Munich Re faces 2017 profit of around €350m instead of €2.0-2.4bn
Munich Re expects around €350 million net profit for the full year of 2017 subject to fourth quarter developments but sees significant signs of improvement in the operating environment for 2018, chief financial officer Jörg Schneider suggested.
Munich Re incurred a net loss of €1.4 billion in the third quarter of 2017 due to the impact of natural catastrophes in North America.
In September, the company had issued a profit warning because of the nat cat events, saying that losses from Hurricane Harvey and Irma could mean that it would miss its profit guidance of €2.0–2.4 billion for 2017.
The profit will now be “small, very small,” compared to the initially targeted levels, Schneider said during the third quarter media call. The 2017 net profit is now expected to come in at a low, three-digit level, which is still subject to the amount of large losses occurring in the fourth quarter. Currently, large losses in the last quarter do “look all right,” Schneider noted.
The full year results expectations are also subject to the developments on the capital markets, particularly on the stock market, which also affects the pricing of derivatives. Another factor that needs to be considered are any currency movements, Schneider said.
Nevertheless, the reinsurance property/casualty combined ratio for the full year 2017 is expected at around 112 percent while the life and health reinsurance business is set to deliver a technical result, including fee income, of around €400 million, according to the third quarter results presentation. Munich Re’s primary insurance business ERGO is estimated to deliver a net result of between €200 million and €250 million.
But as a result of the significant nat cat losses in the third quarter with expected insured market-wide losses from hurricanes of approximately $100 billion, Munich Re sees potential for significant profitability improvements in 2018.
“Prices will stabilize,” Schneider said. “We will definitely see price increases particularly in the affected areas in the US and the Caribbean, but we do also expect positive effects in the global markets,” he added. “This will, of course, mean higher profitability for Munich Re,” he noted.
Recent nat cat losses may also lead to a new round of consolidation in the reinsurance sector. For some players, the large losses will not only be an earnings event but also a capital event, Schneider suggested. But if there were players leaving the market, Munich Re is unlikely to be among the bidders for the business, Schneider said.
“Munich Re as a globally operating organisation faces enough growth opportunities. We don’t need to rely on acquisitions,” Schneider said.
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