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Munich Re Announces 1Q Loss, Still Expects Profit for Full Year

Source: WSJ - Ulrike Dauer

Posted on 09 May 2011

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As the high burden from the recent string of earthquakes, floods and other disasters around the globe took its toll, Munich Re AG, the world's largest reinsurer by premium revenues, said it swung to a net loss in the first quarter, and it realized fewer gains on investments.

The reinsurer also that said even if major disaster claims continue within an expected range it still expects to book a profit for the full year, as other business units will offset some of the disaster losses, on increased demand for reinsurance in affected areas and higher rates it can demand there.

First-quarter net loss was €947 million ($1.36 billion), after a net profit of €482 million in the same quarter a year earlier. Operating loss, which some investors consider a better reflection of a company's business performance, was €1.38 billion, a swing from €770 million operating profit a year earlier. Revenue rose 11.3% to €12.98 billion from €11.7 billion. A €612 million tax benefit limited the downside of the loss.

"Despite these devastating natural catastrophes, we can still achieve a profit for the year as a whole," Chief Financial Officer Jörg Schneider said. He noted, though, that the forecast of a profit assumes up to €700 million claims costs from natural disasters in the remaining three quarters. Of that, €100 million to €150 million has already been used up by the U.S. tornadoes in April.

On a brighter note, the company raised its full-year forecast for gross premium revenue by €1 billion, saying it now expects an outcome in the €47 billion to €49 billion range, provided exchange rates remain stable. The previous forecast was for €46 billion to €48 billion.

Net investment income was €1.96 billion, down 21% and below the forecast €2.04 billion, on higher net realized losses, notably on fixed-income investments in its portfolio. Rising capital market rates required a €67 million write-down on a derivative aimed to protect the group's primary insurance against low interest rates.

Silvia Quandt analysts said the net loss wasn't as bad as forecasts due to the higher-than-expected tax benefit, while operating loss was undermined by the weaker investment result. Analysts called the comments that Munich Re will have a profit in 2011 "rather unambitious to us as we still expect the company to post a €1 billion full-year profit."

Munich Re had already told shareholders at the annual meeting that a loss can be expected for the first quarter. Prior to that, it had already slashed its full-year profit guidance, saying an after-tax profit of €2.4 billion was out of reach after claims costs for the earthquake and tsunami in Japan, the earthquake in New Zealand, the floods and Cyclone Yasi in Australia combined amounted to €2.7 billion and used up the company's natural disaster budget for the entire year, which was €1 billion.

Swiss Reinsurance Co. last week also reported a swing to a net loss of $665 million for the quarter ended March 31, on $2.33 billion in losses from big natural catastrophes, more than double its $1.1 billion budget for such losses for the entire yea