Munich Re 2007 Profit Rises 11.9% to $5.835 Billion
The Munich Re Group announced consolidated profits for 2007 of €3.937 billion ($5.836 billion), surpassing its increased profit guidance of €3.5 to €3.8 billion ($5.18 to $5.63 billion) announced in August. The bulletin noted that with the “return of 20.2 percent on risk-adjusted capital, it also markedly exceeded its long-term target of 15 percent.”
“We are well above our target with a RORAC of over 20 percent, and are reporting a record result for the fourth time in a row,” stated an obviously pleased Chairman of the Board of Management, Nikolaus von Bomhard. He praised the Group’s “rigorous approach in integrated risk management and our healthy skepticism towards what are often poorly rewarded credit risks,” as the basis of the strong performance.
The 11.9 percent rise in consolidated profit compares to the €3.519 billion ($5.21 billion) earned in 2006. The Group’s operating result, which excludes finance costs and taxes (but not investment gains/losses) decreased by 7.3 percent to €5.078 billion ($7.52 billion) from €5.477 billion ($8.11 billion) in 2006, “owing to the significant rise in natural catastrophe losses compared with the previous year,” the bulletin explained.
The combined ratios remained at a very good level, namely 96.4 percent (92.6 percent in 2006) in reinsurance and 93.4 percent (90.8 percent in 2006) in primary insurance.
Von Bomhard noted the “excellent result,” and announced that shareholders would be rewarded with a dividend increase.
Munich Re’s primary insurance operations, principally ERGO, also fared well, with profits of €984 million ($1.457 billion). The 2007 operating result of the primary insurers in the Munich Re Group amounted to €1.253 billion ($1.856 billion), slightly less than the €1.261 billion ($1.868 billion) in 2006. “Primary insurance contributed €1 billion [$1.48 billion] to the Group result, thereby exceeding August’s increased profit guidance of €900 million [$1.333 billion],” said the bulletin.
The combined ratio in P/C and legal expenses insurance was 93.4 percent, compared to 90.8 percent in 2006, and the consolidated result for the year in this segment was €600 million ($888 million).
The ERGO Insurance Group, which writes about 95 percent of the gross premiums in Munich Re’s primary insurance segment, posted a profit of €781 million ($1.157 billion), compared to €889 million ($1.317 billion) in 2006. The announcement noted this was largely due to a “one-off tax effect of €118 million [$175 million].”
Munich Re “achieved an excellent result in reinsurance in 2007,” the bulletin continued, despite a decrease in the operating results to €4.159 billion ($6.16 billion) from €4.408 billion ($6.53 billion) in 2006. The reinsurance sector contributed €3.314 billion ($4.91 billion) to the Group’s profit, “surpassing the increased profit guidance announced in August.”
Munich Re’s investment portfolio remained largely untouched by the subprime credit crisis. Investment results rose to €9.272 billion ($13.732 billion) from €8.972 billion ($13.3 billion) in 2006, a 5.2 percent return on investment that exceeded the 4.5 percent return expected on average.
Looking to 2008, Munich Re said that, based on stable exchange rates, it projects “overall Group premium income will remain stable at between €37.5 billion [$55.55 billion] and €38.5 billion [$57 billion]. Before consolidation, it expects the reinsurance segment to provide €21.5 -22.5 billion [$31.85 – $33.33 billion], of this, and primary insurance €17.5-18 billion [$25.92 – $26.66 billion].” The combined ratio is expected to be at around 98 percent.
“With our very solid position, we have again set ourselves a high profit target, even though a more difficult environment is to be expected in the insurance and capital markets this year”, von Bomhard stated.
The complete report and access to the investors day conference may be obtained on the Group’s web site at: www.munichre.com
Source: Munich Re