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Crimped by Low Interest Rates, Reinsurer Munich Re Turns Challenge into Quarterly Profit

  • Why it matters

    Why it matters

    Insurance and reinsurance companies have long complained that low interest rates are hurting investment earnings, but you cannot blame low interest rates for everything that is going wrong.

  • Facts

    Facts

    • Despite low interest rates Insurance and reinsurance companies are gradually adjusting to the new environment.
    • Income of the world’s largest insurer Munich Re rose as the value of its interest-rate hedge investments appreciated, as overall rates continued to fall.
    • While the company had made some improvement, the shares price is weak because the combined ratio of underwriting profits and investment returns are actually not that great.
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Von Bomhard CEO Munich Re. Source Reuters
Munich Re, the Munich Re CEO, has criticized the low-interest rate policies of global central banks but the reinsurer has managed to profit in part from the situation. Source: Reuters

 

Insurers and reinsurers bemoan low global interest rates, which crimp their investment earnings, but on Thursday Munich Re, the world’s second-largest reinsurer, showed it could profit from the new environment too.

Second quarter results released Thursday show consolidated profits up 41.7 percent to €769 million, driven in part by a surge in investment income from its portfolio of interest rate swaps, which has appreciated as global rates head lower.

Munich Re’s profit, however, was lower than what many investors had expected, and its shares traded in Frankfurt fell on the report by 3.2 percent.

In the three months through June, Munich Re reported a surge in the volume of its investment portfolio, the so-called “net write-ups,’’ which grew by €156 million. In the same period a year earlier, Munich Re had net write downs €342 million. But this year, the income rose as the value of its interest-rate hedge investments appreciated, as overall rates continued to fall. In “an environment of falling interest rates, the market value of interest-rate hedges appreciated significantly,’’ Munich Re said in a statement. The reinsurer’s total investment portfolio grew in the quarter by 3.7 percent or €7.8 billion to €217.3 billion.

 

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