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Munich Re May Resume Buyback as Crisis Costs Diminish

Posted on 14 Sep 2009

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The world's biggest reinsurer, Munich Re may resume a share buyback program because it considers capital to be higher than necessary and doesn't see more risks related to the financial crisis.

“The share buyback program is a topic as we have good capital buffers and we can’t use all of our growing capital for the business,” Chief Executive Officer Nikolaus von Bomhard told journalists in Frankfurt. Munich Re “doesn’t expect more charges because of the financial crisis,” he said.

Munich Re has seen prices in its “bread and butter business” stabilize and move sideways, the reinsurer said on Sept. 6. The Munich-based company reported a 14 percent increase in second-quarter profit on higher investment income and the sale of a stake in U.K. insurer Admiral Group Plc. It scrapped a profit target of 18 euros a share by 2010 in March as investment returns were hit by the financial crisis.

To preserve capital and allow for potential takeovers, the Munich-based company earlier this year suspended a program to buy back about 2 billion euros ($2.9 billion) of its own stock by the 2011 annual shareholders meeting. The company said last month it may resume that program later this year, depending on the economic situation and whether the prospects for acquisitions seem more compelling.

Dividend More Important

“We’re watching developments regarding mergers and acquisitions closely and if they are in the price level we look for, we will make ourselves heard,” von Bomhard said at the press meeting on Sept. 10. “There are some targets that we watch for years.”

At the end of the year, Munich Re will see how much flexibility it has for a share buyback, von Bomhard said. “For us, dividend is even more important than a buyback, but we have the money to do both as long as there isn’t a market deterioration.”

Munich Re paid investors a dividend of 5.50 euros a share for 2008, the same amount it paid for 2007, when it reported a record profit of 3.9 billion euros. Von Bomhard told analysts in August that Munich Re doesn’t plan to change its dividend policy “in the midst of the crisis.”

The company’s primary insurance unit, which mainly consists of Dusseldorf-based Ergo Versicherungsgruppe, posted a second- quarter profit of 63 million euros after a loss of 72 million euros in the preceding three months. Ergo has said it aims to almost double annual profit, excluding one-time items, to more than 900 million euros between 2006 and 2012.

“It’s a bit too early to withdraw the target,” von Bomhard said. “Ergo’s results look worse than they are.”