Munich Re profits dip; warns on price erosion

Profits at Munich Re fell by 5 percent in the first quarter of 2014 in an otherwise steady set of results mainly notable for the negative effect fluctuations in currency prices had on its gross written premiums and a warning by the company on price erosion in the reinsurance markets.

The world’s biggest reinsurer made a profit of €924 million in the quarter compared with €970 million in the same period a year earlier. It said it remains on track to achieve a profit of €3 billion for the whole year.

Jörg Schneider chief financial officer of Munich Re, said: “Our operating earnings are robust. In addition, we were largely spared major losses. Despite negative currency effects, we almost matched the outstanding result of the first quarter last year. After this good start, we are optimistic of achieving our profit target of €3bn for the year.”

Its reinsurance business made an operating profit of €991 million in the quarter compared with €1.12 billion a year earlier and contributed some €750 million to the group’s consolidated result.

Gross premiums written in the reinsurance unit fell by 1.6 percent compared with the same period in 2013 decreasing to €6.9 billion but this was largely because of exchange rates. If they had remained the same, it said premium volume would have risen by 4.5 percent.

It also noted that premium volume benefited particularly from the conclusion of new large-volume treaties and increased shares in existing ones in Australian and Chinese motor business. Torsten Jeworrek, Munich Re’s Reinsurance CEO, said: “Thanks to our solution competence and client proximity, such customised, large-volume transactions have become a regular part of our business.”

Its combined ratio in property/casualty reinsurance in the first quarter was 86.9 percent compared with 85.7 percent a year earlier. Natural catastrophe losses amounted to around €36 million compared with €24 million in Q1 2013 and man-made major losses to €3.3m compared with €82 million the year before, representing only 0.9 percent and 0.1 percent of net earned premiums respectively.

Commenting on the April 1, 2014 renewals, Jeworrek said: "Despite the price erosion, the profitability of our portfolio remained at a good level, above our return expectation." He said that while the premium volume of business written stayed largely stable, prices fell by around 8 percent.

In terms of the upcoming July renewals, which mainly involves treaty business in the US market and in Australia and Latin America, he said Munich Re expects the environment to remain competitive, if the market is not affected by major loss events. But he added that Munich Re expects the price erosion for natural catastrophe covers to be less than in the renewals at 1 April 2014.

Jeworrek stated: "Munich Re is maintaining its clear, profit-oriented underwriting policy. With customised solutions and a rising number of private placements, we can limit the impact of the negative market trend on our own portfolio."