Munich Re Profit Surges by More Than 60%

Posted Mar 11th 2010 3:20PM by Tom Johansmeyer
Filed under: Earnings Reports, Good news

When 2008 ended on a sour note, the reinsurance industry looked to 2009 with trepidation. Since the financial crisis struck late in the third quarter of 2008, it was clear at the time that the effects would spill over into the following year, though signs of stability in the reinsurance market left reason for hope. Now, we're looking back on the year that was, for 2009, rather than the one to come, and Munich Re (0KFE) is putting it in the "win" column. The reinsurer logged a bottom-line result of €2.56 billion, up profoundly from €1.58 billion the year before. Munich Re has already announced that it's raising its dividend to €5.75 per share.

According to Nikolaus von Bomhard, Chairman of the Board of Management of Munich Re, "We have brought the financial year 2009 to a successful close: with a profit of over €2.5 billion, we were even able to surpass expectations and achieve our long-term return target despite the difficult environment."

Munich pulled in an operating result of €4.7 billion in 2009, €1.4 billion of it in the fourth quarter. And even with its share buyback, equity climbed to €22.3 billion (by 5.5%) through 2009. Munich achieved a return on risk-adjusted capital after tax (RORAC) of 15.1% for last year. Gross premium increased by 9.5% to €41.4 billion, but would have sustained a gain of 9.9% if exchange rates had remained the same compared to 2008.

Perhaps the most interesting development at Munich Re is the increase of its capital buffer relative to 2008. To understand the reasoning behind this, you'll need a bit of context. At the end of 2007 and beginning of 2008, the reinsurance industry had extremely large amounts of capital on hand. This changed, of course, in September 2008, and a year after the financial crisis, the industry appeared to have returned to healthy buffers, if not to late 2007 levels.

So, for Munich Re to have increased its capital buffer is to see one of the major issues of the marketplace addressed by this company. Available financial resources surged to €28.4 billion, which is well above the company's internally calculated risk capital requirement of €17.4 billion.

Von Bomhard pushed heavily last year to establish its new German primary insurance market brand, ERGO, in the marketplace, calling it the company's "great challenge and opportunity." The primary insurance portion of Munich Re turned a profit of €417 million in the fourth quarter.

ERGO CEO Torsten Oletzky explains, "In 2009, we made good progress – for example, in cutting costs or expanding our international business. We have significantly strengthened our important bank distribution channel and made major progress with integration. We have ambitious plans for 2010, too. With our changed brand strategy, we are opening a new chapter in ERGO's history."

On the reinsurance side, Munich has focused on refining its services, according to von Bomhard, "be it through innovative products or concepts for capital relief." Low claims and financial market recovery led to a strong result for the reinsurance division.

Reinsurance contributed €2.6 billion to the Group's overall profit, with €699 coming in the fourth quarter. Gross premiums written were up 13.5% compared to 2009.

Following a solid 2009, Munich Re has high hopes for this year. The company again expects a profit of above €2 billion on gross written premium in both the insurance and reinsurance sectors of €41 billion to €43 billion.

With regard to the financial year 2010, von Bomhard emphasized, "We are again aiming for a consolidated result of over €2 billion," even with the losses from such disaster events as the earthquake in Chile and Winter Storm Xynthia.