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Munich Re expects a higher consolidated result for 2012 than previously envisaged: following a profit of €2.7bn for the first nine months of 2012 (same period last year: €80m), Munich Re is now looking at a consolidated profit of around €3bn for the year as a whole, providing the burdens from Hurricane Sandy and other potential major loss events remain within the currently expectable range.
In the third quarter of 2012, Munich Re posted a consolidated
profit of €1,136m (same period last year:
€290m). Alongside a continued positive
performance in underwriting, this result was also driven by a high
Commenting on the business performance for first nine months,
CFO Jörg Schneider said: "The result for the
first three quarters is more than pleasing. Despite Hurricane
Sandy, we are very optimistic of realising a profit in the region
of €3bn for 2012." At the beginning of the
year, Munich Re had envisaged a profit of around
€2.5bn for 2012, but had indicated when it
published its half-year results in August that there was the
prospect of this figure being slightly surpassed. Schneider
continued: "Our forward-looking risk management, prudent investment
policy and profit-oriented underwriting approach are proving
particularly effective in this difficult macroeconomic
Following unusually low claims costs for natural catastrophes in
the first nine months of 2012, a serious natural catastrophe
occurred in the fourth quarter in the form of the exceptionally
wide-ranging Hurricane Sandy. Besides the great human suffering it
caused, the disaster gave rise to substantial insured losses of a
still unquantifiable amount. Schneider explained: "The high number
of individual losses and the vast extent of the storm make loss
estimation very difficult. Based on a provisional estimate
characterised by a high degree of uncertainty, we anticipate Munich
Re's share of the losses to be in the mid three-digit million euro
Summary of the figures for the first nine
From January to September, the Group recorded an operating result of €3,738m (402m). In the third quarter, it posted an operating result of €1,434m. Compared with year-end 2011, equity rose by 16.4% to €27.1bn. The annualised return on risk-adjusted capital (RORAC) amounted to 14.9% and the return on equity (RoE) to 14.5%. Gross premiums written were up 5.3% to €39.1bn (37.2bn), with €13.2bn attributable to the third quarter. If exchange rates had remained the same, premium volume would have been 0.6% higher than in the first three quarters of the previous year.
Primary insurance: Nine-month result of
The ERGO Insurance Group, in which Munich Re concentrates its primary insurance business, posted an increase of 8.2% in its operating result to €670m (619m) for the first three quarters, €120m of this in the third quarter. The consolidated result for the first nine months totalled €333m (223m), of which €38m derived from the third quarter. ERGO's profit was significantly above the previous year's level at €321m (260m), with €66m stemming from the period July to September.
Total premium income across all lines showed growth of 3.6% to
€13.9bn (14.4bn) for the period from January
to September, with €4.4bn (4.6bn) in the
third quarter. Gross premiums written in the first three quarters
decreased to €12.9bn (13.2bn).
The combined ratio for the property-casualty segment (including
legal protection insurance) amounted to 96.9% (98.2%) for the
period January to September. For German business, the combined
ratio was 95.6% (94.4%), mainly owing to higher expenses for major
losses. In international business, the figure was significantly
improved at 99.1% (103.9%). In Poland, the combined ratio
– at 93.8% (99.4%)
– was again pleasing. In Turkey, the
consolidation measures started to bear fruit, with the combined
ratio improving to 122.8% (127.8%).
"We are satisfied with the result for the third quarter in this
very challenging market environment. The significant result
improvement in our international business is especially
gratifying", said Torsten Oletzky, CEO of the ERGO Insurance
Reinsurance: High profit of
€2.3bn for the first nine
The operating result totalled €2,909m (–368m), of which €1,207m (665m) derived from the third quarter. Altogether, the reinsurance field of business accounted for around €2,329m (–168m) of the Group consolidated result, the third quarter bringing in €1,036m (308m).
Premium income grew strongly by 8.1% in the first nine months
year on year and totalled €21.2bn (19.6bn),
with €7.5bn (6.5bn) accounted for by the
third quarter. If exchange rates had remained the same, premium
volume for the first nine months would have risen by 0.7% year on
year. In the life reinsurance segment, gross premiums written rose
by 15.3% to €8.2bn (7.1bn) in the first
three quarters. Large-volume reinsurance treaties concluded in
recent years primarily for the purpose of capital relief continued
to contribute to this pleasing trend. In property-casualty
reinsurance, rate increases for natural catastrophe covers and
rising premium income owing to new business in agricultural
reinsurance had a particularly positive effect. Premiums grew
overall by 4.1% to €13.0bn (12.5bn).
