Reinsurer Munich Re raises prices, cites increased risk of quakes near Tokyo
Reinsurer Munich Re saw first-quarter profit bounce back to C782 million ($1.02 billion) as disaster losses were sharply lower compared to a year ago, when the company paid out for catastrophes that included the tsunami in Japan.
The company also said it had raised its prices for earthquake coverage in Japan in part due to geological studies that indicated increased risk of quakes in the Tokyo area.
The profit announced Tuesday compared to a loss of C948 million in the first quarter of 2011, when the company was hit by C2.7 billion in disaster losses. They included the Japan disaster, a cyclone in Australia and the Christchurch earthquake in New Zealand.
The company’s basic underwriting business improved across its reinsurance and primary insurance units as gross premiums rose 2.2 per cent to C13.3 billion and claims and expenses dropped by 15.4 per cent to C10.3 billion. Its gains from investments improved 14.7 per cent to 2.2 billion.
“With few major losses and more favourably disposed capital markets, we have posted a healthy profit,” chief financial officer Joerg Schneider said. The company reaffirmed its outlook for C2.5 billion in profit for the year.
The company was able to push through price increases of around 5 per cent across its business in the wake of the disasters, with prices for earthquake coverage in Japan rising more than 30 per cent as the company factored in higher perceived risk.
The March 2011 earthquake occurred off the Japanese coast and was followed by devastating waves and a nuclear accident at the Fukushima nuclear plant. The disaster resulted in almost 20,000 deaths.
Torsten Jeworrek, the Munich Re executive in charge of reinsurance development and reserving, said that geologists found increased tensions in the earth’s crust that could be released by a series of smaller earthquakes or by fewer, larger ones. He said that the worst-case earthquake outlook for Tokyo had not changed, but there was more perceived risk of quakes “below the worse case scenario.”
Extremely low interest rates have also contributed to upward pressure on prices since the company faces skimpier returns on the money it collects in premiums.
The company, a major fixed-income investor, suffered losses last year as it wrote down its holdings of Greek bonds. But those costs fell in the first quarter as Munich Re took a further loss of only C9 million from its participation in a negotiated write-down of Greek debt aimed at getting the struggling country back on its feet financially. Bond holders agreed to take losses of more than 70 per cent.
Munich Re’s primary insurance business, concentrated in its ERGO Insurance Group, also showed improvement, almost tripling earnings to C145 million.
Re-insurers write backup insurance for the primary insurers who sell coverage to businesses and the public so that the industry as a whole can cover catastrophic losses.
Munich Re shares fell 1.2 per cent to C106.50 in morning trading German time.
