Munich Re profits plunge after multiple disasters; eurozone crisis

BERLIN - A series of severe earthquakes and other natural catastrophes combined with the European debt crisis to send Munich Re's profits plunging 71 per cent in 2011, the reinsurance company said Thursday.

However, the company got back on track in the fourth quarter and is forecasting improvements in 2012.

Munich Re said it posted a profit of €710 million ($935 million) in 2011, down from €2.43 billion in 2010. Fourth-quarter profit came in at €630 million, up 33 per cent from €480 million the year before, and the company said it was on track for a "significantly improved technical result for 2012."

"We have never experienced a year like 2011 before — extreme burdens from natural catastrophes combined with the financial crisis, which flared up again after the slight recovery in 2009 and 2010," said chief financial officer Joerg Schneider. "Given the huge strains these placed on results, it is a notable achievement that we still posted a profit."

The numbers were better than expected, and Munich Re's shares were up 0.2 per cent to €101.75 in morning Frankfurt trading.

Reinsurance companies write backup insurance for primary insurers so the system can handle large losses from natural disasters.

Munich Re saw its profits more than halve in the third quarter because of exchange rate volatility and the fallen value of Greek government bonds. That came after losses earlier in the year from the tsunami disaster in Japan, the earthquake in New Zealand and storms and flooding in Australia.

The largest loss in the fourth quarter was from flooding in Thailand, with claims costs of around €500 million.

"Reinsurance business was marked by exceptionally high claims costs for major losses in 2011," the company said. "According to Munich Re's estimates, insured losses from natural catastrophes worldwide totalled $105 billion and were thus even higher than in the previous record year 2005."In 2005, insurers suffered badly in the wake of Hurricane Katrina.

Munich Re's reinsurance business showed a combined ratio for 2011 of 113.6 per cent, much worse than 100.5 per cent in 2010. The ratio measures costs and claims against premiums; ratios under 100 show a gain from basic underwriting.

In the fourth quarter the combined ratio remained above the 100 level at 101.8 per cent, higher than 95 per cent in the same quarter the year before.

With the string of natural disasters behind it, however, Munich Re said it anticipated a return to much higher profits in 2012.