Munich Re, the world’s biggest reinsurer, expects to exceed its full-year profit target after higher investment income helped second-quarter earnings beat analyst estimates.
Net income rose to 808 million euros ($1 billion) from 736 million euros a year earlier, the Munich-based reinsurer said in a statement today. That beat the average 718 million-euro estimate of 18 analysts surveyed by Bloomberg.
With first-half profit of 1.6 billion euros, Munich Re is on course to “slightly surpass” its full-year target of about 2.5 billion euros, according to Chief Executive Officer Nikolaus von Bomhard. The reinsurer, which last month announced 1,350 jobs cuts at its Ergo Versicherungsgruppe insurance unit, also boosted its full-year forecast for gross premium income.
“Gross premium income was quite strong and underlying profit was strong as well,” said Philipp Haessler, an analyst at Equinet in Frankfurt who has a hold rating on the stock. “Munich Re remains solid like a rock.”
Munich Re climbed 0.9 percent to 118.60 euros as of 10:45 a.m. in Frankfurt trading, bringing this year’s gain to 25 percent. That compares with a 14 percent increase in the 28-company Bloomberg Europe 500 Insurance Index and a 37 percent advance by Swiss Re Ltd., the second-biggest reinsurer.
Investment income rose almost 17 percent to 1.8 billion euros after writedowns on Greek government debt in the year-earlier quarter weren’t repeated.
The reinsurer reduced investments in southern European sovereign bonds. Holdings of Italian debt fell to 2.4 billion euros from 5.3 billion euro a year ago, while Spanish debt declined about 40 percent to 1.2 billion euros.
Low interest rates continue to depress income from the reinsurer’s fixed-income investments.
“The challenges of the still very low interest rate levels are far greater than the volatility of the financial markets or the worsened economy,” Munich re said in the statement.
The firm’s reinsurance unit’s operating profit rose 43 percent to 796 million euros, helped by higher prices for natural catastrophe cover and below average damages. Munich Re, which raised rates in the July renewal round by about 2 percent, expects stable prices in 2013.
The company’s combined ratio in property and casualty reinsurance improved to 96.9 percent from 99.8 percent a year ago. A ratio above 100 percent means claims and costs exceed premium income, leaving a loss from underwriting.
Gross reinsurance premiums rose 8 percent to 6.8 billion euros from 6.3 billion euros in the quarter, said Munich Re, which raised its full-year forecast by 1 billion euros to 27 billion to 28 billion euros.
Munich Re set aside provisions of 160 million euros in anticipation of losses from the drought in agricultural areas of the U.S.