Munich Re Warns Of Claims Losses; First-Half Net Rises

Munich Re reported that 2010 first-half net income rose 6 percent on the strength of investment income that rose 43 percent, but the Munich, Germany-based insurer warned that claims losses may cause challenges going forward.

The company reported that net income for the 2010 first half rose EUR60 million ($79 million at the current exchange rate) to EUR1.2 billion ($1.6 billion).

The results were aided by a EUR5.1 billion ($6.7 billion) improvement in the company's investment results on a year-over-year basis.

The company maintains a profit target at year end of EUR2 billion ($2.6 billion) and a combined ratio of around 97 of net earned premiums.

But while net earned premiums rose 10 percent, or EUR1.9 billion ($2.5 billion), to EUR22.6 billion ($29.7 billion), the company's combined ratio for the first half of the year rose in its reinsurance and insurance segments.

Munich Re noted that Deepwater Horizon was the largest of its losses in the second quarter, and it expects "gross expenditures in the low-three-digit million euro range." Property loss from the platform stands at EUR60 million ($79 million). However, Munich Re warned that liability losses "cannot yet be gauged."

In a statement, Torsten Jeworrek, Munich Re's Reinsurance chief executive officer, said: "Painful as the consequences of Deepwater Horizon are, it is now essential to reassess the issue of adequate insurance covers and retentions for large engineering projects and the liability risks involved in such projects. This should also have positive effects on the future development of pricing."

Munich Re noted that natural catastrophe losses, especially the earthquake in Chile, were responsible for a significant portion of the increase in its combined ratio for reinsurance. Munich Re said it estimates its total expenditure for this event at close to $1 billion after retrocession and before tax, equal to approximately 10 percentage points of the loss ratio.

The Chile earthquake was the third-largest loss event for Munich Re, after the attack on the World Trade Center in 2001 and Hurricane Katrina in 2005.

Reinsurance gross premiums written rose 6 percent, or EUR658 million ($866 million), to EUR11.6 billion ($15.3 billion), primarily from its life business. Property and casualty was down 2 percent, or EUR144 million ($189 million), to EUR7.7 billion ($10.1 billion). The combined ratio rose 8.5 points to 106.4.

For primary insurance, Munich Re reported gross premium written was up 5 percent, or EUR447 million ($588 million), to EUR8.9 billion ($11.7 billion). The combined ratio rose 1.9 points to 96.6.