Munich Re Shrugs Off Sandy to Raise 2012 Profit Target

Munich Re Chief Financial Officer Joerg Schneider
Munich Re Chief Financial Officer Joerg Schneider said, “Despite Hurricane Sandy, we are very optimistic of realizing a profit in the region of 3 billion euros for 2012.” Photographer: Guenter Schiffmann/Bloomberg

Munich Re, the world’s biggest reinsurer, shrugged off losses from Hurricane Sandy to raise its full-year earnings forecast after an almost fourfold increase in third-quarter profit.

Net income rose to 1.13 billion euros ($1.45 billion) from 286 million euros a year earlier, the Munich-based reinsurer said in a statement today. That beat the 756 million-euro average estimate of 15 analysts surveyed by Bloomberg. Investment income surged 65 percent to 2.22 billion euros.

“Despite Hurricane Sandy, we are very optimistic of realizing a profit in the region of 3 billion euros for 2012,” Chief Financial Officer Joerg Schneider said in the statement.

Munich Re Chief Executive Officer Nikolaus von Bomhard had said in August he expected the company to “slightly surpass” its full-year profit target of about 2.5 billion euros. Claims from Hurricane Sandy, which slammed into New York and New Jersey last week, are expected to be “in the mid three-digit million-euro range,” based on provisional estimates, Munich Re said.

Munich Re rose 2.7 percent, the most in three months, to 131.25 euros at 10:05 a.m. in Frankfurt. The stock has climbed 39 percent this year, valuing the reinsurer at 23.6 billion euros. Swiss Re Ltd., the world’s second-biggest reinsurer, which reports third-quarter results tomorrow, has advanced 38 percent.

While it’s “too early to make a definite announcement regarding the dividend for 2012,” Schneider said that if Munich Re reports a “good” annual result, it plans a bigger payout than last year’s 6.25 euros per share. The Bloomberg dividend forecast predicts a 2012 payout of 6.50 euros per share.

Investment Income

The main reason for Munich Re’s better-than-expected result “seems to be a positive surprise on the investment side,” Christian Muschick, an analyst at Silvia Quandt Research in Frankfurt with a neutral rating on the shares, wrote in a report to clients today.

Hannover Re, the world’s fourth-biggest reinsurer, said yesterday it expects record earnings “in excess of” 800 million euros this year after reporting a 63 percent increase in third-quarter profit. While Hannover Re said it’s too early to make “reliable statements” on claims from Hurricane Sandy, the reinsurer doesn’t expect claims to let it exceed its annual budget of 560 million euros for major losses.

Hurricane Sandy

Sandy hit New York and New Jersey Oct. 29, barreling through the most populous region of the U.S., killing more than 100 people and leaving as many as 8.5 million homes and businesses without power. The storm may cost insurers and the reinsurers, which help shoulder risks in return for a share of the premiums, $10 billion to $20 billion, according to Eqecat Inc., a provider of catastrophic risk models.

Last year, the insurance industry and government-funded insurance programs paid out a record $105 billion of claims for disasters, including the earthquake and tsunami that hit Japan and floods in Thailand. That helped reinsurers push through higher prices in contract renewals this year.

Negotiating further increases may be more difficult as 2012 didn’t see disasters on the same scale and reinsurers’ capital recovered. The industry accumulated a record $480 billion of capital at the end of June, according to a report by Aon Benfield, the world’s biggest reinsurance broker and a unit of Aon Plc, which mediates contracts for primary insurers.

Munich Re reiterated today that the company expects prices, terms and conditions to at least remain stable in the January round of renewals in most markets.

Price Outlook

“It is foreseeable that Hurricane Sandy will lead to a further rise in prices in U.S. property business and for non-proportional natural catastrophe covers,” said management board member Torsten Jeworrek, who heads the reinsurance business.

Hurricane Isaac, which hit the U.S. Gulf Coast at the end of August with heavy rain and gale-force gusts, is expected to cost Munich Re about 80 million euros. Claims from the earthquakes that hit northern Italy in the second quarter had to be adjusted to 150 million euros from 79 million euros, the reinsurer said, adding that it reduced provisions for losses from prior accident years by nearly 100 million euros.

Net income at Munich Re’s reinsurance unit more than tripled to 1.04 billion euros in the quarter, helped by a below average burden from major losses. The property and casualty reinsurance unit’s combined ratio improved to 93.6 percent in the first nine months of the year from 118.1 percent a year ago. A ratio above 100 percent means claims and costs exceed premium income, leaving a loss from underwriting.

Life Reinsurance

The life reinsurance unit is “well on track” to exceed the annual target of a technical result of 400 million euros, Munich Re said in a presentation filed on its website. After the first nine months, the figure stood at 370 million euros. Munich Re has said it expects life reinsurance premiums to grow as the business takes on more risk from insurers trying to meet tougher capital requirements.

Under the so-called capital relief deals, reinsurers assume risks, such as mortality claims on a primary insurer’s life insurance portfolio, for a defined period of time in return for a share of future premiums. Those transactions, mainly in North America, have driven premium growth over the past three years, Joachim Wenning, management board member responsible for life reinsurance, said in an interview on Oct. 16.

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