Canadian Underwriter

Munich Re posts 2014 profit of 3.2 billion euros, down slightly from 2013

February 6, 2015   by Canadian Underwriter

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Preliminary figures from Munich Re indicate the company’s consolidated result for 2014 is 3.2 billion euros, in line with the 3.3 billion euros the company posted in 2013.

The euro was trading Friday at about $1.42.

Provisional calculations for 2014 Q4 show that Munich Re had a profit of 700 million euros, down from 1.2 billion euros in 2013, notes a statement Thursday from the company, which combines primary insurance and reinsurance.

Reinsurance company Munich Re released its financial results for 2014

“With this good result, we have once again demonstrated our robust earnings strength,” Jörg Schneider, chief financial officer of Munich Re, says of the preliminary figures. “It is especially pleasing that all business fields have contributed to this success again in the past year,” Schneider adds.

Reinsurance company Munich Re released its financial results for 2014

Other preliminary figures for 2014 include the following:

• the Group posted an operating result of 4.0 billion euros compared with 4.4 billion in 2013 – 700 million euros of that was in 2014 Q4 compared with 1.3 billion in 2013 Q4;

• shareholders’ equity increased by about 4.1 billion euros to 30.3 billion euros compared with 26.2 billion euros in 2013 – more than 1.0 billion euros of the 2014 total was posted in 2014 Q4;

• the return on equity (RoE) amounted to 11.3% compared with 12.5% in 2013 – RoE in 2014 Q4 was 9.8% compared with 18.4% in 2013 Q4; and

• gross premiums written fell to 48.8 billion euros compared with 51.1 billion euros in 2013.

Looking at Munich Re’s reinsurance business, it contributed 2.9 billion euros to the consolidated result in 2014 compared to 2.8 billion euros in 2013; the operating result fell by 0.3 billion euros to 3.3 billion euros; and gross premiums written were down to 26.8 billion euros from 27.8 billion euros in 2013.

“This was partly due to the development of exchange rates, which resulted in a reduction in premium income of almost 2%,” Munich Re reports.

Related: Remnants of Change

Looking specifically at property-casualty reinsurance, this accounted for 2.5 billion euros – up slightly from 2.4 billion euros in 2013 – of the consolidated result for 2014. The combined ratio for 2014 amounted to 92.7%, compared with 92.1% in 2013, of net earned premiums, and totalled 91.2% for the fourth quarter of the year compared with 89.3% in 2013 Q4.

Other findings include the following:

• overall expenditure for major losses totalled 1.2 billion euros in 2014 compared with 1.7 billion euros in 2013 – 2014 Q4 accounted for 0.25 billion euros compared with 0.4 billion in 2013 Q4;

• for net earned premiums, the major-loss burden in 2014 of 7.2%, compared with 10.4% in 2013, was below the average expected figure of 12% – this amounted to 6.1% in 2014 Q4 compared with 9.2% in 2013 Q4;

• natural catastrophe losses impacted the full year with 538 million euros in 2014 compared with 764 million in 2013 – the amount was 111 million euros in 2014 Q4 compared with 119 million in 2013 Q4; and

• man-made major losses totalled 625 million euros in 2014 compared with 925 million euros in 2013 – the figure for 2014 Q4 was 138 million euros compared with 265 million euros in 2013 Q4.

Nat cats last year included the snowstorm in Japan (305 million euros), while reserves of 59 million euros was set aside for Hurricane Odile in Mexico, and provisions that had been set aside for the severe earthquakes in New Zealand in 2010 and 2011 were increased.

A snowstorm in 2014 in Japan caused 305 million euros in catastrophe losses for reinsurance provider Munich Re

Related: Natural catastrophe insured losses $31 billion in 2014, below 30-year average: Munich Re

For Munich Re’s ERGO business field, based on preliminary figures, it posted a profit of 0.2 billion euros in 2014 compared with 0.4 billion euros in 2013. In addition, ERGO’s gross premiums written in 2014 increased by 0.4% to 16.7 billion euros compared with 2013, while the combined ratio in German property-casualty insurance improved to 95.3% compared with 96.7% in 2013. This amounted to 97.1% in 2014 Q4, compared with 95.4% in 2013 Q4, mainly owing to low expenditure for severe weather events.

2014’s combined ratio in international property-casualty insurance amounted to 97.3% compared with 98.7% in 2013, and 96.8% in 2014 Q4 compared with 100.4% in 2013 Q4.

Last year, as in 2013, was sometimes a study of contrasts. “The performance of derivative financial instruments, negative currency effects and goodwill impairments owing to a resegmentation in the ERGO field of business (a major insurance groups in Germany and Europe, and represented in more than 30 countries worldwide) all had an adverse impact overall. In contrast, there was tax income derived from a recalculation of taxes for prior years,” Munich Re reports.

Overall, however, “the impact of major losses was randomly lower than expected; in property-casualty reinsurance, Munich Re was also able to release loss reserves for prior accident years,” notes the company statement.

Munich Re is continuing its long-standing commitment to buy back shares. As part of the announced share buy-back program running since the Annual General Meeting (AGM) in Apr. 2014, the company has acquired shares amounting to about 800 million euros and expects that value to be 1 billion euros by the next AGM on Apr. 23, 2015.

And with regard to renewals of reinsurance treaties in p&c business at Jan. 1, Munich Re reports that renewal negotiations were marked by an oversupply of reinsurance capacity and good capitalization of most market players.

The demand for reinsurance cover was largely stable. “Munich Re was able to stand its ground in this challenging environment. Overcapacity and a relatively low number of major natural catastrophes in 2014 added to the competitive pressure, above all in catastrophe business,” says Torsten Jeworrek, who is responsible for Munich Re’s global reinsurance activities.

At Jan. 1, 2015, slightly more than half of the company’s non-life reinsurance business was up for renewal, representing premium volume of about 9.4 billion euros. Approximately 13%, or about 1.2 billion euros, of this was not renewed, partly because the business concerned no longer met Munich Re’s profitability requirements, the company notes.

By contrast, Munich Re wrote new business with a volume of approximately 0.9 billion euros. Altogether, the volume of business written at Jan. 1 dropped by 9.5% to around 8.5 billion e
uros, while prices fell by 1.3%.

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