Munich Re Says It May Miss Profit Target on Irma, Harvey

Munich Re, the world’s largest reinsurer, said Hurricanes Harvey and Irma will probably wipe out third-quarter profit and threaten the company’s ability to meet its full-year earnings target.

“These two events are expected to result in high insured losses, which the market and Munich Re are unable to quantify at the moment,” the Munich-based reinsurer said Wednesday in a statement, adding that it will probably report a third-quarter loss. “Despite good business performance in 2017 to date, the losses from Harvey and Irma could mean that Munich Re might miss its profit guidance.”

The storms, which devastated parts of Texas and Florida during the past weeks, add to challenges for new Chief Executive Officer Joachim Wenning, who is seeking to reverse years of falling profit. That’s after the company was pressured into taking on weather-related risks because of low interest rates and competition from Wall Street firms. Munich Re had previously given guidance of 2017 profit of 2 billion euros ($2.4 billion) to 2.4 billion euros.

“Given the scale of the catastrophe losses, we see this as unsurprising,” Jefferies analysts Philip Kett and Mark Cathcart said in a note to clients on Thursday. “The group entered the hurricane season with one of the largest catastrophe budgets, a key advantage over its peers such as Swiss Re.”

Munich Re shares fell as much as 1.5 percent in Frankfurt and were little changed at 175.8 euros at 9:14 a.m. on Thursday. Insurers and reinsurers jumped in markets at the beginning of the week amid signs that losses from Hurricane Irma’s damage were expected to be much lower than initially feared.

While Swiss Re said it on Sept. 11 it would be too early to comment on its losses from the hurricanes, Hannover Re, the third-biggest reinsurer, confirmed its full-year profit target of more than 1 billion euros unless major losses significantly exceed its budgeted level of 825 million euros. It added that after the first nine months, the budget probably won’t be fully used by claims from Harvey and that the remainder would be available to help cover possible losses from Irma.

Damage Assessment

Primary insurers such as Hartford Financial Services Group Inc. and Allstate Corp., whom reinsurers help cover losses, have said it’s too early to assess the damage from Irma, which struck Florida days ago. That’s partly because it’s been difficult to get staff into the state after flooding. Some insurers say their costs will be cushioned partly by risk-transfer deals with reinsurers.

Torsten Jeworrek, who heads Munich Re’s reinsurance business, said on Sept. 10 that compared with other regions in the U.S., Munich Re’s exposure to Florida would be below average. He also said it would be much too early to comment on the impact from storms on results.

Irma shifted to Florida’s Gulf Coast over the weekend, sparing Miami a direct hit and prompting risk modeler AIR Worldwide to say the maximum cost for insurers on Irma is $40 billion. Prior worst-case scenarios from analysts and ratings firms were more than $100 billion.

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