Canadian Underwriter

Munich Re’s consolidated result 3.1 billion euros in 2015, in line with 2014

February 8, 2016   by Canadian Underwriter

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Provisional calculations indicate Munich Re will post a consolidated result of 3.1 billion euros for 2015, down just slightly from what was regarded as the very good result of 3.2 billion euros in 2014.

Munich Re's consolidated result for 2015 3.1 billion euros

Provisional calculations show that in the fourth quarter of 2015, the Group posted a profit of 0.7 billion euros compared to 0.7 billion euros in 2014, notes a statement issued last week by the global reinsurance and insurance provider, Munich Re.

The company’s operating earnings for 2015 were 4.8 billion euros (compared to 4.0 billion euros in 2014). Of that amount, 1.4 billion euros was attributable to 2015 Q4, up from the 0.7 billion euros in the same quarter of 2014.

The reinsurance field of business contributed 3.3 billion euros in 2015 to the consolidated result, up from 2.9 billion euros in 2014, with the operating result up by 0.9 billion euros to 4.1 billion euros.

Gross premiums written climbed to 28.2 billion euros in 2015 compared to 26.8 billion euros a year earlier, Munich Re reports. “Changes in the value of the euro as against other currencies had a significant impact on premium growth (+5.4%),” the statement adds.

Property-casualty reinsurance again accounted for the lion’s share of the consolidated result for 2015, representing 2.9 billion euros in 2015 compared to 2.5 billion euros in 2014. The combined ratio for 2015 also improved to an excellent 89.7% of net earned premiums compared to 92.7% in 2014. In 2015 Q4, the combined ratio totalled only 78.6% compared to 91.2% in 2014 Q4.

“Munich Re was able to release loss reserves in the amount of 1.4 billion euros during the full year, corresponding to around 8.2 percentage points of the combined ratio,” the company reports. “The figure for the fourth quarter was 0.9 billion euros, corresponding to around 20.9 percentage points of the combined ratio,” the statement adds.

With regard to total major-loss expenditure for 2015, this amounted to 1.0 billion euros compared to 1.2 billion euros in 2014. For 2015 Q4, this amounted to 0.2 billion euros, the same as the amount in 2014 Q4.

As for net earned premiums, the major-loss burden of 6.2% in 2015 (compared to 7.2% in 2014) was below the average expected figure of 12%, and amounted to 4.7% in 2015 Q4 (compared to 6.1% in 2014 Q4).

Natural catastrophe losses impacted the full year results with 149 million euros compared to 538 million euros in 2014. The figure for 2015 Q4 was 0 million euros compared to 111 million euros in 2014 Q4.

Munich Re points to heavy rainfall in northern Chile, which caused considerable flooding (47 million euros), and a severe earthquake off the coast of Chile (45 million euros).

For man-made major losses, these were up to 897 million euros in 2015 compared to 625 million euros in 2014. “The explosion at Tianjin harbour in China (175 million euros) and a dam failure in Brazil (156 million euros) were by far the largest individual losses of the year,” Munich Re adds.

Of the other parts of the business, Life reinsurance contributed 0.3 billion euros to the consolidated result compared to 0.4 billion in 2014; for the ERGO field of business, it generated a loss of 0.2 billion euros in 2015 compared to a profit of 0.2 billion euros in the previous year; and for the Munich Health field of business, it contributed a profit of 0.09 billion euros to the consolidated result in 2015 compared to 0.11 billion euros in 2014.

“As in previous years, the consolidated result for the Group was marked by various opposing effects,” Munich Re notes. “Changes in the value of derivative financial instruments, negative currency effects, along with goodwill impairments in the ERGO field of business had an overall adverse impact. This contrasted, in particular, with the very good result in property-casualty reinsurance,” the company reports, adding that a comparatively low tax charge (the result of adjustments for prior years) also had a positive effect.

Other results for the 2015 fourth quarter and full year include the following:

  • equity increased by about 0.7 billion euros to 31.0 billion euros in 2015, with an increase of more than 0.9 billion euros in 2015 Q4 alone;
  • the return on risk-adjusted capital (RORAC) was 11.5% in 2015 compared to 13.2% in 2014, with an annualized RORAC of 10.8% in 2015 Q4 compared to 12.2% in 2014 Q4;
  • the return on equity (RoE) was 10.0% in 2015, down from 11.3% in 2014, with an RoE of 9.6% in 2015 Q4 compared to 9.8% in 2014 Q4;
  • investment result (excluding insurance-related investments) decreased to 7.5 billion euros in 2015 from 8.0 billion euros in 2014; and
  • the balance of gains and losses on disposals excluding derivatives was positive at 2.7 billion euros in 2015, with 0.4 billion euros in 2015 Q4.

Jorg Schneider

In the wake of the challenging environment – including low interest rates and increasing volatility in the financial markets – Jörg Schneider (pictured right), chief financial officer for Munich Re, called the 2015 result pleasing.

“Even though we benefited from random effects in the form of a low impact from major losses, the good result is mainly due to our operational profitability and rock-solid balance sheet,” Schneider says in the statement.

Munich Re also continued its share buy-back program. As part of the program running since the company’s Annual General Meeting (AGM) in April 2015, it has acquired shares amounting to about 800 million euros to date. By the next AGM, scheduled for April 27 2016, the total value should be 1 billion euros.

The low-interest-rate environment depresses regular income from investments, with the consequence that competition in reinsurance markets remains strong, Munich Re reports. Altogether, the volume of business written at Jan. 1 grew slightly by 0.7% to around 9.2 billion euros. Prices fell by approximately 1.0%.

“We can be satisfied with the figures for the January renewals. Despite a continuing difficult market environment, Munich Re was able to seize attractive business opportunities,” Torsten Jeworrek, a member of Munich Re’s Board of Management, says in the statement.

Munich Re is proceeding on the assumption that the market environment will not change significantly in the subsequent renewal rounds in 2016, unless extraordinary loss events occur.