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Munich Re posts profit of $2 billion for the first three quarters
The Group's third-quarter result amounted to 17.3 million. Munich Re's capital base remains solid at $31.1 billion – the same level as after the first six months of the year, despite the market turmoil. The Group retained its conservative approach to the application of accounting regulations. CFO Joerg Schneider: "The 2008 financial year is proving difficult on account of the financial crisis, but the Munich Re Group is acquitting itself well compared with its competitors thanks to its well-balanced investment portfolio. All the same, the upheavals on the markets demand caution with regard to profit guidance: in view of the considerable share price losses, our annual profit will probably not reach $2.9 billion, or earnings per share of $14.40." The ongoing volatility of the markets does not permit a reliable profit forecast for the year as a whole, Mr. Schneider continued, stating that the dividend per share for the 2008 financial year should nevertheless again reach the previous year's high level of $7.90. Munich Re is also adhering to its objective of increasing earnings per share to at least $26 by 2010. The Group sees good opportunities for profitable business in the current market environment, setting its sights on improvements in prices and conditions in reinsurance business, given the increased importance of security and stability and the simultaneously expected rise in demand. "Munich Re's capital base remains solid," Mr. Schneider emphasized, adding that Munich Re is maintaining its existing accounting policies in the interests of transparency and continuity. Last year, Munich Re made significant cutbacks in the proportion of its investments held in equities, and also considerably reduced the influence of value fluctuations by taking active hedging measures. As of September 30th, 2008, the equity-backing ratio was 4.6% (December 31st, 2007: 10.8%), based on the Group's total investments at market values including hedging instruments, and had sunk even further as of October 31st. Mr. Schneider explained optimistic views about business development: "Not only has the significance of our financial strength increased appreciably in the financial market crisis; so, too, has the importance of expertise in risk assessment and risk management. These are core competencies of the Munich Re Group, and will ensure that we emerge stronger from the current situation than other market players. We are therefore holding to our objective of increasing our earnings per share to at least $26 by 2010." Mr. Schneider also confirmed the Group's intention to pay a dividend of $7.90 per share for the 2008 financial year. "Even in these times of uncertainty, we are offering our shareholders reliability and an excellent dividend yield," he added. In the first nine months, the Munich Re Group recorded an operating result of$3.5 billion, a decrease of 38.8%. The marked price losses on the stock markets impacted the investment result, which fell by 48.4% to $5.6 billion. Equity decreased to $31.1 billion since the beginning of the year, but compared with the figure on June 30th, 2008, there was only a very slight reduction of $11.6 million. The book value per share now stands at $152.17 following figures of $171.87 at the turn of the year and $149.56 on June 30th, 2008. The operating result in the Munich Re Group's primary insurance segment for the first nine months was $973.8 million (–27%), of which $205.2 million was in the third quarter. The consolidated result after tax totaled $534.6 million (–50.8%), of which $66.5 million relates to the third quarter. The decrease against the same period in 2008 was mainly due to the investment result and the positive taxation effects posted in the third quarter of the previous year from the German Business Tax Reform Act 2008. The investment result declined by 53.3% to $3 billion. Given the share-price losses on the world's stock markets, the envisaged annual profit target of over $722.4 million is unlikely to be achieved. The ERGO Insurance Group, which contributes around 95% of the premium income in Munich Re's primary insurance segment, posted a profit of $433.5 million. In the same period last year, the result had benefited from the sale of a major real estate package and realized gains on equities. Premium income written by the primary insurers in the Munich Re Group totaled $19.9 billion in the first nine months of the year. In property-casualty business (including legal expenses insurance), premiums climbed by 5.2% to $6.8 billion, driven mainly by international business with a growth rate of 11.7%. In the life and health segment, total premium income rose marginally to $13.2 billion. Despite the major losses in the third quarter (especially Hurricanes Gustav and Ike), reinsurance business performed satisfactorily overall. The operating result sank by 16.0% to $3.9 billion from January to September, $190.7 million of which was in the third quarter. Altogether, reinsurance contributed $2.9 billion to the Group profit, and -50.6 million in the period from July to September. Part of the reinsurance profit derived from the dividend of $1.4 billion paid by ERGO to Munich