Munich Re's CEO warns of drop in first-quarter profits
(Reuters) — Munich Reinsurance Co. warned on Wednesday that it expects to report a sharp drop in profits for the first three months of 2016 and its full-year target was now looking "ambitious," pushing the German reinsurer's share price sharply lower.
Capital markets were very volatile at the start of the year, keeping equity markets under pressure and prompting Munich Re to take writedowns on the value of its investment portfolio, Chief Executive Nikolaus von Bomhard told shareholders at their annual meeting.
Declining income from investments, falling reinsurance prices and the likelihood that natural catastrophe claims will not remain at recent, unusually low levels, are creating earnings headwinds, he said.
The world's largest reinsurer, which is due to announce first-quarter results on May 10, had been aiming for a net profit this year of €2.3-2.8 billion ($2.6-3.2 billion), down from €3.1 billion in 2015.
But von Bomhard urged shareholders to temper their expectations, particularly as the target does not include restructuring costs at insurance unit Ergo, due to be unveiled in the second quarter.
"You must not assume that in 2016 we will once again beat our full-year target. From today's point of view it looks very ambitious," von Bomhard said.
"At best, we can reckon with a stabilization of reinsurance prices at a low level this year, if at all," he added.
KBW analyst William Hawkins said von Bomhard's warning pointed to a first-quarter net profit coming in at some €200 million below the consensus of analysts' forecasts of about 700 million.
Munich Re's shares were down nearly 4% at €173.60 by 1030 GMT, the biggest decliner in the Dax index, which was up 0.4%.
"We think the group is guiding towards the low end of the €2.3-2.8 billion range and more firmly warning that even the low end could be breached," Hawkins said in a note to clients.
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