Munich Re Writes Down $740 Million Bonds Over War in Ukraine

by BLOOMBERG / pic by AFP

MUNICH – Munich Re incurred steep losses on Russian and Ukrainian bonds in its investment portfolio and warned of risks to its outlook from the conflict between the two countries, along with volatile markets and the pandemic.

The German reinsurer wrote down the value of the securities by almost €700 million (US$740 million) in the first quarter, or €370 million on a net basis, it said Tuesday. It also saw about €100 million in costs related to the war, while major losses from natural disasters were below average.

“The financial consequences of the war and the sanctions severely impacted our result in the first quarter,” Chief Financial Officer Christoph Jurecka said in a statement Tuesday. “We made writedowns for impairment losses on Russian and Ukrainian bonds alike and recorded the first claims.”

The war in Ukraine has prompted fears of another major loss event for the insurance industry, after the onset of the pandemic two years ago. Munich Re rebounded from the latter by more than doubling profit last year, allowing it to announce plans to return €2.5 billion to shareholders.

Shares of the reinsurer rose 1% at 9:07 a.m. in Frankfurt trading, as management reiterated a forecast for €3.3 billion in profit this year, despite “considerable uncertainty” from the war, volatile markets and the ongoing pandemic.

While Munich Re has said it doesn’t expect a significant direct impact because war risk is excluded in traditional property contracts, it recently acknowledged it has some exposure including via aviation.

Operating profit fell 2.3%, missing analysts estimate as the investment result slumped 42%. Net income rose to €608 million in the three months through March from 589 million euros a year earlier.

Swiss Re said earlier that it had set aside US$283 million in reserves related to the war during the first quarter, and Hannover Re said it had made additional provisions for possible losses in the low triple-digit million-euro range.

Insurers and reinsurers could face claims of as much as US$11 billion after Russia changed legislation to effectively impound planes leased from foreign lessors, Moody’s Investors Service said in March. According to a report by S&P Global Ratings, the war will “add uncertainty and exacerbate earnings volatility in global reinsurers’ specialty lines.”

Munich Re said in March it won’t renew insurance contracts in Russia and Belarus and had suspended new business in those countries. The company also said it would stop investments in the region.