Munich Re sees profit fall to 525 million euros in 2015 Q3 from 736 million euros in 2014 Q3

Munich Re reports it is still on course for a good year despite a challenging environment that has contributed to the company posting a profit of 525 million euros for 2015 Q3 compared to 736 million euros in the same quarter of 2014.

“The capital market turbulences have left their mark on the investment result, with below-average realized gains on disposals, write-downs of equities and losses from derivative hedging instruments,” Jörg Schneider, Munich Re’s chief financial officer, says in a company statement issued Thursday.

The operating result was also down in 2015 Q3, reaching 579 million euros compared to 908 million euros in the prior-year quarter.

“Overall, the result for the third quarter was marked by one-off effects that were negative on balance, particularly with regard to investments,” Munich Re reports. These negative effects were offset by a below-average random incidence of major losses in reinsurance and tax income of 101 million euros compared to 11 million euros in the same quarter of 2014, the statement adds.

Munich Re notes that overall loss expenditure for major losses totalled 386 million euros in the third quarter of 2015 compared to 257 million euros in the same quarter of 2014. Natural catastrophe losses for 2015 Q3 amounted to 62 million euros compared to 100 million euros in 2014 Q3, while man-made major losses amounted to 324 million euros compared to 158 million euros, representing 1.5% (natural catastrophes) and 7.7% (man-made) of net earned premiums, respectively.

“The highest natural catastrophe expenditure for the third quarter resulted from a severe earthquake off the coast of Chile in mid-September, for which Munich Re anticipates net major-loss expenditure of 45 million euros,” the company reports. Munich Re adds that it expects net expenditure of 175 million euros for the largest man-made loss for the third quarter, namely the explosion disaster in Tianjin, China.

For premiums overall, total premium income across all lines of business decreased by 1.0% to 4,262 million euros in 2015 Q3 compared to 4,303 million euros in the prior-year quarter. Gross premiums written (GPW) fell by 1.2% to 3,970 million euros compared to 4,017 million euros.

With regard to GPW in 2015 Q3, these amounted to 12.5 billion euros, a 3.6% increase over the 12.1 billion in 2014 Q3. “If exchange rates had remained the same, premium volume would have fallen by 1.5% year on year.”

Munich Re’s reinsurance business accounted for the majority of the Group consolidated result for 2015 Q3, representing 379 million euros of the 531 million euros. The business posted an operating result of 424 million euros compared to 603 million euros in the prior-year quarter.

“The deterioration was mainly attributable to the low investment result owing to losses on strategic derivatives and write-downs on equities,” the statement notes.

Property and casualty reinsurance accounted for 330 million of the result in the third quarter of 2015 compared to 497 million in the same quarter of 2014. The combined ratio also worsened, reaching 94.5% of net earned premiums in 2015 Q3 compared to 91.3% in the prior-year quarter.

GPW in the reinsurance field of business climbed in the third quarter by 5.7% year on year to 7.1 billion euros, compared to 6.7 billion euros in 2014. “If exchange rates had remained the same, premium volume would have fallen by 3.0%,” the statement notes.

For property and casualty reinsurance, premiums increased 6.9% to 4.6 billion euros compared to 4.3 billion euros. Again, if exchange rates had remained the same, premium volume in both reinsurance segments would have declined.

In terms of investments, the Group’s investment result (excluding insurance-related investments) for the third quarter of 2015 showed a year-on-year decrease of 8.3% to 1.5 billion euros compared to 1.7 billion euros. The investment result represents an overall return of 2.6%.

“Owing to the decline in commodity prices and decreased inflation expectations, the third quarter saw high losses posted on commodity and inflation derivatives, especially in reinsurance,” Munich Re reports. “By contrast, in primary insurance the decline in interest rates in the third quarter had a positive impact on interest-rate hedging instruments, and equity-based derivatives also saw a price-related increase in value.”

In view of the low-interest-rate environment, Schneider (pictured left) commented, “we are very satisfied with the 3.3% return on our investments for the first nine months of the year.”

Overall, Munich Re’s figures were more encouraging year to date. The company reported consolidated profit of 2.4 billion euros for the first nine months of 2015, mirroring profit in the same quarter of 2014.

Other results for the first three quarters of 2015 compared to the same period in 2014 include the following:

• overall loss expenditure for major losses were 847 million euros compared to 914 million euros;
• the reinsurance business contributed 1,889 million euros to the consolidated result compared to 1,928 million euros;
• for property and casualty reinsurance, the combined ratio was 93.4%, up slightly from 93.2%.

Munich Re reports the company is aiming for a consolidated result of at least 3 billion euros, “subject to claims experience with regard to major losses being within normal bounds and to its income statement not being impacted by severe currency or capital market developments, significant changes in tax parameters, or other exceptional factors,” the company statement notes.

Munich Re is anticipating GPW of around 50 billion euros. Of this figure, approximately 28 billion euros relates to reinsurance.

For property and casualty reinsurance, the company is aiming for a combined ratio of about 95% of net earned premiums in 2015.