-- Munich Re says on track to "slightly surpass" previous
full-year profit guidance
-- Company posts profit rise on lower costs for weather claims,
crisis, low taxes
-- Sector recovering from costliest disaster year on record in
2011
(Adds detail throughout.)
By Ulrike Dauer
MUNICH--Germany's Munich Re AG (MUV2.XE) Tuesday said it is on
track to beat its previous full-year guidance for profit and
revenue, after second-quarter profit rose--helped by substantially
lower costs for severe weather damage, the absence of impairments
on Greek sovereign debt that weighed on last year's results, and a
low tax rate.
Expectations for a moderate U.S. hurricane season also put it on
track for coming out slightly above its full-year goal of around
2.5 billion euros ($3.1 billion) after-tax profit, including
minorities.
"With a profit of EUR1.6 billion for the first half-year, we
have achieved well over half of our target of around EUR2.5
billion. So we are well on track to slightly surpass the originally
envisaged profit for the year," Chief Executive Nikolaus von
Bomhard said.
Munich Re, the world's largest reinsurer by premium revenue,
reported a 9.8% rise in second-quarter net profit, as the costs for
natural disasters were only a fraction of last year's and no
further impairments were made on Greek or other euro sovereign
debt.
For gross premium revenue, Munich Re now expects between EUR50
billion and EUR52 billion, up from the previous forecast of EUR49
billion to EUR51 billion range. Both higher forecasts are due to
expected improvements in the reinsurance operations, while its
primary insurance business Ergo Versicherungsgruppe will contribute
less than the planned EUR400 million to after-tax profit due to a
three-digit-million restructuring charge for job cuts at its sales
operation.
Net profit, excluding minorities, rose to EUR808 million from
EUR736 million, above of a Dow Jones Newswires consensus poll of
EUR685 million. Analysts had generally expected a return to a
"normal" tax rate of around 30%, but it remained around last year's
level of about 17%, when it was lowered due to deferred taxes for
losses in previous years and disaster claims. Munich Re Chief
Financial Officer Joerg Schneider said the tax rate was lower due
to the regional diversification and due to the deferred taxes in
the U.S. business. The group's "normal" tax rate would be above
20%, Schneider said.
Gross premium revenue rose 5.5% to EUR12.63 billion, below the
forecast EUR12.56 billion.
Net investment income rose 19% to EUR1.81 billion, below the
forecast EUR1.93 billion. Operating profit, which many investors
consider a better reflection of a company's actual performance, was
EUR1.10 billion compared EUR947 million a year earlier, slightly
below the forecast EUR1.11 billion.
Last year around this time, Munich Re's investment result took a
EUR703 million hit from the company's writing down the entire Greek
sovereign debt in its portfolio to market value as of June 30. This
burdened the quarterly after-tax profit by EUR125 million.
Also a year ago, the sector was hit by the slew of large
disasters that exhausted annual claims budgets for 2011 in the
first quarter and made it the costliest year on record.
Major losses cost Munich Re EUR3.64 billion in the first six
months last year. This year, that figure was EUR716 million, below
what Munich Re considers the long-term average.
Munich Re also cautioned that the challenge of still very low
interest rates is "far greater than that of the volatility of
financial markets or the worsened global economy." Munich Re needs
rate hikes in reinsurance to compensate for the continuously
falling interest rates, it said.
Merck Finck analyst Konrad Becker called the figures "good, as
expected," helped by a significant reduction in costs for claims
and lower euro sovereign-debt crisis hits, which improved the
investment result. But he also called positive the outcome of July
renewals, which added 18.5% in premium volume and 2% average price
rises.
Munich Re's peers Swiss Re AG (SREN.VX) and Hannover Re AG
(HNR1.XE) will report Thursday and Friday and are also expected to
flag low claims and a decent contribution from investments.
At 1128 GMT, Munich Re shares were up EUR1.25, or 1.1%, at
EUR118.85, outperforming the wider market, which was up 0.5%.
-Write to Ulrike Dauer at ulrike.dauer@dowjones.com