Munich Re, the world’s biggest reinsurer, said profit this year is expected to fall 9.1 percent to 3 billion euros ($4.2 billion) as prices charged by the industry decline.
Munich Re also said it plans to buy back shares worth 1 billion euros before its 2015 shareholder meeting.
Reinsurers are increasing payouts to investors as strong balance sheets and lower-than-average losses from natural disasters led to an abundance of capital available for coverage. The strong supply of capital brought rates for property catastrophe policies down 11 percent in January, while prices also fell for most other types of coverage, according to Guy Carpenter, the reinsurance broker of Marsh & McLennan Cos.
Last year’s profit was boosted by a drop in income tax to 108 million euros due to the “recalculation of tax for prior years and the utilization of loss carry-forwards,” Munich Re said. That compared to 878 million euros in income tax paid in 2012. The tax rate is expected to return to a “normal range” of 20-25 percent, the company said in the annual report published on its website.
Prices Decline
In January, when Munich Re renewed “slightly more than half” of its non-life reinsurance contracts, it saw prices falling by about 1.5 percent, the company said last month. In view of the next renewal dates in April and July, Munich Re expects the environment to “remain competitive if there are no major loss events.”
Munich Re, led by Chief Executive Officer Nikolaus von Bomhard, said last month it plans to boost its dividend for 2013 to 7.25 euros a share from 7 euros after fourth-quarter profit beat estimates on lower catastrophe-related costs. It announced plans last year to buy back 1 billion euros of stock by a shareholders’ meeting scheduled for April 30.
Munich Re’s shares lost 5.9 percent this year, giving the company a market value of 27 billion euros. The Bloomberg Europe 500 Insurance Index lost 1.1 percent over the same period.
Combined Ratio
The reinsurance unit is expected to contribute 2.3 billion euros to 2.5 billion euros to the full-year profit target, Munich Re said. That includes a budget for major losses of about 2 billion euros. In property/casualty reinsurance, the company targets a combined ratio of 94 percent for this year compared to 92.1 percent reported for 2013.
Hannover Re, the world’s third-biggest reinsurer, dropped the most in eight months in Frankfurt trading on March 11 after fourth-quarter operating profit missed analysts’ estimates. Swiss Re Ltd., the world’s second-biggest reinsurer, raised its proposed dividend payout to shareholders for 2013 after posting fourth-quarter profit that exceeded analysts’ estimates.
Munich Re said yesterday that Doris Hoepke and Pina Albo will become members of its management board this year. The only woman on the board before them was Edith Lukas, who was a member from 1976 until 1993.