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Munich Re sees more price drops, lower profit in 2017

Munich Re sees more price drops, lower profit in 2017

(Reuters) -- German reinsurer Munich Reinsurance Co. expects a lower profit in 2017 than last year as prices remain weak and it invests in technology, it said on Wednesday, sending its shares towards the bottom of the blue-chip stock index.

The world’s largest reinsurer said it expects net income between €2 billion and €2.4 billion ($2.1-$2.5 billion) this year, compared with €2.6 billion ($2.7 billion) in 2016.

Reinsurance prices have been falling for several years due to increasing competition in the sector and a lack of natural catastrophes in developed markets, which typically push up demand.

“We haven’t seen the bottom (of the market) yet," Chief Executive Nikolaus von Bomhard told a news conference. “We believe that we will have reached the bottom soon.”

Insurers and reinsurers, which help insurers shoulder the burden of large losses in return for part of the premium, have also been looking at ways to streamline their business in areas such as automation of claims processing.

They fear disruption in the industry from a new breed of “insurtech” companies or from technology and social media giants such as Amazon or Facebook.

Munich Re and others such as AXA and Aviva are investing in start-up insurtech companies.

Changes in technology will require Munich Re to “set up partnerships that would previously not have been considered,” the reinsurer said in a statement on Wednesday, explaining the lower profit guidance.

RBC analysts described the profit guidance as “highly conservative,” reiterating their “buy” rating on the stock.

The company also said it would buy back up to €1 billion ($941.3 million) of its own shares by April 2018, following similar buyback arrangements in 2015 and 2016.

The buyback of up to 11 million shares would be equivalent to 3.5% of its share capital based on the current price, Munich Re said.

Reinsurers have focused on share buybacks as they struggle to put money to work against the backdrop of declining prices.

Rival Swiss Re last month announced a new share buyback programme of up to 1 billion Swiss francs ($991.4 million).

Von Bomhard, who will be replaced as CEO next month by board member Joachim Wenning, told the news conference that he wanted to remain “flexible” over future buybacks, however, leaving open room for investment in growth or acquisitions.

Munich Re’s shares were down 1.6% on Wednesday morning and the second-worst performer on Germany’s DAX index.





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