28th June 2020

Munich Re reports on COVID-19 impact

Munich Re comments: "The global battle against the coronavirus has not yet been won. Nonetheless, many countries have managed to reduce the number of COVID-19 infections by taking action– at times drastic–to curb the spread of the virus. In some corners of the world, lockdown measures are now being eased or even lifted entirely, and social and economic life is ramping up again-albeit under strict hygiene and safety rules. But the threat of a second wave of infections still looms and the situation remains precarious. It will not be possible to determine the true extent of the pandemic’s impact on the insurance sector for some time.
As a globally active Group, we are of course observing the progression of the pandemic very closely. Our thoughts continue to be with all individuals and families who have been directly affected by the virus: suffering an illness or indeed losing a family member comes at a much greater cost than any economic loss. Our highest priority is to protect our employees and business partners. That is why we have put in place strict measures to ensure the infection risk is kept as low as possible. The vast majority of our employees have been working from home in the past weeks. Our business activities have continued to run smoothly, and Munich Re has been there for its clients throughout. Many of Munich Re’s offices have now reopened their doors to a limited number of staff, of course under strict hygiene rules.
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 E9.80 per share for the 2019 business year.
From today’s perspective, however, it appears that Munich Re will not meet its profit guidance of E2.8bn for the whole of 2020, owing to losses and high levels of uncertainty regarding the further economic and financial impact of the pandemic. In light of this uncertainty, Munich Re is not providing a new profit guidance for 2020.
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.

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