The FINANCIAL — Munich Re has raised its profit guidance compared with the previous year, and is expecting to generate a profit of €2.1–2.5bn for 2018. The Company also announced that it would buy back another €1bn worth of shares before the Annual General Meeting in 2019.
“Munich Re is again poised for growth. Our target for 2018 is slightly higher than the profit guidance for the previous year. ERGO is making steady progress with the Strategy Programme, and our growth initiatives in reinsurance are benefiting from tailwinds as prices rise. We are investing heavily in digitalisation and are cutting costs to prepare for digital transformation and make Munich Re fit for the future.” Joachim Wenning, Chairman of the Board of Management.
Munich Re is set to continue its shareholder-friendly policy. Despite extremely high natural catastrophe losses in 2017, Munich Re’s Board of Management will propose to shareholders at the Annual General Meeting to pay out an unchanged dividend of €8.60 per share. The Company also announced that it would launch another share buy-back programme to repurchase €1bn worth of shares before the 2019 Annual General Meeting. A buy-back programme of the same scale is ongoing and scheduled to be completed before this year’s Annual General Meeting, according to Munich Re.
Outlook for 2018: Group target of €2.1–2.5bn
Munich Re is aiming for a consolidated result of €2.1–2.5bn. This slightly exceeds the guidance that had been projected for the previous year (initial profit guidance for 2017: €2.0–2.4bn). As always, the profit guidance is subject to major losses being within normal bounds and to our income statement not being subject to severe fluctuations in the currency or capital markets, significant changes in the fiscal environment, or other one-off effects.
In life and health reinsurance, the technical result – including the result from reinsurance treaties recognised in the non-technical result owing to insufficient risk transfer – is expected to amount to at least €475m. In property-casualty reinsurance, Munich Re is aiming for a combined ratio of around 99% in 2018.
For ERGO, Munich Re projects a consolidated result of €250–300m. The combined ratio for the ERGO Property-casualty Germany segment should be around 96% in 2018, provided major losses remain within normal bounds; in the ERGO International segment, the target is a combined ratio of around 97%.
Overall, Munich Re expects interest rates to increase slightly in 2018, especially in the USA, where it transacts a lot of reinsurance business. Accordingly, the reinsurance field of business should see an end to the falling running yield this year. However, a rise in interest rates would reduce valuation reserves and generally lead to lower gains on disposal. Altogether, Munich Re expects an investment result of slightly more than €7bn, representing a return on investments of about 3%.
Assuming exchange rates remain stable, the Group anticipates that its gross premiums written for the 2018 financial year will be in the range of €46–49bn. Gross premium in 2018 is expected to be in the order of €29–31bn for the reinsurance field of business, and €17–18bn for the ERGO field of business. Total premium income in the ERGO field of business (including the savings premiums of unit-linked life insurance and capitalisation products) should amount to €18–19bn in 2018.
Proposals for election to the Supervisory Board
The Supervisory Board of Munich Re held a meeting yesterday to decide on its proposals for resolution by the Annual General Meeting on 25 April 2018.
The Supervisory Board proposes that Kurt Bock (59) should be elected by the Annual General Meeting to succeed Ron Sommer (68), who will step down from the Supervisory Board with effect from 25 April 2018. The Supervisory Board proposes that Bock be elected for the remainder of Ron Sommer’s term of office, which ends at the close of the 2019 Annual General Meeting.
The Supervisory Board proposes that Maximilian Zimmerer (59) be elected by the Annual General Meeting to succeed Peter Gruss (68), who stepped down from the Supervisory Board with effect from 30 June 2017. Zimmerer has held a seat on Munich Re’s Supervisory Board since the beginning of July 2017, when he was appointed a Supervisory Board member by the Local Court (Amtsgericht) in Munich. The Supervisory Board proposes that Zimmerer be elected for the remainder of Peter Gruss’s term of office, which ends at the close of the 2019 Annual General Meeting.
Besides this, the Supervisory Board approved the Board of Management’s dividend proposal to be submitted to the Annual General Meeting.
Summary of the figures for the 2017 financial year
Munich Re achieved an operating result of €1,241m in 2017 (previous year: €4,025m). The currency result amounted to –€294m (485m). There was tax income of €298m (previous year: tax expenditure of €760m) for the full financial year, mainly owing to the adverse impact from natural catastrophes. In the fourth quarter, the US tax reform led to tax relief of more than €70m.
Equity capital fell by around €3.6bn to €28.2bn in 2017 (31 December 2016: €31.8bn). The return on risk-adjusted capital (RORAC) – which serves as the key performance indicator for profitability in terms of risk capital requirements – was only 1.5% (10.9%), whilst the return on equity (RoE) amounted to 1.3% (8.1%). Gross premiums written by the Group increased slightly in 2017 to €49,115m (48.851m).
