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Munich vows firm price stance, rules out bid


MUNICH, Germany— Munich Reinsurance Co., the world's second biggest reinsurance company by premium volume, says that it is in no mood to chase down tumbling prices in industrial and large commercial business in Europe and other lines to try and maintain volumes in softening markets.

It also says that it is comfortable with its decision to hand back billions of euros of capital to investors rather than spend it the acquisition of a rival such as Converium Holding Ltd. of Switzerland, currently a bid target of SCOR S.A.

The Munich, Germany-based reinsurance company Wednesday reported a record profit of €3.5 billion ($4.6 billion) for 2006, up 28.5% on 2005, a risk-adjusted capital of 20.3%, and reduced combined ratios in reinsurance of 92.6% and primary insurance of 90.8%.

The numbers were achieved on the back of stable premium volume, however, in both reinsurance and primary businesses and the group says that this proves that its focus on profit not volume is working.

"Overall we reduced premium volume by 3% to 5%. This proves our risk adequate policy," Jorg Schneider, board member, told Business Insurance Europe.

"For example two years ago we announced the acquisition of quota share treaties in China worth €300 million ($396 million) to €330 million ($435 million) as part of our expansion drive into China. But the primary rates there have been under substantial pressure and continue to be so therefore we have given up about €210 million ($277 million) in premium volume of that business accepted only two years ago," he said.

"Also our German and French motor business is another example. There was a lot of talk last year about changes to pricing of motor business in Germany after competition increased at the end of 2004. There was also an increase on value-added-tax on top of that which increases the loss burden for motor property business. Some primary companies have not reacted to that and continue compete on price and so we have given up about €85 million ($112 million) of business," continued Mr. Schneider.

And fellow board member, Thorsten Jerrowek told BIE that the company has no plans to make it easier for primary companies to continue offering cheaper coverage to corporate insurance buyers in major markets like France and Germany by offering slacker reinsurance terms.

"Large industrial and corporate business in the major markets like Germany and France has been under pressure, particularly property business which has seen double digit decreases of about 10% to 13%. This is very different to the United States which is relatively stable partly because of (Hurricane) Katrina therefore we have to be more selective in this business. Casualty is also under pressure but not to the same extent," he said.

The Munich Re board members also ruled themselves out of any competitive bid for Zug, Switzerland-based rival Converium.

French reinsurance group SCOR on Monday made public details of an aggressive bid to purchase the roughly two thirds of Converium stock that it does not currently hold.

Munich Re is not short of capital but has opted to hand a good deal of it back to shareholders rather than risk a major acquisition at this stage.

On the back of these latest results, the company has proposed an increased dividend of €4.50 ($5.94) per share that would mean a total payout of €988m to shareholders. This follows a share buy-back launched in November last year that returned a total of just over eight million shares at an average price of €124.36 ($164.22).

The two moves combined mean that the capital markets will have been repaid nearly €2 billion ($2.6 billion) by the end of April. "With the share buy-back and the planned shareholders' dividend, we will have given the capital market nearly €2 billion ($2.6 billion) by the end of April.

Mr. Schneider was comfortable that the company had taken the correct decision."There is some overlap with Converium. It is a good company and we like the people but we would lose the too much business (because of the overlap). We can develop organically and the cost is too high even it we did not have the overlap. It would be good for us in general terms if SCOR were successful and we were to lose a competitor," he told BIE.