The world's largest reinsurance company, Munich Re has been forced to pump another $1.6 billion into its US subsidiary American Re to cover casualty and asbestos claims.
The increase in reserves for the US unit has triggered a E388 million cut to Munich Re’s pre-tax profits this year. The company has nevertheless confirmed that it is still confident of hitting its target 12% return on equity after tax for the year.
American Re was hit by heavy losses incurred in 1997 to 2002 on policies largely relating to workers’ compensation, asbestos and environmental damage. Parent company Munich Re, which has been forced to strengthen reserves at its US subsidiary on previous occasions , said its latest injection of funds demonstrated its commitment to the US market.
Chief executive of Munich, Nikolaus von Bomhard, said that the latest top up would, however, be the last, adding that the need for reserves to cover 1997-2002 underwriting was now resolved.
We are sure that we can draw a line under our additional reserving. That is it. There is no more uncertainty, he added.
Ending funding shortfalls at the American unit is part of von Bomhard’s strategy of restoring Munich Re’s credit rating and improving company profits. American Re’s net income more than halved last year after it increased reserves by $482 million.
Munich Re’s CFO, Joerg Schneider, said the unit will probably have a full-year loss in 2005 but did not predict a specific amount.