Taking account of dividends and potential capital measures in 2018, the solvency ratio under Solvency II as at 31 December 2017 – calculated on a like-for-like basis – was almost unchanged at 244% (31 December 2016: 242%).
CFO Jörg Schneider said: “Munich Re’s capitalisation continues to be very strong. We have a high solvency ratio and low debt leverage. This gives us the financial strength we need to pursue profitable growth.”
Premium growth and price increases at the January renewals
Torsten Jeworrek, member of Munich Re’s Board of Management, said: “Reinsurance prices increased at the January renewals, particularly in the markets affected by natural catastrophes. We expect this trend to continue in the renewal rounds yet to come.”
The reinsurance field of business contributed €120m (2,540m) to the consolidated result. The operating result fell from €2,919m to €73m. Gross premiums written increased slightly to €31,569m (31,463m).
Life and health reinsurance contributed €596m (515m) to the consolidated result. The technical result, including the result from business not recognised in the technical result owing to insufficient risk transfer, was €428m (561m). Thanks to a strong technical result in the fourth quarter, life and health reinsurance fell only slightly short of its target of €450m for 2017 as a whole – despite the result being impacted by the recapture of loss-making portfolios in the USA in the second and third quarters.
Due to high natural catastrophe losses, the result in property-casualty reinsurance declined to –€476m (2,025m). For the same reason, the combined ratio for 2017 deteriorated to 114.1% (95.7%). Adjusted for commissions, Munich Re’s customary review of reserves resulted in a reduction in the provisions for claims from prior years of around €870m for the full year, which is equivalent to around 5.2 percentage points of the combined ratio. Munich Re still aims to set the amount of provisions for newly emerging claims at the top end of the estimation range, so that profits from the release of a portion of these reserves are possible at a later stage.
Total major-loss expenditure for 2017 amounted to €4,314m (1,542m). This was equivalent to 25.8% (9.1%) of net earned premiums, and was thus well above the average expected figure of 12% for the full year. The cost of natural catastrophe losses for the full year was €3,678m (929m). Hurricanes Harvey, Irma and Maria – with a total loss of €2.7bn – were the most expensive loss events of the year. Man-made major losses were slightly above the level of the previous year, and totalled €636m (613m). This figure is equivalent to 3.8% (3.6%) of net earned premiums.
ERGO: Profit guidance exceeded
Markus Rieß, Chairman of the ERGO Board of Management: “ERGO is well on its way to becoming fit, digital and successful. The Strategy Programme is steering the right course, and progressing at the right speed. It makes me feel confident about the challenges lying ahead.”
In 2017, ERGO reported a profit of €273m. It thus exceeded the profit guidance, which had been raised halfway through the year to a range of €200–250m. The operating result amounted to €1,168m (1,106m). The gratifying result for the year was mainly attributable to a significantly improved technical result in Germany and abroad.
Gross premiums written increased slightly to €17,546m (17,388m) in 2017. Total premium income across all lines of business amounted to €18,548m (18,589m). In the Life and Health Germany segment, gross premium volume saw a slight increase to €9,210m (9,177m). In the Property-casualty Germany segment, gross premium was up by 3.1% to €3,293m (3,194m). The ERGO International segment posted a marginal rise to €5,043m (5,018m).
The combined ratio for ERGO Property-casualty Germany was 97.5% (97.0%) for the full year. The combined ratio for the ERGO International segment improved significantly to 95.3% (98.0%) for the full year, mainly on account of positive developments in Poland.
Investments: Result of €7,611m
The Group’s investment result (excluding insurance-related investments) remained nearly constant at €7,611m (7,567m). Changes in the value of derivatives had a negative effect of €470m (713m) for the year. The balance of gains and losses on disposals excluding derivatives, on the other hand, was positive at €2,494m (2,603m). Considering the situation in the capital markets, the investment result for 2017 represents a high annualised return of 3.2% (3.2%). Our reinvestment yield in the fourth quarter was 1.9% (1.8%).
Munich Re’s equity-backing ratio (including equity-linked derivatives) at 31 December 2017 increased to 6.7% (31 December 2016: 4.9%). Fixed-interest securities, loans and short-term fixed-interest investments continued to make up the largest portion of Munich Re’s holdings, with a share of around 86% at market value.
As at 31 December 2017, Group investments (excluding insurance-related investments) under the management of MEAG, the Group’s asset manager, had a carrying amount of €218bn (222bn) and a market value of €232bn (previous year: €238bn). As well as the Group’s own investments, MEAG also managed segregated and retail funds totalling €15.9bn (19.2bn) for third parties.