Munich Re Posts $1 Billion 3Q Loss, Comments on Terrorism Coverage

Munich Re, the world’s largest reinsurer, suffered a commensurately large loss in the 3rd quarter of €1.2 billion ($1.05 billion) after tax. In addition to the estimated €2.1 billion ($1.85 billion) losses from the Sept. 11 attacks, a number of other factors coincided during the period to raise the insurer’s combined loss ratio to 179.6 percent.

Claims were increased by Bayer Pharmaceuticals recall of Bayco/Lipobay, the probable total loss of the PAS 7 communications satellite, damage from typhoon Nari in Taipei, and the explosion of the AZF chemical plant owned by TotalFinaElf in Toulouse. This year is the first time Munich Re has issued quarterly figures, so no comparison with last years results can be made, but the company did indicate that the combined loss ration for the first nine-months of the year was 133.9 percent.

The disastrous 3rd quarter results overshadowed an otherwise encouraging performance. Munich Re reported the gross premium increased by 14.7 percent for the first nine months to €25.8 billion ($ 22.7 billion), and it reported a small net profit over the same period of € 85 million ($74.8 million) despite the catastrophes in September.

With increases in general reinsurance premiums rising between 25 and 30 percent, and industrial business by 40 to 60 percent and more, Munich Re expects to see a strong rebound in the 4th quarter. “Group premium income should top € 34bn [$29.92 billion] — a year-on-year increase of more than 10%,” said the announcement.

Commenting on the September losses, Hans-Jürgen Schinzler, Chairman of Munich Re’s Board of Management said in a statement, “The terrorism losses in the USA, as well as other major losses, demonstrate how much primary insurers continue to need reinsurance as a risk-transfer vehicle to guarantee their own claims-paying ability when faced with extreme financial burdens. This also highlights the question of reinsurers’ security – their financial strength and claims-paying ability. Primary insurers will take a very close look at their reinsurers in future to be sure they can rely on having their claims paid even when the going gets tough.”

Munich Re will also be taking a close look at the primary insurers, and reiterated its position that certain preconditions are imperative “for the future coverage of the terrorism risk: limited liabilities, short periods of notice for terminating terrorism cover, risk transparency, and premiums based on the new risk situation. As one of the few triple ‘A’ rated reinsurers, Munich Re will pretty much be able to select only the business it wants for the near future.

Topics Catastrophe Natural Disasters Profit Loss Reinsurance