Munich Re Expects $5.77 Billion 2007 Profit

January 30, 2008

The Munich Re Group announced that it expects a record profit for 2007 of €3.9 billion ($5.77 billion) on the basis of preliminary figures. The amount exceeds the profit guidance of €3.5-3.8 billion ($5.18 to $5.62 billion) published last August.

Other highlights included the following :
— Board of Management to propose dividend of €5.50 ($8.14), an increase of one euro over the previous year.
— Share buy-back tranche completed early: 15 million shares with a volume of €2 billion [$2.96 billion] acquired since May 2007.
— “Subprime” expenses of less than €10 million[$14.8 million] in fourth quarter.
— Successful Renewals in P/C reinsurance at 1 January 2008.
— Positive development in new life business in primary insurance

The bulletin indicated that the “crisis in the US subprime mortgage market and the subsequent turbulence on the global credit and financial markets has resulted in relatively low expenses for Munich Re in 2007.

“Our prudent investment policy and healthy skepticism towards excesses in individual markets have proved justified”, commented CFO Jörg Schneider. Munich Re said it has reduced the Group’s portfolio of subprime-exposed investments to €340 million ($503 million, “or less than 0.2 percent of the overall investment portfolio.” The bulletin added that “risks from bonds guaranteed by US bond insurers (‘wrapped bonds’) are also relatively small for the Munich Re Group.”

In its core P/C reinsurance business, Munich Re said that around two-thirds of the Group’s treaty business (i.e. without facultative reinsurance) had been renewed in January, a premium volume of around €8.5 billion ($12.58 billion).

“The market is characterized by ever greater competition,” said the bulletin. “Price increases in recent years have improved the financial strength of many companies. There has been sufficient capacity available in the market, causing prices in different classes of business to come under mounting pressure. Nevertheless, the majority of reinsurers have remained disciplined, contrary to several market players’ expectations. Given the generally improved capital situation of many companies, as well as various mergers and acquisitions in the insurance industry, the trend towards higher retentions among cedants has continued.”

Munich Re said it had succeeded in limiting the average price erosion in renewed business to a very satisfactory 2.8 percent. Board member Torsten Jeworrek called the renewals “a success for us. In the current highly competitive environment, we consistently adhered to our strategy of writing business only at risk-adequate prices, terms and conditions.”

Treaties with a total premium volume of €1.2 billion ($1.78 billion) were not renewed, but Munich Re said it had been able to “partially make up for this business in more attractive segments.”

The group also enjoyed success in its primary insurance sector. New life business developed favorably, especially in Germany towards the end of the year. Overall, ERGO’s German and international new business grew by 3.7 percent to €1.9 billion ($2.81 billion). In Germany, growth amounted to 5.0 percent, the total premium written being €1.6 billion ($2.37 billion).

The details of Munich Re’s provisional figures for the 2007 financial year will be published on February 25. Munich Re will also provide extensive information on its reinsurance strategy at a forthcoming Investors’ Day for property-casualty reinsurance on February 19.

Source: Munich Re –

Topics Profit Loss Reinsurance Property Casualty Germany Munich Re

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