The biggest numbers in life and non-life insurance
Two of the world’s largest global reinsurers reported solid profits for 2021, offering further evidence that the global economy is recovering despite the ongoing pandemic overhang. One must, however, be careful of basing assumptions on headline earnings alone, because these financial services giants operate in multiple insurance disciplines. It is not uncommon for the trading experiences across the healthcare, life and non-life reinsurance disciplines to be divergent.
Munich Re CEO, Joachim Wenning, said that 2021 had been a good year for the group and that the coming year was expected to be better. “We beat our 2021 profit target while making our balance sheet even stronger, despite high inflation,” he said, in a media release accompanying the result. The strong performance allowed the reinsurer to reward shareholders with an €11 per share dividend and a €1 billion share buy-back scheme. Of greater import is that Munich Re Group’s consolidated profit was forecast to rise further in the coming 12-months, from the €2.932 billion reported in the current year to €3.3 billion. Yes, dear reader, a single global reinsurer will weigh in with ZAR56.5 billion in profit this year, at our end-February exchange rate.
Looking forward to better times
Another multinational reinsurer, Swiss Re, reported net income of US$1.4 billion for 2021 and has set “ambitious new financial targets” for the coming period, indicating that it too expects the 2022 operating experience to be better. “The latest year marked an important turning point for Swiss Re,” noted Christian Mumenthaler, the firm’s Group CEO. “We have worked hard to strengthen business performance, with a rigorous focus on portfolio quality and underwriting excellence; our 2021 results are a testament to these efforts, and we are convinced our performance will continue to improve”. He added that the profit rebound was achieved despite “major Covid-19 impacts and a high occurrence of large natural catastrophe events throughout the year”.
The pandemic loss experience in the non-life or property-casualty reinsurance segment showed improvements for 2021 compared to the prior year, and it was natural catastrophe losses that again came to the fore. At Munich Re, property-casualty reinsurance contributed €2 billion to the result on the back of an almost 17% rise in premium volume. This was despite high natural catastrophe losses pushing the reinsurer’s combined ratio to 99.6%, with a normalised combined ratio of 95.2%. The reinsurer offers a useful assessment of major loss events, defined as losses exceeding €10 million each. Summing claims under these categories showed €1.165 million in claims for man-made major losses compared to €3.139 million from natural catastrophes. For 2021, Covid-19 related losses in property-casualty reinsurance decreased to €212 million. This compares to the €1.2bn in insured losses caused by Hurricane Ida!
Huge turnaround from asset cover
Swiss Re noted that its property-casualty reinsurance book delivered strong profit thanks to its improved portfolio quality. “Property-casualty reinsurance reported a net income of US$2.1 billion, compared with a net loss of US$247 million in 2020,” they wrote. “This reflects the improved quality of the portfolio and rate increases, as well as favourable investment results”. Net premiums earned grew by 5.3% to US$21.9 billion. But natural catastrophes demanded a huge slice of this premium, coming in at US$2.1 billion for the year on the back of Hurricane Ida and widespread flooding in Europe during the third quarter. US winter storm Uri earlier in the year was also costly. Swiss Re’s combined ratio and normalised combined ratio were 97.1% and 94.7% respectively.
The experience in the life and healthcare reinsurance segment was more reserved, with concerns over ongoing exposure to pandemic losses. Munich Re’s life and health reinsurance business generated a profit of €325 million last year from around €12.561 billion in premium income. “The segment was impacted by a higher mortality attributable to Covid-19, with claims totalling €785 million in 2021,” the reinsurer said. Dr Christoph Jurecka, Chief Financial Officer for the group, told the media that the group’s higher 2022 profit expectation included further expected Covid-19 related losses in life and health reinsurance totalling around €300 million. “The pandemic is not over and we still expect claims to be significant this year,” he said. “If there is another wave we would have to increase our guidance on Covid losses”.
With the disclaimer that global reinsurer experiences cannot be compared like-for-like, Swiss Re reported a net loss of US$523 million from this segment in 2021 as the business incurred substantially higher Covid-19 related claims of almost US$2 billion. “Life and healthcare reinsurance remains impacted by significant Covid-19 losses, while it continues to improve underlying profitability,” they said. Heightened pandemic-related mortality rates and rising infection rates out of the US were singled out as the primary driver of this performance. The good news is that net premiums earned and fee income increased by 7.1% to US$14.9 billion for the year.
Expectations for 2022 and beyond
Looking forward to 2022, both reinsurers report that their property-casualty reinsurance exposures due to pandemic have dissipated; but life and healthcare claims for this peril will continue. Munich Re notes that its €3.3 billion profit target for this year “factors in Covid-19 losses of approximately €300 million in the life and health reinsurance segment” while it does not anticipate significant expenditure for such claims in its property-casualty reinsurance segment or at its insurance business ERGO. However, “all forecasts and targets face considerable uncertainty owing to fragile macroeconomic developments, volatile capital markets and the unclear future of the pandemic”.
Swiss Re bases its strong 2022 expectations on its strong property-casualty reinsurance renewals experience in the New Year. “We renewed contracts with US$8.9 billion in premium volume on 1 January 2022, which represented a 6% volume increase compared with the business that was up for renewal,” they said. The reinsurer noted strong growth in its property and specialty lines, with natural catastrophe related premium volume up by 24%. Overall, the group achieved a price increase of 4% through this renewal round. “While we remain in an uncertain environment with regards to the pandemic, we are confident in the group’s ability to deliver against our future targets, underpinned by our very strong capital position,” concluded Mumenthaler.
Hardening markets are part of the insurance landscape
Dr Jurecka closed his brief conference call with an upbeat assessment for the coming years. “We expect the positive growth and profitability to continue and remain very optimistic for the development of our business,” he said. “Our strategy is clearly focused on taking advantage of the hardening market and further leveraging the potential we have in our group”. The group will benefit from its strong balance sheet as it sets about delivering the financial and operational targets contained its mid-term Ambition 2025 strategy.
Writer’s thoughts:
The Munich Re ‘balance sheet’ conference call contained some welcome assurances that the outlook for insurers and reinsurers is improving. We wondered, however, whether local insurance brokers and insurers were similarly upbeat. Have you noticed improvements in your renewal experience and / or month-to-month premium growth as we enter 2022, and hopefully leave pandemic behind us? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.
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