Munich Re Q3 Profits Down 99% to $15.4 Million; $1.8 Billion for 9 Months

Munich Re’s third quarter profits fell by 99 percent to €12 million ($15.4 million) compared to the €1.216 billion ($1.555 billion) it recorded in the third quarter of 2007. The Group’s net consolidated results for the first nine months of 2008 were €1.418 billion ($1.817 billion), compared to €3.348 billion ($4.29 billion) for the same period of 2007, a 57.6 percent drop.

Munich Re’s market capitalization declined from €29 billion ($37.16 billion) at the end of the third quarter of 2007 to $€21.9 billion ($28 billion) in Q3, 2008, a 24.3 percent decline. Munich Re’s earnings bulletin noted, however, that its capital base “remains solid at €21.5 billion [$27.52 billion] – the same level as after the first six months of the year, despite the market turmoil.”

CFO Jörg Schneider commented: “The 2008 financial year is proving difficult on account of the financial crisis, but the Munich Re Group is acquitting itself well compared with its competitors thanks to its well-balanced investment portfolio. All the same, the upheavals on the markets demand caution with regard to profit guidance: in view of the considerable share price losses, our annual profit will probably not reach €2 billion [$2.56 billion], or earnings per share of €10. 00 [$12.80]. The ongoing volatility of the markets does not permit a reliable profit forecast for the year as a whole,” Schneider continued.

He indicated, however, that Munich Re is sticking to its dividend forecasts of €5.50 ($6.46) per share, the same as in 2007, and the Group is also adhering to its objective of increasing earnings per share to at least €18.00 ($23.00) by 2010.

Schneider also pointed out that Munich Re “sees good opportunities for profitable business in the current market environment, setting its sights on improvements in prices and conditions in reinsurance business, given the increased importance of security and stability and the simultaneously expected rise in demand. ”

He was also optimistic about business development, stating: “Not only has the significance of our financial strength increased appreciably in the financial market crisis; so too has the importance of expertise in risk assessment and risk management. These are core competencies of the Munich Re Group, and will ensure that we emerge stronger from the current situation than other market players.”

The earnings report gave the following summary for the first nine months:
— Munich Re recorded an operating result of €2.4 billion [$3.07 billion] (€4.0 billion [$5.117 billion]), a decrease of 38.8 percent.
— The marked price losses on the stock markets impacted the investment result, which fell by 48.4 percent to €3.9 billion [$4.99 billion] (€7.6 billion [$9.72 billion]).
— Equity decreased to €21.5 billion [$28 billion] since the beginning of the year (31 December 2007: €25.5 billion [$32.62 billion]), but compared with the figure at 30 June 2008, there was only a very slight reduction of €8 million [$10.23 million].
— The book value per share now stands at €105.32 [$134.73] following figures of €118.95 {$152.15] at the turn of the year and €103.51 [$132.40] at 30 June 2008.
— Despite negative currency exchange effects due to the strong Euro, gross premiums written were up slightly (by 0.2 percent) to €28.13 billion [$36 billion] (€28.08 billion [$35.92 billion]).
— At unchanged exchange rates, premium volume would have increased against the same quarter last year by 5.4 percent, and by 4.8 percent in the first three quarters.
— The combined P/C reinsurance ratio increased from 98 percent to 100.2 percent during Q3, while the combined ratio for Munich Re’s primary insurance activities dropped from 92.9 percent to 90.2 percent.

Commenting on its reinsurance sector Munich Re said: “Despite the major losses in the third quarter (especially Hurricanes Gustav and Ike), reinsurance business performed satisfactorily overall. The operating result sank by 16.0 percent to €2.7 billion [$3.455 billion] (€3.2 billion [$4.092 billion]) from January to September, €132 million [$168.8 million] (€798 million [$1.02 billion]) of which was in the third quarter. Altogether, reinsurance contributed €2.0 billion [$2.558 billion] (€2.8 billion [$3.582 billion]) to the Group profit, and -€35 million [-$44.77 million] (€857 million [$1.096 billion] in the period from July to September.”

The report also noted that at the “Rendez-Vous de Septembre” in Monte Carlo, which is where negotiations for the January 1 renewals traditionally start, “Munich Re had already forecast a turnaround in the cycle. The spiraling financial market crisis and higher losses are indeed currently driving a trend reversal. Board member Torsten Jeworrek stressed: “We will take our clients’ individual situations into account, bearing in mind the different markets and classes of business. And we will support our clients: as long as we can achieve risk-adequate prices, we will make our high capacities available to them on a sustained basis as usual.”

The complete report, additional information and details on accessing the presentation to investors may be obtained on the Group’s web site at: www.munichre.com.

Source: Munich Re