Profits decline at Munich Re

Profits decline at Munich Re

Germany-based Munich Re has recorded a consolidated profit of €3.17bn for 2014, down from €3.33bn in 2013, on gross written premiums (GWP) of €48.8bn, down from €51.1bn. The operating result declined to €4.03bn, from €4.40bn.

Earnings per share declined to €18.31, from €18.45, but the dividend was raised, to €7.75 a share, from €7.25 a share. Return on equity declined to 11.3%, from 12.5%.


Book value per share rose markedly, to €178.22, from €146.23.

On the reinsurance side, GWP fell to €26.8bn, from €27.8bn. The combined ratio rose slightly, to 92.7%, from 92.1%. Losses from major catastrophes fell to €1.16bn, from €1.69bn. "As in the previous year, 2014 was marked by a large number of major losses, but there were no individual occurrences that have exceptional loss potential".

The largest major loss of 2014, at €305m, was the snowstorm in Japan at the beginning of 2014. Hurricane Odile (Mexico, late summer) resulted in reserving of €59m, while an earthquake on the north coast of Chile generated losses of €51m. Heavy summer rainfall in northeast US caused losses of €50m, while the Brisbane hailstorm generated a loss of €42m.


Man-made major losses came to €625m, some €300m less than the previous year. An explosion at a Russian refinery caused losses of €150m, while €60m was reserved for damage to a German power station. The two largest aircraft crashes in 2014 cost €52m, while a forest fire in Sweden caused losses of €33m.

Munich Re also strengthened reserves for the New Zealand earthquakes of 2010 and 2011, with the primary insurers concerned finding it hard to settle claims made complex by a series of three quakes over a short period of time.

In reinsurance property-casualty, GWP fell 1.7% year on year to €16.73bn, with a combined ratio of 92.7% (2013, 92.1%). The consolidated result improved to €2.48bn, from €2.37bn. The company expanded its motor business in Australia, while a decline in natural catastrophe pricing led to a deliberate reduction in property reinsurance. The capacity freed up was transferred to specialty primary business operating in niche segments.


In the company's various geographies, the combined ratio deteriorated in the Germany, Asia Pacific and Africa division, but improved in Europe (excluding Germany) & Latin America, and in Global Clients & North America.

On the primary side (mainly Ergo), GWP was flat at €16.7bn. The combined ratio in Germany improved to 95.3%, from 96.7%. The combined ratio international improved to 97.3%, from 98.7%.

Gross premiums written in property-casualty business fell 1.8% year on year to €3.115bn. The combined ratio improved to 95.3%, from 96.7%, and the consolidated result improved to €176m, from €156m the previous year.


Those numbers did not include Ergo International, which bundles international life and non-life business together. That division booked a consolidated loss of €276m, from a gain of €94m the previous year. Although the operating result improved to €278m from €210m, a €445m goodwill impairment pushed the bottom line into a loss. The impairment was attributed to "a resegmentation of the Ergo field of business".

The reinsurer's small Munich Health division had GWP of €5.3bn, down from €6.6bn. The combined ratio rose to 98.8%, from 98.3%.

Total investments excluding insurance-related investments (those undertaken mainly for unit-linked life contracts) were up to a carrying value of €218.9bn at the end of 2014, from €202.9bn 12 months previously. The investment result rose to €8bn, from €7.2bn in 2013, equal to a 3.6% rate of return.

Investments in infrastructure, renewable energies and new technologies came to €1.8bn. Munich Re said: "Further expansion in this area is planned for 2015, subject to dependable investment conditions and appropriate returns".

The company said that it was targeting a profit of between €2.5bn and €3bn in 2015. It also announced a planned share buyback up to a maximum of €1bn, equal to 5.3m shares at the current price, or just over 3% of the share capital. The share buyback strategy has been chosen in preference to the more fashionable special dividend in mainland Europe and the UK.

Under Munich Re's current buyback scheme about €905m of shares have been repurchased (5.6m shares), and the buyback should be completed by the time of the annual general meeting at the end of April.

Chairman Nikolaus von Bomhard criticised the plan of the European Central Bank (ECB) to introduce quantitative easing. "In my opinion, this was a step in the wrong direction", he wrote in his introduction to the company's annual report, stating that "the main argument for doing this – to counter an apparent threat of deflation – does not hold water". He also said that, even if the deflation threat analysis was correct, "the purchase of government bonds by the ECB would not be the right solution, as it would cause considerable collateral damage while hardly alleviating any deflation that may occur".

He warned that there could be a "creation of price bubbles for some investments".

Von Bomhard noted that the "flood of liquidity" would mean that Munich Re could expect a lower return on investment in 2015. 

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