Munich Re Profit Misses Estimates as Investment Income Falls

By | November 6, 2014

Munich Re, the world’s biggest reinsurer, posted third-quarter profit that missed analyst estimates as low interest rates eroded returns from its fixed- income investments.

Net income rose 16 percent from the year-earlier period to €735 million [$937 million], the Munich-based company said in a statement today. That fell short of the €778 million [$991 million] average estimate of 11 analysts surveyed by Bloomberg.

Munich Re expects to a full-year profit of “just over” its 2014 target as “losses from hurricanes in the U.S. and the Caribbean have been rather low,” Chief Financial Officer Joerg Schneider said.

The shares fell 1.4 percent to €154.80 [$197.27] at 9:32 a.m. in Frankfurt today. They lost 3.3 percent this year, valuing the company at about €27 billion [$34 billion]. That compares with a 3.8 percent rise for the Bloomberg Europe 500 Insurance Index over the same period.

Reinsurers such as Munich Re, who help primary insurers such as Allianz SE and AXA, are under pressure from declining prices for their coverage and a years-long slump in borrowing costs across developed countries.

Investment income declined 16 percent to €1.8 billion [$2.29 billion] in the quarter, the company said. As interest rates are expected to remain low, the reinsurer anticipates “lower regular income from fixed-interest investments,” which represent 54 percent of its €237 billion [$302 billion] investment portfolio.

New Investment
To cushion that, Munich Re plans to invest as much as €8 billion [$10.2 billion] in infrastructure, renewable energies and new technologies “in the next few years,” it said. Half of that will be spent on debt-capital financing for such projects.

Following the quarter’s “much lower than expected” major losses, Munich Re said it now expects a combined ratio in property and casualty reinsurance, or spending on claims and other costs as a percentage of premiums, of 94 percent for this year, an improvement of one percentage point over the previous target. Major losses for the first three quarters also remained below expectations, it said.

The Atlantic hurricane season, which can result in the industry’s biggest losses, typically sees the most activity from mid-August to mid-October. Hurricane Sandy, which tore through the northeastern U.S. in October 2012, was the last hurricane leading to a major loss, costing the industry about $30 billion.

Hannover Re, the world’s third-biggest reinsurer, reported yesterday that third-quarter profit rose 21 percent, beating analyst estimates, helped by higher income from investments and a calm U.S. hurricane season.

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