Munich Re 1Q net profit falls 46 percent

The Associated Press
May 6, 2009

FRANKFURT -- German reinsurance company Munich Re AG said Wednesday that net profit fell 46 percent in the first quarter, partly as a result of lower investment earnings, but raised its outlook for premiums this year.

The Munich-based company said net profit in the January-March period amounted to euro420 million ($559 million) compared with euro777 million in the first quarter of 2008.

Gross written premiums, a measure of revenue, were 5.3 percent higher at euro10.4 billion from euro9.9 billion in the first quarter of 2008.

Investment returns, however, were 19 percent lower -- euro1.4 billion at the end of the first quarter, compared with euro1.7 billion at the end of the first quarter of 2008.

Munich Re said that since the start of the year the company's portfolio had shown a rise of just over 1 percent, or euro2 billion to euro177 billion.

Munich Re is the world's biggest reinsurance company by gross written premiums. Reinsurers sell back up coverage to primary insurers to absorb shocks in case of large losses or catastrophes. The company also sells primary insurance.

"The uncertainties resulting from the economic crisis apply to both underwriting business and investments, making a serious projection of the annual profit for 2009 impossible," the company said in its report.

However, it did revise the outlook upward for gross premiums, which should affect the year's top line positively, the company said.

Munich Re said it now anticipates its gross premium volume in the reinsurance segment to be in the range of euro22.5 billion to euro24 billion, instead of the previously estimated euro21 billion to euro22 billion.

In primary insurance gross premium income, Munich Re expects between euro17 billion and euro18 billion in 2009, instead of the previously estimated euro17.5 billion to euro18.5 billion.

That would amount to total written premiums of between euro39 billion and euro41 billion for 2009, instead of the previously forecast range of euro37.5 billion to euro39.5 billion, an increase of around 4 percent.

In 2008, Munich Re's full-year net profit was euro1.5 billion on gross premiums of euro38 billion.

"While first quarter figures remained below consensus regarding the bottom line, we see our positive view as confirmed," Bernd Mueller-Gerberding, an analyst at UniCredit, said in a research note.

"The increased guidance with regard to gross premiums written is clearly a confirmation of an improved environment for reinsurance companies."

He rates at "buy" with a target of euro125.

Shares of Munich Re closed up 3.6 percent at euro105.05 in Frankfurt.

The company said the reinsurance business contributed euro665 million to the group's profit for the quarter. Premium income was up 6.5 percent for the division to euro5.9 billion, compared with euro5.6 billion in the first quarter of 2008.

The company said a number of major losses affected the reinsurance business, including a winter storm that struck France and Spain especially hard -- amounting to euro80 million in provisions -- and deadly brush fires that swept across parts of Australia, which the company expects to generate claims of about euro65 million.

Overall, the division saw a combined ratio of 97.3 percent. The combined ratio reflects the level of costs and claims paid out, versus premiums paid in; a level under 100 indicates an underwriting business is profitable.

The company said its primary insurance unit -- which sells life, health and property insurance -- suffered during the quarter because of effects of the financial crisis. Factors including interest rate hedges and other impairments on investments also affected results.

Total primary insurance premium income increased 3.3 percent to euro5 billion from euro4.9 billion in the first quarter of 2008. In all primary segments, life, health and property and casualty insurance, Munich Re saw an increase in written premiums, but the division saw a significant reduction in operating profits because of the financial crisis effects.

Munich Re said that despite a long winter, the combined ratio in the property-casualty segment was 96.3 percent in the first quarter of 2009.

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