Munich Re posts profit of 3.3 billion euros for 2013

Provisional calculations indicate Munich Re has surpassed its profit guidance of 3 billion euros and improved its consolidated result in 2013 to 3.3 billion euros, the company reported Tuesday.

The 3.3 billion euros compares to 3.2 billion in the previous year, notes a statement from Munich Re. In 2013 Q4, Munich Re posted a profit of 1.2 billion euros compared to 0.5 billion euros in same quarter of 2012.

“The very good result, to which all the business fields contributed, demonstrates Munich Re’s earnings strength. We have clearly surpassed our profit guidance of (3 billion euros),” Jörg Schneider, chief financial officer of Munich Re, says of the preliminary figures. “Claims expenditure for major losses in property-casualty reinsurance was below the expected level,” Schneider notes in the statement.

A reduced investment result led to Munich Re posting “a lower, but still pleasing” operating result of 4.4 billion euros in 2013 (compared to 5.3 billion in 2012). Of that amount, 1.3 billion euros was in 2013 Q4 compared to 1.6 billion euros in the fourth quarter of 2012.

The return on risk-adjusted capital, which serves as the core target for the Group as a whole, developed satisfactorily at 12.2% in 2013 (compared to 13.2% in 2012), while the return on equity amounted to 12.5% (compared to 12.5% in 2012).

Gross premiums written by the Group in 2013 fell slightly to 51.1 billion euros, owing to currency effects. This compares to 52.0 billion euros in 2012.

Munich Re’s reinsurance segment contributed 2.8 billion euros – compared to 3.1 billion euros in 2012 – to the consolidated result, the company reports. Owing to the lower income from investments, the operating result decreased by 0.8 billion euros to 3.5 billion euros, while gross premiums written were down to 27.8 billion euros (compared to 28.2 billion in 2012), due to the development of exchange rates that accounted for more than 4 percentage points of the reduction in premiums.

Looking specifically at property-casualty reinsurance, this accounted for 2.4 billion euros of the consolidated result for the full year (compared to 2.6 billion in 2012). The combined ratio for 2013 amounted to a very good 92.1% (compared to 91.0% in 2012) of net earned premiums.

Natural catastrophe losses impacted the full year with 764 million euros (compared to 1,284 million euros in 2012), and man-made major losses with 925 million euros (compared to 515 million euros in 2012).

The early-summer floods in central Europe (178 million euros) and the intense rain and hailstorms in Germany in June and July (174 million euros) represented the two largest losses in 2013, Munich Re reports.

Overall claims expenditure for major losses in 2013 totalled 1,689 million euros. The figure for 2013 Q4 was 384 million euros (compared to 745 million in 2012), of which 119 million euros (compared to 708 million euros) was for natural catastrophes and 265 million euros (compared to 38 million euros) was for man-made losses.

“In relation to net earned premiums, the major-loss burden for the full year was, at 10.4% (10.8% in 2012), below the average expected figure of 12%,” Munich Re’s statement adds.

In its primary insurance business, Munich Re showed a significantly higher profit of 0.4 billion euros in 2013 (compared to 0.2 billion in 2012) based on preliminary figures, the statement notes. The operating result fell by approximately 20% to 0.7 billion euros, while gross premiums written in 2013 decreased by more than 2% to 16.7 billion euros (compared to 17.1 billion in 2012).

Despite its overall satisfaction with renewals at January 1, Munich Re reports “the market environment remains very challenging, with competition having become even keener at the end of the year.” Among other things, Munich Re cites ample capacity being available and that price competition has increased in the traditional reinsurance market.

Altogether, the volume of business written at January 1 grew slightly by 2.7% to around 9 billion euros, Munich Re reports. The price level, which is an indicator of the profitability of the business, fell marginally by 1.5%. Treaty terms and conditions remained largely stable.

“Munich Re again adhered consistently to its principle of only writing business at risk-commensurate prices and conditions,” states Torsten Jeworrek, Munich Re’s Reinsurance CEO.

The forthcoming renewals in April 1, 2014 (mainly Japan) and July 1, 2014 (especially parts of the United States, market, Australia and Latin America) will include a greater proportion of natural catastrophe business than the January renewals, the statement notes. Munich Re expects pricing pressure in this segment to remain very appreciable in the further course of the year unless any extraordinary loss events occur, it adds.

“In the coming renewal rounds, we will be aiming to buck the general market trend with our tailor-made risk-transfer solutions and with prudent portfolio management,” says Jeworrek.