February 6, 2018 / 6:58 AM / 2 years ago

Munich Re's fourth-quarter results, 2018 guidance disappoint

FRANKFURT (Reuters) - Munich Re’s (MUVGn.DE) fourth-quarter earnings and 2018 guidance fell short of analyst expectations on Tuesday and underscored a sluggish turnaround in reinsurance prices.

FILE PHOTO: People arrive for the annual shareholder meeting of German reinsurer Munich Re in Munich, Germany April 26, 2017. REUTERS/Michaela Rehle/File Photo

The world’s largest reinsurer expects a 2018 net profit of 2.0 to 2.4 billion euros ($2.5-3 billion) or a “little bit more on top”, finance chief Joerg Schneider told journalists, below the 2.6 billion expected by analysts in a Reuters poll.

Fourth-quarter net profit rose 8 percent to 530 million euros but fell short of the 560 million expected by analysts after its reinsurance business earned less than expected.

The results highlight the difficulty faced by the broader industry, as insurers have to pay claims of around $135 billion for 2017, the most ever.

Last year’s deadly hurricanes Harvey, Irma and Maria in the United States and Caribbean, wildfires in California and earthquakes in Mexico destroyed infrastructure and homes. The sector was already struggling with thin margins, stiff competition and falling prices.

Shares in Munich Re fell 5.2 percent to 180.55 euros by 1032 GMT, making them the biggest decliners on the DAX index of blue-chip companies .GDAXI, which was down 2.2 percent amid a sharp global sell-off.

A big question for the industry has been whether the run of catastrophes would allow them to achieve higher prices for their coverage, which have been in decline for years.

CFO Schneider said last year’s disasters had helped raise reinsurance prices in some regions by double-digit percentages, or even double them.

Overall, the January renewals season for reinsurance showed prices up by about 0.8 percent, compared with drops of 0.5 percent in 2017 and 1 percent in 2016. A turnaround in prices would be the first major reversal since Hurricane Katrina in 2005.

“But this is on the low end of expectations compared to the low to mid single digit range given in broker reports during the January renewals,” said analysts at Morgan Stanley, who hold an “equal-weight” recommendation on the stock.

Munich Re is scheduled to release detailed earnings for the fourth quarter and full year on March 15.

The company announced its dividend would remain stable at 8.60 euros per share for 2017, unchanged from 2016 and below the 8.72 euros expected by analysts.

Editing by Maria Sheahan and Jason Neely

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