15 March 2017News

Munich Re forecasts profits to dip, combined ratios to soar in 2017

The world’s biggest reinsurer has suggested its profit for 2017 will be lower than in 2016 on the back of a challenging environment with combined ratios increasing and its reinsurance unit specifically contributing less to profits. But it has also forecast growth in its reinsurance business.

Munich Re said it is aiming for a consolidated result of between €2 billion and €2.4 billion in 2017, lower than the €2.6 billion profit it made in 2016. It stressed that this was subject to major losses being within normal bounds, and its income statement not being impacted by severe currency or capital market developments, significant changes in tax parameters, or other exceptional factors.

It anticipates that its consolidated result in reinsurance will be in the range of €1.8 billion and €2.2 billion in 2017. In 2016, its reinsurance unit contributed €2.5 billion to the group result.

In life and health reinsurance, the technical result – including the result from reinsurance treaties recognised in the non-technical result owing to insufficient risk transfer – should be at least €450 million, the company said.

Nikolaus von Bomhard, chairman of the board of management at Munich Re, said: “For the financial year 2017, Munich Re is aiming for a profit in the range of €2.0–2.4 billion in what is set to be a challenging environment.”

The company has also revealed plans to buy-back up to €1 billion of its own shares by April 2018, as it struggles to find profitable opportunities.

In property/casualty reinsurance, Munich Re is aiming for a combined ratio of around 97 percent of net earned premiums in 2017, taking into account the relatively low incidence of major losses until the end of February. At the beginning of the year, Munich Re projects major losses in the order of around €2 billion for 2017, corresponding to an unchanged 12 percent of net earned premiums.

Munich Re’s combined ratio for 2016 was 95.7 percent, a sharp increase on the 89.7 percent it posted in 2015.

Munich Re expects the ERGO field of business to contribute between €150 billion and €200 million to the consolidated result. The combined ratio for the ERGO property/casualty Germany segment should be around 99 percent in 2017, provided that major losses remain within normal bounds. A combined ratio of around 98 percent is expected for the ERGO international segment if major losses are at a normal level.

It noted that on 1 February 2017, the Munich Health field of business was integrated into the two larger fields of business, reinsurance and ERGO. Thus the profit contribution of health reinsurance has been included in the profit target for reinsurance. Profits from international health primary insurance will be recognised under ERGO International.

Assuming exchange rates remain stable, the reinsurer said it anticipates that its gross premiums written for the financial year 2017 will be in the range of €48 billion to €50 billion. In 2016, its gross premiums written fell to €48.9 billion compared with €50.4 billion in 2015.

For the reinsurance business, it said its gross premiums should be in the range of €31 billion to €33 billion. This would be an increase on 2016 when they declined to €27.8 billion compared with €28.2 billion in 2015.

Munich Re anticipates that interest rates will also remain very low overall in 2017, with correspondingly lower regular income from fixed-interest investments. Overall, Munich Re expects an investment result of around €7 billion, representing a return on investments of about 3 percent.

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More on this story

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16 March 2017   While Munich Re is currently shrinking its share of traditional reinsurance business, due to the current soft market, it is also investing in technology to create alternative growth opportunities through the coverage of new risks and advisory for risk prevention.
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15 March 2017   Munich Re's departing CEO Nikolaus von Bomhard has admitted that he had not succeeded with all his plans during his time in charge, especially with struggling primary subsidiary Ergo.
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17 March 2017   Munich Re is investing in technology and actively preparing and searching for growth opportunities to revert the current shrinking process.