Posted on Mar 17, 2011 by Sergio Ulloa
The major German reinsurer, Munich Reinsurance, announced a 3.9 percent fall in net profits for business in 2010 at US$3.36 billion, compared to US$3.5 billion in 2009. There was a big 39 percent decline in profits in the fourth quarter of 2010, reaching US$649.3 million; this was due to the payment of large claims for major floods in Australia and the September 2010 earthquake in New Zealand during this financial period.
Munich Re, one the world's largest reinsurers, said profits also suffered from lower returns on investments during 2010, with year-on-year operating profit declining by 16 percent in 2010 to total US$5.53 billion - down from US$6.56 billion.
Munich Re stated that it was aiming to reach after tax profits of US$3.3 billion in 2011, but the reinsurer said that this target was already under threat from the extent of high catastrophe claim payouts from events which have already happened in the first three months of 2011.
Munich Re is believed to be one of the reinsurance companies hardest hit by the Japanese catastrophe on the 11th March 2011, with the devastating earthquake and tsunami, which struck the northeast coast of Japan
, likely to cause the insurance industry to have to pay out multi-billion dollars worth of corporate and personal claims. The international financial markets fear that Munich Re - along with other major reinsurers - have extensive exposure to claims arising from this major natural disaster, but not from the emerging issues associated with the meltdown in the Fukushima nuclear plant.
Even before the catastrophic events in Japan, Munich Re had highlighted that claims likely to arise from major natural disasters in the first quarter of 2011 would exceed the group's budgetary provision for claims for such events in 2011. This was mainly due to the Christchurch earthquake in New Zealand in February and the extensive flooding in the Australian state of Queensland following Cyclone Yasi.
The 6.3 magnitude earthquake in New Zealand, which destroyed large parts of Christchurch, is estimated to cost Munich Re roughly US$1 billion, with the damage caused by the floods in Australia at the beginning of 2011 expected to result in a claims bill of US$1.5 billion for the reinsurer.
Rival insurers have also estimated the level of costs expected to follow from the Christchurch earthquake, with Swiss Re predicting costs of US$800 million, Hannover Re US$200 million and the Ace group
Reinsurers have been quick to attempt to assure investors and global financial markets over the exposure to these catastrophes - particularly Japan - as billions have been wiped off the value of insurance companies worldwide.
The insurance industry was also heavily impacted in 2010
due to the high volume of claims payouts resulting from natural catastrophes, with last year being the one worst on record for these sorts of events. The total insurance bill for 2010 totalled approximately US$37 billion, with earthquakes in Chile, China, New Zealand and Haiti, floods in Pakistan and the prolonged heat wave and subsequent fires in Russia being the most expensive natural disasters in 2010.
Summarizing Munich Re's 2010 results, Nikolaus von Bomhard Chairman of the Board of Management said: "It was not an easy year given the high burdens from major losses, but we were nevertheless able to bring it to a successful close. With a profit of €2.43 billion, we even slightly surpassed the target we had set ourselves. The year was good in particular because, despite very low interest rates, our 13.5% return on risk-adjusted capital came very close to our target of 15%."
In 2010 losses incurred from natural catastrophes by Munich Re totaled US$2.1 billion with the largest pay out being US$1 billion for the Chilean earthquake which struck the South American country in February 2010.
Munich Re is not the only multinational reinsurer to feel the financial burden of large scale payouts in 2010. Companies across the reinsurance sector have reported mixed results arising from substantial payouts for catastrophic events in 2010. Members of the Lloyd's of London syndicate, such as Beazley
, Omega Insurance
and Brit Insurance
all had exposure to the high level of catastrophes in 2010, in addition to Swiss Re, Hannover Re
As a result of the high number of major catastrophes in 2010, the reinsurance industry reviewed risk management techniques in an attempt to improve financial performance in 2011. However, the emerging scale of natural disasters so early in 2011 will undoubtedly place tremendous pressure on profitability this year and create more emphasis on achieving improvements in returns from investment portfolios.
In addition to Munich Re's reinsurance business, its primary insurance brand, Ergo, performed strongly with operating profits totaling US$1.7 billion in 2010 the group's net earnings after tax generating US$494 million. The Ergo brand has developed a strong reputation in the domestic insurance market in Germany and is rapidly expanding its international operations
in the life, health, travel, property and casualty insurance together with its legal expenses insurance. There was robust growth in Ergo's health insurance activities, with business jumping by 6.3 percent to reach US$7.6 billion, contributing to overall premium growth in all insurance sectors to reach US$26 billion.
Insurance Companies Mentioned:
Munich Re focuses on providing financial stability, and consistent risk management based on its extensive solution-based expertise. It operates in all lines of insurance, with around 47,000 employees throughout the world. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. The primary insurance operations are mainly concentrated in the ERGO Insurance Group. ERGO is one of the largest insurance groups in Europe and Germany and 40 million clients in over 30 countries place their trust in the services and security it provides. In international healthcare business, Munich Re pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand.
Ergo is a subsidiary of Munich Re and offers a wide spectrum of insurance provision and services across 30 countries; it currently has more than 40 million customers. Ergo has a strategic focus in Central and Eastern Europe and certain Asian markets. The German insurer has become one of the leading health and legal expenses insurance companies within Europe. Additionally Ergo provides property and personal accident insurance in India.
The ACE Group was founded in Switzerland in 1985 and is a global leader in insurance and reinsurance serving a diverse group of clients. Headed by ACE Limited, a component of the S&P 500 stock index, the ACE Group conducts its business on a worldwide basis with operating subsidiaries in more than 50 countries and commercial and individual customers in more than 170 countries. The company operates through four segments: Insurance-North American, Insurance-Overseas General, Global Reinsurance, and Life.
Hannover Re is the third-largest reinsurer in the world, with a gross premium of around EUR 10 billion. It transacts all lines of non-life and life and health reinsurance and maintains business relations with more than 5,000 insurance companies in about 150 countries. Its worldwide network consists of more than 100 subsidiaries, branch and representative offices on all five continents with a total staff of roughly 2,100.
Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life, health and special lines - such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.
Scor is currently organized around two main businesses - SCOR Global P&C and SCOR Global Life - which are leading underwriting and reinsurance providers. In addition, the Scor group as an asset management arm - SCOR Global Investment. The group writes business in Europe, Latin America, Asia, the Middle East and the USA.