Munich Re Posts 143% Gain in 1st Half Profits to $3.47 Billion

August 3, 2006

Germany’s Munich Re may no longer be the world’s biggest reinsurer, but it can still make a great deal of money, posting a profit of €2.129 billion ($3.47 billion) for the first six months of the year. Compared to the €876 million ($1.12 billion) it earned in the same period last year, profits rose by 143 percent.

“With a profit of €2.1bn, we have already achieved three-quarters of our result target for the year at half-time”, stated Nikolaus von Bomhard, Chairman of Munich Re’s Board of Management, at the half-year press conference.

However, unlike high stakes gamblers, reinsurance companies can’t walk away from the table with their winnings. Von Bomhard duly noted: “Experience shows that the second half of the year brings higher burdens from major losses in reinsurance. But we have reason to be optimistic, given business performance to date, our well-balanced portfolio, and our selective risk acceptance. Even if we are affected more heavily than in the first half of the year by major losses or by a further moderate price fall on the stock markets, our target for 2006 — a 15 percent return on risk-adjusted capital — is still within reach.”

The earnings report also highlighted the following:
— Reinsurance: Combined ratio of 92.2 percent;
— Successful renewals at 1 July ;
— Still attractive market environment ;
— Primary insurance: Combined ratio of 92.0 percent ;
— Significant profit increase for ERGO ;
— Munich Re confident: Result target of €2.6-2.8 billion [$3.32- $3.57 billion] for 2006 attainable even with higher burdens in the second half of the year.

The bulletin noted: “At €19.1 billion [$24.38 billion], with favorable exchange rate influences, gross premiums written by the Munich Re Group remained more or less stable compared with last year’s figure adjusted to eliminate the effect of sales of companies (e.g. Karlsruher in October 2005). Group equity fell to €23.4 billion [$29.87 billion] (31.12.2005: €24.4 billion [$31.15 billion]) owing to the dividend payment of €707 million [$902.6 million] in the second quarter and to development on the bond markets.”

Munich Re’s primary insurance operations also posted solid gains. The bulletin noted that for the first six months the Group’s “primary insurers surpassed the good level they achieved last year, recording a markedly improved operating result of €795 million [$1.015 billion] (€495 million [$632 million] in 2005) and a significantly increased profit of €448 million [$572 million] (324 million [$414 million] in 2005).

“This was mainly due to the performance of the ERGO Insurance Group which, with premium income of €8.1 billion [$10.34 billion] earned around 95 percent of the gross premiums written in the primary insurance segment. ERGO showed an excellent post-tax profit of €450 million [$574.5 million] with its combined ratio of 91.4 percent (93.2 percent in 2005) reflecting the healthy composition of its portfolio.”

For the remainder of 2006, Munich Re foresees “stable premium volume and positive business development in primary insurance and reinsurance.” The bulletin notes: “In the renewal negotiations in non-life reinsurance at 1 July in the USA and Latin America, a division of the market was evident. For property and offshore energy risks (mainly oil rigs) with natural catastrophe exposure in the USA, it was possible to achieve substantial price increases compared with the previous year in the light of generally increased risk awareness and the markedly higher assessment of the loss potential.”

“Reinsurers with capital strength, good diversification and professional competence will have good earnings opportunities in this environment”, explained von Bomhard. The bulletin stressed that “unlike many competitors, Munich Re has kept its overall liability for natural catastrophe covers at the same volume, whilst further optimizing its portfolio and thus improving its sustainable profit expectations. Outside the area of natural catastrophes, prices were generally stable at a risk-adequate level.”

Von Bomhard indicated that the “renewals at 1 July are an early indicator for the negotiations at the turn of the year; they confirm the acceptance of our underwriting strategy of risk-adequate prices, terms and conditions.”

Assuming stable exchange rates, “the Group’s premium income for the whole of 2006 is likely to be between €37 billion [$47.24 billion] and €38 billion [$48.51 billion] and thus at the same level (adjusted) as last year,” the forecast continued. “Before consolidation, Munich Re currently expects reinsurance to provide approximately €22-23 billion [$28 – $29.36 billion] of this, and primary insurance around €16.5-17.0 billion [$21 – $21.7 billion]. Von Bomhard was confident that a combined ratio of 97 percent could be bettered, even with seasonally related heavier burdens from major losses in the second half of the year. In primary insurance, the combined ratio should be within the target of 95 percent.”

The full report and additional comments may be obtained on the Group’s Website at www.munichre.com.

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