After the first year of its Ambition 2025 strategy program, Munich Re is on track to meet the financial targets for 2025 as specified in the program. In the 2021 financial year, the return on equity (RoE) amounted to 12.6%. Earnings per share in 2021 - when compared with the normalized result from the previous year - rose by 4.7%. If the Annual General Meeting and the Supervisory Board implement the proposal of the Board of Management to pay shareholders a dividend of EUR 11 per share for the 2021 financial year, this would constitute an increase of 12.2%. The solvency ratio - less the proposed dividend, as usual - stood at around 227% at the end of the year. If the share buy-back - which has not been factored into the solvency ratio - is taken into account, the ratio is at target level.
The operating result in the 2021 financial year rose considerably to EUR 3,517 million compared with 2020, while the other non-operating result amounted to -EUR 91 million, as compared with EUR -83 million the previous year. The currency result totaled EUR 262 million, and the effective tax rate was 15.9%. Equity was higher at the reporting date (EUR 30,945 million) than at the start of the year (EUR 29,994 million).
Reinsurance: Result of EUR 2,328 million
The reinsurance field of business contributed EUR 2,328 million to the consolidated result in the 2021 financial year, of which EUR 734 million in Q4. The reinsurance field of business thus met its profit target of EUR 2.3 billion - despite numerous natural catastrophes and substantial losses attributable to COVID-19 in life and health reinsurance. The good, resilient result in reinsurance is proof that the underlying profitability of Munich Re's operative business has improved further. The operating result totaled EUR 2,696 million. Gross premiums written rose to EUR 41,354 million, with the sizeable increase resulting from the growth strategy in an improved market environment.
Life and health reinsurance business generated a profit of EUR 325 million in 2021. Premium income amounted to EUR 12,561 million. The technical result, including the result from business with non-significant risk transfer (fee income), was EUR 218 million. Especially the fee income performed very favorably. The segment was impacted by a higher mortality attributable to COVID-19, with claims totaling EUR 785 million in 2021.
Property-casualty reinsurance contributed EUR 2,003 million to the 2021 result. Premium volume grew considerably to EUR 28,793 million. Due to high natural catastrophe losses, the combined ratio amounted to 99.6% of net earned premiums; this was slightly better than the updated target value of 100% communicated in the Q3 Media Release. The normalized combined ratio was 95.2%.
Major losses of over EUR 10m each totaled EUR 4,304 million for the full year, and EUR 1,006 million for Q4. These figures include run-off profits and losses for major claims from previous years. Major-loss expenditure corresponds to 16.5% of net earned premiums and was thus above the expected value of 12%. Costs for man-made major losses amounted to EUR 1,165 million. This drop was partially attributable to significantly lower COVID-19-related losses in property-casualty reinsurance, which decreased to EUR 212 million in 2021. By contrast, major-loss expenditure from natural catastrophes rose substantially year on year to EUR 3,139 million. The costliest natural disaster for Munich Re in 2021 was Hurricane Ida, at about EUR 1.2 billion. The flash flooding caused by Storm Bernd resulted in losses of around EUR 0.5 billion.
In the 2021 financial year, reserves of EUR 1,041 million were released for basic losses from prior years; this figure corresponds to 4.0% of net earned premiums. Munich Re continually seeks to set the amount of provisions for newly emerging claims at the very top end of the estimation range so that profits from the release of a portion of these reserves are possible at a later stage.
In the reinsurance renewals as at 1 January 2022, Munich Re was able to increase written business volume to EUR 14.8 billion (+14.5%). The pronounced growth was accompanied by an optimization of the portfolio's risk profile. Around half of property-casualty business was renewed, with a focus on Europe, the USA (mainly excluding hurricane cover) and global business.
Prices, terms and conditions improved overall. To varying degrees, prices showed an upward trend worldwide. All in all, prices for the Munich Re portfolio increased by 0.7%. This figure is, as always, risk adjusted. In other words, price increases are offset if they are associated with increased risk and, consequently, elevated loss expectations. Particularly in light of higher inflation, Munich Re was deliberately cautious in determining future loss expectations.
