Munich Re Profit Falls as Prices Drop More Than Claims

Munich Re, the world’s biggest reinsurer, said first-quarter profit declined 4.6 percent as lower claims at the property and casualty unit failed to offset a drop in prices.

Net income fell to 919 million euros ($1.28 billion) from 963 million euros a year earlier, the company said in a statement today. While Munich Re was “largely spared major losses,” prices for non-life reinsurance that was up for renewal on April 1 dropped by about 8 percent, the company said.

“Keener competition” was “clearly apparent” in the first three months of the year and Munich Re wasn’t able to “completely detach” from that, Chief Executive Officer Nikolaus von Bomhard, 57, told shareholders at the annual general meeting last week. The company today confirmed a full-year profit target of 3 billion euros, down from the 3.3 billion euros reported for 2013.

Natural catastrophe losses amounted to about 36 million euros in the three months ending March 31, up from 24 million euros, while man-made major losses dropped to 3.3 million euros from 82 million euros, the company said.

Swiss Re Ltd., the world’s second-biggest reinsurer, yesterday reported quarterly earnings that exceeded analysts’ estimates as resilient earnings in its non-life business mitigated the decline its life and health unit.

Appeasing Shareholders

Munich Re has been increasing dividends and share buybacks to appease investors including Warren Buffett’s Berkshire Hathaway Inc., which owns an 11.2 percent stake, as prices fall and interest rates are stuck at record lows. Strong balance sheets and lower-than-average losses from natural disasters have led to an abundance of capital available for coverage, weighing on reinsurance rates in January and April renewals.

Reinsurers, which help primary insurers shoulder risks for clients, saw their capital reach a record $540 billion at the end of last year, according to a report by Aon Benfield, the reinsurance broker of Aon Plc. Reinsurance rates have fallen in seven of the last 10 years, according to the Guy Carpenter World Property Catastrophe Rate on Line Index.

Reinsurers such as Munich Re and Hannover Re, the world’s third-biggest, typically renew more than half of their annual property and casualty contracts in January and the remainder in April and July. The April renewals, which focus on Asia-Pacific, and the U.S.-centric July renewals, include a greater proportion of natural catastrophe business ahead of the hurricane season in the Atlantic and Pacific.

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