Munich Re upbeat after 5% fall in profit

Positive renewals data, an improved dividend and an upbeat outlook for 2011 put a shine on Munich Re’s full-year results, according to equity analysts.

Munich Re made a consolidated net profit of €2.43bn (£2.06bn) for the full year of 2010, down 5% on the €2.56bn it made in 2009. This was in line with analysts’ estimates and the profit target Munich Re had set during the year.

However, the reinsurer reported that premium volume was up by 4.1% to €8.2bn at the 1 January treaty renewals. Munich Re attributed four points of this to change in exposure and 0.1 points to price increases.

“Munich Re’s comments on renewals were better than expected,” Standard & Poor’s equity analyst Anthony Silverman said. “The results themselves are basically close [to estimates] in terms of net income but that was helped by a surprisingly low tax charge. Trading itself, if anything, was below our forecast.”

Munich Re also said it expected a better underwriting result in 2011 than in 2010, and a consolidated profit of the same level. JP Morgan analyst Michael Huttner said this was an improvement over the last two years, when the reinsurer had predicted falls in consolidated profit.

“I was encouraged by its better guidance for 2011,” Huttner said. “For me, that is quite a big swing. My hope is that the next guidance will be upwards.”

Munich Re also announced a €500m share buy-back, following on from last year’s €1bn programme, and has boosted its dividend to €6.25 a share from €5.75 a share, beating analysts’ estimates of around €6.

Huttner described the dividend increase as “very welcome”.

“We have Munich Re on ‘hold’,” Silverman said. “But it has a good dividend yield and is buying back shares – another €500m. I would just say that the encouraging renewals commentary will support the share price.”

He added, however: “We can’t really rate Munich Re above a ‘hold’. It lacks a catalyst.”

JP Morgan, meanwhile, has upgraded the stock to “overweight” on possible future redundancy in Munich Re’s reserves. “If we get another year of low cash paid claims then effectively there is some quite strong earnings momentum to come,” he said.