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Munich Re results

15 May 2006 Sylvia Collins

Munich Re of Africa (MRoA) recently posted very pleasing underwriting results in the short and long-term segments of its business.

Net income after tax for the year ended 31 December 2005 amounted to R277 million on gross premium income of R2,6 billion.

This is the third consecutive year that the group a wholly owned subsidiary of German reinsurer Munich Re has delivered a bumper performance. According to Andreas Kleiner, CEO of MRoA this is due to a combination of the fortuitous absence of natural and man-made catastrophes in Sub-Saharan Africa as well as the excellent performance of the South African economy and financial markets.

Speaking at the launch of the group's financial results in Cape Town, Kleiner said that technically sound underwriting and risk-adequate pricing has continued to underpin the profitability of the group and that new and improved processes on the technical front most notably the development of the Optimum Munich Re Non-Life Integration system (OMNI) are helping to optimise efficiencies.

Munich Re of Africas Non-Life operations had an excellent year in 2005 in respect of large individual losses. The number as well as the accumulated claims amounts for major losses reduced compared to 2004 across the portfolio and stayed well below of what can statistically be expected in a normal year. This is also attributable to the lack of severe natural catastrophe losses in the year under review. Claims ratios remained satisfactory in the majority of the lines of business and the variations in loss ratios remained within limits.

Overall our results came in better than the group-internal Value Based Management (VBM) targets for the year and, bearing in mind the demanding and competitive business environment in which we operate, we are pleased both with our performance in 2005 and our outlook for sustainable profitable growth, said Kleiner.

The year also saw strong performance from MRoAs Life segment, despite continued negative publicity of this sector in the South African market. This portfolio achieved a gross premium income of 687 mio ZAR which represents a 24,8% growth over 2004.

Going forward, MRoA Life's aim remains to place profit at the top of the agenda in line with our parent companys emphasis on profit before growth, said Kleiner. Our business portfolio is being diversified both in terms of product lines and client base and we are confident that the portfolio is well positioned to capitalise on new business opportunities within the dynamic Life insurance environment.

While the South African short-term market in particular had performed well over the last years, Kleiner cautioned that that insurers could not continue to rely on the absence of natural hazards and large man-made losses to boost performance. He said that globally, the insurance industry needed to take appropriate measures with regard to its risk management particularly in light of the phenomenon of global warming.

Clearer evidence of the effects of global warming and the increased severity and frequency of weather-related insurance losses throughout the world highlight the need for risk-adequate pricing, pro-active modelling and state-of-the-art accumulation control to maintain the financial stability of the short-tem insurance industry to the benefit of all stakeholders, he said.

Munich Re has been analysing and documenting the effects of climate change for several years believing that the ability to provide cover for natural hazards in the future will depend on the development of adequate insurance solutions for catastrophe scenarios that have hitherto been considered inconceivable.

Last year a record-breaking hurricane season including Hurricane Katrina that struck the US Gulf Coast in August last year shook the insurance industry to its core. Katrina alone cost the industry around US$45 billion.

The challenges of adjusting to changes in the risk situation is something that insurance industry must accept, concluded Kleiner. It is important that complacency does not creep in and that strict underwriting discipline is retained.


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