Munich Re slashes profit guidance amidst economic uncertainty

By Ranamita Chakraborty

As a result of losses and high levels of uncertainty regarding the further economic and financial impact of the COVID-19 pandemic, Munich Re has announced that it will not meet its profit guidance of EUR2.8bn ($3.1bn) for the whole of 2020.

The major global reinsurer will not be providing a new profit guidance for 2020.

Despite the current situation, Munich Re said it continues to stand on firm economic footing and will be able to bear the economic consequences of the pandemic. It paid shareholders a dividend of EUR9.8 per share for the 2019 business year.

However, Munich Re noted that COVID-19 is causing insured losses owing, particularly those relating to the cancellation or postponement of large events. Additionally, losses are also being seen in other lines of business as a result of the economic downturn.

Meanwhile, its loss expectations in life and health insurance depend heavily on the development of death rates, particularly in North America.

The reinsurer anticipates that the coronavirus death toll would be equivalent to the claims expenditure associated with a medium-sized natural disaster since many factors currently indicate that the impact of this pandemic will be less dramatic.

However, Munich Re’s solvency ratio continues to be affected as it is still observing ongoing high levels of volatility on the capital markets alongside extremely low interest rates that will persist for the foreseeable future.

Nevertheless, the effects of such conditions have been mitigated successfully through hedging and the broad diversification of its investments.

In its official statement, Munich Re expressed optimism for the future and said, “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.

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