Munich Re Plans $1.35 Billion Buyback as Profit Declines

Munich Re, the world’s biggest reinsurer, plans to buy back 1 billion euros ($1.35 billion) of its shares as third-quarter profit dropped 44 percent.

Net income dropped to 637 million euros from 1.13 billion euros a year earlier, the Munich-based company said in a statement today. That beat the 587.3 million-euro average estimate of 12 analysts surveyed by Bloomberg. The buyback will be completed by next year’s annual shareholders meeting scheduled for April 30, it said.

Munich Re, led by Chief Executive Officer Nikolaus von Bomhard, 57, raised its full-year profit target to 3 billion euros from an earlier goal of getting “close to” that amount. Nine-month profit was 2.2 billion euros, down from 2.7 billion euros. Munich Re last planned to buy back shares in 2011, though scrapped the attempt after the record earthquake and tsunami in Japan triggered a first quarterly loss since 2003.

“Although we are not home and dry yet, we are very confident of achieving a profit of 3 billion euros” in 2013, Chief Financial Officer Joerg Schneider said.

The shares fell 1.9 percent to 151.55 euros at 9:33 a.m. in Munich. They have increased 11 percent this year, giving Munich Re a market value of about 27.2 billion euros. The Bloomberg Europe 500 Insurance Index has gained 23 percent.

Dividend Payout

Since November 2006, Munich Re has carried out share buy-backs with a total volume of 6 billion euros.

Munich Re raised the dividend payout for last year to 7 euros a share from 6.25 euros in 2011. It may maintain the same level for 2013, according to Bloomberg dividend projections.

The sale of Windsor Health Group for an undisclosed price in September resulted in a loss of about 50 million euros before tax in the quarter, according to the statement.

Reinsurers, which help primary insurers such as Germany’s Allianz SE shoulder risks in return for a premium share, have been hurt by lower global interest rates and as near-record capital available for their coverage weighs on prices. Munich Re said on Sept. 8 it expects stable property and casualty reinsurance rates in January price negotiations.

Heavy Rain

Profit at Munich Re’s reinsurance unit fell 51 percent to 510 million euros in the third quarter as claims payments for major losses rose to 595 million euros from 337 million euros.

Heavy rain and hailstorms in June and July may cost about 180 million euros, while two hurricanes that hit the Mexican mainland in mid-September probably caused damages of about 150 million euros, the company said in the statement.

The property and casualty reinsurance unit’s combined ratio worsened to 94.3 percent from 89.4 percent a year ago. A ratio above 100 percent means claims and costs exceed premium income, leaving a loss from underwriting. Munich Re, which targets a full-year combined ratio of about 94 percent of net earned premiums, said it “will probably even marginally better this target” should major losses remain within the expected range.

Swiss Re Ltd., the world’s second-largest reinsurer based in Zurich, today reported third-quarter profit declining 51 percent to $1.07 billion. That compared with the $755 million average estimate of 10 analysts surveyed by Bloomberg.

Insurance Losses

Hannover Re, the world’s third-biggest reinsurer, said earlier this week that third-quarter profit fell 23 percent on lower investment income. The Hanover, Germany-based company confirmed its target for full-year profit of about 800 million euros and said it plans to earn 850 million euros in 2014.

Insurance industry losses from this year’s floods and hailstorms in Germany may be as high as 5 billion euros, Hannover Re said. Hailstorm Andreas is seen costing insurers 2.5 billion euros, while a June hailstorm named Manni may cost 500 million euros and another that struck in August 200 million euros, it said. Hannover Re expects industry losses of 1.8 billion euros from floods in Europe in May and June.

Reinsurers’ catastrophe claims usually increase in the second half of the year with the onset of hurricane season in the North Atlantic and typhoons in the northwest Pacific.

Profit at Munich Re’s primary insurance unit, which mostly consists of Ergo Versicherungsgruppe, jumped to 100 million euros in the quarter from 38 million euros a year ago. Earnings at the Dusseldorf-based insurer, led by CEO Torsten Oletzky, are “well on track” to meet the full-year profit target 350 million euros to 450 million euros, the company said.

“Given the low interest rates, we continue to find it hard to write profitable life insurance on a scale that enables us to grow,” Oletzky said. “For this, we are counting strongly on our new product generation. Figures for new business sales, which began in July, have met our expectations so far.”

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