Munich Re profit target for 2014 down as low interest rate challenge continues

Munich Re ended last year with a profit of 3.3 billion euros, the third-best result in its history, but is aiming for a lower profit of 3 billion euros this year, the company reported Thursday.

Overall in 2013, the group posted an operating result of 4.4 billion euros, from 5.3 billion the prior year. As of Thursday, 1 euro was equal to $1.55. 

Its reinsurance business contributed 2.8 billion euros to the consolidated result, though gross premiums written declined slightly to 27.8 billion euros from 28.2 billion the prior year.

Of that result, 17 billion euros were attributable to property/casualty reinsurance and 10.8 billion to life reinsurance, according to Munich Re.

The consolidated result in property/casualty reinsurance was down over the previous year at 2.4 billion euros (from 2.6 billion), and that business saw a 92.1% combined ratio, versus 91% the prior year.

Natural catastrophe losses were lower than expected last year, having a full-year impact of 764 million euros, below the nearly 1.3 billion euros the prior year.

Flood losses in central Europe last June accounted for 178 million euros, and rain and hailstorms in Germany in June and July caused 174 million euros in losses. The overall claims expenditure for major losses in 2013 totalled roughly 1.7 billion euros (and roughly 1.8 billion the previous year).

Man-made losses totaled above-average at 925 million euros, over 515 million euros the previous year.

The company’s primary insurance result improved last year to post a profit of 433 million euros, up from 240 million in 2012. For international property/casualty insurance, the combined ratio was about 98.7% of net earned premiums.

Overall premium income across all lines of business decreased by 2.8% to 18 billion euros in 2013 and gross premiums written in the primary insurance segment last year decreased by 2.4% to 16.7 billion years.

In the health and property-casualty segments, gross premiums written reached roughly the same level as last year at 5.7 billion euros and 5.5 billion euros respectively, Munich Re noted.

“The result for 2013 is an indication of how we have positioned ourselves competitively – we have strategically prepared Munich Re for foreseeable challenges which we can now tackle from a position of strength,” CEO Nikolaus von Bomhard said in a press release.

Those challenges included the lingering low-interest-rate environment, increasing competition in reinsurance, and changes in demand from clients in primary insurance, Munich Re said.

The 3 billion euro target for 2014 is then “an ambitious objective,” according to Munich Re, noting that the company is continuing to face “somewhat lower regular income from investments” because of low interest rate levels.

“We have done our homework in recent years,” von Bomhard noted. “Our capital base is more than solid, in reinsurance we are committed to solution-finding competence, and in primary insurance we are bringing a visionary concept to the German market with our new generation of life insurance products.”

For property/casualty reinsurance, the group is targeting a combined ratio of around 94% of net earned premiums for 2014, and in property/casualty primary insurance, the combined ratio for the year should be approximately 95%, the company said.