Profit halved: Munich Re wants to leave Corona behind

Thursday, February 25, 2021

Profit halved
Munich Re wants to leave Corona behind

The global corona pandemic ruined the year for reinsurer Munich Re. Overall, the group had to spend almost 3.5 billion euros – for example because of the cancellation of major events. The company is very confident for 2021.

The reinsurer Munich Re made a billion profit in the Corona year 2020 despite high losses and sees itself on the way back to normal. "This year we will build on the profit level that was targeted before the pandemic," said CEO Joachim Wenning. "The prerequisites are right." Last year, Corona and its consequences – such as the cancellation of major events such as the Olympic Games – cost the world's largest reinsurer 3.5 billion euros. In the current year, only around 600 million euros are to be added. "We are completely covered for the entire corona damage complex," said CFO Christoph Jurecka.

For Munich Re, 2020 was the blackest loss year since 2011, with a major loss burden of 4.7 (2019: 3.1), when the tsunami in Japan and the earthquake in New Zealand ruined its balance sheet. At least the natural disaster season in 2020 turned out to be mild. Ultimately, it was enough to generate a net profit of 1.21 billion euros, which, however, was more than half lower than a year earlier.

The dividend should nevertheless remain stable at EUR 9.80 per share. Investors will have to forego the usual share buyback this year, as Wenning made clear. Munich Re needs the money to take advantage of its growth opportunities and play it safe with Corona. Because in the new year, Munich Re should get back on track with a profit of 2.8 billion euros. The combined ratio should then fall back below the critical level of 100 percent at 96 (2020: 105.6) percent.

In the negotiations to renew the contracts at the turn of 2020/21, the reinsurer took advantage of the increasing rates and wrote 11 percent more business. The prices alone rose by 2.4 percent. "In no line of business and no region have we seen more rate deteriorations," Wenning said. The prospects for the renewals in April and July are similarly good.

The primary insurance subsidiary Ergo proved to be a stabilizing factor for Munich Re. "The restructuring of Ergo was successful at just the right time – when it was needed most to cushion the fluctuations in results," said Jefferies analyst Philip Kett.

The former problem child delivered a profit of 517 million euros thanks to savings last year, although it had to bear 64 million euros in corona damage and the travel insurance was paralyzed because of the restrictions. Ergo is also expected to contribute around half a billion to profits in 2021 – and is looking to takeovers. CFO Jurecka made it clear that if Munich Re buys, then in primary insurance.