Munich Re, the world’s biggest reinsurer, said profit this year will be about 3 billion euros ($3.9 billion), little changed from 2012, as prices remain stable and lower interest rates weigh on investment income.
“Even though the consolidation of state finances and high unemployment will result in slower economic momentum in many industrialized countries, we remain optimistic for our business,” Nikolaus von Bomhard, chief executive officer of the Munich-based reinsurer, said in an e-mailed statement today.
Reinsurers such as Munich Re and Hannover Re (HNR1), the world’s fourth-largest, benefited from reduced losses from natural catastrophes last year and a market rally. This year they are trying to boost revenue from higher-yielding assets such as renewable energy and property as returns from bonds decline and reinsurance prices stay stable.
Munich Re rose 0.7 percent to 145.70 euros at 9:10 a.m. in Frankfurt, taking gains this year to 7.2 percent and valuing the firm at 26 billion euros. The Stoxx Europe 600 Insurance Index rose 0.1 percent today and 4.7 percent since Jan. 1.
With investment returns of an annual 3.3 percent, “regular income from investments is likely to be relatively low” this year, Munich Re said. Investment income was 8.4 billion euros in 2012, it said.
“We believe the outlook from Munich Re is somewhat on the conservative side,” Thorsten Wenzel, an analyst at DZ Bank in Frankfurt, said in an e-mailed report to investors. “Consensus estimates might slightly increase.”
Munich Re expects profit at its reinsurance business, excluding minorities, of 2.3 billion euros to 2.5 billion euros this year. Profit at Ergo Versicherungsgruppe, a unit selling primary insurance, will probably be between 350 million euros and 450 million euros, it said.
The contract of Wolfgang Strassl, a member of the management board who runs Munich Health and Human Resources, will not be renewed at the end of this year. Von Bomhard will take charge of Munich Health, which is the smallest unit of the company, Munich Re said. For 2013 “a further loss” at Munich Health cannot be ruled out, it said.
Last year, earnings of insurers and reinsurers who help shoulder risks in return for a share of the premiums were supported by lower catastrophe claims and a rally in markets after steps by European Central Bank President Mario Draghi to stem the debt crisis.
Munich Re said it raised its claims estimate for the 2011 floods in Thailand by 80 million euros from the 547 million euros expected in its 2011 annual report. Of man-made losses, the Costa Concordia cruise ship accident was the most significant with claim costs of 80 million euros, it said.
Natural disasters caused $65 billion in global insured losses in 2012, down from $119 billion the previous year. Munich Re said it expects Hurricane Sandy to account for $25 billion in losses, making it the single most expensive natural disaster last year and costing the company around 800 million euros before tax.
The company said it will invest more in renewable energy and new technologies this year after spending 1 billion euros in 2012. It aims to spend 2.5 billion euros in total in the “medium term” to help counter lower revenue from bonds and other products tied to interest rates.
Munich Re’s investment arm MEAG may buy a stake in an offshore wind farm operated by utilities such as E.ON SE and RWE AG (RWE), Robert Pottmann, who heads MEAG’s renewable-energy unit, said last month. It will also invest in onshore wind and solar photovoltaic projects in Europe and North America and may buy stakes in completed geothermal projects in Germany, he said.
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