As in the first half of the year, the burden from major losses
was below average in the third quarter. Net major-loss expenditure
before tax amounted to €1,054m (3,933m) for
the period from January to September and
€337m (291m) for the third quarter. Munich
Re continues to anticipate a net burden of approximately
€160m (after sliding-scale commission) from
losses under crop failure covers as a consequence of the persistent
drought in large agricultural areas in the USA. Munich Re had
already posted provisions for the expected claims notifications in
the second quarter.
At the end of August, Hurricane Isaac hit the US Gulf Coast with
heavy rain and gale-force gusts, costing Munich Re around
€80m in total. The loss estimate for the
earthquakes that caused substantial damage in northern Italy in the
second quarter has been adjusted from the original assessment of
€79m to €150m. On
balance, Munich Re was able to reduce provisions for losses from
prior accident years by nearly €100m:
whereas provisions of around €300m were
released for basic losses especially in aviation and property
business, there was a run-off loss of approximately
€200m for major losses.
Altogether, the combined ratio for the first nine months
totalled 93.6% of net earned premiums (same period last year:
118.1%). The figure for the third quarter was 89.4% (87.3%).
Looking ahead to the renewals of reinsurance treaties at 1
January 2013, Munich Re's Reinsurance CEO Torsten Jeworrek said:
"Currently, there is still sufficient capacity available in the
reinsurance markets. We estimate that prices, terms and conditions
will at least remain stable in the forthcoming renewals in most
markets. In particular, the low interest-rate level needs to be
considered in pricing." Munich Re considers it possible that the
current capital market environment will result in an increase in
prices for long-tail business in future, especially in the casualty
sector. Jeworrek continued: "It is also foreseeable that Hurricane
Sandy will lead to a further rise in prices in US property business
and for non-proportional natural catastrophe covers."
Munich Health: Profit of €64m for
the first nine months
In the first nine months of the year, Munich Health posted a 20.2% increase in its operating result to €131m (109m), of which €96m (44m) was attributable to the third quarter. Munich Health thus contributed €64m (17m) to the Group's overall profit, €58m of this in the third quarter. Primary insurance business in Spain and in the MENA region once again performed very positively. Nevertheless, there were burdens from US Medicare Advantage business (private health insurance for seniors), which will probably also have an impact on the fourth-quarter result.
Gross premium income in the first three quarters was
significantly up (14.1%) on the same period last year, rising to
€5,028m (4,406m). International health
primary insurance business showed a strong increase of 14.3% to
€1,685m (1,474m), stemming especially from
the US primary insurance companies. The growth in reinsurance
premium income to €3,343m (2,932m) was
attributable to large treaties concluded by clients for capital
The combined ratio was 99.2% for the first three quarters of
2012, as in the previous year, and 96.4% (97.8%) for the third
Investments: Result of €6.3bn for
the first nine months
Investments at 30 September 2012 showed an increase of €11.4bn or 5.6% compared with year-end 2011, totalling €213.1bn, or €222.4bn (207.1bn) at market values. This increase was partly due to the lower interest-rate level in the second and third quarters, which had a positive effect on the market values of fixed-interest securities. Besides this, the market value of the portfolio benefited from new investments due to a higher volume of business. Since the turn of the year, unrealised valuation reserves have risen from €11.2bn to €20.1bn, or by 9.0% (5.4%) in relation to the market value of all investments. Fixed-interest securities, loans and short-term fixed-interest investments continued to make up the largest portion of Munich Re's investments, with a share of 87% at market value. Equities accounted for 3.2% (31 December 2011: 3.2%) or 2.9% (2.0%) after hedging, and real estate for 2.4% (31 December 2011: 2.6%). Munich Re further reduced its portfolio of southern European government bonds.
For the period January to September 2012, the Group's investment
result showed a major year-on-year improvement of 30.2% to
€6.3bn (4.8bn). At
€451m, a large share of this was due to
earnings from unit-linked life insurance. The result represents an
annualised return of 3.9%.
At €5.8bn, regular income decreased
slightly in the first nine months of 2012 compared with the same
period last year. The running yield declined from 4.1% to 3.6%,
owing to falling returns on reinvestment after shifts into what
continue to be very safe investments and to growth in the
portfolio. The overall balance of write-ups and write-downs plus
net gains on disposal amounted to 428m
(–444m) for the first nine months.
Write-ups were primarily on interest-rate derivatives due to a fall
in interest-rate levels. Net gains on the disposal of investments
totalled €525m (1,196m). A large portion of
this came from switching investments in government bonds, covered
bonds and corporate bonds, and from the realisation of gains on
equities. However, the Group posted losses on the disposal of
equity derivatives with which Munich Re hedges its equity portfolio
against price setbacks.
