Munich Re achieves target profit for FY2010

Despite very low interest rates, Munich Re's 13.5 per cent return on risk-adjusted capital came very close to their target of 15 per cent.

According to Nikolaus von Bomhard, Chairman of the Board of Management of Munich Re, it was not an easy year given the high burdens from major losses, but Munich Re was nevertheless able to bring it to a successful close.

Munich Re's profit came in at €2.43bn for FY2010.

Von Bomhard was generally optimistic regarding the further course of 2011 and the following years: “In reinsurance, our market and client proximity is paying off. We have the capacity to design complex reinsurance solutions for our clients, a fact that sets us apart from our competitors. At the same time, our products in the field of renewable energies and our concept for insuring offshore oil drilling are proof of our ability and willingness to foster innovation.”

Summary of the figures for the financial year

The Group recorded a good operating result of €3,978m (4,721m) in 2010, €611m of this in the fourth quarter. Despite the high dividend payout and share buy-backs, Group equity increased to €23.0bn (31 December 2009: €22.3bn). Return on risk-adjusted capital after tax (RORAC) amounted to 13.5% for 2010, and return on equity (RoE) to 10.4%. Gross premiums written rose significantly by almost 10% to €45.5bn (41.4bn). If exchange rates had remained the same, premium volume would have grown by 5.1% compared with the previous year.

Primary insurance: ERGO heads in the right direction with its enhanced customer focus

Primary insurance performed favourably in 2010. The operating result totalled €1,269m (908m), of which €346m(408m) derived from the fourth quarter. Before elimination of intra-Group transactions across segments, the consolidated result amounted to €656m (367m), with the fourth quarter contributing €224m (272m). The ERGO Insurance Group more than doubled its profit to €355m (173m).

The combined ratio for property-casualty primary insurance in 2010 (including legal protection insurance) amounted to 96.8% (93.2%).

Reinsurance: Good result despite high costs for major losses

Reinsurance achieved a good result and contributed significantly to the Group's profit, despite the fact that Munich Re‟s reinsurance business was impacted by high claims costs for major losses. Helped by an investment result of €3,436m (3,796m), Munich Re recorded a reinsurance operating result of €2,943m (4,099m), a decrease of 28.2%, with €431m coming from the fourth quarter. Reinsurance contributed €2,099m (2,576m) to the Group‟s overall profit, the fourth quarter producing €440m (€707m) of this amount.

The combined ratio in property-casualty reinsurance was 100.5% (95.3%) of net earned premiums for the year as a whole and 96.0% (92.3%) for the fourth quarter.

Munich Health: Premiums rise to €5.1bn

Since the first quarter of 2010, Munich Re has been reporting on Munich Health as a separate segment under IFRS 8. Munich Health covers Munich Re‟s health reinsurance business worldwide and its health primary insurance outside Germany.

Munich Health‟s operating result amounted to €131m (133m), and it contributed €63m (27m) to the Group‟s overall profit, €6m of this in the fourth quarter.

Its combined ratio for 2010 came to 99.7% (99.4%). This ratio relates only to short-term health business, not to business conducted like life insurance.

Investments: Investment result of €8.6bn up significantly on the previous year

At €193bn, total investments at 31 December 2010 increased by €11bn or 6% compared with year-end 2009, chiefly due to currency translation effects and the decline in risk-free interest rates.

The Group‟s investment result for 2010 showed a year-on-year rise of nearly 10% to €8.6bn (7.9bn). Annualised, the result represents a return of 4.5% in relation to the average market value of the portfolio. The equity-backing ratio at 31 December 2010 was 4.4% (31 December 2009: 2.8%), based on the Group‟s total investments at market value, including equity-based derivatives. The portfolio continues to focus on fixed-interest investments, €162bn of which are fixed-interest securities and loans, including short-term items. Over 47% of this portfoliois in government bonds or instruments for which public institutions are liable.

Outlook for 2011: Profit target of around €2.4bn

If exchange rates remain stable, the Group anticipates that for the current financial year 2011 its gross premium volume in the reinsurance segment will range between €24bn and €25bn. For primary insurance (excluding health primary insurance business written outside Germany by Munich Health) gross premiums of €17–18bn are expected. Total premium income in primary insurance (including the savings premiums of unit-linked life insurance and capitalisation products) should range between €19bn and €20bn. Gross premiums written of around €6bn are expected for Munich Health. Overall, subject to the precondition described, Munich Re expects its gross premiums written in primary insurance, reinsurance and Munich Health (total consolidated premium) to be between €46bn and €48bn.

For 2011, Munich Re does not expect any significant rise in capital market interest rates; regular income from fixed-interest securities and loans is therefore likely to be lower. With its increased but historically still low equity-backing ratio, write-downs are likely to be correspondingly moderate, but so are the opportunities to realise gains on disposal. Munich Re therefore considers it likely that medium-term investment results will be lower, with a return of below 4% on the portfolio.