Muenchener Rueckversicherungs Gesellschaft In Muenchen AG, also known as Munich RE (MURGY, Financial)(MURGF, Financial), is the second-largest reinsurance company in the world. The stock is one of the bluest of blue chips and pays a nice dividend.
The market cap is €30.52 billion ($32.96 billion). The dividend is €8.25 and the dividend yield 4.5%. Earnings for fiscal year 2015 were €3.1 billion, and the price-to-earnings ratio is 9.8. It takes $1.08 to buy one euro.
Gross premiums written were €50.4 billion ($54.43 billion), and total equity grew 3.1% to €31 billion ($33.5 billion). The dividend was increased by 6.5%. Return on equity is a strong 10%.
Investment income for the year fell from €8 billion ($8.64 billion) to €7.5 billion ($8.1 billion). This was in part due to larger write-downs and increased loss in derivatives. The strong dollar helped as did the slight increase in U.S. interest rates. The carrying value of the portfolio is €215.1 billion ($232.3 billion).
The Reinsurance division wrote €28.2 billion ($30.5 billion) in premiums versus €26.8 billion ($28.9 billion), and the combined ratio was 89.7%. The Health Care division wrote €5.6 billion ($6 billion) versus €5.3 billion ($5.7 billion), and the combined ratio was 89.7%. The Ergo division fell to €16.5 billion ($17.82 billion) versus €16.7 billion ($18 billion), and the combined ratio was a loss at 104.7%.
The reinsurance industry has experienced some tough times lately with an increase in competition and rock-bottom interest rates. The lack of major catastrophes has helped the loss ratio but led to a soft market. It's funny how in some businesses you hope for one thing and get another. A large, weather-related event will eventually shake some folks out. Let's hope that no one is injured when this occurs.
Looking at an account that we have at Osborne Global Investments, we bought 200 shares last spring for $4,410.95. There was a $153.85 dividend minus the $40.58 foreign tax that was paid. The value of the holding as of today is $3,970. We are at a $327.68 loss in less than a year. We will continue to hold this as we like the dividend.
Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) reduced its holdings in Munich to 4.6% from 9.7%. Warren Buffett is bearish on the industry. So why are we still holding? The dividend alone could outperform the markets in the next few years.
Munich should continue to be one of the best financial blue chips in the world. Its business is fairly easy to understand. Unlike other financial companies, I would not consider it "black box" investing – meaning that you can have a pretty good idea what investment it holds and who its clients are.
