Munich Re first reinsurer to act on virus impact as profit guidance and share buyback cancelled

Munich Re has withdrawn its profit guidance and cancelled a planned share buyback because of the scale of claims linked to coronavirus, which include a large share of the Olympic postponement loss. The insured cost of the Tokyo Olympics delay until 2021 will be far less than total cancellation would have been but will still probably cost the insurance market about $2bn, according to analysts. Insiders say that Munich Re faces a total bill of some $500m, while rival Swiss Re’s CFO told analysts in a recent call that it faced costs of about $250m. Lloyd’s syndicates are also likely to face high bills from the event postponement. “In the first quarter of 2020, Munich Re’s property-casualty reinsurance segment saw a considerable claims burden from losses in connection with the effects of the significantly worsened Covid-19 crisis. The claims expenditure is due mainly to the cancellation and postponement of large events. Hence, even though work on the quarterly accounts has just begun, Munich Re only anticipates profits in the low-three-digit million-euro range for the first three months of 2020 (Q1 2019: €633m),” stated the German reinsurance group this week. “Owing to the great uncertainty concerning the macroeconomic and financial impacts of Covid-19, from today’s perspective – and assuming a burden from major man-made and natural-catastrophe losses that is otherwise in line with expectations – Munich Re will not attain its profit guidance of €2.8bn for 2020 as a whole,” it continued. Despite this and pressure from supervisors for insurers and reinsurers to pare back dividends during this crisis period, Munich Re added it would continue with its planned dividend increase payment, announced along with its 2019 results back in February. The reinsurer will however cancel its planned share buyback programme. “Even after the impacts of capital market and loss developments, Munich Re’s solvency ratio is still comfortably within the communicated optimal range of 175%–220% of the requirement. The proposal to the annual general meeting on 29 April remains unchanged: that the dividend be increased to €9.80 per share. Implementation of the 2020/2021 share buyback programme announced on 26 February 2020, however, will be discontinued until further notice and until there is greater clarity both on the actual burdens arising from Covid-19 and on capital requirements for potential organic or inorganic business opportunities,” said the reinsurer. The European Insurance and Occupational Pensions Authority recently said it expects insurers and reinsurers to scale back their profit distribution activities to protect capital during the crisis. It stated on 17 March: “Recent stress tests have shown that the sector is well capitalised and able to withhold severe but plausible shocks to the system… insurance companies should take measures to preserve their capital position in balance with the protection of the insured, following prudent dividend and other distribution policies, including variable remuneration.” So far, Munich Re has been the first to act among the leading European reinsurance groups. On 11 March, Hannover Re posted group net income up by 21.2% to €1.28bn for last year and proposed a dividend of €5.50, up from €5.25 per share for 2018, and is so far sticking to that. The Hanover-based reinsurance group said it only expects a “small impact” on life and health claims as a result of the virus. It also stressed that it has a pandemic retrocession bond in place that would kick in at 120%-140% mortality, but feels that we remain “far away” from a scenario. On 20 February, Swiss Re reported 2019 group net income up 73% to $727m from $421m in 2018, a dividend increase of 5% to CHF5.90 per share and share buyback of up to CHF1bn. It has not announced any change of policy yet. Paris-based SCOR reported group net incomeof €422m for 2019, up 31.1% compared to 2018, and a dividend payment of €325m that is to be confirmed at its annual general meeting, now postponed till the end of June. It has said nothing yet about any change to this policy. On 19 March, the SCOR executive committee wrote an open letter that called upon organisations and individuals to take immediate action to slow the spread of Covid-19. It also said it does not expect the virus to have a material impact on its life book. “At the present time, based on current public and client information available, and with all required caveats and subject to the evolution of the pandemic across the globe and the effectiveness of containment measures put into place by the respective public authorities, SCOR does not foresee material impact on its book from Covid-19. SCOR will continue to regularly assess the Covid-19 impact on its business. With the information that is known at present, we are in a situation that has strictly nothing to do with the one-in-200-year extreme-stress scenario disclosed by SCOR,” stated the group.

Munich Re first reinsurer to act on virus impact as profit guidance and share buyback cancelled

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