European insurers flag tough market in 2008

By Simon Challis Reuters - Thursday, May 8 04:06 pm

LONDON (Reuters) - European insurers Munich Re, Old Mutual, Royal & Sun Alliance and Generali warned on Thursday that market conditions would be tough this year, due to rising competition and turbulent financial markets.

Munich Re , the world's second-largest reinsurer, said its net profit fell by nearly a fifth in the first quarter to 785 million euros (615.6 million pounds), slightly better than expected, as investment gains and premiums fell. Analysts in a Reuters poll expected it to make 779 million euros.

London-based Old Mutual , which derives much of its business from South Africa, said first-quarter life sales rose less than expected to 426 million pounds, dragged down by disappointing sales in Europe. It warned it could miss a key asset-management target because of volatile financial markets.

Royal & Sun , the second-largest UK commercial underwriter, shrugged off the gathering gloom with a 15 percent rise in first-quarter premiums, boosted by rapid growth in its international operations, helped by recent small acquisitions and currency effects, and issued a confident outlook for 2008.

Generali , Europe's fourth-largest insurer by market value, posted a 27 percent rise in first-quarter net profit, beating analyst expectations, but it was boosted by investment income from the transfer of Eastern European units into a joint venture owned by the insurer and PPF, along with a lower tax bill for the group.

Falling equity markets cut operating profit at the Italian group's life business by nearly 30 percent, though there was also a marked decline in non-life claims costs.

Insurers face a tougher outlook as competition in the non-life market intensifies while turbulent financial markets hit their investment income and sales of life products.

Munich Re shares were down 3.4 percent, with Old Mutual down nearly 2 percent and Generali down 0.5 percent. Royal & Sun bucked the sector trend and stood up 2.4 percent at 3 p.m..

STICK TO OUTLOOKS

Despite warning of increasingly challenging market conditions, Munich Re, RSA and Generali all stuck to their full-year targets.

Munich Re said it still aimed to make a profit of 3 billion to 3.4 billion euros in 2008, while RSA said it expected to have a strong result and reiterated its combined ratio goal for the year of around 95 percent. The ratio expresses insurance claims and costs as a percentage of premiums.

Generali said despite the market headwinds, rising sales of new life policies combined with cost cuts and rationalisation efforts meant it was confident it would hit its 2008 targets. The group is aiming for net profit of 3.8 billion euros by 2009 and a combined ratio of below 95 percent.

Munich Re and RSA said they were eyeing small bolt-on acquisitions, with the German company's insurance subsidiary Ergo saying it would look at insurance operations being sold by banks looking to raise cash to bolster their lending arms.

But Old Mutual said it was still looking for a buyer for its majority stake in South African general insurer Mutual & Federal after a planned sale to Royal Bafokeng Holdings fell through earlier this year.

Despite the subprime meltdown, Munich Re, Old Mutual, Generali and RSA have steered clear of the big credit writedowns that have hurt rivals such as Swiss Re and Aegon .

Munich Re said it had written down 5 million euros on its U.S. subprime portfolio and taken an opportunity provided by turbulent credit markets to increase its portfolio of structured products by 400 million euros to 5.9 billion. RSA said it had benefited from investment market movements.

Old Mutual indicated it had no additional writedowns in the first quarter, saying writedowns remained in line with the level announced at the end of 2007.

Generali has no subprime-related assets, but its reserve for unrealised gains and losses on investments fell to only 247 million euros, from over 2 billion the previous year, due to the tumbling equity markets.

Old Mutual said its key target of 300 billion pounds of funds under management in 2008 could be at risk due to the financial markets turmoil, however. Assets fell by 7 percent in the first quarter to 261 billion pounds.

(Additional reporting by Jonathan Gould in Frankfurt, Jo Winterbottom in Milan and Clara Ferreira-Marques in London; Editing by Jason Neely and Quentin Bryar)

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