Munich Re Second-Quarter Profit Rises 45% on Investment Gains

By Oliver Suess | August 7, 2014

Munich Re, the world’s biggest reinsurer, said second-quarter profit rose 45 percent helped by higher investment income.

Net income advanced to €765 million ($1.02 billion) from €528 million [$706 million] a year earlier, the company said in a statement today. That compared with a €798 million [$1.067 billion] average estimate of 12 analysts surveyed by Bloomberg. Claims of about €230 million [$307.5 billion] from floods in Germany hurt earnings in the second quarter of last year.

Munich Re, led by Chief Executive Officer Nikolaus von Bomhard, has set a profit target of €3 billion [$4 billion] for this year, down from €3.3 billion [$4.4 billion] in 2013. The Munich-based reinsurer is increasing dividends and buying back shares to appease investors, including Warren Buffett. His Berkshire Hathaway Inc. is Munich Re’s biggest shareholder with an 11.6 percent stake.

Investment income increased 65 percent to €2.57 billion [$3.436 billion], helped by market value gains for interest rate hedges amid falling interest rates. Following “a high random incidence of man-made major losses,” the reinsurer’s major claims in the quarter rose to €617 million [$825 million] from €605 million [$808.9 million] a year ago, Munich Re said.

Reinsurers are under pressure to maintain earnings as low interest rates weigh on investment income and prices for their coverage fall. While lower-than-average catastrophe losses in the first half helped reduce costs from claims, they also limit reinsurers’ pricing power.

Natural Catastrophes
Natural catastrophes including blizzards in the U.S. and floods and storms in Europe caused insured losses of $17 billion in the first half of the year compared with a 10-year average of $25 billion, according to data compiled by Munich Re.

Reinsurance rates declined in the main renewals of annual contracts in January, April and July due to the absence of major catastrophes and an oversupply of capital available for coverage, according to reinsurance broker Guy Carpenter. Rates have declined in seven of the last 10 years, according to Guy Carpenter World Property Catastrophe Rate on Line Index.

Swiss Re Ltd., the world’s second-biggest reinsurer, slumped in Zurich trading yesterday after reporting second- quarter profit that missed analysts’ estimates, amid a decline in earnings from life and health insurance. Hannover Re also declined yesterday after reporting lower-than-expected earnings.

Munich Re’s shares value the company at about €26 billion [$34.8 billion]. They lost 4.9 percent this year. That compares with a 1.5 percent drop for the Bloomberg Europe 500 Insurance Index.

 

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