Munich Re operating result down in 2016 from 2015, new partnerships could answer changing client demands

Munich Re is looking to set up partnerships that would previously not have been considered, the company reported this week in announcing the group operating result fell 16.5% to 4,025 million euros in 2016 compared to 4,819 million euros in 2015.

“The lower technical result and the costs of the ERGO Strategy Programme were only partly offset by gratifying investment and currency translation results,” Munich Re, which combines primary insurance and reinsurance, notes in a statement Wednesday.

Foreign exchange effects had a positive impact of 485 million euros in 2016 compared to a negative impact of 213 million euros in 2015 on the other non-operating result in 2016, the company reports.

Also down – although not as much as operating result – was both gross premiums written (GPW) and net earned premiums (NEP), Munich Re figures show.

GPW amounted to 48,851 million euros in 2016, down 3.0% from 50,374 million euros in 2015, “mainly because of reduced shares in large-volume treaties, the sale of ERGO Italia, and negative currency translation effects.”

With regard to NEP, this was 47,118 million euros in 2016 compared to 48,309 million euros for the prior-year period, a reduction of 2.5%.

The investment result, however, was up slightly – 0.4% — to 7,567 million euros in 2016 compared to 7,536 million euros in 2015.

For Reinsurance, the field of business contributed 2,484 million euros to the consolidated result in 2016 compared to m 3,261 million euros in 2015. The operating result was down by 1,296 million euros to 2,846 million euros in 2016.

GPW were down 1.4% to 27,827 million euros in 2016 compared to 28,216 million euros in 2015. The end result for the segment was a 23.8% decrease to 2,484 million euros in 2016 from 3,261 million euros the previous year.

By segment, the Life reinsurance business contributed 459 million euros to the consolidated result in 2016 compared to 345 million euros in 2015.

“Claims experience was impacted by high expenditure for single mortality claims with high sums insured, but was. Nevertheless. within the overall range of normal volatility,” Munich Re reports.

For Property and Casualty reinsurance, this generated a result of 2,025 million euros in 2016, down from 2,915 million euros in 2015. The combined ratio for 2016 also worsened, amounting to 95.7% of net earned premiums, from 89.7% for the prior year.

Munich Re reports that total major-loss expenditure in 2016 was 1,542 million euros compared to 1,046 million euros in 2015, with NEP, major-loss expenditure amounting to 9.1% compared to 6.2% in 2015.

The cost of natural catastrophe losses in 2016 was 929 million euros – considerably more than the 149 million euros in 2015 – with the Fort McMurray wildfires, at 404 million euros, “by far the biggest loss of the year for Munich Re.”

Other Cats included the earthquake in New Zealand, resulting in losses totalling about 251 million euros; and Hurricane Matthew, costing 232 million euros.

Man-made major losses were below the level of the previous year, the company notes, citing a total of 613 million euros in 2015 compared to 897 million euros in 2015.

“Competition in reinsurance remains intense,” Torsten Jeworrek, a member of Munich Re’s Board of Management, says in the statement.

Noting that Munich Re was able to hold its own, “it withdrew from business that no longer met profit expectations, but was able to expand on or write new profitable business. Overall, Munich Re was mostly able to retain the profitability of its renewed portfolio, and price erosion was only 0.5%,” Jeworrek adds.

Nikolaus von Bomhard, chairman of Munich Re’s Board of Management, notes that the company had a profit of 2.6 billion euros in 2016, meeting its most recent forecast of well over 2.3 billion euros.

For 2017, Munich Re is aiming for a profit in the range of 2.0 billion euros to 2.4 billion euros “in what is set to be a challenging environment,” von Bomhard points out.

“Digitalization is changing client demand, allows for the development of innovative business models, and requires us to set up partnerships that would previously not have been considered,” he reports.

Other financial results for 2016 include the following:

• the Group return on equity amounted to 8.1% compared to 10.0% in 2015;
• the ERGO field of business reported a loss of 40 million euros in 2016 compared to a loss of 227 million euros in 2015;
• ERGO had a higher operating result of 1,006 million euros in 2016 compared to 598 million euros in 2015;
• combined ratio for property-casualty primary insurance in Germany improved to 97.0% in 2016 compared to 97.9% in 2015;
• Munich Health saw a profit of 137 million euros in 2016 compared to 88 million euros in 2015;
• Munich Health’s operating result was 173 million euros in 2016 compared to 80 million euros in 2015;
• Group investment result (excluding insurance-related investments) remained largely stable at 7,567 million euros in 2016 compared to 7,536 million euros in 2015.

Overall, the Group is aiming for profit of 2.0 billion to 2.4 billion euros in 2017; the consolidated result in Reinsurance is projected to be 1.8 billion euros to 2.2 billion euros; the technical result for Life and Health Reinsurance should be at least 450 million euros; the goal is a combined ratio of about 97% of NEP for Property-Casualty Reinsurance; Group GPW will be in the range of 48 billion euros to 50 billion euros; and the company, at the beginning of the year, projects major losses in the order of around 2 billion euros, corresponding to an unchanged 12% of NEP.

Related: Munich Re posts profit of 684 million euros in third quarter