Munich Re Posts $472 Million Q3 Profit, $1.94 Billion for Nine Months; Affirms Full Year Estimate (Almost)

November 9, 2004

Despite an estimated 550 million euros ($711 million) in hurricane related claims, Munich Re, the world’s largest reinsurer, seems to have weathered the storm(s). The company announced third quarter profits of 365 million euros ($472 million) and $1.5 billion euros ($1.94 billion) for the first nine months of 2004.

“The interim result after the third quarter is still good – despite the claims burden from the windstorms,” stated Jörg Schneider, Munich Re Board member whose portfolio includes accounting, in a media telephone conference. “Our selective underwriting policy has paid off in the light of increasing risks. Consequently, in the ongoing renewals of reinsurance treaties, we will continue to negotiate according to the maxim of profitability before growth.” Munich Re also said it expects those rates to “remain firm.”

“Our primary insurance group has also succeeded in producing a notable upswing, Schneider continued. “On this strong basis, we are adhering to our result target of 2 billion euros [$2.586 billion] in the event of further very good business experience, but after the series of windstorms we now see 1.8 billion euros [$2.327 billion] as the lower limit of the target range if business experience remains normal.” If those estimates are confirmed, it would make 2004 the most profitable year in the company’s 125-year history.

Commenting on the severe weather, Dr. Nikolaus von Bomhard, Chairman of Munich Re’s Board of Management, stated in a letter to the company’s shareholders: “An unusually close succession of severe windstorms over the Atlantic and Pacific has left its mark on our result for the third quarter 2004. In August and September, Hurricanes Charley, Frances, Ivan and Jeanne tore over the Caribbean and southeastern United States in rapid sequence, leaving in their wake a trail of destruction with many fatalities and enormous property damage.

“The weather records show that the region had not seen such an accumulation of catastrophic hurricane events in almost 120 years. At about the same time, Typhoons Songda and Chaba wreaked havoc in the Pacific region. The economic losses caused by the storms are considerable. We estimate them at approximately $ 50 billion. Of this, insurers and reinsurers will cover an estimated $30 billion, thus demonstrating yet again the economic importance of the insurance industry.”

Commenting on further reserve strengthening at American Re, von Bomhard noted: “We also promptly reflect and communicate necessary reserve strengthenings in our figures. Based on our assessments, increases in reserves of 84 million euros [$108.6 million] were necessary at American Re in the third quarter, but in relation to total provisions these are not of a disconcerting magnitude.

“Compared with the previous quarters, however, our quarterly result thus declined to 365 million euros [$472 million], of which 294 million euros [380 million] derives from reinsurance and 64 million euros [$82.75 million] from primary insurance.”

The natural catastrophe losses pushed Munich Re’s combined ratio in reinsurance up to 105.8 percent for the third quarter, from 95.5 percent in the first half of the year. It is 98.8 percent for the first nine-months. Munich Re’s primary insurance division by contrast in the third quarter posted what von Bomhard called “a very pleasing 90 percent.” It was 93.4 percent for the first half of the year.

Other highlights contained in the report included the following:
— Gross premiums written declined 5.6 percent over the nine-month period to 28.932 billion euros [$38.7 billion], compared to 30.658 billion euros [$39.65 billion] in the first nine-months of 2003.
— For the third quarter gross written premiums decreased by 6.5 percent to 9.256 billion euros ($11.96 billion from 9.898 billion euros ($12.8 billion) in Q3 2003.
— Net income for the three quarters totaled 1.527 billion euros ($1.975 billion), compared to a loss of 487 million euros ($630 million) for the first nine months of 2003.
— Third quarter net income was 365 million euros ($472 million), compared to 42 million euros (54.3 million) in 2003.

The full report, and the commentary by company management, may be obtained on Munich Re’s Web site at: www.munichre.com.

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