EUR 850.00 For Business Accounts Only

Morningstar | Munchener Ruckversicherungs-Gesellschaft Mixed 3Q Results; A Quarter of Disappointing Underwriting

Munchener Ruckversicherungs-Gesellschaft reported a mixed set of third-quarter 2018 results. Clearly, these numbers are much more impressive than the comparable period one year ago. However, that 2017 natural catastrophe season was much more severe than we have come to be used to deal with. And while this isn’t a bad posting for the business in terms of underwriting, it is certainly by no means spectacular. Essentially, the reinsurance result came in at EUR 309 million consolidated. And we get the feeling that given the relative lightness of this year, something more in the region of north of EUR 400 million would have been more appropriate. We are above the market in terms of fair values estimate, with EUR 205 versus EUR 190 listed. We are going to maintain this, as well as our no-moat and stable moat trend rating, and we do back up the slight premium to the book value of the business with the belief that this is one of the best quality reinsurance businesses available to buy. There are other more niche players, but Munich Re really is the Uncle Sam lender of last resort in this industry.

The property and casualty reinsurance business reported a consolidated result of EUR 151 million, with a combined ratio of 100.7 versus 160.9 in the comparable period. However, given the lightness of this natural catastrophe season, we are disappointed Munich Re hasn’t been able to turn in something below 100%. The major loss budget is high at 12.5, but this isn’t enough of a reason in our opinion to drive such a high claims number, 0.677. The claims number therefore in our view, has been driven by a large number, high frequency, of low loss events. We are a little bit disappointed in the portfolio steering with regard to this. This is mainly because if there is going to be a major event in pricing to return the environment to some state of normalization, it’s going to be in these large loss portfolios. So to stick to the safe and smaller bets just seems like the business is asking for subpar and mediocre results. We would prefer to see Munich Re get some more large loss exposure and get the benefit of pricing post these events. The investment result is also a little light, considering the rates on government bond yields.

The life division of reinsurance has also reported light at EUR 159 million. While quarter three is generally softer for this line, this is mainly down to technical income which in this period is a very poor showing. While there is now significantly lower premium coming into this business line since the termination of a large volume treaty at the end of 2017, as well as a change to the reinsurance structure of another large volume treaty that took effect at the beginning of this year, we think a quick look a technical result over gross premiums shows there is room for significant improvement in terms of selection and profitability. Again, the investment result is soft.

One quite encouraging element we see in these results in the renewals of July 1, 2018. This is chiefly treaty volume in North America, Latin America, and Australia. This represented around EUR 2.3 billion of Munich Re’s property and casualty reinsurance book, or something in the region of 15%. And what we continue to like to see is the upward trend in the pricing environment, though this is definitely not drastic. The price increases this year came in at 0.9%, versus negative 0.4% in the year prior. And premium volume overall was EUR 3.3 billion, up over 40%. This is highly encouraging, and we expect to see some much-improved property and casualty reinsurance results coming out of this business going forward. This higher overall volume number bodes well for demand and pricing going forward. A large nat cat would be much longed for icing on the cake.