German reinsurance company Munich Re AG expects more moderate growth in the economy “very soon” and may resume its share buyback program if markets keep improving, the chief financial officer said.
In an interview at the company’s Munich headquarters, Joerg Schneider said the first half results hadn’t overwhelmed, but that the company was well positioned and had done well considering the economic circumstances.
Munich Re is the world’s biggest reinsurance company by gross written premiums. Reinsurers sell backup coverage to primary insurers so the insurance system can absorb claims in the event of large losses or catastrophes. Munich Re also sells primary life, casualty and health insurance.
“Even in the very bad economic environment, our shareholder equity was basically unchanged, which is a very good sign for the stability that is so important,” Schneider told The Associated Press.
The company had learned its lesson during the last downturn and positioned its investment portfolio of some euro180 billion ($257 billion) more conservatively prior to the downturn, he said.
“But there’s a very clear conviction in this house that our role is not taking high bets in the stock market.”
He said Munich Re had increased its investments in bonds before spreads fell, but didn’t intend to change that position soon, while the company might increase its stake in equities from the current 2.8 percent at some later point.
Meanwhile, the company could look to return capital to shareholders by restarting its share buyback program if markets continue to improve.
“The downturn has stabilized somewhat; that means there is not that big question: ‘How far will it go down?’ Therefore, we’ll consider continuing our share buyback in the course of this year.”
In the interview late Wednesday, Schneider said the company could spend euro1 billion on its own shares between now and April 2010 and another euro1 billion in the period thereafter until April 2011, as part of a total euro8 billion announced in 2007 that also included dividend payments.
“I can’t promise today that we’ll continue, but the more circumstances stabilize, the more inclined we are to repatriate capital to our shareholders.”
As for revenue, he said the company expects an 8 to 9 percent increase over last year, due to recent acquisitions and organic growth. In terms of further acquisitions, the company “was looking at a number of cases — but not a billion (euro) amount which we would spend here.”
Schneider said Munich Re “was well on its way” to achieving its 15 percent target for return on risk adjusted capital of some euro17 billion, but noted that the world is still in the middle of Hurricane season. He said the company only achieved some 10 percent return by the same measure during the first half.
American National Oceanic and Atmospheric Administration forecasters recently lowered their outlook for the 2009 Atlantic hurricane season, which runs from June to November.
The forecasters said they expect seven to 11 named tropical storms compared to nine to 14 forecast in May. Three to six of the storms could become hurricanes, with one or two becoming major storms.
There has only been one Hurricane in the Atlantic this year, Bill, which only glanced eastern Canada in August.
Schneider said the company would also be affected in some way by the current wildfires in California, but hadn’t heard of any claims to Munich Re yet.
For the first half, the company reported a euro1.1 billion net profit, a 21 percent decrease from a profit of euro1.4 billion in the January-June period of 2008. Munich Re said the company saw losses due to severe weather and catastrophes including winter storms and an Italian earthquake, as well as tornadoes, hail and other severe weather in the U.S. in the first half of 2009.
However, the company saw a near 11 percent improvement in gross written premiums in the first half to euro21 billion from euro19 billion in the January-June period of 2008.
The company reports third quarter earnings on Nov. 5.
Reinsurer profitability is still above the long-term average, but a downward trend is more likely given the historical pattern, Jonathan Hekster, a Bernstein Research analyst wrote in a recent research note.
“Near term, we believe that Munich Re’s stock will be supported by its solid balance sheet.”
However, he said he expects the company’s return on equity to be lower between 2009 and 2013, at around 8 percent, compared with around 13 percent from 2004 to 2007. Hekster rates the stock at “Underperform,” with a target of euro90.
Shares of Munich Re closed nearly flat at euro104.35 in Frankfurt.
