The FINANCIAL — Munich Re posted a consolidated profit of €1,076m for the second quarter of 2015 (same period last year: €762m); the profit for the first half-year amounted to €1,866m (1,703m). The quarterly result was supported by a below-average random incidence of major losses, and a very good investment result. For the current financial year, Munich Re is now aiming for a profit of at least €3bn (previous forecast: €2.5–3bn), according to Munich RE.
CEO Nikolaus von Bomhard said about the figures: “With a result of around €1.1bn, Munich Re looks back on a very successful second quarter. Despite a persistently uncertain environment, including ongoing competition in reinsurance, the profitability of our core business remains remarkable. After all, our profit of around €1.9bn in the first half of the year was so high that we are likely to exceed our profit guidance of €2.5–3bn for the year if claims experience remains within normal bounds in the second half of the year. We now expect to achieve an annual profit of at least €3bn.” He continued: “In order to make sure we retain our competitiveness and profitability in the future, we will increase our efforts to make the most of the opportunities offered by digitalisation, and to open up new business potential by designing innovative solutions.”
Summary of figures for the second quarter
In the second quarter, the operating result of €1,818m was well above the figure for the same quarter last year (€1,137m). The amount posted under “other non-operating result” showed a decrease of €207m to –€432m (–225m), mainly due to foreign-exchange effects. Taxes¬ on income totalled €250m (92m). Despite the dividend payment of over €1.29bn in the second quarter, shareholders’ equity was at a level similar to that at the end of 2014; the strong increase in the first quarter, and the steep decline in the second quarter were mainly due to developments in market interest rates.
The annualised return on risk-adjusted capital (RORAC) in the first six months amounted to 13.8%, and the return on overall equity (RoE) totalled 11.7%. Since the Annual General Meeting at the end of April, shares with a volume of around €156m have been repurchased as part of the share buy-back programme announced in March.
Gross premiums written increased in the second quarter by 5.2% to €12.5bn (11.9bn). If exchange rates had remained the same, premium volume would have fallen by 4.7% year on year.
Reinsurance: Result of €842m in second quarter
In reinsurance business, the operating result for the second quarter came to €1,435m (845m). The business field of reinsurance accounted for €842m (629m) of the Group consolidated result for the second quarter. In the period from January to June, reinsurance contributed €1,510m (1,397m) to the consolidated result.
The technical result in life reinsurance of €30m (95m) for the second quarter was lower than expected given a series of unconnected one-off effects. By contrast, claims experience in US mortality business and Australian disability business was in line with projections.
Property-casualty reinsurance accounted for €790m (505m) of the result for the second quarter. The combined ratio for April to June totalled 93.3% (101.4%) of net earned premiums; the figure for the half-year was 92.8% (94.1%). As claims notifications for “basic losses” from prior years remained appreciably below the expected level overall, in the second quarter Munich Re was able to release reserves in the amount of around €135m, corresponding to around 3.1 percentage points of the combined ratio for the second quarter. For the first half-year, Munich Re thus released reserves totalling around €300m, or approximately 3.6% of net earned premiums. Munich Re is also continuing to aim 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.
Overall loss expenditure for major losses totalled €207m (617m) in the second quarter, and €462m (656m) for the first six months of the year. Natural catastrophe losses in the second quarter amounted to €21m (291m) and man-made major losses to €186m (326m), representing 0.5% (nat cat losses) and 4.3% (man-made losses) of net earned premiums respectively. Heavy rainfall in northern Chile caused considerable flooding, for which Munich Re anticipates expenditure of €45m. The largest man-made loss in the second quarter was €50m from a fire at a warehouse in South Korea.
Gross premiums written in the reinsurance business field increased by 8.3% year on year to €7.1bn (6.6bn) in the period from April to June. If exchange rates had remained the same, premium volume would have fallen by 5.7%. In the life reinsurance segment, gross premiums written increased in the second quarter by 9.6% to €2,704m (2,467m), while premiums in property-casualty reinsurance showed a total increase of 7.5% to €4,404m (4,097m). If exchange rates had remained the same, premium volume in both reinsurance segments would have declined.
