MUNICH (Reuters) - The incoming chief executive of German reinsurance giant Munich Re (MUVGn.DE) brushed off investor concern about primary insurance unit Ergo’s profitability on Wednesday.
“Ergo is on a solid path,” Joachim Wenning told shareholders at Munich Re’s annual general meeting, a day before taking the helm as chief executive. “Ergo is on a path of modernisation and slimming down.”
Some investors have complained that Ergo has been a drag on Munich Re’s core reinsurance business.
Ergo posted a loss in 2016, but Munich Re estimates it will generate a profit of between 150 and 200 million euros (125.46 and 167.29 million pounds) this year.
Wenning reiterated that Ergo is expected to contribute 600 million euros to the company’s profit from 2021.
Ergo unveiled a deep restructuring last June in a bid to return to profit, cutting 13 percent of its German workforce and setting out plans to launch a digital insurer and a revamped product line.
Wenning, born in Israel and previously responsible for life insurance and human resources at Munich Re, takes over as the company faces a number of external headwinds and years of falling profit, but hopes that its digital strategy will kick in to produce growth and lift profit.
Munich Re said on Wednesday it was on track to reach its profit target for 2017 despite low interest rates and falling reinsurance prices.
“A provisional estimate of business performance in the first three months of the year indicates that we are well on track to reach our profit target for 2017,” outgoing Chief Executive Nikolaus von Bomhard told shareholders at the meeting.
Munich Re is aiming for profit ranging between 2 and 2.4 billion euros this year, down from a profit of 2.6 billion euros in 2016. It plans to publish its earnings for the first quarter of 2017 on May 9.
Von Bomhard pointed to headwinds facing the company. For one, “low interest rates are cutting ever more deeply into our regular income from investments,” he said.
He said the decline in prices in reinsurance had slowed but not stopped.
“At the moment, profitable growth is not at a level that can sufficiently compensate for falls in income,” he said. “Against this backdrop, the stated profit guidance is certainly ambitious.”
Reporting by Tom Sims; Editing by Ludwig Burger and Adrian Croft