Munich Re 4Q Net Profit Down 80 Percent

Associated Press
March 3, 2009

FRANKFURT - German reinsurance and insurance company Munich Re AG said Tuesday fourth quarter net profit fell 80 percent as financial investments were hit by the world economic crisis, but that it was "guardedly optimistic" about 2009.

The Munich-based company said net profit in the October-December period fell to euro133 million ($168 million) from euro552 million in the year ago quarter.

Gross premiums in the fourth quarter meanwhile rose nearly 6 percent to euro9.7 billion from euro9.2 billion in the fourth quarter of 2007.

Munich Re had already said in early February that had net profit of euro1.5 billion for 2008, a 62 decrease from the euro3.9 billion the company earned in 2007.

On Tuesday, it said gross premiums for the year rose only 1.5 percent to euro37.8 billion from euro37.3 billion in 2007, held down in part by unfavorable currency exchange rates.

The company said it posted a relatively high combined ratio of 99.5 percent for the year. Combined ratio reflects the level of claims paid out and costs versus premiums paid in; a level under 100 indicates an underwriting business is profitable.

Reinsurers sell back up coverage to insurance companies to spread risk in the event of large losses or catastrophes.

Meanwhile, investment income declined 37 percent to euro5.8 billion from euro9.3 billion a year ago.

"The financial year 2008 confronted companies with huge challenges and not only in the financial sector," said Nikolaus von Bomhard, Munich Re's chief executive. "We have mastered the crisis comparatively well so far."

He said the company had safeguarded its capital base in the difficult environment. "We remain guardedly optimistic," he said.

The company declined to give a specific profit outlook for the year but predicted that if exchange rates remain stable, its gross premium volume in the reinsurance segment will be in the range of between euro21 billion and euro22 billion in 2009.

Gross premium income of between euro17.5 billion and euro18.5 billion is expected in primary insurance. Primary insurance includes the life, health and personal accident insurance Munich Re also sells.

For 2009 and 2010, the group anticipates that given the very low-risk market interest rate level, the investment result will be well below the long-term target of 4.5 percent.

Munich Re said reinsurance premiums written were up 1.2 percent in 2008 to euro22 billion, while the segment contributed euro2.3 billion to profits.

"Despite high costs from major losses, especially Hurricane Ike, reinsurance business performed satisfactorily as a whole," Munich Re said.

Primary insurer premiums, including life, health and personal accident insurance totaled euro18.5 billion compared with euro18.3 billion in the year ago period.

In life and health insurance, overall premium income was flat compared to 2007 at nearly euro13 billion. The health business grew while life insurance declined, equaling out the result.

Munich Re shares closed down 0.5 percent to euro91.66 ($115.31) amid a lower DAX market.

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