Munich Re shrinks P&C book at July renewals, but on track to exceed full-year profit target

Global reinsurer Munich Re shrank its property and casualty (P&C) reinsurance book by 1.9% at the July reinsurance renewals as it chose to discontinue select business, although prices were up overall and sufficient to offset higher loss expectations from inflation and other developing trends.

In announcing its second quarter and first half 2023 results this morning, Munich Re revealed that its volume of business declined at the July 1st renewals by 1.9% to EUR 3.6 billion, as the firm decided against renewing business “that no longer met expectations with respect to price, terms and conditions.”

In Q1, Munich Re grew its P&C reinsurance book by 13%, and by a further 11.1% at the April reinsurance renewals.

For Munich Re, the main focus of these renewals was business in North America, South America, Australia, and with global clients, and although the firm elected to shrink its book after solid growth in earlier renewals, across the portfolio, prices increased overall by 5.1% on a risk-adjusted basis.

The company notes different trends in different markets dependent on loss experience and future loss expectations, with the cost of reinsurance rising considerably in the U.S., Latin America and Australia.

Across its business, profit fell to EUR 1.15 billion in Q2 2023 and to EUR 2.43 billion in H1 2023, compared with EUR 1.58 billion and EUR 3.1 billion a year earlier, respectively. The reinsurer attributes the decline in the half-year period to higher unwinding-of-discount effects and an elevated major loss experience.

Within its property and casualty (P&C) reinsurance business, major loss expenditure rose to EUR 600 million from EUR 464 million in Q2 2023, including gains and losses from the run-off of major losses from previous years.

Despite the rise, major loss expenditure corresponded to 9.3% of net insurance revenue, so came in below the long-term average expected value of 14%, for both the quarter and half-year period, which corresponded to 12.8%.

Losses from natural catastrophes increased from EUR 156 million last year to EUR 445 million this year, which more than offset a decline in man-made losses from EUR 308 million to EUR 155 million. The Italian flooding was the costliness event for Munich Re in Q2, at EUR 200 million.

Munich Re also released reserves of EUR 322 million in Q2 2023 for basic losses from prior years, which is line with last year.

The rise in natural catastrophe losses contributed to a rise in the P&C reinsurance combined ratio to 80.5% in Q2 2023 compared with 72.3% a year earlier, while the H1 2023 combined ratio weakened to 83.5% from 74.5% a year earlier.

All in all, the P&C segment produced a net result of EUR 578 million in the quarter against EUR 878 million a year earlier, although insurance revenue from contracts issued increased from EUR 6.4 billion to EUR 6.7 billion year-on-year.

Munich Re’s life and heath reinsurance segment performed well in Q2 2023, with the firm reporting an improved technical result of EUR 325 million, although the net result for this part of the business fell to EUR 326 million from EUR 561 million.

All in all, the reinsurance business contributed EUR 904 million to the Group’s net result in the second quarter, which is down on the prior year. Munch Re attributes the dip in part to intentionally incurred losses from the disposal of fixed-interest securities in P&C reinsurance.

“Munich Re posted a profit of €2.4bn during the first six months of 2023 – considerably greater than half of our full-year forecast. All areas of our operation are contributing to our success,” said Joachim Wenning, Chair of the Board of Management. “Munich Re continues to grow profitably because our clients value our strength, consistency and expertise. And we’ll keep on resolutely tapping into the encouraging market environment. In addition, we’re systematically making progress on decarbonisation in investments and insurance business and on fostering women leaders. Halfway through our Ambition 2025 strategy programme, it’s clear that Munich Re is fully on track to meet its targets.”

For the remainder of the year, Munich Re has said that it remains confident of further positive opportunities, and has maintained its net result guidance of EUR 4 billion for 2023, noting that the chance of exceeding this has risen after the strong H1 performance.

Looking ahead to the January 1st, 2024, reinsurance renewals, the company expects market conditions to remain favourable and offer attractive business opportunities.