Munich Re said its reinsurance operation will face €3.4 billion ($4.10 billion) of COVID-19 losses this year, up from €2.3 billion ($2.77 billion) for the first nine months, and has revised its group profit forecast for 2020 to €1.2 billion, down from €2.7 billion last year.

The majority of Munich Re’s COVID-19 reinsurance losses this year, at more than €3 billion, were booked to Munich Re’s property/casualty account. It is expected to record a combined ratio of 106% for 2020.

Munich Re said contingency business was the major driver of COVID-19 claims at a cost of €1.7 billion, with a further €965 million from business interruption, €200 million from directors and officers/workers compensation, €170 million from credit insurance and €25 million from marine/aerospace.

Munich Re expects a further €500 million of COVID-19 losses booked to its reinsurance business in 2021, while the negative impact on premiums will hit the technical result by an additional €50 million.

Property/casualty reinsurance will book €300 million of the additional COVID-19 loss in 2021, with contingency costing €200 million, business interruption €50 million and credit insurance €50 million.

Munich Re’s primary insurer Ergo Group AG is braced for a €100 million hit to its net result in 2021 after claims and the impact on premiums. Munich Re said the insurer will add €500 million to group profit for 2020 and just €30 million shy of its original target. It is forecast to match this result in 2021

Munich Re withdrew its original profit guidance of €2.8 billion for 2020 in March, when COVID-19 started to drive claims upwards.

This week, Chief Financial Officer Christoph Jurecka said the group would have met its original target but for €3.4 billion of COVID-19 losses on its reinsurance book. He added that Munich Re will instead hit the €2.8 billion target in 2021.

The reinsurance business will add €700 million to the group’s forecast profit of €1.2 billion for 2020, Munich Re said. It is expected to drive group profit in 2021 at a target of €2.3 billion.

“We expect to generate a profit of clearly above €1 billion this year. The pandemic has naturally had a considerable impact on our result. But the burdens arising from COVID-19 are financially manageable for Munich Re,” Mr. Jurecka said.

“Thanks to our strong balance sheet, we are in a very good position to exploit current market opportunities. In the coming year, we plan – despite anticipated further COVID‑19 losses – to meet the profit target of €2.8 billion as envisaged prior to the pandemic,” he added.

Munich Re said record group premiums of €54 billion are forecast for full-year 2020. This is expected to be quickly broken in 2021, with premiums predicted to rise to €55 billion.

More insurance and risk management news on the coronavirus crisis here.

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