Munich Re withdraws profit guidance on Covid-19 claims burden

Global reinsurance giant Munich Re has become the first major player to withdraw its stated profit guidance for 2020, as it revealed a “considerable claims burden” caused by losses from the Covid-19 coronavirus pandemic.

Munich Re’s CEO Joachim Wenning had confidently set out a profit target of €2.8bn for 2020 as recently as late February, but just one month on the world has changed dramatically due to the current pandemic crisis and already Munich Re is feeling the effect of losses in its business.

Late yesterday the reinsurance firm said that its property casualty reinsurance segment saw “a considerable claims burden from losses in connection with the effects of the significantly worsened COVID-19 crisis,” in the first-quarter of this year.

These claims are largely due to significant cancellation and postponement claims from large events around the globe that have been cancelled or postponed due to the coronavirus outbreak.

“Even though work on the quarterly accounts has just begun, Munich Re only anticipates profits in the low three-digit million euro range for the first three months of 2020 (Q1 2019: €633m),” Munich Re explained.

Given the pandemic has only really taken a significant hold across many regions of the world in the last two to three weeks, the claims burden is likely to accelerate and be added to in the second-quarter as losses flow into other lines of reinsurance business as well.

But this initial hit and the expected continued uncertainty has been sufficient for Munich Re to withdraw its guidance for the full-year.

“Owing to the great uncertainty concerning the macroeconomic and financial impacts of COVID-19, from today’s perspective – and assuming a burden from major man-made and natural-catastrophe losses that is otherwise in line with expectations – Munich Re will not attain its profit guidance of €2.8bn for 2020 as a whole,” the reinsurance company said.

However, as one of the largest global players in re/insurance, Munich Re remains well capitalised and does not expect its solvency to be affected.

“Even after the impacts of capital-market and loss developments, Munich Re’s solvency ratio is still comfortably within the communicated optimal range of 175–220% of the requirement,” the company said.

In addition, Munich Re explained that it would cancel its share buyback program for the year, as it would seek to retain capital “until there is greater clarity both on the actual burdens arising from COVID-19 and on capital requirements for potential organic or inorganic business opportunities.”

For Munich Re to issue such a warning does not bode well for less diversified, smaller players in reinsurance, who may find their exposure to the coronavirus outbreak more acute.

We should perhaps expect a raft of profit warnings and guidance cancellations over the coming weeks.