Munich Re Q4 profit slips 12%

Munich Re, the world's second-biggest reinsurer, reported a 12 percent decline in fourth-quarter profit and predicted "a more difficult environment" in 2008.

Net income fell to 560 million euros from 636 million euros a year ago, the Munich-based company said yesterday in a statement. Munich Re rose in Frankfurt trading after the reinsurer forecast profit of 3 billion euros to 3.4 billion euros this year, said operating profit beat estimates and that fourth-quarter subprime losses were 15 million euros.

Chief Executive Officer Nikolaus von Bomhard said he expects the insurance and capital markets this year to remain under earnings pressure. Investors including Cevian Capital AB have pushed the company to raise profit and payouts as reinsurance rates declined from levels reached after the record 2005 Atlantic hurricane season. Munich Re said on Jan 30 that 2007 profit before minority interests rose 11 percent to a record 3.9 billion euros.

"It's a sign of strength that Munich Re gave a confident outlook for this year after Allianz rather diluted its expectations last week," said Lucio di Geronimo, an analyst at UniCredit in Munich who recommends Munich Re shares.

"All in all the numbers were not dramatic and even the full-year outlook isn't surprising."

Munich Re rose 1.6 percent to 118.45 euros at 10:15 am in Germany. It has lost 11 percent this year, valuing the reinsurer at 25.6 billion euros. The Swedish private equity firm Cevian, which also owns stakes in companies such as Volvo AB and TeliaSonera AB, bought about 3 percent of Munich Re in December.

"While we are certainly not happy with the stock performance, Munich Re's management has taken the right initiatives and every month without a major natural disaster is playing into its hands," said Thomas Radinger, who helps oversee about $95 billion including Munich Re shares at Pioneer Investments in Munich.

Fourth-quarter losses related to the US subprime mortgage crisis were about 15 million euros, bringing the remaining exposure down to 340 million euros, Chief Financial Officer Joerg Schneider said.

"Munich Re is one of the few financial companies for which I would put my hand into the fire regarding subprime," Radinger said ahead of yesterday's results.

The company said last month that it planned to increase its dividend for 2007 to 5.50 euros a share from 4.50 euros for 2006 and reiterated a target to pay out at least 8 billion euros to shareholders in buybacks and dividends by 2010.

'Ambitious goals'

Munich Re has "ambitious goals" for 2008, Robert Mazzuoli, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, Germany, wrote to clients.

The company plans to maintain earnings at last year's level, which "seems very ambitious in a difficult financial market environment and a softening reinsurance market".

Munich Re had a gain of 356 million euros in the fourth quarter of 2006 related to a change in German tax rules. The reinsurer also booked a gain of 385 million euros in the third quarter of 2007 from business tax changes in Germany.

Agencies

(China Daily 02/26/2008 page16)