Munich Re Posts Fifth Consecutive Quarterly Loss, as Taxes Hit Profits

September 8, 2003

Germany’s Munich Re can’t seem to buy a break.

Despite good gains in operating profit, 777 million euros ($845 million) in the first six months of 2003, the world’s biggest reinsurer posted its fifth consecutive quarterly loss, 603 million euros ($656 million) for the first half, mainly due to a $1.54 billion provision for its tax liability.

Standard & Poor’s downgraded Munich Re’s ratings recently (See IJ Web site Aug. 21) and A.M Best followed suit, lowering the group’s financial strength ratings to A+ (Superior) from A++ (Superior). Adding insult to injury, S&P credit analyst Nigel Bond told Reuters News Agency that the group’s ratings were “closer to ‘BBB,'” and that it had been assigned its current ‘A+’ rating in anticipation that it would raise additional capital and improve results.

Comparisons with the same period in 2002 are largely unproductive, as the company registered a huge gain from unwinding its cross holdings with Allianz. Group premium income increased from 20.4 billion euros ($22.2 billion) in the first half of 2002 to
20.8 billion ($22.63 billion), “despite the stronger euro, premium income thus maintained last year’s high level,” said the bulletin.

In its reinsurance sector Munich Re reported gross written premiums of 12.919 billion euros ($14.05 billion) for the first six months, slightly less than the 13.156 billion euros ($14.31 billion) it posted in the same period last year, but net earned premiums rose slightly to 11.391 billion euros ($12.4 billion).

Munich Re’s gross premiums from its primary insurance units rose 6.7 percent during the period to 8.926 billion euros ($9.71 billion) from 8.369 billion euros (9.1 billion) last year. Its combined ratio for the first half of the year was down to 95.9 percent in reinsurance and 96.0 percent in primary insurance.

The Group’s bulletin said its “core business of underwriting has continued to improve significantly. This applies above all to the areas of non-life (reinsurance) and property-casualty (primary insurance), a fact that is underscored by the further decline in the combined ratios.”

It also noted that, “The clean-up efforts undertaken after the worldwide stock market slumps have largely been absorbed in our income statement. The upward trend in
share prices also reflect brightly on our balance sheet and, together with the successful bond placement, have further increased our funds.”

It then explained that, “In light of the controversial fiscal policy debate, the Munich Re Group has made provision for taxation already in the second quarter instead of in later reporting periods.”

Munich Re added, “Given the prevailing positive trend in its core business of underwriting, Munich Re is on the whole very confident. If business performance in insurance and reinsurance stays normal, Munich Re expects the combined ratio for the current year to be under 100 percent. In the forthcoming renewals, Munich Re will
therefore continue to focus strictly on obtaining risk-adequate prices and conditions. This remains a key requirement in the recent situation, as stated in its quarterly report.”

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