7 August 2014 Insurance

Investment income boosts shrinking Munich Re

Munich Re’s profits increased by 45 percent in the second quarter of 2014 largely driven by very strong investment income as it continued to manage softer reinsurance prices – a trend that led to its gross written premiums falling by 7.4 percent in the quarter.

The world’s biggest reinsurer made a profit of €769 million for the quarter, a big increase on the €542 million it made in the same period the year before. This result was boosted by some €2.6 billion in investment gains, a 65 percent rise on the €1.6 billion it made a year earlier.

The company said the main reason for the higher net result compared with the previous year was that in an environment of falling interest rates, the market value of interest-rate hedges appreciated significantly. On top of this, net gains on the disposal of investments in the second quarter amounted to €441 million, compared with €139 million a year earlier. This improvement from disposals was due chiefly to distinctly higher gains realised in Munich Re's equity portfolio, particularly in reinsurance

Its gross written premiums fell to €11.8 billion from €12.8 billion in the quarter. This was largely due to lower pricing in reinsurance and a disciplined underwriting approach by Munich Re.

Nikolaus von Bomhard, chief executive of Munich Re, emphasised the importance of a risk-commensurate underwriting policy in the current market. Price discipline and consistent cycle management were imperative in the present environment, he said, adding that Munich Re is increasingly developing individually structured coverage concepts for clients.

“We are choosing to forgo volume in those classes of business and regions where keen competition over prices, terms and conditions has had a particularly severe impact. At the same time, we are expanding our business with customised solutions. Our shareholders can rest assured that we are managing their investment responsibly," von Bomhard said.

Its reinsurance business made an operating profit of €846 million in the second quarter compared with €423 million a year earlier. The property/casualty arm’s combined ratio for the quarter was 101.4 percent compared with 99.3 percent a year earlier. The company said the second quarter was marked by a high random incidence of man-made major losses.

Expenditure for natural catastrophes totalled €291 million in the second quarter. By far the most expensive natural catastrophe was a severe snowstorm in Japan that occurred in February and which could cost Munich Re €180 million. Owing to late-reported claims, these losses were not accounted for until the second quarter.

In relation to the recent July 1 renewals, which mainly involved treaty business from the US, Australia and Latin America, the premium volume in this renewal, worth around €2 billion, fell by a good 7 percent including a price reduction of around 3.6 percentage points. Torsten Jeworrek, Munich Re’s reinsurance CEO, said: "Thanks to our strict cycle management, our portfolio remains profitable even after the recent renewal rounds."

The company said it remains on target to secure an overall profit of €3 billion for the whole of 2014 subject to claims. It now projects that its gross premiums written will be around €48 billion.

It anticipates gross premium income of just over €26 billion in reinsurance, although currency translation effects could potentially continue to have a considerable impact on this estimate. In primary insurance, gross premiums written are expected to total somewhat more than €16.5 billion.

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