Re in the second quarter. This payment is eliminated in the consolidation of intra-Group transactions across segments and therefore does not influence the overall consolidated result. Compared with the same period last year, gross premiums written fell by 2.0% to $23.3 billion, particularly as a result of the strong euro. At unchanged exchange rates, premium volume would have increased by 6.0% in the first nine months. The life and health segment contributed $7.5 billion, and property-casualty $15.9 billion. New acquisitions Midland and Sterling were consolidated in the Group financial statements as of April 1st, 2008 with gross premium income amounting to $497 million and $488.4 million respectively. Prudent investment policy limits the impact of the capital market crisis: The financial market crisis has come to a head dramatically in recent months. Against this background, the Munich Re Group's well-balanced investment portfolio, which is managed by MEAG, held up comparatively well. From January to September, Munich Re posted net realized gains on disposal of $1,649 million, of which $680.5 million was generated using derivative financial instruments. The bulk of these are derivatives purchased to hedge the Group's equity portfolio and whose performance had benefited from the bear market. Besides this, in the third quarter of 2008, Munich Re also sold a block of hedged shares. The Group posted a result of $755.7 million for the sale of equities in the first nine months of 2008. In the first half of 2007, it had exploited the favorable stock market performance, realizing considerable gains on disposals. By industry standards, the Munich Re Group applies a strict interpretation of the IFRS rules for impairments of equities in the "available for sale" category. Consequentially, in the first six months of the year, the negative development of the market had already led Munich Re to make write-downs in its equity portfolio totaling $3,2090 million. Share prices dropped again significantly in the third quarter, requiring an additional $2,585 million worth of write-downs. The revaluation of the Munich Re Group's fixed-interest securities in the first nine months of the year only resulted in write-downs totaling approximately $145.9 million. Significant increases occurred in the value of hedging instruments: almost all of the total write-ups of $4,274 million came from derivatives, with an amount of $4,192 million. Of this, $1,732 million was recorded in the third quarter. The spread of the crisis to companies such as American International Group (AIG) and Washington Mutual has had no notable impact on Munich Re's results. Its business relations with Lehman Brothers, which involve various capital market transactions, have led to write-downs of around €115m net following the Company's application for creditor protection. On October 13th, 2008, the IASB (International Accounting Standards Board) fast-tracked an amendment of IAS 39 "Financial Instruments" relating to the reclassification of financial instruments. In the light of the crisis on the financial markets, the changes made are intended to eliminate the potential competitive advantages of US banks by aligning IFRS with US GAAP, and to provide balance-sheet relief in the financial sector. As Munich Re already recognized its investments according to relatively conservative standards and does not require relief thanks to its well-balanced investment policy and solid capitalization, the Group will be abiding by its existing approach in the interests of transparency and continuity. It will further abstain from reclassifying financial instruments in the future – as long as this practice does not cause any serious competitive disadvantages. The persistently negative capital market situation in the third quarter and uncertain future trends means that the Group is unlikely to reach the previously envisaged consolidated profit for the year of $2.9 billion after consolidation. If exchange rates remain stable, Munich Re anticipates that its gross premium volume in the reinsurance segment will be around €21.0bn. The slight year-on-year decline is attributable to exchange-rate developments and consistently result-oriented underwriting. Gross premium income of approximately $30.3 billion is forecast in primary insurance, with a consolidated figure for the whole Munich Re Group in the region of $54.2 billion. Munich Re America Corporation, a member of the Munich Re Group, is one of the leading providers of reinsurance in the United States. Through its subsidiaries, it writes treaty and facultative reinsurance, insurance, and provides related services to insurance companies, other large businesses, government agencies, pools and other self-insurers. The Munich Re Group, whose business also includes primary insurance and asset management, has a preeminent position in the global reinsurance industry. It is headed by Munich Reinsurance Company of Munich, Germany, which includes reinsurance subsidiaries, branches, service companies and liaison offices in more than 60 locations worldwide, serving corporate clients from around 160 countries. More about Munich Re America products and services can be found at www.munichreamerica.com.
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