Munich Re Q1 Net Stable; Announces Future Plans

May 4, 2007

Germany’s Munich Re Group reported that first quarter consolidated results rose slightly to €982 million ($1.33 billion) compared to €978 billion ($1.326 billion in the same period of 2006. Operating results, which excludes finance charges and taxes, actually declined by more than 10 percent to €1.321 billion ($1.79 billion) from €1.471 billion ($1.993 billion).

The big gains were in the Group’s investment portfolio, where it sold off a number of long-term holdings in German companies and some valuable real estate. It recorded a 48.5 percent gain in investment income from €2.129 billion ($2.88 billion) to €3.161 billion ($4.283 billion.)

Munich Re has embarked on a restructuring, its “Changing Gear” program, aimed at “further improvements in its key figures.” The Group is hoping to “increase earnings per share annually by an average of more than 10 percent, and is implementing the “processes and structures” to do so.

“Changing Gear now follows as the necessary next step. In the preparatory phase, we first listened – to our clients, shareholders and staff – and from this process of intensive dialogue, we drew conclusions for the further development of our strategy”, explained Nikolaus von Bomhard, Chairman of the Board of Management, when presenting the business figures for the first quarter.

As a first step, Munich Re will buy back shares with a volume of up to €2billion ($2.71 billion) before its next Annual General Meeting in April 2008. “At the current share price level, this would be about 15 million shares or 6.75 percent of the share capital,” said a company bulletin.

Munich Re said Winter Storm Kyrill cost the Group less than originally expected on the basis of the initial, provisional loss reports. Losses for the Group as a whole amounted to €450 million ($609 million) before tax, approximately €390 million ($528 million) in reinsurance and around €60 million ($81.3 million) in primary insurance.

The bulletin noted that the Group’s reinsurance business performed pleasingly overall in the first quarter of 2007, despite Kyrill and an operating result that fell by 14.2 percent to €1.1 billion from €1.2 billion in Q1 2006 ($1.49 billion from $1.63 billion). “Reinsurance still contributed €798 million [$1.08 billion] to the Group profit. Large gains on real-estate sales, initiated last year, had a particularly positive effect, partially compensating for the windstorm losses caused by Kyrill.”

Munich Re’s combined ratio rose to 101.8 percent from 91.6 percent, “of which 12.2 (2.2 in Q1 2006) percentage points were attributable to natural catastrophes (11.2 percentage points of these to Kyrill).”

Munich Re said the Group’s primary insurers made a good start to the year 2007, increasing their operating result by 39.7 percent to €324 million ($439 million) from €232 million ($314 million), and their profit by 87 percent to €258 million ($350 million), compared to €138 million ($187 million) last year.

Von Bomhard was upbeat for the rest of 2007, indicating that Munich Re “remains confident of achieving” its targets. The Group aims to record another combined ratio of below 97 percent in reinsurance; however, it said “owing to the claims expenditure for Kyrill, Munich Re anticipates a natural-hazards claims burden of 7 percent of net earned premiums for the year. In primary insurance, the combined-ratio target is under 95 percent again.”

The recent strength of the Euro caused Munich Re to lower its earnings targets slightly. It now expects Group premium income for 2007 to be between €36.5 billion and €37.5 billion ($49.5 billion and $50.8 billion) – with reinsurance providing approximately €21-€21.5 billion ($28.5-$29.1 billion) (before consolidation) and primary insurance around €17-€17.5 billion ($23-$23.7 billion). It still hopes “to achieve a return of at least 15 percent on risk-adjusted capital (RORAC) again in 2007.”

For the full report, further information and a replay of the analysts’ conference got to the Group’s web site at: www.munichre.com.

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