25 November 2003
Press Release
Munich Re with good underwriting results again in third quarter 2003
Group profit of EUR 152m / Disciplined underwriting policy and manageable burdens from natural catastrophes: Combined ratio in reinsurance and primary insurance once more below 100% / Growth especially strong in reinsurance and life primary insurance / Pre-tax profit expected for year as a whole
The Munich Re Group's business situation in the period under review up to
30 September 2003, and since then, has been marked by:
-
—
The continuing satisfactory trend in underwriting business: A consistent
underwriting policy has distinctly improved the results situation, especially
in the property-casualty sector of both primary insurance and reinsurance.
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—
The marked recovery on the stock markets: At EUR 247m, writedowns and
losses on the disposal of securities were comparatively small in the third
quarter.
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—
The very successful capital increase: Munich Re raised nearly EUR 4bn
from the issue of 50.9 million new shares. Shareholders benefited from a
favourable
subscription right and a rising share price.
Dr. Jörg Schneider, member of Munich Re's Board of Management: "We
are satisfied with our company's business experience in the third quarter.
Munich Re is entering the current renewal negotiations for reinsurance treaties
buoyed by these figures. Further strengthened by the successful capital increase,
we can exploit additional earnings opportunities."
Details of the Munich Re Group's figures at 30 September 2003
Group premium income increased in the first nine months of 2003 to EUR 30.7bn
(equivalent period last year: EUR 29.6bn). The operating result before tax
was EUR 1,062m (as opposed to EUR 2,201m in the same period last year, although
the latter figure is not really comparable because of various one-off factors).
As a major part of the losses on equity investments are currently not deductible
for tax purposes, the Munich Re Group made sufficient provision in the second
quarter for a potential tax burden, whose exact amount for the life and health
insurers in the Group will depend on the outcome of the current German legislation
process. In addition to the after-effects of the stock market slumps of the
previous quarters, this tax provision impacted the Group's post-tax result
of -EUR 451m (3,239m).
Reinsurance: Combined ratio again below 100%
The Group's reinsurers achieved strong organic growth in original currencies,
but this was masked by the significant appreciation in the value of the euro,
especially against the US dollar. Premium income again remained at a high level
in the first nine months, totalling EUR 19.1bn. Without the effects of changes
in exchange rates, it would have risen by 9.9%.
The combined ratio for the third quarter was 99.3% (114.1%). The ratio for
the first nine months improved by 8.7 percentage points to 97.0%, the figure
for the comparable period last year having been adjusted to eliminate the effects
of the reserve strengthening at American Re and for the World Trade Center
loss (a total of 21.6 percentage points).
Losses from natural catastrophes contributed 1.4 percentage points to the
combined ratio in the first nine months. In September Hurricane Isabel hit
the US East Coast with wind speeds of up to 200km/h, causing serious damage
in some areas. Nevertheless, the claims burden for the Munich Re Group remains
within reasonable bounds at an estimated amount of nearly EUR 50m. Maemi, the
strongest typhoon in South Korea since records began in the year 1904, and
Hurricane Fabian in the Bermudas, gave rise to claims costs for Munich Re of
up to EUR 30m in each case.
On top of this, the Munich Re Group incurred several major losses in the mid
two-digit million euro range that were not attributable to natural events:
the biggest power failure ever in the US North East and Canada, which affected
around 50 million people, and two satellite losses. There were also some large
fires in industrial plants.
The investment result for the reinsurance segment amounted to EUR 1,921m for
the first nine months; last year's result of EUR 7,777m for the comparable
period was influenced by the income from the shareholding transactions with
Allianz. The investment result for the third quarter was EUR 750m (361m). As
expected, expenses for writedowns and losses on the disposal of securities
were only small in the third quarter compared with the previous quarters, totalling
EUR 131m. In the first six months they had been EUR 714m.
The reinsurers' result before amortisation of goodwill was EUR 1,258m (3,729m)
for the first nine months and EUR 376m (-553m) for the third quarter.
Reinsurance contributed EUR 315m (4,673m) to the Group's overall result after
tax in the first nine months. Thanks to its selective, strictly profit-oriented
underwriting policy, American Re recorded a positive post-tax result of USD
320m. Munich Re's largest foreign subsidiary is successfully taking advantage
of the opportunities in the US insurance market.
Primary insurance: Steady growth with positive underwriting result in third
quarter
In the first nine months of 2003, the Group's primary insurers increased their
premium income by 7.0% to EUR 13.0bn (12.2bn), and in the third quarter by
7.8% to EUR 4.1bn. This good development was particularly due to life insurance,
where premium income rose by 7.2% compared with the first nine months of last
year, reaching EUR 5.5bn (5.1bn). The steady growth was fuelled by new business
and by business in force with index-linked premium adjustments.
The Group's health insurers recorded premium income of EUR 3.4bn (3.2bn) for
the first nine months. Growth in Germany has mainly derived from premium increases
for existing business as a consequence of higher benefits. In new business,
on the other hand, uncertainty is being engendered by the ongoing socio-political
debate, which is delaying the necessary reform of health insurance in the direction
of a funded as opposed to pay-as-you-go system.
In property-casualty insurance, the primary insurers wrote gross premium of
EUR 4.1bn (3.9bn) between January and September. A long-standing prudent underwriting
policy applied to the acceptance of new business, combined with cost-reduction
measures, means that the combined ratio for the first nine months shows further
very positive development: it now amounts to 96.3% compared with 102.1% in
the same period last year (including legal expenses insurance in each case).
