The world’s largest reinsurance company, Munich Re (ETR:MUV2), released its third quarter 2011 results this morning.
Whilst falling short of analyst forecasts due to negative currency movements (€342 million) and Greek bond write-downs (€45 million) the company is in good shape, as the catastrophic events which occurred earlier in the year were earnings-related events as opposed to equity-related events.
Usually in the reinsurance sector a year of poor results is followed by a strong year, as more people become risk aware, therefore increasing written premiums. Also, prices usually rise after catastrophes, and Mr. Schneider is optimistic that prices will rise in the near future.
Jorg Schneider, Munich Re CFO, mentioned this morning on Bloomberg that Munich Re’s business is risk exposure; therefore, catastrophes are good for business over the long run.
The gross positive result of swaptions on ERGO results of €356 was offset by an impairment on equities of €347m.
IFRS equity increased to €22.2 billion, a €1.9 billion gain since the interim results, which places the market capitalization, as of this morning, at a 20%+ discount to book value. Historically the market capitalization has exceeded book value as shown in the following table.
Equity and market capitalization figures are stated at December 31 of the relevant year.
The above table suggests that a return to mean would generate a capital profit, over time, for those investors who purchased Munich Re shares around this morning’s price level.
The company states that it is too early to mention the level of dividend payout. Nevertheless, the company has increased, or maintained, their dividend payout since 1969. The 2010 dividend was €6.25 per share, suggesting a 6.78% yield on my top up yesterday at €92.12.
Through dividends and buybacks Munich Re has returned €12 billion to shareholders since 2005.
Munich Re’s investment portfolio has seen a shift from weaker sovereigns to higher quality sovereigns such as Germany, France and the Netherlands as well as stronger exposure to emerging market debt. Italian bond exposure decreased by €1.4 billion.
The group is aiming for €49-50 billion in Gross Premiums Written for the year based on strong organic growth, mainly in reinsurance. The net result should be positive, although the company cautions on figures stating that interest rate and currency movements could affect the results.
As of the 2010 annual report, Warren Buffett personally and through Berkshire Hathaway’s subsidiaries, owned 10.224% of Munich Re. Given that the share price traded at a two-and-a-half year low last September, I would be highly surprised if Mr. Buffett did not buy more shares in this company.
Munch Re will release the 2011 full year results on February 2, with the dividend being paid the day after the AGM which falls, on April 26.
Disclosure: Long Munich Re and looking to add in the next 72 hours should the price fall significantly
Whilst falling short of analyst forecasts due to negative currency movements (€342 million) and Greek bond write-downs (€45 million) the company is in good shape, as the catastrophic events which occurred earlier in the year were earnings-related events as opposed to equity-related events.
Usually in the reinsurance sector a year of poor results is followed by a strong year, as more people become risk aware, therefore increasing written premiums. Also, prices usually rise after catastrophes, and Mr. Schneider is optimistic that prices will rise in the near future.
Jorg Schneider, Munich Re CFO, mentioned this morning on Bloomberg that Munich Re’s business is risk exposure; therefore, catastrophes are good for business over the long run.
The gross positive result of swaptions on ERGO results of €356 was offset by an impairment on equities of €347m.
IFRS equity increased to €22.2 billion, a €1.9 billion gain since the interim results, which places the market capitalization, as of this morning, at a 20%+ discount to book value. Historically the market capitalization has exceeded book value as shown in the following table.
Year | Equity ( €bn ) | Market Cap ( €bn ) | Premium/(Discount) |
2010 | 23 | 21.4 | ( 6.95% ) |
2009 | 22.3 | 21.5 | ( 3.58% ) |
2008 | 21.1 | 22.9 | 8.53% |
2007 | 25.3 | 29.0 | 14.62% |
2006 | 26.3 | 29.9 | 13.69% |
2005 | 24.3 | 26.3 | 8.23% |
2004 | 20.5 | 20.8 | 1.46% |
2003 | 19.3 | 22.1 | 14.5% |
2002 | 13.9 | 20.4 | 46.76% |
2001 | 19.4 | 54.0 | 178.35% |
Equity and market capitalization figures are stated at December 31 of the relevant year.
The above table suggests that a return to mean would generate a capital profit, over time, for those investors who purchased Munich Re shares around this morning’s price level.
The company states that it is too early to mention the level of dividend payout. Nevertheless, the company has increased, or maintained, their dividend payout since 1969. The 2010 dividend was €6.25 per share, suggesting a 6.78% yield on my top up yesterday at €92.12.
Through dividends and buybacks Munich Re has returned €12 billion to shareholders since 2005.
Munich Re’s investment portfolio has seen a shift from weaker sovereigns to higher quality sovereigns such as Germany, France and the Netherlands as well as stronger exposure to emerging market debt. Italian bond exposure decreased by €1.4 billion.
The group is aiming for €49-50 billion in Gross Premiums Written for the year based on strong organic growth, mainly in reinsurance. The net result should be positive, although the company cautions on figures stating that interest rate and currency movements could affect the results.
As of the 2010 annual report, Warren Buffett personally and through Berkshire Hathaway’s subsidiaries, owned 10.224% of Munich Re. Given that the share price traded at a two-and-a-half year low last September, I would be highly surprised if Mr. Buffett did not buy more shares in this company.
Munch Re will release the 2011 full year results on February 2, with the dividend being paid the day after the AGM which falls, on April 26.
Disclosure: Long Munich Re and looking to add in the next 72 hours should the price fall significantly
