Maybe money can’t buy happiness, but it can certainly improve the bottom line. Munich Re has just announced a €3.348 billion ($4.843 billion) profit for the first nine months of 2007, a 17.5 percent increase, which puts it on track to set a new earnings record. The Group’s target for the year is beyween €3.5 and €3.8 billion ($5.06 to $5.5 billion). Munich Re combined tax breaks, a quiet hurricane season and increased premiums to achieve the good results, despite a drop in investment income.
“In the third quarter, we again posted excellent results, and are now harvesting the fruits of our strict profit orientation”, commented CFO Jörg Schneider. As things stand at present, the return on risk-adjusted capital (RORAC) target of 15 percent for 2007 could be very clearly surpassed.
Schneider also stressed that Munich Re has been “focusing consistently on profitability and active capital management,” which in turn generates “shareholder value.” He went on to say that 70 percent of the ongoing second share buy-back had been completed, and highlighted further progress in the Changing Gear program.
Realigning Munich Re’s U.S. business subsidiaries has been a major component of that program. It has fundamentally reorganized Munich Re America (formerly American Re). Last month it announced a new long-term “profitable growth strategy” aimed at increasing its share of both direct and broker reinsurance, as well as primary insurance, in the U.S. P/C market (See IJ web site Oct. 10). “This step is intended to significantly increase Munich Re’s profits in the world’s largest insurance market,” said the earnings bulletin.
Schneider added that the Group also plans on “giving back at least €8 billion [$11.57 billion] to our shareholders by 2010.”
Reinsurance CEO Torsten Jeworrek commented: “Particularly in the main renewal season in January, which involves approximately two-thirds of our property-casualty treaty reinsurance business, our cycle management is to the fore.”
He also made it clear that acquisitions such as primary insurer Midland, which Munich Re agreed to buy last month (See IJ web site Oct. 17) had to satisfy high requirements. “Here, too, we are looking solely for profitable growth. That is the thread that runs through all our activities – irrespective of whether growth is organic or achieved via acquisitions in attractive niche segments, as in the case of Midland.”
In Munich re’s core reinsurance sector earnings rose 17.7 percent during the first three quarters to €2.779 billion (slightly over $4 billion). However, the bulletin noted that the operating result fell by 13 percent to €3.2 billion from 3.7 billion ($4.63 billion from $5.35 billion). The reinsurance sector still managed to contributed €2.8 billion ($4.05 billion) to the Group profit, up from €2.4 billion $3.47 billion) in the first nine months of 2006.
Jeworrek indicated that the strong performance was due not only to the very good investment result, but also to underwriting business. “Our strict orientation towards risk-adequate prices and conditions in underwriting is paying off and makes our broad basic business very profitable.”
The full earnings report and additional information may be obtained ion the Group’s web site at: www.munichre.com.
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