Munich Re Posts $400 Million Q3 Profit in a ‘Difficult’ Year

November 8, 2011

Munich Re announced third-quarter profit “in a difficult environment” of €290 million [$400 million], compared to €761 million [$1.05 billion] in Q3 2010. The world’s largest reinsurer singled out the “financial markets, currency translation effects and heavy burdens from natural catastrophes” as having influenced its nine-month result.”

The Group posted a profit of €80 million [$110 million] for the 9 month period, compared to €1.955 billion {$2.70 billion] for the same period in 2010. The principal reason being absorption of “claims burdens of €3.6 billion [$5.46 billion] from the major natural catastrophes at the start of the year.” Munich Re increased its premium volume in the first nine months, as gross premiums written were up 9.1 percent to €37.166 billion ($51.215 billion], compared to €31.060 billion [$42.80 billion] in 2010.

In it reinsurance sector, the bulletin noted that the “exceptional claims costs for major losses masked a strong performance in basic business,” while loss burdens from natural catastrophes “were roughly €2.7 billion ($3.723 billion] above the normalized expected value, the underwriting result declined by only some €1.8 billion [$2.48 billion]. The combined ratio in reinsurance for the third quarter was 89.0 percent of net earned premiums, with reserve releases for prior-year losses contributing to this very good figure.”

CFO Jörg Schneider commented: “Although our result was certainly affected by the capital-market and currency turbulence, our financial position has once again proved comparatively resilient. The low combined ratio in reinsurance in the third quarter and the satisfactory underwriting results in insurance and reinsurance are indicators that our core business is doing well.”

The earnings bulletin also explained that “in addition to heavy burdens from natural catastrophes, continuing uncertainty on the capital markets” has been a marked feature of the year to date for Munich Re, too. “The sharp decline in the price of Greek government bonds led to write-down expenses of €933 million [$1.287 billion] and a negative impact of €170 million ($234 million] net on the consolidated result, €45 million [$62 million] of which related to the third quarter.

“Negative currency translation effects burdened the result by €145 million [$200 million] for the first three quarters and by €342 million [$472 million] for the third quarter.” As a result Munich Re said it has “circumspectly reduced its bonds from peripheral European states, instead purchasing bonds of financially strong states and corporates, while increasing its investments in dynamically developing states to further spread its risks.”

Schneider expressed optimism, however, with regard to the overall result for the year, stating: “We still envisage a positive consolidated result for 2011 as a whole. Munich Re will not be making a more concrete profit forecast than this because the final amount will be influenced considerably up to the last day of the year by the incidence of major losses and the volatility of the capital markets and exchange rates.”

A summary of the figures for the third quarter and the first nine months is as follows:
— Operating result of €402 million [$554.36 million] (€3.367 billion [$4.643 billion] for the first 9 months of 2010.
— Q3 operating result of €839 million [$1.157 billion]
— Compared with year-end 2010, equity fell by 3.5 percent to €22.2 billion [$30.614 billion]. The main reasons for this were the dividend payment in April and share buy-backs.
— Annualized return on risk-adjusted capital (RORAC) amounted to 0.3 percent and the return on equity (RoE) to 0.5 percent.
— Gross premiums written for the third quarter were €12.2 billion [$16.82 billion].
— At unchanged exchange rates, premium volume would have increased by 10.9 percent in the first nine months compared with the same period last year.

In its primary insurance sector Munich Re summarized the results as follows:
— Consolidated result of €418 million [$576.42 million] for the first three quarters
— Operating result for the first nine months totaled €806 million [$1.111 billion], compared to €923 million [$1.2728 billion] last year, of which €167 million [$230 million] derived from the third quarter.
— Before elimination of intra-Group transactions across segments, the consolidated result amounted to €418 million [$576.42 million], compared to €432 million {$595.728 million], with the third quarter contributing €60 million [$82.74 million] (€139 million [$191.68 million] in Q3 2010).
— One-off effects left their mark on the consolidated result: besides the already announced write-downs in South Korea and the gains on the sale of a real-estate company in Singapore, in the third quarter there was also a further charge of €37 million [$51 million] resulting from write-downs on Greek government bonds (ERGO had already posted an expense of €113 million [$155.827 million] in the second quarter).
— The revaluation of derivatives for hedging against low-interest-rate scenarios led to positive effects of €84 million [$115.836 million] on the result for the third quarter and €69 million [$95.15 million] for the first nine months of 2011.
— The ERGO Insurance Group posted a consolidated result of €260 million [$358.54 million], compared to €301 million [$415.08 million] last year.

ERGO CEO Torsten Oletzky commented: “So far, 2011 has been a challenge for ERGO in every respect. The volatility on the capital markets has not passed ERGO by. I consider it positive that we are making progress in international business. ERGO is still working on the exhaustive investigation of the incidents that have been criticized, and will inform the public in early December of the results achieved and measures taken.”

For the first nine months of 2011, the combined ratio in the property-casualty insurance segment (including legal protection insurance) amounted to 96.8 percent (95.6 percent in 2010). The combined ratio for the third quarter was 97.5 percent (93.6 percent in Q3 2010).

In its reinsurance sector Munich Re posted a profit of €108 million [$149 million] in the first three quarters “despite large claims burdens. The result from reinsurance business in the first nine months of 2011 was impacted by heavy claims burdens from major losses and the difficult environment on the financial markets. The operating result fell to a €43 million [$59.3 million] loss, compared to a €2.512 billion [$3.464 billion] profit, of which €636 million [$1.1528 billion] derived from the third quarter.

“Reinsurance contributed €108 million [$148.93 million] (€1.659 billion [$2.2877 billion] in 2010 to the Group’s overall result, €240 million [$331 million] (€602 million [$830 million] in 2010) of this in the third quarter.

“The combined ratio was 117.9 percent (102.1 percent in 2010) of net earned premiums for the first three quarters and 89.0 percent (93.8 percent in Q3 2010) for July to September. Claims notifications submitted by clients for earlier accident years continued to be gratifyingly below expectations.”

Torsten Jeworrek, Munich Re’s Reinsurance CEO, noted: “This year’s claims burdens and the persistently low interest rates will have an appreciable influence on the renewals at 1 January 2012. We are seeing a general stabilization in prices, coupled with hardening markets in a number of segments.”

He added that Munich Re intends to utilize its financial strength to exploit opportunities. “We are well positioned. Nonetheless, particularly in times of greater uncertainty, staying strictly focused on adequate profitability is more essential than ever.”

The full report, as well as additional and supplemental information and instructions for accessing the earnings conference call may be obtained on the company’s web site – website at: www.munichre.com

Source: Munich Re

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