Munich Re’s 2008 Q2 profit takes a hit due to market turmoil

Munich Re Group has recorded a profit of EUR1.4 billion (Cdn$2.2 billion) in the first six months of 2008, down from its profit of EUR2.1 billion (Cdn$3.4 billion) during the first half of 2007.
“Despite marked reductions in share prices and the fall in the dollar, the profit for 2008 should be well above EUR2 billion (Cdn$3.2 billion), notwithstanding strict application of IFRS impairment rules,” the company noted in an online news release.
In the first six months, the Munich Re Group recorded an operating result of EUR2.2 billion (Cdn$3.6 billion), a decrease of 23.7%.
The company noted price losses on the stock markets and the fall in the dollar negatively affected the investment result, which fell by 42.2% to EUR3.3 billion (Cdn$5.3 billion).
“Given the turmoil on the financial markets, those are satisfactory results,” Munich Re CFO Jrg Schneider said in a release. “Of course, we had impairments of equities and low gains on disposals, but thanks to our balanced investment portfolio, we have done relatively well.”
The Munich Re Group reported “relatively satisfying” results in the primary insurance segment in the first six months.
The company observed price losses on the stock markets necessitated write-downs of equities totalling EUR1 billion (Cdn$1.6 billion), which were partially offset by EUR500 million (Cdn$807.7 million) in write-ups of derivative financial instruments held for hedging purposes.
The half-year combined ratio on the primary insurance side was 91.0%, lower than for the same period last year (93.3%).
In property-casualty business (including legal expenses insurance), premium climbed by 5.2% to EUR3.3 billion (Cdn$5.3 billion).
As for its reinsurance segment, despite the higher number of major losses in the first quarter, Munich Re’s operating result grew by 6.2% to EUR2.6 billion (Cdn$4.2 billion), with reinsurance contributing EUR2 billion (Cdn$3.2 billion) to the group profit.
The combined ratio was 95.4% (94.9%) for the second quarter, and 99.6% (98.4%) for January to June 2008.
“The biggest loss events in the natural catastrophe sector in the second quarter were the severe earthquake in the Chinese province of Sichuan, the floods in the U.S. Midwest, and Windstorm Hilal over Germany, for which EUR3040 million (approximately Cdn$48-65 million) each has been earmarked,” Munich Re noted in a statement. “Major loss expenditure for the whole first half-year amounted to EUR777 million (Cdn$1.3 billion).
“The reason for the increase is the high number of medium-sized major losses that led to a significant burden in the first quarter of 2008.”