked by high losses in connection with the Covid-19 pandemic, and that, in reinsurance, pandemic losses totalled 3.4bn euro, with over 3bn euro of this attributable to property-casualty reinsurance.
The January 2021 reinsurance renewals saw a profitable outcome for the firm, which feels well positioned going into the year, having achieved 10.9% of premium growth at 2.4% higher prices across its portfolio.
Munich Re noted that price rises were particularly strong at the January renewals in the non-proportional segment of its business, so this would include the excess-of-loss treaty component.
Joachim Wenning, Chairman of the Board of Management at Munich Re commented, “In spite of the tremendous challenges posed by Covid-19, Munich Re closed out 2020 with a clear profit – and our dividend remains dependable. In 2021, we expect to meet the profit target that we envisaged prior to the pandemic. All the pieces are in place. Our reinsurance business is ideally positioned to resolutely exploit opportunities for profitable growth in the improved market environment. And ERGO is performing well following the successful conclusion of its Strategy Programme. We are refraining from launching a new share buy-back programme at this time, because our shareholders will benefit more from investments in the attractive business opportunities now emerging.”
Munich Re suffered €3.4bn of pandemic related losses in its reinsurance division in 2020, €370m of which was attributable to its life and health reinsurance business and just over €3bn to its property and casualty reinsurance business. Primary unit ERGO only saw a negative Covid-19 impact of €64m.
Absent those pandemic related losses, Munich Re said that its 2020 profit target of €2.8bn would have been met.
Munich Re has grown its underwriting business by 6.7%, in terms of gross premiums written, in 2020, underwriting over €54.89bn of premiums, up from 2019’s €51.457bn.
The property and casualty reinsurance combined ratio was elevated on the back of the Covid losses, coming in at 105.6% for the year.
But still the P&C reinsurance unit contributed €571m to the annual result for Munich Re, while premiums rose to €24.61bn, up from €22.09bn in the prior year.
As well as the Covid-19 coronavirus pandemic losses, Munich Re said that Hurricane Laura was its biggest natural catastrophe loss of 2020 at €280m.
Natural catastrophe losses as a whole came in well-below the prior year, €906m (down from €2.053bn), which Munich Re said was “far lower than expected on average – despite a record number of events in some loss scenarios.”
A more average catastrophe loss year would have seen a significantly worse set of numbers reported today by Munich Re, and the company appears to have avoided the impacts some other major reinsurance firms saw during the year.
On the renewals seen in January 2021, Munich Re said that as well as the 2.4% of price increase seen across its portfolio, terms and conditions improved too.
Price rises differed around the world and the non-proportional business saw the strongest rate improvements.
Looking ahead to the rest of the 2021 reinsurance renewals, Munich Re is positive that market conditions will remain attractive.
The company said that in April and July 2021, “Munich Re anticipates that the market environment will remain positive and offer attractive growth opportunities.”
Munich Re tends to forecast upcoming renewal conditions accurately, so once again the comments of a major reinsurance player read-across positively for the rest of the sector, as well as for insurance-linked securities (ILS) funds and the catastrophe bond market.
Munich Re targets a profit of €2.8bn in 2021, saying that it, “expects the financial consequences from Covid-19 to be on a considerably smaller scale than in 2020.”
In P&C reinsurance the company projects a 96% combined ratio, perhaps lower if Covid burdens don’t emerge as strongly this year and profit of €2.3bn.
Munich Re had previously forecast Covid-19 pandemic losses of around US $720m for 2021, but that remains very uncertain at this stage.
As ever though, natural catastrophe loss activity will be a key driver for profits of the major reinsurance firms like Munich Re in 2021.
As we’ve already seen in 2021 with the US winter storm activity and the high expected losses from that event, predicting profits at this early stage of the year can be challenging at best given the vagaries of severe weather and natural disaster activity.