Munich Re reported 152 million euros ($180 million) net income for the third quarter, compared to a loss of 859 million euros ($1.02 billion) in the same period of 2002, but the world’s biggest reinsurer also announced that it does not expect an overall profit for the year.
“The Group result for 2003 will be subject to countervailing influences,” said a press bulletin. “On the one hand, it will be burdened by the writedowns and losses on disposals and by the high provision for tax. On the other hand, the good performance of the underwriting business will distinctly improve the earnings position.”
It went on to state that “assuming normal claims experience and stable capital markets, Munich Re expects to record a post-tax loss for the year 2003 purely due to the non-deductibility of a large portion of the writedowns and losses on the disposal of shares. The Group anticipates that the pre-tax result will show a very clear profit.”
Munich Re, along with the rest of Germany’s insurance industry, had been hoping that legislation, already passed by the Bundestag, would relieve it of some of the tax burden, but the bill is still pending in the Bundesrat, Germany’s upper house, and, even if passed, it will probably be too late to affect this yera’s tax provsions. Without the tax breaks the company cannot write off the full amount of its investment losses and the decreased value of its investment portfolio.
The company’s announcement was generally upbeat, noting a “satisfactory trend in underwriting business” which has “distinctly improved the results situation, especially in the property-casualty sector of both primary insurance and reinsurance.” The stock market recovery has helped as well, and Munich Re successfully raised almost 4 billion euros ($4.73 billion) in a rights offering to shareholders that reinforced its capital base and its ratings.
Dr. Jörg Schneider, member of Munich Re’s Board of Management, stated: “We are satisfied with our company’s business experience in the third quarter. Munich Re is entering the current renewal negotiations for reinsurance treaties buoyed by these figures. Further strengthened by the successful capital increase, we can exploit additional earnings opportunities.”
The Group’s premium income increased in the first nine months of 2003 to 30.7 billion euros ($36.35 billion) from 29.6 billion ($35 billion) last year. The operating before tax was 1.062 billion euros ($1.257 billion) compared to 2.01 billion euros ($2.6 billion) in the first 9 months of 2002 (the higher figure was generated by one off asset sales). The net losses result from the company’s need to make provisions for its tax liabilities, which are in excess of 1.1 billion euros ($1.3 billion).
The bulletin pointed to strong growth in the company’s reinsurance business, but noted that this was in effect “masked by the significant appreciation in the value of the euro, especially against the US dollar.” Premium income in the first nine months totaled 19.1 billion euros ($22.61 billion). “Without the effects of changes in exchange rates, it would have risen by 9.9 percent,” said the company.
The combined ratio for the third quarter was again under 100 percent at 99.3 percent, while the ratio for the first nine months improved by 8.7 percentage points to 97 percent. Major catastrophe claims included Isabel, around 50 million euros ($59.2 million), Typhoon Maemi and Hurricane Fabian, both around 30 million euros ($35.5 million), and losses from the blackout in the Northeastern U.S. and Canada.
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