Munich Re recovers in Q2

Munich Re revealed a second quarter profit of €703m, up nearly 12% on last year’s €628m by 11.9% recovering the half year total to €1,123m, down from €1,405m in 2008.

Financial highlight for the half year (2008 in brackets

• Gross premiums written €20.7bn (€18.9bn)
• Operating result €2,119m (€2,281m)
• Profit €1,123m (€1,405m)

If exchange rates had remained the same, premium volume would have increased by 8.8% compared with the same period last year.

Nikolaus von Bomhard, chairman of the board of management, said: "We were able to benefit further from our capital strength and exploit our scope for profitable growth. We regard the effects of the economic crisis as limited in extent for the Munich Re Group."

"In reinsurance, you need to be more than just solid and financially strong: our clients want flexible, innovative solutions from us, based on our expertise. We have laid the foundations for this over the past two years. Now we can deliver."

Primary insurance

In primary insurance, ERGO returned to the profit zone in the second quarter. "Thanks to our consistent accounting policy, we can look ahead with confidence", said von Bomhard. "In Germany, ERGO is on track. It is evident that we are faring well with the broad diversification of our business across business fields and regions."

Reinsurance sector

Reinsurance business performed satisfactorily overall in the first half of 2009. Thanks to its broadly diversified, profitable business and a solid investment result of €2,007m (2,741m), Munich Re was able to post an operating result of €2,004m (2,628m) despite a number of major losses, with €1,153m coming from the second quarter.

Reinsurance contributed €1,299m (2,021m) to the group’s overall profit, €634m of this (1,442m) in the second quarter. A write-down of €47m was made on Sterling Life’s goodwill and intangible assets, owing to changes in the US regulatory environment.

Last year’s reinsurance investment result and profit for the first six months included the dividend payment of €947m that Munich Re received from ERGO.

Catastrophe losses

Natural catastrophe losses in the first half-year remained manageable in number. By contrast, claims costs for man-made loss events rose in the first six months to €453m (352m), with a substantial portion of €217m deriving from claims in credit and surety reinsurance business.

There was an accumulation of major losses particularly in the second quarter.The combined ratio was 98.1% (95.2%) for the second quarter, and 97.7% (99.5%) for January to June. In the second quarter, 1.5 (2.5) percentage points of this related to natural catastrophes, compared with 3.5 (6.6) percentage points in the first half-year.

Premium income grew by 14.0% in the first six months year on year, mainly through acquisitions, and totalled €12.2bn (10.7bn), of which €6.3bn (5.2bn) was attributable to the second quarter. Adjusted to eliminate currency effects, premium increased by 10.9% in the first half-year and by 17.4% in the second quarter.

With effect from 1 April, Munich Re’s consolidated financial statements include its new acquisition, the Hartford Steam Boiler Group (HSB Group), which contributed gross premium income of €173m. Torsten Jeworrek, member of Munich Re’s Board of Management: "HSB embodies our business proposition: achieving added value for our clients with our know-how – in HSB’s case, with technical expertise."

Munich Re’s treaty renewals in property-casualty reinsurance at 1 April 2009 (in the USA, Japan and Korea) and at 1 July 2009 (mainly in the USA, Australia and Latin America, and with some global clients) showed a continued positive trend, with the price increases achieved totalling 7.2% at 1 April and 4.4% at 1 July. Jeworrek: "I expect that in capital-intensive segments in particular, the price level will prove durable for 2010. We intend to convince our clients not only with our solidity but also with our solution-based approach."

For property-casualty reinsurance, Munich Re reckons with a combined ratio of around 97% of net earned premiums over the market cycle as a whole, based on an expected average major-loss burden of 6.5% from natural catastrophes. The 3.5% burden from natural catastrophes in the first half of the year was moderate, but the peak cyclone season is still ahead. The recession-related losses alone, however, are likely to make it more difficult to achieve – let alone outperform – the long-term combined ratio target of 97% in 2009. In primary insurance, the 2009 goal is another combined ratio within the long-term target of 95%.