Munich Re Raises 2012 Profit Forecast on Stronger 9-Month Results

By | November 7, 2012

Munich Re said it expects a higher consolidated result for 2012 than previously envisaged.

Following a profit of €2.7 billion [$3.47 billion] for the first nine months of 2012 (same period last year: €80 million [$102.7 million]), Munich Re said it is now looking at a consolidated profit of around €3 billion [$3.852 billion] for the year as a whole.

That target assumes the burdens from Hurricane Sandy and other potential major loss events “remain within the currently expectable range,” the insurer said.

In the third quarter of 2012, Munich Re posted a consolidated profit of €1.136 billion [$1.458 billion], compared to €290 million [$372 million] in the third quarter of 2011. The company ascribed the good results to a “continued positive performance in underwriting, which was also driven by a high investment result.

CFO Jörg Schneider said that at the beginning of the year, Munich Re had envisaged a profit of around €2.5 billion [$3.21 billion] for 2012, but had indicated when it published its half-year results in August that there was the prospect of this figure being slightly surpassed.

“Our forward-looking risk management, prudent investment policy and profit-oriented underwriting approach are proving particularly effective in this difficult macroeconomic climate,” Schneider said.

The company cited unusually low claims costs for natural catastrophes in the first nine months of 2012, Hurricane Sandy, whose insured losses remain unquantifiable.

“The high number of individual losses and the vast extent of the storm make loss estimation very difficult,” said Schneider.

But Munich Re currently estimates that its share of the losses will be in the mid three-digit million euro range.

Munich Re said that total premium income across all lines showed growth of 3.6 percent to €13.9 billion [$17.85 billion] for the period from January to September, with €4.4 billion [$5.65 billion] in the third quarter. Gross premiums written in the first three quarters decreased to €12.9 billion from €13.2 billion [$16.95 billion].

The combined ratio for the property-casualty segment (including legal protection insurance) amounted to 96.9 percent (98.2 percent) for the period January to September. For German business, the combined ratio was 95.6 percent (94.4 percent), mainly owing to higher expenses for major losses. In international business, the figure was significantly improved at 99.1 percent (103.9 percent). In Poland, the combined ratio – at 93.8 percent (99.4 percent) – was again pleasing. In Turkey, the consolidation measures started to bear fruit, with the combined ratio improving to 122.8 percent (127.8 percent).

“We are satisfied with the result for the third quarter in this very challenging market environment. The significant result improvement in our international business is especially gratifying,” said Torsten Oletzky, CEO of the ERGO Insurance Group.

In the reinsurance sector Munich Re posted a profit of €2.3 billion [$2.95 billion] for the first nine months. The operating result totaled €2.909 billion [$3.735 billion], compared to a loss of €368 million [$472.5 million] in 2011. €1.207 billion [$1.55 billion] derived from the third quarter. Altogether, the reinsurance field of business accounted for around €2.329 billion [$3 billion], compared to a loss of €168 million [$215 million] of the Group consolidated result, the third quarter bringing in €1.036 billion [$1.33 billion], up from €308 million [$395 million] in Q3 2011.

Looking ahead to the renewals of reinsurance treaties on January first, 2013, Munich Re’s Reinsurance CEO Torsten Jeworrek said there is still sufficient capacity available in the reinsurance markets.

“We estimate that prices, terms and conditions will at least remain stable in the forthcoming renewals in most markets. In particular, the low interest-rate level needs to be considered in pricing,” said Jeworrek.

Munich Re also said current capital market environment could possibly will result in an increase in prices for long-tail business in future, especially in the casualty sector and that Hurricane Sandy might lead to a further rise in prices in U.S. property business and for non-proportional natural catastrophe covers.

Munich Re said that based on exchange rates remaining stable, it now anticipates that for the 2012 financial year its gross premiums written will be around €52 billion [$67 billion]. Gross premium income of some €28 billion [$36 billion] is expected in the reinsurance segment, and a figure of just over €17 billion [$22 billion] for primary insurance. Total premium income in primary insurance (including the savings premiums of unit-linked life insurance and capitalization products) should be slightly over €18.5 billion [$24 billion]. Gross premiums written of well over €6.5 billion [$8.35 billion] are projected for Munich Health.

For property/casualty reinsurance, Munich Re’s target is a combined ratio of around 96 percent of net earned premiums over the market and interest-rate cycle as a whole. In the first nine months, it bettered this mark significantly thanks to a low burden from major losses. In the fourth quarter, a reduction in provisions for prior accident years may be possible. Munich Re said it thus anticipates an overall combined ratio for 2012 that is well below the 96 percent mark, despite the burdens from Hurricane Sandy. Munich Re envisages a combined ratio of just over 97 percent in property-casualty primary insurance.

Source: Munich Re

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