The renewals as at 1 July 2015 involved a volume of treaty business of approximately €2.3bn, mainly from the USA, Australia, Latin America, and global clients. Pressure on prices, terms and conditions remained high, in particular for natural catastrophe covers, which accounted for about 20% of these renewals. The decline amounted to 2.1% (previous year’s renewals as at 1 July 2014: –3.6%); this could be the first indication of a stabilisation in prices. Premium volume remained almost constant, as Munich Re was able to take advantage of selective opportunities in individual markets, but gave up some business in other areas due to pricing pressures. Torsten Jeworrek, Member of Munich Re’s Board of Management, said: “Thanks to our strict cycle management, our portfolio remains profitable even after the price falls in recent renewal rounds.”
ERGO: Result of €219m in second quarter
The operating result for the ERGO field of business from April to June increased to €361m (257m), while the consolidated result for the second quarter climbed to €219m (111m). ERGO generated a result of €318m (264m) for the period from January to June.
The combined ratio in the Property-casualty Germany segment improved in the second quarter to 93.4% (95.3%); it deteriorated in the ERGO International segment to 100.4% (97.5%).
Total premium income across all lines of business decreased by 3.6% in the second quarter and totalled €4,297m (4,458m), while gross premiums written decreased by 2.9% to €3,935m (4,053m) in the same period. In the Life and Health Germany segment, gross premiums decreased by 4.9% to €2,315m (2,434m), and in the Property-casualty Germany segment they were slightly below the previous year at €638m (648m). In the ERGO International segment, gross premiums increased slightly by 1.1% to €982m (971m).
ERGO CEO Torsten Oletzky commented: “Our half-year results were very good, even if they cannot simply be projected for the year as a whole. I am sure that we will easily meet our results guidance for 2015, provided that we continue to implement our rigorous profit-oriented business policy.”
Munich Health: Result of €15m in second quarter
Munich Health’s operating result in the second quarter was €22m (35m); the consolidated result was €15m (22m). Munich Health generated a result of €38m (42m) for the period from January to June.
The combined ratio was 99.8% (98.8%) for April to June, and 100.1% (99.3%) for the first half-year.
Munich Health’s gross premiums written showed a year-on-year increase of 14.9% to €1,424m (1,239m) in the second quarter due to positive exchange-rate impacts.
Investments: Investment result of €2.5bn in second quarter
With a carrying amount of €236.2bn, total investments (excluding insurance-related investments) as at 30 June 2015 were almost unchanged from the year-end 2014 figure of €235.8bn.
For the period April to June 2015, the Group’s investment result (excluding insurance-related investments) showed a year-on-year improvement of 6.5% to €2.5bn (2.4bn). Changes in the value of derivatives had a negative effect of –€133m for the second quarter, which was significantly less negative than in the first quarter of the year (–€706m). The rise in interest rates in the second quarter had a negative impact on interest-rate hedging instruments, whilst equity-based derivatives increased in value due to changes in share prices. The balance of gains and losses on disposals excluding derivatives was around €810m. The investment result represents an overall annualised return of 4.1%.
Munich Re’s equity-backing ratio at 30 June 2015 fell to 4.0% (31 December 2014: 4.3%) including equity-linked derivatives. Fixed-interest securities, loans and short-term fixed-interest investments continued to make up the largest portion of Munich Re’s investments with a share of around 88% at market value.
The Group’s asset manager is MEAG, whose assets under management as at 30 June 2015 included not only Group investments, but also segregated and retail funds totalling €14.3bn (13.9bn).
Outlook for 2015: new Group profit guidance of at least €3bn
In the first six months of the year, some reporting segments saw results that varied from forecasts, which also have an impact on the annual results – for example, inherent random fluctuations in the incidence of major losses, or the investment result. Munich Re is amending its forecast as follows with respect to the figures stated in the first quarter report published in May 2015.
In property-casualty reinsurance, Munich Re is aiming for a combined ratio of around 96% of net earned premiums in 2015. The consolidated result in reinsurance for 2015 should be at least €2.5bn (previously: at least €2bn).
ERGO is expected to achieve a combined ratio for property-casualty insurance of 95% (previously 93%) in Germany, and 99% (previously 97%) internationally.
After the first half-year was below expectations for life reinsurance business, Munich Re now anticipates a technical result of around €300–350m. We expect the technical result for future financial years to once again be in the region of €400m.
Munich Re now anticipates a return on investment of around 3.3% (previously: at least 3%).
Munich Re is aiming for a consolidated result of at least €3bn, subject to claims experience with regard to major losses being within normal bounds and to its income statement not being impacted by severe currency or capital market developments, significant changes in fiscal parameters, or other exceptional factors. This means the Group would exceed its previously stated profit range of €2.5–3.0bn.