2 June 2003
Press Release
Munich Re in 1st quarter 2003: As expected, weak capital markets continue
to affect the figures, with writedowns of €880m, but net loss contained
to €238m and much lower than in the two previous quarters.
- Markedly better operative result in reinsurance; combined ratio of only 96.8%
demonstrates substantial improvement in quality
- Primary insurers show strong growth in life and health insurance; property-casualty
combined ratio of 98.0% even better than last year
In the first quarter of 2003, the Munich Re Group took advantage of the
continuing positive trend in its reinsurance business to return to the profit
zone: its
operative result (before amortisation of goodwill) rose to €123m, following -€1.6bn
in the preceding quarter. Its underwriting policy in reinsurance succeeded
in bringing the combined ratio down below the 100% mark for the first time
in a long while - it decreased to 96.8%. The situation on the capital
markets led to writedowns and losses on the disposal of investments totalling €2.3bn;
despite this enormous burden, the otherwise pleasing performance of the Group's
business meant that the net result was a deficit (after tax) of only €238m.
Dr. Hans-Jürgen Schinzler, Chairman of the Board of Management, is positive
in his outlook for the rest of 2003: "We are making good progress, despite
the uncertainties regarding capital market trends. Provided we are spared exceptional
loss events, the advances we have made in operative business will have a noticeable
impact on our overall result for 2003."
Summary of the Munich Re Group's figures for the first three months:
Compared to the first quarter of 2002, premium income increased only slightly,
rising by 0.8% to €10.8bn. This was because the strong euro had the effect
of substantially reducing the euro value of premium written in other currencies,
especially the dollar. Excluding the effects of currency translation and acquisitions,
premium rose by 6.8%. The Group result at 31 March amounted to -€238m,
following a loss of €2.2bn in the fourth quarter of 2002. Earnings per
share amounted to -€1.33. Board member Dr. Jörg Schneider: "Despite
the loss, the wind has clearly changed. The first three months show that, notwithstanding
the after-effects of the weak capital markets, we have put our business on
a sound footing again."
Reinsurance: Fundamentally improved portfolio
Altogether, after the renewals and terminations, the premium volume for the
first quarter amounted to €6.5bn (6.9bn) before consolidation; without
changes in exchange rates, growth compared with the same period last year
would have been 6.7% (32.0%). Premium volume in the life and health segment
remained stable at €1.6bn. In its property-casualty reinsurance business,
Munich Re achieved rate increases averaging over 10%. Here, however, it declined
by 6.9% to €4.9bn owing to currency translation effects.
Treaties were consistently adjusted with respect to conditions and scope of
cover as well. Successful effects of this systematic policy are evident in
the markedly lower combined ratio of 96.8% for the first quarter, in which
Munich Re was largely spared claims costs from natural catastrophes and other
major losses. The combined ratio for the year 2002 - adjusted to eliminate
the reserve strengthening for US business - was 106.5%. Another pleasing
factor is the progress of American Re, by far the largest reinsurance subsidiary
in the Group, which reduced its combined ratio from 114.2% in the first quarter
of last year to 98.0% in the first quarter of 2003 and showed a profit of US$
152m.
The reinsurers contributed €29m to the Group result in the period under
review, even though their investment result of €527m was heavily affected
by writedowns and losses on the disposal of investments totalling €522m.
Primary insurance: Strong new business demonstrates franchise strength
In the first three months of the year, Munich Re's primary insurers recorded
above-average growth in gross premiums written, which rose by 8.1% to €5.0bn.
The companies' distribution strategy of accessing different target groups
through a range of brands and channels again proving its worth. In particular,
as prominent providers in Germany, the life insurers increased their premium
income substantially by 10.5% to €1.9bn, not least owing to premium
from company pension schemes.
The ongoing political debate on possible reductions in social insurance benefits
is causing considerable public uncertainty in Germany. Financially strong health
insurers with a far-sighted approach to provision are in demand: in the case
of the health insurers in the Munich Re Group, the number of policyholders
with comprehensive medical cover grew by almost 20,000 to 900,000 by the end
of March; premiums rose by 9.1% to €1.2bn.
