Munich Despite heavy burdens, Munich Re slightly exceeded its profit target last year. The net profit of 2.9 billion euros was above the company’s own forecast of 2.8 billion euros – and thus also above the expectations of the analysts. The Dax group announced this on Wednesday morning.
They had expected an average of 2.889 billion euros. “We will consistently use this momentum and the favorable market environment and increase our profit this year to 3.3 billion euros,” announced Munich Re CEO Joachim Wenning.
With the effects of the pandemic, high losses from natural catastrophes and an increasing number of cyber attacks, 2021 was one of the most challenging years in the reinsurer’s 141-year history. Major losses from natural catastrophes totaled 3.1 billion euros after just 906 million euros in the previous year.
Hurricane “Ida” in the USA stood out with total damage of 1.5 billion euros, while storm “Bernd” in Germany and neighboring countries in July led to claims payments of around 500 million euros. Deaths related to Covid-19 cost a total of 785 million euros.
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The fact that a result in the billions was achieved despite the high claims payments is partly due to a sharp increase in premiums. Customer interest in security solutions grew again during the pandemic. Premium income grew to 59.6 billion euros, 8.5 percent above the 2020 level.
Management expects higher premium income
The company’s own target figure of 58 billion euros was also significantly exceeded. This trend is likely to continue this year. In the important renewal round in January, in which the conditions of customer contracts are renegotiated, premium income grew by 14.5 percent, and the prices themselves rose by 0.7 percent. This year, the management of the Dax group is therefore assuming premium income totaling 61 billion euros.
Munich Re has also largely coped with the numerous burdens on other strategic goals. Return on capital employed (ROE) was 12.6 percent last year. The in-house strategic plan Ambition 2025, which was presented more than a year ago, set an annual return target of 12 to 14 percent by 2025.
Investing is becoming increasingly difficult
In the first year of the pandemic, 2020, it was only 5.3 percent. Earnings per share just missed the targets with an increase of 4.7 percent, the target is at least five percent annually until 2025. Investors were therefore not completely satisfied, Munich Re’s shares fell by almost two percent.
The Group once again felt the effects of the low-interest policy on financial investments. At EUR 7.16 billion, the investment result for the portfolio, which is around EUR 240 billion in total, was just below the previous year’s figure of EUR 7.40 billion. Added to this were high write-downs due to price losses on shares.
With an investment result of 2.8 percent, Munich Re exceeded its own target of 2.5 percent. The problems with reinvesting expiring securities, which all large investors are familiar with, are also clearly evident among the people of Munich. Only returns of 1.5 percent could be achieved with the new investment.
Last year, the Dax group had expanded the number of its asset managers. While the portfolio was previously managed primarily by the in-house asset manager Meag, Munich Re is now also seeking contact with experts in special asset classes and distant regions. The insurer is also counteracting this with a significantly increased share quota. After six percent in 2020, it was most recently 7.7 percent.
The head of Munich Re wants to increase profits to 3.3 billion euros this year.
(Photo: imago images/Sven Simon)
Earlier problems elsewhere are long history. The Düsseldorf-based primary insurer Ergo significantly exceeded the profit target of EUR 500 million last year with EUR 605 million.
Although the burdens from the pandemic and the high level of storm damage were also felt on the balance sheet there, on the other hand they also resulted in significantly higher demand for insurance cover from customers. This trend was evident in the three segments of non-life, life and health insurance.
Dividend increases sharply
A similarly good development was recently seen among Munich Re’s competitors. According to preliminary figures, Hannover Re, the number three among the world’s largest reinsurers, achieved a profit in the billions last year and, with 1.23 billion euros, almost reached the upper end of the targeted surplus of 1.15 to 1.25 billion euros. This year Hannover Re is aiming for a record profit of 1.4 to 1.5 billion euros. Swiss Re wants to present its figures on Friday.
Munich Re had already announced a sharp increase in the dividend on Tuesday. EUR 11 per share is now to be paid out for the past year, an increase of more than twelve percent compared to EUR 9.80 in the previous year.
Because the group had announced with its strategy program Ambition 2025 that it wanted to increase the distribution by at least five percent per year in the future, at least 11.55 euros per share should be paid in one year. The Group will also resume its traditional share buyback program after the Annual General Meeting at the end of April. After it was stopped at the beginning of the corona pandemic in spring 2020, another billion euros are to be invested in treasury shares.
More: Munich Re pays out record dividend