FRANKFURT (Reuters) - Munich Re <MUVGn.DE> dodged subprime bullets to post record earnings for 2007 and said it would propose raising its dividend by more than one fifth, boosting its shares by more than 3 percent.
By Jonathan Gould
FRANKFURT (Reuters) - Munich Re <MUVGn.DE> dodged subprime bullets to post record earnings for 2007 and said it would propose raising its dividend by more than one fifth, boosting its shares by more than 3 percent.
The world's second-biggest reinsurer unveiled preliminary net profit of 3.9 billion euros ($5.8 billion) for 2007 after trimming its exposure to the risky U.S. mortgage market and said risks from U.S. monoline bond insurers were relatively small.
"Our prudent investment policy and healthy skepticism towards excesses in individual markets have proved justified," Munich Re Chief Financial Officer Joerg Schneider said in a statement on Wednesday, a month before it was due to report.
!ADVERTISEMENT!Munich Re booked losses of less then 10 million euros in the fourth quarter on investments exposed to the subprime market, after writing down about 150 million euros in the first nine months of last year.
This cut its holdings of subprime-exposed investments to 340 million euros or less than 0.2 percent of its overall portfolio.
The news came the same day that Swiss bank UBS <UBSN.VX> unveiled another $4 billion in surprise write-downs as the financial sector reels from spreading credit market turmoil.
Munich Re also held about 320 million euros in bonds guaranteed by U.S. bond insurers but said their values would hardly be affected even without the guarantees.
"At most only a very low two-digit million write-down would have to be made," it said.
Munich Re could take a hit by covering risks from lawsuits against financial institutions with Directors & Officers insurance, but had made provisions for the claims, it said.
Full-year net profit was above analysts' median forecast of 3.83 billion euros, according to Reuters Estimates. Munich Re itself had said it hoped to achieve slightly more than 3.8 billion euros in net profit for the year.
The company said it would propose raising its dividend by more than one fifth to 5.50 euros per share.
Investors welcomed the clean bill of health. Its shares were trading up 2.5 percent at 117.02 euros by 0904 GMT, compared with a slight fall among European insurance peers <.SXIP>.
"The net profit was excellent and the dividend was higher than expected," said Cheuvreux analyst Michael Haid.
PRICE PRESSURE
Munich Re said it saw ever greater competition in property-casualty reinsurance contract renewals at the start of the year, in which it renewed about two-thirds of its business in that segment.
Reinsurers were willing to supply sufficient risk cover to insurance companies, which caused prices to come under mounting pressure in various types of business in the January renewals, but Munich Re said it managed to limit average price erosion to 2.8 percent in its renewed business.
The company said premiums fell 4 percent in the renewals round to 8.1 billion euros.
"At first glance the outcome of January renewals is better than expected," said DZ Bank analyst Thorsten Wenzel in a note to clients.
"The decline in volume indicates that Munich Re remained disciplined in the renewals and the decline in price is at the lower end of our expectations of 3-6 percent," he added.
Munich Re's insurance unit ERGO saw improved business in German life insurance at the end of last year.
The company is due to release full results on February 25.
(Editing by David Cowell)