Despite increasing market pressure, Munich Re expects the market environment to remain positive and to present attractive growth opportunities in the upcoming April and July renewal rounds.
ERGO: Result of EUR 605 million
Munich Re generated a profit of EUR 605 million in its ERGO field of business in 2021, of which EUR 137 million was in Q4. ERGO thus appreciably surpassed its profit target of EUR 500 million in 2021, while also achieving the annual target communicated as part of the ERGO Strategy Program - despite burdens from major losses. At the same time, ERGO managed to grow substantially. Premium income climbed in all three segments, with the Property-casualty Germany segment managing to post exceptional premium growth that outperformed the market. Overall premium income across all lines rose substantially to EUR 19,166 million; gross premiums written increased to EUR 18,213 million.
The ERGO Property-casualty Germany segment reported a profit of EUR 234 million - buoyed by a very good technical result and a higher investment result, major losses notwithstanding. ERGO International generated a result of EUR 207 million. The technical result improved here as well, the year-on-year profit decrease being attributable to a positive, one-off effect in 2020. ERGO Life and Health Germany reported a result of EUR 164 million. A lower investment result in this segment was more than offset by an improved currency result and a good technical result, which was driven by improvements in health and very good claims experience in travel insurance. It was possible in this context to build up investment reserves in equities. ERGO's operating result totaled EUR 822 million, which was particularly impacted by a lower investment result.
In the Property-casualty Germany segment, the combined ratio was 92.4% - thus meeting the 2021 target level despite the major losses caused by Storm Bernd. ERGO International's combined ratio was likewise at a very good level, at 92.9%, major losses in Austria and the Baltic states notwithstanding.
Investments: Investment result of EUR 7,156 million
Munich Re's investment result decreased to EUR 7,156 million in 2021. Overall, this investment result represents a return of 2.8% on the average market value of the portfolio. This means that Munich Re met its return target of >2.5% despite persistently low interest rates. The running yield was 2.4% and the yield on reinvestment was 1.5%. The equity-backing ratio, including equity-based derivatives, rose to 7.7% as at 31 December 2021 (31 December 2020: 6.0%).
Regular income from investments decreased to EUR 6,017 million, primarily due to lower interest income. The balance from write-ups and write-downs was considerably better year on year, at -EUR 505 million; COVID-19 losses in 2020 had made it necessary to recognize high impairment losses on equities. The balance of gains and losses on disposals excluding derivatives decreased to EUR 3,182 million. The net balance of derivatives amounted to -EUR 774 million, with the losses arising from equity and interest-rate derivatives held for hedging purposes.
The investment portfolio increased compared with the 2020 year-end figure, with the carrying amount moving up to EUR 240,300 million; the market values amounted to EUR 257,485 million.
Outlook for 2022: Group profit guidance of EUR 3.3 billion
Munich Re is aiming for a profit in 2022 of EUR 3.3 billion, which factors in COVID-19 losses (before tax) of approximately EUR 300m in the life and health reinsurance segment. Conversely, Munich Re does not anticipate any significant expenditure for COVID-19 claims at ERGO or in property-casualty reinsurance.
Group premium income is expected to set a new record of approx. EUR 61 billion in 2022 and return on investment to be above 2.5% despite persistently low interest rates.
In its reinsurance field of business, Munich Re anticipates premium income of about EUR 42.5 billion and a profit of around EUR 2.7 billion in 2022. The combined ratio in property-casualty reinsurance should be about 94%. Munich Re projects a technical result, including business with non-significant risk transfer, of about EUR 400m in life and health reinsurance.
The ERGO field of business will contribute approx. EUR 0.6 billion to the consolidated result. A combined ratio of 91% is expected in the ERGO Property-casualty Germany segment, and 92% in the ERGO International segment. Premium income should amount to approx. EUR 18.5 billion in 2022.
All forecasts and targets face considerable uncertainty owing to fragile macroeconomic developments, volatile capital markets and the unclear future of the pandemic. As always, the projections are subject to major losses being within normal bounds, and to the income statement not being impacted by severe fluctuations in the currency or capital markets, significant changes in the tax environment, or other one-off effects.