Munich Re earnings dented by losses from man-made events

Costs related to the Grenfell Tower fire in London have dented first-half results at German reinsurance group Munich Re.

The fire, which ripped through a 24-storey residential tower block in London in mid-June, killed at least 80 people.

The main insurer on the tower was Norway’s Protector Forsikring, but it passed much of the risk on to other companies, including Munich Re, via reinsurance deals.

On Wednesday, Munich Re said that losses from man-made events reached €434m in the first half, more than a third higher than the same period in 2016. The company would not confirm how much of that was related to Grenfell, citing both uncertainty about the final size of the claim and client confidentiality.

However chief executive Joachim Wenning told the Financial Times that the company could cope with the claim: “It will not move the needle for Munich Re,” he said.

Nevertheless, profits from Munich Re’s reinsurance business fell by a quarter to €1.1bn as claims ticked up in some parts of the business.

Jörg Schneider, the chief financial officer, said: “Last year we had an extra-ordinarily low amount of large losses. This year, it was just a low amount.” He added that investment returns had fallen because of low interest rates.

The global reinsurance industry is under pressure because of falling prices, but Munich Re said it still saw plenty of opportunities, especially in smaller, less competitive markets.

Munich Re’s primary insurance business, Ergo, was for once one of the bright spots in the results. The unit has struggled in the past but a turnround plan was put in place last year by Ergo’s new chief executive Markus Riess, with the aim of cutting €280m of costs by 2020.

Ergo returned to profit in the first half, with earnings of €195m against a €30m loss in the same period last year, partly thanks to a tax gain. But Mr Wenning is not yet satisfied. “We expect them to deliver €200-€250m this year, but that is still far away from what we expect them to deliver as a sustainably profitable part of the group. They still have a way to go.”

Overall, Munich Re’s first-half profit dropped from €1.4bn to €1.3bn, but Mr Wenning said that he was confident that the company would reach its 2017 profit guidance of €2bn-€2.4bn.

Analysts at Citi said that the results for the second quarter beat analysts’ estimates by 9 per cent, although they noted that some of that was down to one-offs.

Shares in Munich Re slipped 3 per cent on Wednesday.