Innovation and discipline drive Munich Re of Africas ongoing success

Munich Re of Africa (MRoA) Sub-Saharan Africa's largest reinsurerposted strong underwriting results in the short-term and long-term segments of its business today for 2006, an outcome that CEO Andreas Kleiner says reflects not only the overall economic health of the region but also improved processes within the business .

At a function in Johannesburg, the group announced that net income after tax amounted to R242 million on a gross premium income of R2.5billion.

This is the third year running that MRoA has reported strong results and the announcement follows news earlier this year that the parent company Munich Re Group posted its best result in history for 2006 with an overall profit in excess of 3,5billion Euro.

Kleiner said that worldwide, 2006 can be summarised as an exceptionally profitable year for reinsurance. In Africa, he said that business has been buoyed by strong growth in the region particularly in resources-rich countries such as Angola and Sudan where the insurance industry has grown consistently at rates of 30% or more in the last five years. Accelerated economic growth in South Africa and innovation and discipline within the group have also played a critical role.

"2006 has been a pleasing year for us. Whilst the premium volume dropped by 3.8% from R2,61 billion to R2,51 billion, the financial bottom line performance was highly satisfactory," he said. "Evidence that MRoAs policy of concentrating on a well-balanced portfolio and risk-adequate pricing continues to pay dividends."

Kleiner said that worldwide, market discipline has generally prevailed in the reinsurance industry and that this has contributed to staving off the long forecasted slide into a soft market cycle.

"The reinsurance world has changed substantially over the last few years. Underwriting has become significantly more analytical, management tools more sophisticated and, last but not least, external pressures from rating agencies, regulators, investors and analysts have increased considerably," he said. "All these developments lead to the expectation that the previous hard and soft market cycles will reduce markedly in their severity."

As part of this disciplined approach to business, Kleiner said that MRoA has, along with its parent company, made the business fit for the challenges of the future with integrated risk management and active diversification.

"We have for instance increased the number of cedants with a premium volume in excess of R100 million from three in 2004 to six in 2006 and have significantly reduced the dependence on individual cedants in both non-life as well as life," he said.

Also making a solid contribution to the bottom line at MRoA is the newly introduced, Innovation Initiative a framework to manage innovation and idea generation designed to harness innovation within the group and create new wealth.

"Our staff have responded enthusiastically to the Innovation Initiative introduced in 2006. As at May 2007, we had about 55 innovative business ideas logged, five have already been successfully implemented. This includes also concepts to improve operational efficiency such as a new way of backing up data where we have been able to reduce the recovery time from 2-3 days to a few minutes," said Kleiner.

Looking ahead, Kleiner said that MRoA believed that after years of declining premium volumes the traditional reinsurance market in South Africa will return to organic growth over the next few years also aided by the introduction of Financial Condition Reporting and that this could result in attractive business opportunities for reinsurers. He said that thanks to its in-depth market and technical knowledge, Munich Re of Africa is well placed to capitalise on this. However, he added that they also expect that its sources of profitable business growth will predominantly lie in markets outside of South Africa as well as in the "creation of new markets" - meaning the venturing through innovation into uncontested market space where the current competition becomes irrelevant, he said.
 
"We believe that we have laid a solid foundation and anticipate that we will generate between R100 and 150 million of profitable new premium volume per annum out of innovative solutions going forward," he said.

MRoA Group is a subsidiary of Munich Re the world's second largest reinsurer. The group underwrites business in Sub-Saharan Africa a territory covering 45 countries.