Healthy results as Munich Re shuns unprofitable lines

Munich Re, the largest reinsurance company in the world, has posted a better profit than anticipated for 2013, despite a small drop in its gross premiums written.

But its reinsurance chief executive warned that the market is becoming more competitive on price and admitted the company walked away from 12 percent of non-life reinsurance business in the January renewals because it was not profitable enough – a trend that could also continue in the April and July renewals.

The company made a net profit of €3.3 billion compared with €3.2 billion in 2012, which was well ahead of the profit guidance it issued earlier last year of €3 billion. The company’s overall result was boosted by strong figures in the fourth quarter when it posted a healthy profit of €1.2 billion compared with €0.5 billion the year before.

The result was achieved on the back of the company writing gross written premiums of €51.1 billion last year, a small decrease compared with the €52 billion it wrote in 2012. Its reinsurance business contributed 54.4 percent of this and its primary insurance operations 32.6 percent.

Its combined ratio for the year was 92.1 percent compared with 91 percent in 2012. Its largest losses in 2013 were the floods in central Europe in early summer (€178 million) and the intense rain and hailstorms in Germany in June and July (€174 million).

But Torsten Jeworrek, Munich Re's reinsurance CEO, warned that the reinsurance space specifically is becoming more challenging partly because of a growing amount of capital being invested by investors such as pension funds. This capital is flowing mainly into non-proportional natural catastrophe business, he noted, which only features to a relatively small extent in the January renewals. Of more significance is that price competition has increased in the traditional reinsurance market.

At January 1, 2014, slightly more than half of Munich Re's non-life reinsurance business was up for renewal, representing a premium volume of around €8.7 billion. Some 12 percent (around €1 billion) of this was not renewed, because, the company said, the business concerned no longer met its profitability requirements.

By contrast, Munich Re wrote new business with a volume of approximately €1.3 billion. Munich Re was thus largely able to compensate in its portfolio for the effects of the pressure on prices prevailing in the market. Altogether, the volume of business written at January 1 grew slightly by 2.7 percent to around €9 billion. The price level, which is an indicator of the profitability of the business, fell marginally by 1.5 percent. Treaty terms and conditions remained largely stable.

“Munich Re has again succeeded in keeping its portfolio relatively stable. As ever, client proximity and solution orientation make us a valued partner. In a generally difficult economic environment, clients are seeking sophisticated reinsurance solutions for their capital and risk management,” Jeworrek said.

“Munich Re again adhered consistently to its principle of only writing business at risk-commensurate prices and conditions. We can be relied on to provide our clients with capacity, innovative solutions and service of the highest quality. But not at any price.”

Munich Re said it also expects pricing pressure on natural catastrophe business to continue this year – in the April and July renewals – in the absence of any extraordinary loss events.