Munich Munich Re is feeling the effects of the turnaround in interest rates and turbulence on the capital markets. The profit was only 768 million euros in the second quarter, after 1.1 billion euros in the same period last year. In the first half of the year it was 1.37 billion, after 1.69 billion euros a year earlier.
CEO Joachim Wenning said: “Munich Re has achieved a solid quarterly result, despite strong headwinds due to inflation, a slowdown in the economy and the war in Ukraine.” The group is sticking to its annual target of 3.3 billion euros.
Higher interest rates and the sometimes very unsettled financial markets had a particularly negative impact on the world’s largest reinsurer. This is reflected in the return. This was only 11.2 percent in the second quarter, after 19.2 percent in the same period of the previous year.
The in-house strategy plan “Ambition 2025”, which was presented a year and a half ago, sets an annual return target of twelve to 14 percent up to the year 2025.
Munich Re reduces investment result forecast
One of the reasons can be found in the in-house investment. The investment result of the overall portfolio, which is around 223 billion euros in total, fell in the months from April to June to 971 million euros after 1.93 billion euros in the same period of the previous year. With the current yield of 1.6 percent, Munich Re has missed its own target of 2.5 percent.
The Dax group reduced the return expectations for its own investments: “more than 2.0 percent” are now expected. With regard to bonds, Wenning said: “The rise in interest rates will give us tailwind in the long term as we benefit from higher current investment income.”
The world’s largest reinsurer opens its books.
(Photo: dpa)
Losses from derivatives (hedging transactions) on fixed-income securities and high write-downs on shares were the reasons for the decline. Share prices have recently fallen sharply due to the various crises surrounding the Ukraine war. As of June 30, Munich Re’s equity exposure including derivatives was seven percent, down from 7.7 percent at the turn of the year. Competitor Hannover Re reported last week that it had reduced its shareholdings to zero since April.
However, there are signs of improvement elsewhere. The reinvestment return on expiring securities, which has always been a problem in recent years due to the persistent zero interest rate policy, rose significantly to 2.8 percent. In the long term, the turnaround in interest rates should therefore have positive consequences for investment income.
The effects of the turbulent first half of the year were also evident in the operating business. Property-casualty reinsurance, which regularly makes the largest contributions to profits, reported higher major losses than in the previous year.
A total of 575 million euros was incurred in the second quarter for damage over ten million euros. Last year it was 432 million euros. The costliest natural catastrophe was the drought in South America in the second quarter. The damage was around 130 million euros.
War in Ukraine costs 200 million euros
In the meantime, there are also figures on the damage caused by the Russian war of aggression in Ukraine. In the second quarter they amounted to around 90 million euros, calculated for the first half of the year it was 200 million euros. It shouldn’t stay that way.
>> Read here: Munich Re boss: “War cannot be insured because it is ruinous”
Munich Re boss Joachim Wenning indicated in an interview with the 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 leasing contracts for aircraft decommissioned in Russia, further quarters are likely to follow before more precise figures on possible damage are available.
On the other hand, the burdens associated with the Covid-19 pandemic have decreased. Here, the expenses in the second quarter were still 100 million euros, in the first half of the year they were 259 million euros.
Things weren’t going well for the primary insurer either, but they were better than at Munich RE.
(Photo: dpa)
Things went a little better for the Düsseldorf primary insurer Ergo. He earned 160 million euros in the second quarter, compared to 155 million euros in the same period last year. For the first half of the year, however, there was a clear minus here too. The profit was only 256 million euros after 334 million euros in the same period last year. A lower investment result and higher claims costs were the reason.
The fact that industrial and private customers are increasingly looking for insurance cover is having a generally positive effect on Munich Re’s operating business. Overall, Munich Re recorded premium income of EUR 32.7 billion in the first half of the year, an increase of twelve percent on the same period last year.
In the spring, the insurer had already raised its forecast for premium income this year to 64 billion euros. The driver is reinsurance, where premium income of 45 billion euros is now expected, after previously 42.5 billion euros. Reinsurance transfers risk from an insurance company to a reinsurance company.
>> Read here: Disasters cost insurers $38 billion in the first half of the year
This trend is likely to continue over the course of the year. In the most recent round of renewals in July, in which the terms of customer contracts were renegotiated, the volume of business written grew by six percent to 4.4 billion euros. The focus was particularly on North and South America and Australia.
Competitors do better
The Munich-based company’s competitors suffered less from the turbulence on the capital markets in the first six months. Swiss Re and Hannover Re reported better numbers after charges in the first quarter in the past few days.
After severe losses in the first quarter, Swiss Re returned to the black. After six months, the Swiss earned a total of 157 million euros, slightly more than in the same period last year. For the second half of the year, however, the Swiss put a question mark behind their annual targets because of the many imponderables.
At Hannover Re, number three in the industry, the consolidated result climbed to over 385 million euros in the second quarter, and the annual forecast of 1.4 to 1.5 billion euros is still valid.
More: Hannover Re confirms profit target and sells all shares.