CFO Jörg Schneider: "The good mix of our
investment portfolio protects us against crisis scenarios; we are
sticking to our balanced investment strategy." In the third
quarter, the Group intensified its diversification with investments
in government bonds of emerging countries, British covered bonds
and corporate bonds. In addition, it expanded its investments in
equities, renewable energy facilities and infrastructure. Schneider
emphasised that Munich Re had so far positioned itself correctly
with relatively long durations: "This has enabled us to at least
partly cushion negative effects in the current low-interest-rate
environment," he said.
The Group's asset manager is MEAG, whose assets under management
as at 30 September 2012 included not only Group investments but
also segregated and retail funds totalling
Outlook for 2012: Profit expectation of around
Based on exchange rates remaining stable, the Group now anticipates that for the 2012 financial year its gross premiums written will be around €52bn. Gross premium income of some €28bn is expected in the reinsurance segment, and a figure of just over €17bn for primary insurance. Total premium income in primary insurance (including the savings premiums of unit-linked life insurance and capitalisation products) should be slightly over €18.5bn. Gross premiums written of well over €6.5bn are projected for Munich Health.
For property-casualty reinsurance, Munich Re's target is a
combined ratio of around 96% of net earned premiums over the market
and interest-rate cycle as a whole. In the first nine months, it
bettered this mark significantly thanks to a low burden from major
losses. In the fourth quarter, a reduction in provisions for prior
accident years may be possible. Munich Re thus anticipates an
overall combined ratio for 2012 that is well below the 96% mark,
despite the burdens from Hurricane Sandy.
Munich Re envisages a combined ratio of just over 97% in
property-casualty primary insurance.
For the remainder of 2012, Munich Re does not foresee any rapid
increase in capital-market interest rates. The investment return is
likely to be slightly over 3.5%.
The consolidated result in reinsurance should be in the range of
€2.7bn in 2012. Munich Re is continuing to
target a consolidated result of around €450m
for the primary insurance segment and €400m
for the ERGO Group, not yet taking into account restructuring
expenses that may be accounted for in the fourth quarter of 2012 in
connection with the sales reorganisation programme. Munich Re's
projection for Munich Health's consolidated result is slightly
Based on the gratifying profit for the first three quarters, the
annual result for Munich Re (Group) is likely to be better than
previously anticipated. CFO Jörg Schneider:
"At the beginning of the year, we envisaged a profit in the range
of €2.5bn for the whole of 2012. We are now
much more optimistic with a profit guidance of around
€3bn for the Group." Stating that two months
before the end of the financial year was too early to make a
definite announcement regarding the dividend for 2012, Schneider
nevertheless declared: "If the annual result is good and the
general situation allows, we intend to pay a dividend that is
higher than the €6.25 paid for the previous
financial year. In that case, our capitalisation will still remain
strong enough for us to be able to take advantage of profitable
growth opportunities at any time."
As always, the outlook is subject to actual claims experience and the impact of severe currency or capital market developments on the income statement in the weeks remaining until the end of the year.
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Munich Re stands for exceptional solution-based expertise, consistent risk management, financial stability and client proximity. Munich Re creates value for clients, shareholders and staff alike. In the financial year 2011, the Group – which pursues an integrated business model consisting of insurance and reinsurance – achieved a profit of €0.71bn on premium income of around €50bn. It operates in all lines of insurance, with around 47,000 employees throughout the world. With premium income of around €27bn from reinsurance alone, it is one of the world's leading reinsurers. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. Its primary insurance operations are concentrated mainly in the ERGO Insurance Group, one of the major insurance groups in Germany and Europe. ERGO is represented in over 30 countries worldwide and offers a comprehensive range of insurances, provision products and services. In 2011, ERGO posted premium income of €20bn. In international healthcare business, Munich Re pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand. Munich Re's global investments amounting to €202bn are managed by MEAG, which also makes its competence available to private and institutional investors outside the Group.
This press release contains forward-looking statements that are based on current assumptions and forecasts of the management of Munich Re. Known and unknown risks, uncertainties and other factors could lead to material differences between the forward-looking statements given here and the actual development, in particular the results, financial situation and performance of our Company. The Company assumes no liability to update these forward-looking statements or to conform them to future events or developments.
Munich, 7 November 2012
Aktiengesellschaft in München
This publication is available exclusively to Munich Re clients. Please contact your Client Manager.