Munich Re, the world’s largest re-insurer, is still feeling the bad effects of the low interest rates and man-made losses in its core business, which combined to cause a profit decline in the second quarter.
Joachim Wedding, making his debut as CEO at a results conference, said profit at the firm declined to €733 million ($861 million) in the second quarter from €974 million in the same period last year. First half profits also declined to €1.21 billion from €1.41 billion in the year before. But Mr. Wedding said he remained confident of a pickup in the second half and reaffirmed earlier guidance of full year net at €2-2.4 billion.
“We have the right strategy, and we can concentrate on implementing that strategy by writing profitable new business,” Mr. Wedding told an analyst conference. “The bundling of our competencies in reinsurance and primary insurance allows Munich Re to continue driving digital transformation consistently across the entire value chain.”
“We have the right strategy”
The decline in earnings was mainly due to low interest rates, which have left the company’s return on investment hovering around 1.8 percent. When Berkshire Hathaway’s General Re unit reported two months ago, it too reported a decline in earnings thanks to losses stemming from reinsurance of a London apartment building destroyed by fire.
The conference heard about stiff competition in the company’s core reinsurance business from new entrants like hedge funds and insurance companies re-insuring their own risks because their profit margins are so squeezed. Companies are looking for reinsurance contributed €629 million to the quarterly profit, down from €991 in last year’s first half.
“We see potential for profitable growth not only in innovative solutions or new digital business models, but also in traditional areas of business,” said Torsten Jeworrek, who heads the reinsurance business. “The insurance gap is considerable even in developed markets. So there are also opportunities to write profitable business in the current market environment.”
A bright spot was the firm’s conventional insurance business, ERGO, which increased its consolidated profit to €104 million from a €17 million loss in the same period a year ago.
All three insurance segments – life and health in Germany, property casualty Germany, and international – improved their half-year result from the previous year.
“ERGO remains committed to its target of contributing a sustainable profit of over €600 million annually to the consolidated result by the time the strategy program ends in 2021,” said Markus Riess, the group’s CEO.
The company disclosed that its online insurance portal called Nexible will be open for business this autumn. The website will be able to sell insurance policies and allow customers to complete damage claims online without dealing with a claims adjuster.
“A digital transformation will affect the entire industry, sooner or later, Mr. Wedding told analysts. He added that it was more likely the company would acquire a FinTech startup to streamline its business than add to its stable of insurance firms.
“We are waiting for a good opportunity,” he said
Christian Schnell reported this story for Handelsblatt. Charles Wallace adapted this story to English for Handelsblatt Global. To contact the author: firstname.lastname@example.org