Muenchner Rueckversicherungs: Another positive profit warning

Research evidence excerpt

Muenchner Rueckversicherungs: Another positive profit warning

Forecast returns

Forecast price appreciation 1.7%

Forecast dividend yield 5.1%

Forecast stock return 6.8%

Market return assumption 7.9%

Forecast excess return -1.1%

Company Description

Munich Re is based in Germany and is one of the world's largest reinsurance companies; it

also has a significant primary insurance business. Approximately two-thirds of reinsurance

revenues derive from P&C Re and the rest from Life Re, where the group has grown

significantly in recent years. ERGO, the primary business, is a composite insurer mainly

operating in Germany, but also active worldwide. Munich Health pools insurance and

reinsurance healthcare operations under a single brand

Valuation Method and Risk Statement

Insurance companies have large investment portfolios that expose the shareholder to

financial markets. Munich Re's exposures are mainly credit-related. In addition, largely due to

its presence in German primary life insurance, Munich Re is exposed to the threat of sustained

low bond yields because of long-term guarantees. P&C Re liabilities can be volatile and

natural catastrophes are large and unpredictable in the near term. In Life Re, the group is also

exposed to mortality and morbidity risks. Our PT is SOTP derived, rolled forward 12 months.

Sector: We value companies in the sub-sector using SOTP valuations. Investors in insurance

companies are exposed to a wide variety of risks including regulatory and taxation changes,

investment returns below expectations, the presence of guarantees in policies, explicit or

otherwise, debt or default risk, fluctuations, regulatory risks and movements in exchange

rates. They are also exposed to accounting changes, reserving risk, general economic