Munich Re, Swiss Re Ltd. (SREN) and Hannover Re are set to boost payouts to shareholders after Europe’s biggest reinsurers rebounded from a year of record natural catastrophe losses in 2011.
The three reinsurers are expected to pay out about 3.9 billion euros ($5 billion) to shareholders for 2012 based on Bloomberg dividend forecasts, compared with 2.4 billion euros for 2011. That includes a $1.4 billion special dividend from Zurich-based Swiss Re, according to the average estimate of nine analysts surveyed by Bloomberg.
“It is the year of the dragon for the reinsurance sector,” said Fabrizio Croce, an analyst at Kepler Capital Markets in Zurich. “And investors will deeply appreciate the attached dividend.”
Chief Financial Officer Joerg Schneider said Munich Re, the world’s biggest reinsurer, may increase its 2012 dividend after lower claims boosted capital, while his counterpart at Swiss Re, George Quinn, said a special dividend was the company’s “preferred option” if it can’t find ways to deploy excess capital. That outlook shouldn’t be upset by Hurricane Sandy, which may result in insured losses of as much as $20 billion, according to Oakland, California-based Eqecat Inc., a catastrophic risk modeler.
“2012 has been an exceptional year with perfect tailwind for reinsurers with higher prices, a significantly lower catastrophe claims bill and stable capital markets,” said Tim Friebertshaeuser, who helps manage about 278 billion euros at DWS Investment in Frankfurt. “Sandy won’t change the overall favorable picture of the sector. Reinsurers’ dividend yields are especially attractive in current low interest rate environment, and it’s definitely worth holding onto this sector even as the earnings momentum is at risk for 2013.”
Hannover Re, the world’s fourth-biggest reinsurer, has climbed 44 percent this year, making it the third-best performer on the Bloomberg Europe 500 Insurance Index. (BEINSUR) Swiss Re has gained 38 percent and Munich Re 33 percent.
Insured catastrophe losses totaled $12 billion in the first half of this year, according to Munich Re, compared with about $82 billion in the same period of 2011.
That helped reinsurers accumulate a record $480 billion of capital by the end of June, according to a report by Aon Benfield, the world’s biggest reinsurance broker.
Munich Re, Hannover Re, and Swiss Re, three of the world’s four biggest reinsurers, all reported higher-than-expected third-quarter profits this week.
“Year-to-date cash generation for the reinsurance industry is outstanding,” said Stefan Schuermann, a Zurich-based analyst with Vontobel Securities. “Including the loss burden from Sandy and barring further major natural catastrophes, the industry should be able to offer high dividend payouts resulting in yields well above market average.”
Munich Re, which raised its full-year profit target to about 3 billion euros, may boost its 2012 payout after the reinsurer’s capital increased by 16 percent to 27.1 billion euros in the nine months through the end of September, according to Schneider. The Munich-based reinsurer hasn’t cut its dividend since 1969.
While it’s “too early to make a definite announcement regarding the dividend for 2012,” if Munich Re reports a “good” annual result, it plans a bigger payout than last year’s 6.25 euros a share, Schneider said. The Bloomberg dividend forecast predicts a 2012 payout of 6.75 euros a share and 6.85 euros in 2013.
Swiss Re said on Nov. 8 it may consider a special dividend to address excess capital after its third-quarter profit jumped 62 percent. The company’s priority is delivering its financial targets, paying a “sustainable” dividend and to pursue profitable business opportunities, the world’s second-biggest reinsurer said.
“If we are unable to find opportunities that meet our return expectations, we would look at further measures to return excess capital, such as a special dividend,” CFO Quinn said.
Hannover Re said on Nov. 6 it expects record earnings “in excess of” 800 million euros this year and said claims from Hurricane Sandy shouldn’t push it beyond an annual budget of 560 million euros for major losses.
The Hanover, Germany-based reinsurer has said it may pay out more than its normally targeted dividend range of 35 percent to 40 percent of profits for 2012.
“Considering the very favorable development of our capital, which clearly shows some excess capital in line with our strategy, this number could actually go even beyond the 40 percent as it, of course, also had done in 2011,” Chief Executive Officer Ulrich Wallin said.
The Bloomberg dividend forecast predicts a 2012 payout of 2.70 euros a share, up from 2.10 euros distributed for 2011.
Reinsurers were able to push through higher prices on the back of last year’s record $105 billion of claims for disasters including the earthquake and tsunami that hit Japan and floods in Thailand.
“This year was the sweet spot for reinsurers because of the positive pricing momentum and the absence of losses translated into strong earnings,” said Daniel Bischof, a Zurich-based analyst at Helvea AG. “This will lead to some big payouts for shareholders in a few months’ time.”
Still, the best may be over for reinsurers. While Munich Re expects profit to be substantially higher than 2.5 billion euros in 2013, “it would be unrealistic to assume that we can match the potential result for 2012, which is supported by very strong investment results and by a very low level of major claims,” CFO Schneider said on Nov. 7.
“For next year we should expect a normalized situation with higher claims and no significant price increases, and therefore lower earnings,” said Frank Kopfinger, a Frankfurt- based analyst with CA Cheuvreux. “The focus is now on capital management -- that is the new chapter for reinsurers.”
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