Munich Re took advantage of very low insurance claims from natural catastrophes at the end of 2009 to record strong fourth-quarter results and exceed its expectations for the year.
The world’s biggest reinsurer in terms of the gross volume of premiums written is to raise its dividend after coming through the financial crisis relatively strongly. “This is another good result that demonstrates Munich Re’s earnings strength. We are realistic in our expectations and remain dependable for investors”, said Jörg Schneider, chief financial officer, in a statement.
Last month it emerged that Warren Buffett, the billionaire US investor who holds a range of insurance investments, had bought more than 3 per cent of Munich Re and holds options that could take his stake to more than 5 per cent, making him the largest investor in the German group.
Net income reached €2.56bn ($3.56bn) for 2009, above the upper end of what Munich Re had estimated in November and above analysts’ forecasts.
The company also met one of its key targets, a post-tax return on its “risk-adjusted capital” of at least 15 per cent. Gross premiums written rose by almost 10 per cent to €41.4bn.
Munich Re’s main reinsurance business profited from exceptionally low claims costs for natural catastrophes, bringing the reinsurance combined ratio – a measure of profitability, where anything under 100 per cent is profitable – down to 95.3 per cent last year compared with 99.4 per cent in 2008. Primary insurance also had a good fourth quarter.
But the company said the general recovery in capital markets had made for fiercer competition in the insurance industry and led to a difficult round of reinsurance contract renewals from January 1. A lot of reinsurance business is renewed on set dates, with January 1 being the traditional renewal date for non-life business in most countries, excluding the US and some big Asia-Pacific markets.
Last year Munich Re hoped that turbulent capital markets would drive down capacity in reinsurance, enabling it to strike better contracts. On Tuesday, it said there was sufficient capacity available in most lines of business and that prices had shown a slight downward trend, with the economic crisis also affecting demand for insurance cover.
Torsten Jeworrek, who heads Munich Re’s reinsurance business, said: “The renewals involved some tough negotiating.”
Munich Re also profited from the rebound in markets, which helped lift the profits from its investments by more than one-third to almost €7.9bn, with a significant reduction in writedowns.
The overall return on investment was 4.3 per cent, but Munich Re said this was expected to be “noticeably below 4 per cent” this year because of lower interest rates and an assumed lack of larger gains on sales of holdings.
Munich Re said it expected to raise its 2009 dividend by 4.5 per cent to €5.75.
bron FT |
