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Hurricanes expected to deliver 1.4 billion euro hit to Munich Re in third quarter, total tally estimated at 2.7 billion euros


October 26, 2017   by Canadian Underwriter


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Exceptional major-loss expenditure related to hurricanes Harvey, Irma and Maria (HIM) are expected to result in Munich Re posting a loss of 1.4 billion euros in 2017 Q3, reducing the (re)insurer’s previously anticipated full-year profit.

Volunteer Brock Warnick removes drywall and insulation from the home of Julia Lluvia which was damaged by floodwaters in the aftermath of Hurricane Harvey Monday, Sept. 4, 2017, in Houston. (AP Photo/David J. Phillip)

Emphasizing that current estimates “are still fraught with considerable uncertainty,” the (re)insurer reports in a statement Thursday it expects HIM-related losses of 2.7 billion euros after retrocession.

Including the expenditure for other natural catastrophes – in particular, the quakes in Mexico – and man-made losses, overall major-loss expenditure will amount to 3.2 billion euros for the third quarter of 2017, notes Munich Re, which combines primary insurance and reinsurance and operates around the world, including in Canada.

The 2017 Q3 result will also be impacted by adverse International Financial Reporting Standards “effects from the recapture of a life reinsurance treaty and, as expected, a low positive contribution to the quarterly result from ERGO,” the company explains.

Munich Re’s primary insurance operations are concentrated mainly in ERGO, which is represented in more than 30 countries around the world and offers a comprehensive range of insurances, provision products and services.

The 1.4 billion loss for the July to Sept. 2017 period means the Munich Re Group now projects a small profit for the 2017 “on the proviso that business performs in line with expectations in the last quarter,” the (re)insurer points out.

Munich Re announced in mid-March that its profit guidance for 2017 would be in the range of 2.0 billion to 2.4 billion euros. However, on Sept. 13, the company announced the expected severe losses from hurricanes Harvey and Irma were likely to result in a loss for 2017 Q3 and might jeopardize its profit target for 2017. Since then, Maria has also caused significant damage in the Caribbean.

Detailed information on 2017 Q3 financial figures are scheduled to be released Nov. 9.

In August, Munich Re reported a combined ratio of 93.9% in reinsurance in the three months ending June 30, down 5.9 points from 99.8% in the same period in 2016.

The company reported at the time that, for the first half of 2017, it had an overall major-loss expenditure of 656 million euros, after retrocessions and before tax, of which 253 million euros was attributable to the second quarter. That compares to major loss expenditure of 542 million euros in 2016 Q2.

Related: Combined ratio down 5.9 points, P&C reinsurance premiums down 8% for Munich Re

“High losses from severe natural catastrophes are part and parcel of our business; that is why we are here,” Jörg Schneider, chief financial officer of Munich Re, said in the statement Thursday.

“Our capital base remains very strong. We will continue to offer our clients full reinsurance capacity. Moreover, Munich Re has enough capital to take advantage of the opportunities this exceptional situation provides in terms of profitable growth,” Schneider continues.

A long list of reinsurers and insurers have posted anticipated losses from the U.S. hurricanes over the past few weeks. Just last week, Lloyd’s revised its net claims estimates for Harvey and Irma to a combined US$3.9 billion, plus a preliminary claims estimate for Maria of US$0.9 billion. The company further reported it had paid almost US$900 million in claims to date for HIM.

Related: Swiss Re estimates losses from recent hurricanes, Mexico earthquakes at US$3.6 billion

Other announced loss estimates include the following:

  • Zurich Insurance Group has estimated aggregate claims in 2017 Q3 for the group’s Property & Casualty business to be US$700 million, net of reinsurance and before tax;
  • Aspen Insurance Holdings Limited has issued a preliminary estimate of US$310 million in pre-tax losses, net of reinsurance and reinstatement premiums, for the three hurricanes;
  • Everest Re Group, Ltd. recently reported it expects to incur pre-tax Cat losses, net of reinsurance and reinstatement premiums, of US$1.2 billion;
  • XL Group has released a preliminary estimate of US$1.33 billion for HIM; and
  • Markel Corporation has estimated 2017 Q3 Cat losses for HIM and the Mexico earthquakes at US$503 million, net of reinstatement premiums.

In September, Aon Benfield cautioned in the September edition of its Reinsurance Market Outlook report that flood losses from Harvey have again highlighted the global insurance protection gap.

Finding that a significant proportion of the flood losses generated by Harvey in Texas and Louisiana will be uninsured, those affected will require substantial financial support from the U.S. government, notes the report from Aon Benfield, the global reinsurance intermediary and capital advisor of Aon plc, which assesses the key drivers of reinsurance supply and demand in the approach to Jan. 1 renewals.

Beyond leaving the government, and, therefore, taxpayers, to pick up most of the bill, is that the industry has “an ‘over-capitalized’ reinsurance industry and new investors actively seeking access to diversified insurance risk,” explains Eric Andersen, chief executive officer of Aon Benfield.

“The frequency of severe weather-related losses is increasing and there needs to be a significant step-up in the efforts made to address the protection gap evident globally,” Andersen emphasized.