February 4, 2014 / 7:57 AM / 4 years ago

UPDATE 2-Munich Re boosts dividend after surprise 2013 profit rise

* Munich Re 2013 net profit above expected at 3.3 bln eur

* Low tax, low claims and reserve releases boost results

* Raises dividend to 7.25 eur/shr from 7.00 previously

* Says price competition intensifying in reinsurance market

* Share down 1 pct vs 0.3 pct rise in insurance index (Adds comments by analyst, broker)

By Jonathan Gould

HANOVER, Germany, Feb 4 (Reuters) - Munich Re, the world’s biggest reinsurer, hiked its dividend after a surprise rise in 2013 profit, lifting hopes it can cope with an influx of new competitors and falling prices.

However, the German firm said on Tuesday the profit increase was helped by one-off factors, such as low taxes and damage costs, and the release of buffers built up to cover past claims.

Reinsurers, which help insurers shoulder risks in exchange for part of the profit, have had a buoyant few years, but are now facing one of the biggest market-wide price declines since the late 1990s as their customers press for a better deal.

That pressure has been made worse by the entrance of new “alternative capital” investors into the market, attracted by high-margin business such as natural catastrophe insurance.

Munich Re said on Tuesday it had largely been able to buck the downward price trend when renewing contracts with its insurance company clients at the start of the year.

“Of more significance is that price competition has increased in the traditional reinsurance market,” it added, referring to price cutting by rival reinsurers. These include Swiss Re and Hannover Re.

Munich Re saw its prices fall by about 1.5 percent when renewing the contracts in January, though premium volumes rose by nearly 3 percent to around 9 billion euros, it said.

“This is in our view a good performance given the somewhat more difficult environment due to ‘new’ capital flowing into the U.S. natural catastrophe market and the lack of large losses in 2013,” Equinet analyst Philipp Haessler said.

Reinsurers will be fighting hard to keep alternative capital investors from cannibalising the market, said James Vickers, Chairman of Willis Re International.

“The big, traditional reinsurers have played to their strength which is their capacity, technical underwriting capability and relationship management,” he said.

“They are doing the things that are difficult for capital market players to replicate,” Vickers added.


Munich Re hiked its dividend to 7.25 euros per share from 7.00 euros previously, after unveiling preliminary net profit of 3.3 billion euros ($4.5 billion) in 2013, which was above the highest forecast in a Reuters poll and defied an expected earnings decline.

Full-year operating profit and the investment result were also ahead of the poll average, though both were down on their year-earlier levels.

Munich Re said its 2013 tax burden was “particularly low,” mainly due to the recalculation of tax for prior years and to the use of tax rules that carry forward the benefit of past losses. Fourth-quarter profit was also higher than expected due to favourable tax effects.

Separately, low tax also helped UBS beat profit forecasts, underpinning a rise in the Swiss bank’s announced dividend.

Munich Re also reported its payouts on damage claims from major natural catastrophes and man-made losses slipped to 1.7 billion euros in 2013 from 1.8 billion in 2012.

The company, which refrained from offering a forecast on expected earnings in 2014, said it walked away from about 1 billion euros worth of premiums in the January renewals because the price was too low for the risk.

Prices, particularly for natural catastrophe cover, were likely to slide when contracts are renewed in Australia, Latin America and the United States in the next months, it said.

“In the coming renewal rounds, we will be aiming to buck the general market trend with our tailor-made risk-transfer solutions and with prudent portfolio management,” Munich Re board member Torsten Jeworrek said in a statement.

Munich Re, which is in the process of buying back 1 billion euros worth of its own shares by the end of April, had already purchased 520 million euros worth by early February.

Its share fell 1 percent by 1345 GMT, compared with a 0.3 percent rise in the STOXX Europe 600 insurance index.

$1 = 0.7397 euros Editing by Thomas Atkins and Mark Potter

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