Munich Re warns write-downs on shares could approach E1bn.

(From Insurance Day)

Byline: Herbert Fromme

MUNICH Re, the world's largest reinsurer, expects further large impairments on shares for the first quarter "in the high three-digit million area", chief financial officer Jorg Schneider said. But as some of those impairments hit life customers' benefits accounts, the company's own books will be affected with a lower amount, he added. Outgoing chief executive Hans-J'rgen Schinzler said the final result for the first quarter cannot be determined yet. "We have these impairments but also a considerably improved underwriting result," he said.

Munich Re, which is just recovering from an 80% drop in its share price last month, displayed considerable optimism on the state of reinsurance markets.

"We've seen price rises of 5% in the April 1 renewals in Japan and Korea," said Nikolaus von Bomhard (pictured), the management board member set to replace Dr Schinzler in eight months' time. Dr von Bomhard agreed that some segments are seeing a weakening of prices. "This is true, for example, for aviation. But rates are coming down from an incredibly high level." Munich Re is seeking to achieve strong improvement in its underwriting results. In 2002 the company managed to improve the property/casualty reinsurance loss ratio from 104.5% to 95.8% and costs from 30.6% to 26.6%, so that the combined ratio went down from 135.1% to 122.4%.

The group is aiming for a combined ratio of below 100%, but Dr von Bomhard said the ratio is a rather crude instrument of controlling a reinsurer due to the long-term nature of its business, and that Munich Re is looking for alternative instruments.

He added that US subsidiary American Re, which needed E2bn ($2.2bn) of fresh money from its parent last year, is "on a very good track". "The market is very, very hard, ...