July 21st, 2021 | 11:56 CEST
Allianz, Kainantu Resources, Munich Re - The 10 billion disaster!
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"[...] I wouldn't be surprised if the project ends up showing more than 5 million ounces. [...]" Gary Cope, President and CEO, Barsele Minerals
Born in Munich, he first studied economics and graduated in business administration at the Ludwig-Maximilians-University in 1995. As he was involved with the stock market at a very early stage, he now has more than 30 years of experience in the capital markets.
Allianz - Flood catastrophe only slightly spoils the balance sheet
The series of claims in 2021 continues seamlessly. A few weeks ago, for example, there was already the heavy hail damage caused by storms, which have been increasing in recent years. The Chief Executive of the German Insurance Association (GDV), Jörg Asmussen, expects record losses after the flood disaster. "In the short term, it is becoming apparent that 2021 could develop into one of the years with the highest losses since 2013. Back then, the insured loss was EUR 9.3 billion." Experts suspect much higher loss amounts for 2021.
In a further interview, the insurance industry is already taking precautions: If the state does not meet its climate protection obligations as soon as possible, the forces of nature will no longer be insurable. For housebuilders, this means that natural hazards will either no longer be insurable at all or only at a high premium. As a result, the choice of location for a real estate investment becomes a matter of course.
Although the flood of the century in 2013 "only" caused Allianz a burden of around EUR 200 million, the bottom line was still a record result. The combined ratio also improved throughout the Group. According to GDV, insurance losses are now expected to be significantly higher than eight years ago. Analysts expect earnings to be impacted by 2-3%. But with earnings per share estimated at EUR 19.85, that is just about EUR 0.65. Terrible for the individual - manageable for shareholders. Buy in weakness!
Kainantu Resources - Gold remains a sought-after insurance policy
The costs of disaster management, climate change prevention and financing the economic consequences of the Corona Crisis are driving government spending ever higher. The government's draft 2022 federal budget and fiscal plan through 2025 addresses the impact of the Corona Crisis with a broad-based capital spending initiative. Capital spending is increasing compared with the benchmarks and will be stabilized at a record level of around EUR 51 billion in the financial planning years. That is more than EUR 10 billion per year more than before the crisis. A development precisely in the interests of future generations.
At the same time, it is also clear that the pandemic has left its mark on the federal budget. For this reason, it will be unavoidable to make use of the exemption from the debt rule again in 2022. With a total budget of EUR 419 billion, net borrowing will rise to EUR 81.5 billion. There was already a record new borrowing of EUR 240.2 billion in 2021. General government liabilities as a share of GDP are now back at 74% after 59% in 2019.
Gold is an effective tool against demonetization and emerging inflation in times of hyper-debt. This scenario is a positive framework factor for the development of new gold deposits. The Kainantu property in faraway Papua New Guinea (PNG) represents an exciting project in this respect. The major producers Barrick and Lihir have been prospecting for years in the K92 Mining concession area's immediate vicinity, which already boasts 1.3 million ounces of gold in resources.
The KRL South project in Eastern Highlands Province closely resembles the K92 fault lines in geological formation and is approximately 600 square kilometers in size. The gold grades encountered are among the highest ever found in PNG. The drill program to be conducted in 2021 will focus on the Tirokave targets. These have already been pre-screened by soil sampling. The neighboring KRL North project is only ¼ the size of the southern section but is immediately adjacent to the K92 property. Kainantu has recently supplemented its portfolio with copper and gold operations at May River. All properties aggregated, certify to Kainantu Resources a collection of consistently promising projects. In terms of concession awards, the Canadians were simply faster, despite Chinese dominance in PNG.
Within the current strong correction in the major stock indices, the gold quotation was able to gain 20 to USD 1822. The Kainantu share is traded under the symbol KRL in Vancouver and has a market capitalization of only CAD 11 million with almost 45 million shares. Build up for the long term!
Munich Re Group - The rock in the surf
Even before the current flooding in the Eifel region, heavy rain and hail had caused an estimated insured loss of EUR 1.7 billion. According to recent surveys, it won't stop there because the extent of the flood damage will only come to light after the cleanup work is complete.
Münchener Rückversicherungs-Gesellschaft AG in Munich (Munich Re) is one of the largest reinsurance companies in the world. The Company also owns the Ergo Group, which conducts primary insurance business. Flood catastrophes thus affect the Group on both the primary insurance and reinsurance sides. There are signs that the current year could turn out to be one of the most damaging since 2013, with storms, flooding, heavy rain and hail.
Ernst Rauch, the chief climatologist at reinsurer Munich Re, fears that losses from storms and other natural disasters in Germany will rise steadily. In addition to climate change, the experts also blame "socioeconomic changes". In other words, the density and value of real estate and infrastructure, the so-called exposures, are increasing in the affected areas.
So far, Munich Re has always been able to adjust its premiums upward after major loss events. It is questionable how expenses will relate to premium increases this time. Munich Re is only able to absorb such one-off events because of its balanced portfolio of risks. The calculation follows a consistent risk assessment and has to be re-parameterized every year. However, the bottom line is that Munich Re earns a good EUR 3 to 4 billion per year. In times of weakness, one should therefore take hold.
Spreading risks and cushioning catastrophes is something that investors and insurers alike should be able to do. Insurance stocks fluctuate cyclically around their base earnings, while Kainantu Resources offers long-term risk diversification through its gold activities.
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