Munich Re has reported earnings of €924m for the first quarter, down 4.7% year on year, on gross written premiums of €12.92bn, down 2.7%. The technical result for the quarter was down 5.5% year on year to €1.20bn, while the investment result rose 3.1% to €2.07bn, from €2.01bn in Q1 2014. Return on Equity was flat at 13.8%, while the Return on Risk-Adjusted Capital rose to 15.4%, from 14.1% in Q1 2013.
Chairman Nikolaus von Bomhard said that, although Munich Re's equity of €26.2bn at the end of 2013 was slightly below the previous year's level, it was not the equity capital as calculated under International Financial Reporting Standards (IFRS) rules that mattered, "but the ratio of economic equity to the economic risk capital requirement". That, said von Bomhard, "saw a further marked increase in the past year".
He noted that the €924m profit in Q1 was helped by "an almost total absence of major losses" and thus warned that it was not possible to extrapolate this number through to all of 2014. "But, after the first quarter, we look forward to the coming months with optimism".
Von Bomhard also observed that it was possible to hold too much capital, with a danger that the excess capital will not be utilised in line with Munich Re's strategies. "Even with a comfortable capital buffer, Munich Re adheres consistently to its principle of only writing business at risk-commensurate prices, terms and conditions".
Munich Re did not renew a volume of €1bn during the January prop-cat treaty renewals, "in part because the business no longer met Munich Re's profitability requirements". New business of €1.3bn came in, "mainly derived from customised solutions".
Over in the life reinsurance sector, von Bomhard said that "in recent years we have continued to generate strong growth in premium income" despite a strict underwriting policy. The slight fall in 2013 was attributed by the reinsurer to currency effects alone. "Organic growth in this segment continued over the past year", the company said.
A significant factor in this organic growth was large-volume treaties that primarily served as a substitute for capital. However, von Bomhard observed that "life reinsurance continues to grow even outside this area". This was particularly the case in Asia and Canada.
Munich Re noted the impact of the euro's appreciation on its revenue. Compared with the first quarter of 2013, the euro exchange rate in the period under review was up in value against the US dollar (3.8%), the Japanese yen (15.7%) and the Canadian dollar (13.6%), but down against the pound sterling (–2.7%). The year-on-year fall in premium was due to currency changes. At constant rates, premium income would have risen by 1.4%, compared with Q1 2013.
Munich Re said that the operating result and consolidated result for Q1 were slightly down on the same period the previous year because Q1 2013 had been an unusually good result.
In reinsurance, there was a slight year on year decrease in premiums to €6.9bn, from €7.0bn in Q1 2013. Life reinsurance premiums were down 3.6% year on year to €2.48bn. The consolidated result fell 40.5% to €103m. Munich Re said that overall the result was "at a pleasing level". Munich Re said that "the nevertheless significant decline in the technical result to €104m (209m) is partly attributable to changes in exchange rates and partly to the fact that the first quarter of 2013 was exceptionally good".
In the property-casualty sector, GWP fell by 0.4%, to €4.38bn, from €4.40bn in Q1 2013. The combined ratio rose to 86.9%, from 85.7%, while the consolidated result fell 1.2% year on year to €647m.
Munich Re said that premium volume benefited from the conclusion of new large-volume treaties, plus an increased share of existing treaties in Australian and Chinese motor business. At constant exchange rates, premium volume would have been up 4.4% year on year.
The reinsurer said that the January 1 renewals "took place in a very competitive and challenging market environment". Munich Re added that the instruments for alternative risk transfer were reinforcing price competition, "but are also creating opportunities for established reinsurers". It said that it was exploiting such opportunities through enhancements of its product range, including catastrophe bonds, and the expansion of its own capacity through the purchase of retrocession, or via sidecars.
The €1bn that was not renewed represented 12% of the business up for renewal, which in turn represented "somewhat more than half" of Munich Re's treaty business for the year. Because of the €1.3bn in new business, premium volume was up 2.7% year on year. to about €9bn. Munich Re said that prices fell by an average of 1.5%. Treaty terms and conditions remained largely stable.
Although the technical result in reinsurance shoed a year on year decline of 6.8% to €822m, Munich Re said that it was at "a gratifying level". At €39m after retrocession and pre-tax, major losses were below expectations, "to an even greater extent than in the same period last year" (€106m). That constituted 1.0% (Q1 2013, 2.6%) of net earned premiums.
In primary insurance premium volume fell to €4.8bn, from €4.9bn. The combined ratio improved 0.9pp to 95.0%. The investment result improved to €1.51bn, from €1.44bn in Q1 2013. The consolidated result improved to €154m from €117m.