Departing Munich Re CEO says no 'skeletons' left for successor

Munich Re CEO Nikolaus von Bomhard told analysts that as he prepares to step down, he leaves his successor a company without "any skeletons in any closets."

"The balance sheet ... I would consider quite clean. I am personally not aware of any skeletons in any closets anywhere," he told analysts at the presentation of the reinsurer's full-year 2016 results. "I was not asking for a gold-plated result in 2016 to make my leaving a better one. This is not the style of Munich Re."

Von Bomhard will make way for Joachim Wenning in April. His last full year in charge saw Munich Re report a full-year 2016 profit attributable to equity holders of €2.58 billion, down from €3.12 billion in 2015. Fourth-quarter attributable profit declined on a yearly basis to €491 million from €728 million.

Net earned premiums came to €12.08 billion in the fourth quarter, down from €12.14 billion in the same period a year ago. Net expenses for claims and benefits ticked up over the same period to €9.73 billion from €9.16 billion.

Reinsurers take on risk from insurers in exchange for a share of the premiums. Much of their business comes from reinsuring against the risks of large catastrophes such as hurricanes.

"I would call it an OK year [with] a sound result," the outgoing CEO said. "Nothing to be overly excited about. Of course, the environment is what it is, so let's be happy with what we could achieve. This is important to me: We did not have to dilute what we call our strong balance sheet to come up with the numbers you see here."

Despite the decline in the bottom line, Munich Re announced another €1 billion share buyback plan. The firm is targeting a consolidated profit of between €2.0 billion and €2.4 billion for 2017.

Kamran Hossain, an analyst with RBC Capital Markets, described the targets as "highly conservative," noting that by his own estimates the company could generate a €2.45 billion profit in 2017. Shares in Munich Re fell 0.67% to €178.15 in March 15 trading, contrasting with rises of 0.2% in the German DAX 30 benchmark index and 0.3% in the pan-European Euro STOXX 50.

Under Munich Re's calculations, the core reinsurance business is slated to bring in between €1.8 billion and €2.2 billion, while primary insurance subsidiary ERGO Group AG is expected to contribute between €150 million and €200 million. The two businesses reported income of €2.48 billion and a loss of €40 million, respectively, in 2016. Munich Health, which was integrated during the first quarter into the reinsurance and ERGO businesses, booked full-year 2016 profit of €137 million.

CFO Jörg Schneider said Munich Re did not expect any impact from the U.K. government's decision to reduce the Ogden rate. He noted that Munich Re has reduced the exposure of its reinsurance business to U.K. excess-of-loss business by 80% since 2009.

The British government announced in February that the Ogden rate, used to calculate the value of long-term compensation in large motor and liability bodily injury claims, would be cut to negative 0.75% from 2.5%, to reflect the lower yields achievable on safe assets.