The Group's primary insurers continue to focus on the profitable expansion
of their core fields of business and on increased internal efficiency. Product
and distribution policy is geared to enhancing the profitability of their business.
The primary insurers' investment result was EUR 2,567m (526m) for the period
from 1 January to 30 September 2003 and EUR 1,745m (-1,887m) for the
third quarter. As expected, in the primary insurance segment, too, expenses
for writedowns and losses on the disposal of securities were on the low side
in the third quarter compared with the previous quarters, totalling EUR 116m.
In the first six months they had been EUR 2,115m.
The primary insurers' result before amortisation of goodwill amounts to EUR
64m (-537m) for the period January to September and -EUR 3m (-652m)
for the third quarter. The primary insurers' contribution to the post-tax Group
result for the first nine months amounts to -EUR 751m (-676m).
This clearly reflects the impact of tax expenditure, which is largely due to
the non-deductibility of writedowns and realised losses on equity investments
in life and health insurance. A tax law amendment adopted by the German Bundestag
has been referred to the mediation committee by the Bundesrat.
Group investments: Recovery and diversification of investment portfolio
In the third quarter, European and US stock markets moved sideways after recovering
appreciably in the first half of the year. At EUR 247m, writedowns and losses
on the disposal of securities were low in the third quarter compared with the
previous quarters. In the first half year they had totalled EUR 2,829m.
The after-effects of the weak stock markets have thus been largely absorbed
in our securities available for sale. Unrealised gains on such investments
exceeded unrealised losses at 30 September by a sizeable EUR 5.0bn. Equity
exposure was slightly reduced and the portfolio more strongly diversified by
cutting back on investment in European equities in favour of Japanese stocks.
As at 30 September 2003, the Munich Re Group's investments had increased to
EUR 165.9bn, compared with EUR 156.3bn at the end of 2002. The investment result
amounted to EUR 4.2bn for the first nine months and EUR 2.3bn (-1.6bn)
for the third quarter.
Outlook for 2003 as a whole
Underwriting profits and value appreciation in the investment portfolio increased
shareholders' equity in the first nine months by EUR 1.0bn to EUR 14.9bn
(end of 2002: EUR 13.9bn). Since then there has also been the capital increase
with
which Munich Re broadened and optimised its capital base in October and November.
This can be used to take better advantage of profitable business opportunities,
especially in reinsurance. The favourable subscription rights for the new shares
were virtually all exercised - very largely by the existing shareholders.
At the same time, despite the adjustment to take account of the subscription
right, Munich Re's share price even showed a pleasing increase. Munich
Re raised nearly EUR 4.0bn from this capital measure. It regards the very positive
response
to the capital increase as a sign of confidence and also as a mandate. The
Board of Management team, which will be led by Dr. Nikolaus von Bomhard from
January onwards, has set itself the objective of achieving sustained success
again in all segments.
With the early sale of its 25.7% stake in Hypo Real Estate Holding AG in October,
Munich Re significantly reduced its exposure in the German banking sector.
The spin-off of Hypo Real Estate from HypoVereinsbank and the above-mentioned
sale results in a loss that will impact the result for the fourth quarter.
In mid-November, Munich Re sold 7.5 million Allianz shares, thus lowering its
stake in Allianz to approximately 12.2%. The profit from this sale will also
be booked in the fourth quarter.
Altogether, Munich Re expects Group premium income for the business year 2003
to remain high at around EUR 40bn, in spite of erosion from changes in exchange
rates. Based on the very good business experience to date and the sustained
improvements in prices and conditions, the combined ratio in reinsurance should
be below 100%, assuming costs for major losses remain within normal bounds.
In primary insurance, premium income will show a further increase in 2003,
even after years of growth in excess of the market average. Measures designed
to enhance efficiency are set to achieve appreciable cost savings. In life
insurance, a reduction of the guaranteed interest rate will come into force
for the whole industry in Germany as at 1 January 2004. Recalculated rates
and revised product ranges among the life insurers in the Group are intended
to further increase their profitability in future. It is also to be expected
that the combined ratio in property-casualty business will show a further slight
improvement.
The Group result for 2003 will be subject to countervailing influences: On
the one hand, it will be burdened by the writedowns and losses on disposals
and by the high provision for tax. On the other hand, the good performance
of the underwriting business will distinctly improve the earnings position.
Assuming normal claims experience and stable capital markets, Munich Re expects
to record a post-tax loss for the year 2003 purely due to the non-deductibility
of a large portion of the writedowns and losses on the disposal of shares.
The Group anticipates that the pre-tax result will show a very clear profit.
Disclaimer
This press release, in particular "Outlook 2003", refers to statements
relating expressly and implicitly to the future and contains words such as "expect", "believe", "assume" and
other similar expressions. Such forward-looking statements are based on current
expectations, estimates, forecasts and prognoses concerning the development
of the market as well as management estimates and assumptions. Such forward-looking
statements are no guarantee that events or results will actually materialise
in the future and are subject to risks, uncertainties, assumptions and other
factors that could lead to actual events or results deviating substantially
from those anticipated in these forward-looking statements. Other factors include
in particular catastrophes that could lead to extraordinary loss burdens as
well as considerable price changes on the capital market, namely share price
changes which may have an impact on the financial situation of the Munich Re
Group.
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
.
Munich, 25 November 2003
Münchener Rückversicherungs-Gesellschaft
signed Dr. Schneider signed
Küppers