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EARNINGS

Munich Re profits soar thanks to fewer natural disasters

The world's biggest reinsurer, Munich Re, reported Tuesday that net profit soared 62 percent last year, exceeding the group's own forecast owing to a sharp decline in natural disasters.

Munich Re profits soar thanks to fewer natural disasters
A worker cleans up following heavy rain in Bolivia last month. Photo: DPA

Munich Re posted a net profit of €2.56 billion, up from €1.58 billion in 2008, and said it would raise its dividend by 4.5 percent to €5.75.

In November, it had estimated full-year profit at €2.2 – 2.5 billion.

“The reinsurance business profited from exceptionally low claims costs for natural catastrophes,” a statement said.

Gross premiums written by the group – the industry benchmark – rose almost 10 percent to €41.4 billion, while the direct insurance activities suffered from the effects of the global financial crisis.

This year has begun as ususal with renegotiations of re-insurance contracts, which Munich Re acknowledged were “more difficult than in the previous year” since competition has increased as insurance groups pull out of the crisis.

The volume of renewed business has fallen by 6.7 percent to around €7.4 billion because “Munich Re resolutely adhered to its profit-oriented underwriting policy and was prepared to forgo business if necessary,” it said.

“In areas where there is currently little prospect of profitable results, such as sectors of the motor business in eastern Europe, China and Germany, but also in credit reinsurance and selected US liability segments, capacity was systematically reduced.”

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ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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