Munich Re says Hagibis “very expensive” but targets still in sight

German reinsurance giant Munich Re is expecting the cost of Japanese typhoon Hagibis to be “very expensive” for the firm, according to its CFO, but not sufficient to force it to change tack on beating its profit target for the year.

Munich Re had said in announcing its third-quarter results that it expected to be able to deliver full-year 2019 profits that would surpass its targets. Yesterday evening the reinsurance firm held a dinner for German media at which its senior executives explained that despite the expectation of a heavy loss burden from typhoon Hagibis, this expectation remains and its targets for 2020 also remain in place.

Fourth quarter losses will be driven by Hagibis, currently expected to be the largest loss event of the quarter for Munich Re. Although the reinsurance firm may also face some impacts from other catastrophes of recent weeks, including tornadoes in the United States, wildfires in California and bush fires in Australia.

As a result of these events Munich Re began the fourth-quarter a little behind, CFO Christoph Jurecka explained to the attendees at yesterday’s media event, media reports explain. He added that because of this the company is sticking with its revised forecast that it can beat the profit target set at the beginning of the year, but wouldn’t aim any higher. Typhoon Hagibis is expected to be “very expensive” Jurecka explained to the journalists, according to a Dow Jones report.

Munich Re is also assessing the need to take action to increases reserves for its Australian life reinsurance business, the executives explained to the media, with Jurecka saying that the reinsurer may have to “do something in Australia,” referring to the Australian disability business that has proved challenging in recent years, Dow Jones said.

But despite this the target for a higher profit in 2020 also remains in place and while Munich Re expects to surpass its EUR 2.5 billion target for 2019, for the following year it still aims to reach a higher EUR 2.8 billion profit level. Munich Re’s CEO Joachim Wenning also revealed at the event that insurance acquisitions are more attractive than reinsurance. He said the company is open to compatible primary insurance acquisitions, where the risks fit with Munich Re’s appetite and portfolio, saying that this would be focused on areas where its Ergo unit is already performing well, suggesting bolt-on acquisitions are an easier fit.

There’s also likely an element of market dynamics in play here, as Munich Re already has the firepower to grow into reinsurance if it wanted to, but likely sees a greater opportunity to source increasing premium rates in the primary market and to source risk from closer the front of the market chain in this way.

Source: Artemis