Munich Re: the Group's financial position remains strong, but assessing the final impact of the Coronavirus crisis is impossible

24 June 2020 — Daniela GHETU
While announcing many of the Munich Re's offices are gradually and carefully reopening worldwide, the German group has also shared its assessment on the impact of the Corovirus pandemic on business, confirming a high probability of not reaching the EUR 2.8 billion profit guidance for 2020.

"Despite the current situation, Munich Re continues to stand on firm economic footing, and will certainly be able to bear the economic consequences of this pandemic. Munich Re's business model has proven robust in the current crisis. Accordingly, Munich Re paid its shareholders a dividend of EUR 9.80 per share for the 2019 business year," a press release stated.

Among the reasons for missing its profit guidance, Munich Re mentioned losses and high levels of uncertainty regarding the further economic and financial impact of the pandemic. Given the high unpredictability of the pandemic evolution, Munich Re's analyst believe it is impossible to predict the final financial impact on the insurance industry and thus the Group is not providing a new profit guidance for 2020.

Here are the Group's comments on the possible evolution of the pandemic crisis in the next period:

  • In many lines of business in property-casualty insurance (e.g. business interruption), it was common practice to exclude the risk of a pandemic from insurance cover. But Covid-19 is causing insured losses owing in particular to the cancellation or postponement of large events. Losses are also being seen in other lines of business as a result of the economic downturn.
  • Our loss expectations in life and health insurance depend heavily on the development of death rates, particularly in North America. While we still cannot fully rule out the possibility of the kind of death toll expected for a 200-year event - this would be equivalent to the claims expenditure associated with a medium-sized natural disaster - many factors currently indicate that the impact of this pandemic will be less dramatic.
  • We are still observing ongoing high levels of volatility on the capital markets, alongside extremely low interest rates that will persist for the foreseeable future. This affects our solvency ratio, though the effects have been successfully mitigated through hedging and the broad diversification of our investments. At 212% (as at 31.03.2020), Munich Re's solvency ratio sits comfortably in the optimum range (175% to 220%) in line with our limit and trigger system. Munich Re continues to rest on a very solid capital base, meeting all requirements and is a reliable partner for its clients with its strong balance sheet.
  • The losses caused by the coronavirus and the economic downturn caused by the pandemic will have a significant short-term impact on Munich Re, too. That said, the coronavirus has clearly demonstrated the value of insurance, and this is likely to open up good business opportunities to Munich Re in the medium and long term. We are optimistic about the future.

Munich Re has also stressed out that the global battle against the coronavirus has not yet been won and while in many corners of the world life seems to return to normal, the threat of a second wave of infections still looms and the situation remains precarious.

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