Munich Re’s 2020 Profit Drops 55% on COVID-19-Related Reinsurance Claims of $4.1B

Munich Re’s 2020 Profit Drops 55% on COVID-19-Related Reinsurance Claims of $4.1B

2021-02-25 16:18:44
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Munich Re reported profit of € 1.21 billion (US $ 1.47 billion) for 2020, down 55% from the € 2.71 billion (US $ 3.29 billion) reported for the previous year.

The reinsurer's profit in Q4 2020 decreased from € 217 million ($ 264 million) in Q4 2019 to € 212 million (US $ 258 million).

Munich Re's fiscal year 2020 was characterized by high pandemic-related losses, with reinsurance claims totaling € 3.4 billion ($ 4.1 billion). Of this amount, just over € 3 billion ($ 3.7 billion) was attributable to property / accident reinsurance, while € 370 million ($ 450 million) was attributable to life and health reinsurance.

At ERGO, the group's main insurance subsidiary, the negative impact on earnings from COVID-19 claims totaled € 64 million ($ 78 million).

Adjusted for these pandemic-related losses, Munich Re said it would have met its originally targeted 2020 earnings target of € 2.8 billion ($ 3.5 billion), which it retracted in March 2020.

The company also reported large losses from natural disasters of € 906 million ($ 1.1 billion) for 2020, which Munich Re said was much lower than the average expected price tag. This compares to the 2019 nat cat claims of € 2.1 billion ($ 2.6 billion). The most expensive natural disaster for Munich Re in 2020 was Hurricane Laura with a price tag of approximately € 280 million ($ 340.3 million).

The group's property reinsurance business contributed € 571 million ($ 694 million) to 2020 results, compared to € 1.56 billion ($ 1.9 billion) in 2019. Premium volume increased to € 24.6 billion ($ 30 billion) in 2020 from € 2.1 billion ($ 2.6 billion) in 2019.

The combined ratio increased from 100.2% in 2019 to 105.6% (a combined ratio of more than 100% indicates an insurance technical loss).

The group's gross written premiums increased 6.7% in 2020 to € 54.9 billion ($ 66.7 billion), compared to € 51.5 billion ($ 62.6 billion) in 2019.

Outlook for 2021

Munich Re is aiming for a profit of € 2.8 billion ($ 3.4 billion) by 2021, with the financial impact of COVID-19 expected to be much smaller than in 2020. Group premium income is expected to rise to approximately € 55 billion ($ 66.8 billion) in 2021, and a return on investment of more than 2.5%, despite persistently low interest rates.

In reinsurance, Munich Re expects premium income of approximately € 37 billion ($ 45 billion) and profits of approximately € 2.3 billion ($ 2.8 billion) in 2021. The combined ratio in non-life reinsurance property is estimated at about 96% (95% without the impact of COVID-19).

2021 Renewals

In its January 2021 reinsurance renewals, Munich Re said it was able to increase written volume by nearly 11% to € 11.6 billion ($ 14.1 billion). About half of the property accident business has been revamped, with a focus on Europe, the US (mainly excluding hurricane coverage) and global operations.

Prices, terms and conditions improved; the rates increased particularly in parts of the non-proportional company. Prices around the world improved to varying degrees, but average prices for the Munich Re portfolio were up 2.4%.

Looking ahead to the upcoming renewal rounds in April and July, Munich Re expects the market environment to remain positive and offer attractive growth opportunities.

"Despite the daunting challenges that COVID-19 poses, Munich Re ended 2020 with a clear profit – and our dividend remains reliable," CEO Joachim Wenning said in a statement. “In 2021 we expect to achieve the profit target we had in mind for the pandemic. All pieces are in place. Our reinsurance business is ideally positioned to take decisive advantage of opportunities for profitable growth in the improved market environment. "

Subject to the approval of the supervisory board and the annual general meeting, a stable dividend of € 9.80 ($ 11.91) per share is planned.

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