Reinsurer Munich Re AG said Monday that its fourth-quarter profit slipped because of higher taxes, lower investments and a dip in premium income _ but the stock rose as the company revealed scant subprime losses.
Despite the decline in profit, Munich Re, which operates Ergo, one of Germany's biggest insurers, and Munich Reinsurance America Inc., allayed investors' fears that the subprime mortgage crisis could affect its results. Subprime-related losses were only euro15 million (US$22.23 million) in the fourth quarter, meaning its total exposure to such mortgage loans was approximately euro340 million (US$504.8 million), or just less than 0.2 percent of its total investment portfolio.
Other financial institutions have written off billions.
"Contrary to other companies of the financial sector, Munich Re navigated relatively securely through the credit market turmoil," said Lucio Di Geronimo, an equity analyst with UniCredit Markets & Investment Bank.
That brought a palpable sense of relief to investors who bid up the company's shares 1.7 percent to euro118.55 (US$176.02) in Frankfurt trading after the earnings report was released.
Munich Re's return on risk-adjusted capital, or RoRAC, was at 20.2 percent, unchanged from 2006.
"We are well above our target with a RoRAC of over 20 percent and are reporting a record result for the fourth time in a row," chief executive Nikolaus von Bomhard said in a statement. "We've reaped the rewards of our rigorous approach in integrated risk management and our healthy skepticism toward what are often poorly rewarded credit risks."
Reinsurance companies sell backup coverage to other insurers, spreading risk so the system can handle huge losses from major disasters. Munich Re was overtaken as the largest in the industry last year when Swiss Re completed its takeover of General Electric Inc.'s reinsurance operations.
The Munich-based company earned euro560 million (US$831.5 million) in the October-December period compared with euro636 million a year earlier. Its income from premiums slipped to euro9.2 billion (US$13.6 billion) from euro9.4 billion a year earlier while its investment income slipped to euro1.6 billion (US$2.4 billion) from euro1.9 billion.
The slip in gross premium income was attributed mostly to the value of the rising euro, which was up 11 percent against the U.S. dollar in 2007. That shrinks revenue from its U.S. business when translated into euros.
For the year, the company earned euro3.8 billion (US$5.6 billion), up 12 percent from euro3.4 billion in 2006.
Its gross premium income fell to euro37.2 billion (US$55.2 billion) last year compared to euro37.4 billion in 2006 while its investment income rose 3 percent to euro9.3 billion (US$13.8 billion) from euro8.9 billion in 2006.
Despite the narrowing of profit, the company said it was aiming for a profit of between euro3 billion and euro3.4 billion (US$4.4 billion and US$5 billion) this year, with its gross premium income expected to rise to between euro37.5 billion and euro38.5 billion (US$55.7 billion to US$57.2 billion).
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