Munich Re Reports Q2 Profit over $1 Billion; 1st Half near $2 Billion

August 7, 2012

Munich Re’s second quarter earnings report notes that it achieved a consolidated profit of €812 million [$1.007 billion], compared to the €738 million [$915.12 million] it reported in Q2 2011. The report indicated that “underwriting business performed well,” as it also did in the first quarter of the year, and “the investment result showed a marked improvement on the same period of the previous year.”

The two cumulative profit figures are around €1.6 billion [$1.985 billion] for the first half-year. As a result “the Group achieved well over half of its target of around €2.5 billion [$3.1 billion]. Munich Re is thus well on track to slightly surpass the originally envisaged profit for the year.”

CEO Nikolaus von Bomhard described the results as “satisfying,” indicating that the group’s “conservative approach to business is proving robust in these uncertain times.” The profits were helped by the fact that “Munich Re’s claims expenditure was significantly lower than in the same period last year with its exceptional burden from natural catastrophes. Overall, Munich Re deems the challenge of the still very low interest rate levels to be far greater than that of the volatility of the financial markets or the worsened global economy.”

Von Bomhard expressed his confidence in the group’s business plan. “We began spreading our investments very broadly years ago,” he explained. “This approach, in combination with our consistent risk management, helps us to be prepared even for greatly varying scenarios.”

Munich Re gave the following figures for the 1st half of 2012:
— Operating result of €2.304 billion [$2.8616 billion] (–€437 million [-$542.75 million]).
— Q2 operating result of €1.102 billion [$1.3687 billion].
— Compared with year-end 2011, equity rose by 8.8 percent to €25.4 billion [$31.5468 billion].
— The annualized return on risk-adjusted capital (RORAC) amounted to 13.1 percent and return on equity (RoE) to the same figure.
— Gross premiums written were up 3.8 percent to €25.9 billion [$32.1678 billion] (€24.9 billion [$30.9258 billion]), with €12.6 billion [$15.6492 billion] attributable to the second quarter. If exchange rates had remained the same, premium volume would have increased by 0.3 percent compared with the same period last year.

The bulletin noted that the group’s primary insurance consolidated results improved during the second quarter to €295 million [$366.39 million] “The ERGO Insurance Group, in which Munich Re concentrates its primary insurance business, developed well in the first half of 2012,” said the bulletin, with operating results increasing in the first six months by 7.2 percent to €550 million [$683.1 million], compared to €513 million [$637.15 million]), €293 million [$363.91 million] of this in the second quarter. The consolidated result of €295 million increased from the €237 million [$294.35 million] in the same period last year. The second quarter contributed €150 million [$186.3 million]. “ERGO’s profit was significantly above the previous year’s level at €255 million [$316.71 million] (€178 million [221.08 million]), €158 million [$196.24 million] of which derived from the second quarter.

Overall premium income across all primary insurance lines decreased by 3.1 percent in the first six months to €9.5 billion [$11.8 billion] from €9.8 billion [$12.17 billion]), with €4.5 billion [$5.59 billion] from April to June. Gross premiums written remained virtually stable in the first six months at €8.86 billion [$11 billion], compared to €8.92 billion [$11.078 billion] in the same period in 2011.

The combined ratio for the property-casualty segment (including legal protection insurance) amounted to 95.2 percent (95.9 percent last year) in the first half-year, and a good 95.1 percent (95.0 percent last year) in the second quarter. In the first half-year, a slightly higher combined ratio of 92.8 percent, compared to 89.0 percent last year in Germany contrasted with a pleasingly significant improvement to 98.9 percent in international business, well below the 106.2 percent last year.

In its all important reinsurance sector Munich Re posted a €1.3 billion [$ profit for the first six months of 2012. Compared to the same period last year, when its “reinsurance business had been affected by extremely heavy burdens from earthquakes and other major losses, claims costs in the first six months of 2012 were substantially lower. The operating result totaled €1.702 billion [$2.1139 billion], compared to a €1.033 billion [$1.283 billion] loss last year.

Reinsurance profits in Q2 were €796 million [$988.63 million], compared to €557 million [$691.8 million]. Altogether, the reinsurance field of business accounted for around €1.293 billion [$1.606 billion] of the Group consolidated result, the second quarter bringing in €659 million [$818.5 million].

Premium income grew by 4.8 percent in the first six months year on year, totaling €13.7 billion [$17.015 billion], compared to 13.1 billion last year, of which €6.8 billion [$8.45 billion] was attributable to the second quarter.

Munich Re described the “burden from major losses” for the first half of 2012 as “below average.” Total major-loss expenditure after retrocession to reinsurers and before tax fell to €716 million [$890 million], compared to a whopping €3.642 billion [$4.5234 billion] in the first half of 2011.

The bulletin said that “based on current estimates, Munich Re anticipates a net burden of approximately €160 million [$198.7 million] (after retrocession and before tax) from losses under crop failure covers as a consequence of the persistent drought in large agricultural areas in the USA. These losses occurred in the second quarter but will only become more quantifiable over the further course of the year.

In accordance with Munich Re’s usual reserving policy, provisions for the claims expected were already posted in the second quarter. The combined ratio for the first half-year was 95.7 percent of net earned premiums (same period last year: 131.4 percent after risk transfer). For the second quarter, this figure was 96.9 percent (99.8 percent).

First of July property-casualty reinsurance treaties with a volume of nearly €1.9 billion [$2.36 billion] “were up for renewal in parts of the US market, Australia and Latin America, as well as with global clients. This represents around 12 percent of Munich Re’s total property-casualty business.

Altogether, Munich Re’s premium volume in this renewal season increased to €2.2 billion [$2.733 billion] or by 18.5 percent (around €350 million [$434.7 million]) compared with the previous year. Rates, i.e. the price level, rose by around 2 percent year on year. Torsten Jeworrek, Munich Re’s Reinsurance CEO, commented: “The results of the renewals at 1 July reflect our maxim of always obtaining risk-adequate premiums for the risks we assume. We also need to ensure that, with the increasing duration of the low-interest-rate phase, the low interest rates are compensated for by a positive price trend in the risks we assume.”

Source: Munich Re

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