Munich Re has confirmed its profit target of €3bn for 2014 after booking a first-half profit of €1.69bn, up from €1.51bn in the same period last year. Gross premiums written were down 5% year on year to €24.8bn, from €26.1bn, mainly because of currency translation effects.
Chief executive Nikolaus von Bomhard said that there had been "fiercer competition between established market players in the first half of 2014, while pension funds and hedge funds are increasingly also breaking into the market". He noted that the appreciably greater supply side was coming at a time of falling demand on the buy side.
Bomhard predicted that "it is only a question of time before insurers have to shoulder the consequences of their underwriting policies", but said that he was "astounded" at the number of companies in the insurance industry who were pursuing a growth strategy at this point in the cycle.
He also noted that, although all market participants wanted to earn more than their cost of capital, "if they are lucky, insurers can get away with inadequate prices for risks that are likely to occur only rarely – although they result in enormous losses when they do". On the long-tail side, "a less conservative reserving policy allows insurers to avoid having to face up to reality for the moment".
Munich Re said that in reinsurance it had been able to shift capacity from strongly non-proportional natural catastrophe business into "other areas that are not so dominated by imprudent competition". This included business that offered "customised, specialised solutions".
In the life reinsurance segment there was an 11.1% H1 decline in GPW (minus 4.1% at constant exchange rates), to €4.94bn, from €5.56bn in the corresponding period last year. The consolidated result rose a fraction of a percent to €235m. Munich Re said that the reduction was mainly attributable to existing major treaties, which it was able to renew, "albeit in some cases with a reduced volume". Munich Re said that these treaties generally served as a capital substitute for its clients, and generally run for a period of several years. Although growth in Asian markets is still helping Munich Re's premium levels, the primary side was impacted by the weak economy, which had a knock-on effect on the demand for reinsurance.
In reinsurance the investment result for the first half was up to €432m, from €362m in the same period last year.
In the property-casualty reinsurance segment for the first half, GPW was down 0.6% year on year to €8.48bn (up 3.6% at constant exchange rates)
The consolidated result improved to €1.15bn, from €961m in the same period last year. The combined ratio rose to 94.1%, from 92.4%.
Munich Re noted that its January 1 renewals this year were positive, with premium volume of about €8.7bn up for renewal and premium growth of 2.7% being recorded on overall price declines of 1.5%. By contrast, the April 1 renewals were only about €800m of premiums, much of which was property catastrophe business in Japan and North America. Munich Re said that premium volumes remained roughly constant, although prices were down by about 8%.
Munich Re said that, although there was a decline in pricing in Japan and North America, a fundamental difference was that in Japan the declines were a return to more normal pricing following the 2011 earthquake and subsequent tsunami.
Overall major loss expenditure in property-catastrophe was €656m (€711m in H1 2013), of which €617m was attributable to Q2.
For the first half, Munich Re noted that major-loss expenditure in H1 was slightly below average, with a significantly below average loss in Q1 and a slightly above average loss in Q2, when high levels of man-made losses and the winter storm in Japan (impact on Munich Re, €180m) affecting the technical result. Although the Japan event took place in Q1, the figure is represented in the Q2 numbers because of late-reported claims.
Although the technical result declined, the operating result and consolidated result improved, helped by an improved investment return, backed up by gains on disposals.
Other natcat events that impacted the reinsurance sector were an earthquake off the northern coast of Chile in April, (impact on Munich Re an estimated €50m) and flooding in May in Serbia, Bosnia-Herzegovina and Croatia, (impact on Munich Re an estimated €40m).
Unusually, man-made losses made up a significant part of insured losses in the half, with €326m of the €329m being incurred in Q2. The largest claim for Q2 was a fire loss "in the low three-digit million euro range". A liability claim cost €65m. Reserve releases on prior years came to €180m.
In the primary sector, consisting mainly of Ergo, premium volume for the first half was flat at €9.3bn. The combined ratio improved fractionally, to 95.5%, from 96.0%. There was a strong improvement in the investment result, up to €3.1bn for the half, from €2.5bn in H1 2013. This was due to €1.6bn in write-ups of derivatives in the second quarter. The consolidated result for H1 was €258m, down from €266m.
In April Munich Re pooled the life, health and travel insurance divisions in Germany into a single division, "insurance of the person". The previous five tied agents' organisations have been merged into two homogeneous organisations.
In primary property-casualty during H1 there was a 2.5% decline in GPW to €3.02bn, from €3.09bn in the same period last year. The consolidated result fell to €97m, from €139m in the same period last year.
Of major losses, at the beginning of June there was bad weather across much of Western Germany. Munich Re said that Ergo's initial estimate for losses as a result of this event was €21m.