* Munich Re sees 2-3 percent improvement in combined ratio
* 2009 could be a "good year" for the reinsurer
* Q4 claims normal; too early to forecast asset performance
By Michael Wei and Alan Wheatley
BEIJING, Nov 30 (Reuters) - Munich Re , the
world's largest reinsurer, hopes fatter premiums will make 2009
more of a "normal" year after its likely failure to meet profit
targets this year, Chairman Nikolaus von Bomhard told Reuters.
He said annual premium renegotiations now under way are
likely to lead to a marked rise in Munich Re's combined ratio,
a key measure of underwriting operations that adds up an
insurer's costs and losses and measures them against net earned
premiums.
"We should on average see a 2 to 3 percent combined ratio
improvement," von Bomhard said in an interview at the weekend
in Beijing. "It looks small, but it's a lot."
Like other financial houses, Munich Re has struggled with
the fallout of the global credit crunch. Weakness in capital
markets and payouts for Hurricanes Ike and Gustav meant its
consolidated profit target for 2008 of 2 billion euros was
unlikely to be hit, Munich Re said in releasing third-quarter
figures on Nov. 7.
So far this quarter, Munich Re's claims business had been
"absolutely normal" with no major natural catastrophes or
man-made disasters, von Bomhard said.
But he remained cautious on fourth-quarter asset
performance, citing a murky outlook for interest rates and,
especially, stocks.
"I wouldn't dare to come up with any prognoses yet, because
the markets are extremely volatile still," the executive said.
While 2009 was likely to be a year of recession, von
Bomhard said, "For insurers and reinsurers, it doesn't have to
be end of the world. Next year could be a good year for us."
RATES RISING
His guarded optimism is due in large part to an assessment
that the cycle is turning in reinsurance. Munich Re, which
provides insurance to insurance companies, is eyeing
double-digit growth in global rates as contracts are renewed
for 2009.
Munich Re's combined ratio in reinsurance stood at 100.2
percent for the first nine months of the year, up from 98.0 a
year earlier, and at 101.3 percent for the third quarter alone,
up from 97.1 in the same period of 2007.
A ratio below 100 percent shows an insurer is making an
underwriting profit; a ratio above 100 percent means it is
paying out more money in claims than it is receiving from
premiums.
Von Bomhard cited several reasons why he expects increased
renewal rates to boost the combined ratio:
-- surplus capital in reinsurance has evaporated;
-- primary insurers' shrinking capital has diminished their
capacity to retain risk;
-- the cost of capital has gone up;
-- return on assets has fallen, due to declining interest
rates, which bites into net income and thus capital.
"Security is the last issue," he said. "We are the safe
harbour. If you add all these arguments up, logic tells you
more or less that there will be some movement (in premiums)."
Swiss Re , the world's second-biggest reinsurer,
is also seeing a pick-up in rates, Chief Executive Jacques
Aigrain said in an interview published on Saturday.
[ID:nLT623562]
The one question mark about premiums, von Bomhard said, was
next to companies that are squeezed for cash.
"All those who are chasing cash flow now, of course, are
not that price-sensitive as they should be in a market
environment like today," he said. "So we have to see how that
balances out."
PICKING OVER AIG
Munich Re has expressed interest in parts of the embattled
American International Group's sprawling Asian life
insurance business to strengthen its presence in the region,
which accounts for just 5 to 6 percent of the group's total
income from reinsurance and primary insurance. [ID:nPEK88792]
He said splitting up AIG's Asian business would take time.
"It's difficult for them because the AIG group was a
relatively complex organisation. To disentangle it partly to
then be ready for sale is not easy," he said.
Von Bomhard repeatedly cautioned about the risks inherent
in setting revenue targets. "It's very dangerous to go for size
in reinsurance," he said.
He ruled out tapping the German government's financial
stabilisation fund and said the reinsurer had no need to raise
capital -- a judgment he said was reflected in Munich Re's
credit default swaps. These were the lowest in the sector.
For several years, some investors had criticised Munich Re
for being underlevraged. Now, its conservative balance sheet
was seen as a source of strength.
"We got punished for it, but now in the crisis it proves to
be right," von Bomhard said. Munich Re's share price has
climbed about 32 percent in the last month.
(Reporting by Michael Wei and Alan Wheatley; Editing by Kim
Coghill)
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