In property-casualty insurance, the combined ratio improved further to a 98.0%
(whole of 2002: 99.1%), with premium income increasing by 5.5% to €1.9bn.
Especially in the case of the life and health insurers, the positive performance
of Munich Re's underwriting business in primary insurance contrasts with
losses due to the falls in share prices, despite a reduction in the proportion
of equities held by these insurers in their investment portfolios. Writedowns
and losses on the disposal of securities produced a burden of €1,775m
(359m), so that the primary insurers contributed -€284m (+27m)
to the Group result on balance in the period under review.
Investments: Markedly reduced proportion of equities / Lowering of stake in
Allianz
Munich Re has hedged risks on the capital markets and reduced the proportion
of equities, including shareholdings, in its portfolio to 14.5% by the end
of March (end of 2002: 18.1%). In particular, Munich Re has lowered its interest
in Allianz to just above 15%, thus already reaching the percentage agreed
on for this reciprocal shareholding. In the first-quarter financial statements,
Munich Re no longer recognises Allianz as an associated enterprise at its
proportionate
share of the equity capital; following deconsolidation, which itself has
no effect on the income statement, the shares in Allianz are shown in the balance
sheet at their respective market value like other equity investments.
At €216m, the Group's investment result moved back into the black, after
the negative results of the previous two quarters. In the period under review,
there were - as generally expected - writedowns on securities of €880m
with a net impact of €396m on the quarterly result, coupled with realised
losses on the disposal of securities amounting to €1.4bn. Depending on
the development of the stock markets in the further course of the year, unrealised
losses in value may still affect the income statement in the current year,
whereas the effects of the fall in share prices have already been largely digested
through the accounting of equity portfolios at market value. The low share
prices and the weakness of the US dollar had an appreciable effect on shareholders'
equity in the period under review: it fell from €13.9bn at the turn of
the year to €12.5bn at the end of the first quarter. Dr. Schneider: "31
March marked a particularly low point on the stock exchanges; recoveries in
share prices and the good performance of business in the following months mean
that we had more than made up the lost ground by the end of May."
Outlook for the business year 2003 as a whole
As things stand at present, premium volume for the current year should reach
the same high level as last year, even taking changes in exchange rates into
account. Ultimately, however, the crucial factor is the improved quality of
the business. In reinsurance, the trend towards better conditions and risk-adequate
prices has continued. Munich Re achieved marked progress in the past renewals
and will adhere to its return requirements. In its operative business, it has
thus created the basis for a satisfactory result in 2003. "If claims costs
for major losses remain normal, the combined ratio for the renewed business
should remain below the 100% mark in the current year", said Dr. Schneider.
In primary insurance, the Munich Re Group considers itself well positioned
to participate to an above-average extent in the growth of private provision
for old age and healthcare, thus expanding its business in life and health
with their stable earnings. In primary insurance premiums are expected to increase
by almost 6%, which is far above the market average, and once again a satisfactory
underwriting result for the business year 2003. Additionally, the ERGO Insurance
Group intends to further reduce its expense ratio with an efficiency enhancement
programme.
The Munich Re Group anticipates that premium growth - without the influence
of exchange rates - will total around 5%. The strong euro will significantly
affect premium translated from other currencies but will only have a moderate
effect on the Group's result, thanks to Munich Re's policy of currency matching
its assets and liabilities. Owing to the uncertainties on the capital markets,
a result forecast is not possible at this early juncture, according to Dr.
Schneider. Munich Re expects further strengthening in earnings from the forthcoming
renewals of reinsurance treaties at 1 July in several markets.
Note for editorial departments:
In case of enquiries, please contact Rainer Küppers on
+49 (0) 89/38
91-25 04
,
Anke Rosumek on +49 (0) 89/38 91-23 38, Irmgard Joas on
+49
(0) 89/38 91-93 92
or Florian Wöst on
+49 (0) 89/38 91-94
01
.
Additional information (slides) on the figures for the first quarter of 2003
and the quarterly report itself can be found on our website at www.munichre.com.
The company's Annual General Meeting will take place on 11 June 2003
at 10 a.m.
Munich, 2 June 2003
Münchener Rückversicherungs-Gesellschaft
gez. Dr. Schneider gez.
Küppers