Munich Re, the world’s biggest reinsurer, plans to raise its dividend even after fourth-quarter profit declined 42 percent on investments and goodwill impairments.
Net income fell to about 700 million euros ($794 million) from 1.2 billion euros a year before, the Munich-based company said in a statement Thursday, citing preliminary figures. Profit missed the 805 million-euro average of seven analyst estimates compiled by Bloomberg.
The Munich-based reinsurer, led by Chief Executive Officer Nikolaus von Bomhard, proposed raising the dividend for last year to 7.75 euros a share from 7.25 euros in 2013. That exceeds the Bloomberg Dividend Forecast of 7.50 euros. At the same time, Munich Re still plans to buy back 1 billion euros of its stock by its annual shareholder meeting, scheduled April 23.
“Our shareholders are receiving an attractive and also reliable return on their investment in Munich Re in comparison with other German and international companies, and this despite strong growth in the share price in recent months,” Chief Financial Officer Joerg Schneider said in the statement. The current share buyback program is 80 percent complete, the company said.
The shares gained 9.7 percent in Frankfurt trading so far in 2015, giving the company a market value of about 31 billion euros.
Abundant Capital
Reinsurers, which help primary insurers shoulder risks in exchange for a share of the premiums, are increasing payouts to investors as strong balance sheets and lower-than-average losses from natural disasters leave them with a surplus of capital.
Capital available for reinsurance reached a record $575 billion at the end of the third quarter, according to estimates by broker Aon Benfield.
Munich Re’s full-year profit fell to 3.2 billion euros from 3.3 billion euros in 2013. That compares to the company’s target of “slightly over” 3 billion euros and matched the average estimate of 19 analysts surveyed by Bloomberg.
In the fourth quarter, profit was reduced by losses from derivative financial instruments, negative currency effects and goodwill impairments, the reinsurer said.
Inflation Hedging
Earnings on 236 billion euros of investments were hit by a loss of 500 million euros on derivatives including those used for inflation hedging. Munich Re’s annualized return on investments was 3.6 percent, it said.
The company also booked an impairment of goodwill and other intangible assets for its primary insurance unit, which mostly consists of Dusseldorf, Germany-based Ergo Versicherungsgruppe. That led to charges of about 450 million euros.
Munich Re benefited from lower disaster claims. Such major losses cost it 1.2 billion euros last year after 1.7 billion euros a year ago.
“Overcapacity and a relatively low number of major natural catastrophes in 2014 added to the competitive pressure, above all in catastrophe business,” said Torsten Jeworrek, head of the company’s reinsurance operations.
In January, slightly more than half of Munich Re’s non-life reinsurance contracts, or about 9.4 billion euros in premiums, were up for renewal. The company cut these by 9.5 percent, to meet profitability requirements, it said. Prices declined by 1.3 percent as the reinsurer “is proceeding on the assumption that the market environment will not change significantly in the subsequent renewal rounds in 2015, unless extraordinary loss events occur.”
“We have not seen such a big premium reduction of any other larger player so far,” Thomas Seidl an analyst at Sanford C. Bernstein in London wrote in a note to clients Thursday. “We think this gives more room for capital management actions as the underlying capital stays unutilized.”