Munich Re affirms profit guidance despite natural catastrophes - quarterly profit of EUR483m
"This good Q3 result puts us on track to achieve our profit target for 2018 - despite a series of major natural catastrophes still continuing in the fourth quarter. The benefits of first-class primary insurance and reinsurance cover become apparent in times of climate change and growing economic risks", stated Jorg SCHNEIDER - Chief Financial Officer, MUNICH Re.
Summary of the figures for Q3
The operating result increased to EUR1,040m (-1,732m) year on year. The other non-operating result declined to -EUR272m (-243m); of which -EUR127m (-74m) was attributable to the currency translation result. Taxes on income totaled EUR235m (previous year: positive tax result of EUR597m). At EUR27,117m, equity was lower than at the beginning of the year (EUR28,198m), since the good result for Q1-3 and positive currency translation effects were more than offset by the dividend payment, share buy-backs and lower unrealized gains attributable to higher interest rates. Gross premiums written increased by 4.2% to EUR12,790m (12,279m). If exchange rates had remained the same, premium volume would have risen by 4.3% year on year.
In Q3, the annualized return on risk-adjusted capital (RORAC) amounted to 7.7%, and the return on overall equity (RoE) totaled 7.2%. For the first nine months, the annualized return on risk-adjusted capital (RORAC) amounted to 10.8%, and the return on overall equity (RoE) totaled 9.9%.
At more than 260%, the solvency ratio at the end of Q3 was much higher than at the beginning of the year (244%). The increase in Q3 was mainly due to an update of property values.
As part of its active capital management, Munich Re has repurchased shares with a volume of around EUR746m in 2018 so far. In addition, Munich Re plans to issue a new subordinated bond.
Reinsurance: Result of EUR309m
The reinsurance field of business contributed EUR309m to the consolidated result in Q3. The operating result totaled EUR589m. In Q3 2017, the extremely high losses from hurricanes Harvey, Irma and Maria had resulted in a loss of EUR1,465m for the quarter and in a negative operating result of -EUR2,029m.
Gross premiums written increased by 6.2% to EUR8,566m (8,065m), and a decline in premium volume in life and health reinsurance was more than compensated for by significant premium growth in property-casualty reinsurance.
Life and health reinsurance business saw a year-on-year increase in profit to EUR159m (59m). Premium income declined to EUR2,805m (3,322m) owing to terminations and the restructuring of large-volume treaties. The technical result - including the result from business that is not recognized in the technical result as a consequence of non-significant risk transfer - amounted to EUR88m (37m) in Q3. It was adversely affected by a high individual loss in Canada, as well as by a first transaction forming part of the sale of Ellipse, a specialist provider of group life risk protection in the UK. The technical result for the first nine months totaled EUR419m (271m). Munich Re is thus well on track to reach the envisaged target of at least EUR475m for the year as a whole.
Property-casualty reinsurance contributed EUR151m (-1,525m) in Q3. Premium volume saw a significant and gratifying increase to EUR5,761m (4,743m), benefiting from organic growth. The combined ratio for Q3 was 100.7% (160.9%) of net earned premiums. At 97.3% (117.3%), the figure for Q1-3 remained at a good level and right on course to reach the envisaged figure of 97% for the year as a whole.
Overall expenditure for major losses of over EUR10m each amounted to EUR599m (3,165m) for Q3 (Q1-3: EUR1,267m). These amounts, which include run-off profits and losses for major claims from previous years, are equivalent to 12.5% of net earned premiums for Q3 and 9.3% for Q1-3. Man-made major losses amounted to EUR94m (200m). Major losses from natural catastrophes totaled EUR505m (2,965m). Losses from Hurricane Michael and Typhoon Trami are expected to impact the Q4 result with around EUR350m.
As claims notifications for basic losses from prior years remained appreciably below the expected level overall, Munich Re was able to release reserves in the amount of around EUR190m (after adjustments for commissions), corresponding to 4.0 percentage points of net earned premiums. In Q1-3, Munich Re thus released reserves totaling approximately EUR570m, which is equivalent to 4.2 percentage points of net earned premiums. Munich Re still aims to set the amount of provisions for newly emerging claims at the very top end of the estimation range, so that profits from the release of a portion of these reserves are possible at a later stage.
ERGO: Result of EUR173m
In the ERGO field of business, Munich Re generated a profit of EUR173m (29m) in Q3, and EUR359m (224m) for the period from January to the end of September. The good quarterly result was driven by a very high segment profit of EUR176m for ERGO Life and Health Germany, which was attributable to a one-off effect from a change in assumptions regarding profit appropriation. Despite good operating performance, the ERGO Property-casualty Germany segment posted a slight loss of EUR18m in Q3 on account of a lower investment result. ERGO International generated a profit of EUR15m - in spite of negative one-off effects owing to the optimization of its international portfolio. ERGO's operating result climbed to EUR451m (297m).
The combined ratios developed very pleasingly. In the Property-casualty Germany segment, the ratio improved to 94.7% (98.1%) in Q3 and amounted to 95.3% (96.6%) for Q1-3. For the ERGO International segment, the Q3 combined ratio was 93.3% (91.5%), and the figure for Q1-3 improved to 94.7% (95.5%).
Total premium income across all lines of business rose by 0.4% to EUR4,427m (4,410m) in Q3 2018, and gross premiums written were up by 0.2% to EUR4,224m (4,214m).
Investments: Investment result of EUR1,311m
The Group's investment result (excluding insurance-related investments) fell to EUR1,311m (1,589m) in Q3. Regular income from investments rose to EUR1,598m (1,527m). The net balance of derivatives improved to EUR56m (37m). The balance of gains and losses on disposals excluding derivatives saw a significant decrease to EUR46m (259m), mainly owing to lower financing needs for the additional interest reserve. Munich Re also posted higher net write-downs of EUR219m (84m) on non-derivative investments during the past quarter compared with the same period last year.
The investment result for Q3 represents an overall return of 2.3% in relation to the average market value of the portfolio. The running yield was 2.8%, and the reinvestment yield was 2.5%. The equity-backing ratio (including equity-linked derivatives) as at 30 September 2018 remained constant at 6.7% (31 December 2017: 6.7%).
With a carrying amount of EUR216,950m (market value of EUR231,271m), total investments (excluding insurance-related investments) as at 30 September 2018 were down slightly compared with the year-end 2017 figure of EUR217,562m (EUR231,885m at market value).
The Group's asset manager is MEAG, whose assets under management as at 30 September 2018 included not only Group investments, but also a volume of EUR16.2bn (15.9bn) for third parties.
Outlook for 2018: Higher profit guidance for ERGO
In light of the good results for Q1-3, Munich Re has raised its profit guidance for the ERGO field of business. A profit of at least EUR350m is now anticipated (previously: EUR250-300m). In view of positive premium development, Munich Re has narrowed down its target range for gross premiums written in the property-casualty reinsurance segment to approximately EUR31bn (previously: EUR29-31bn). For Munich Re as a whole, the target range has been substantiated at EUR48-49bn (previously: EUR46-49bn).
Besides that, expectations for 2018 have not changed in comparison with the figures given in the Quarterly Statement for Q2 2018 that was published in August. Munich Re has not revised its forecast consolidated result in the range of EUR2.1-2.5bn for 2018.