Reinsurers Signal More Positive Sentiment Toward Stocks

Munich Re AG (MUV2.XE) Thursday became the second German reinsurer this week to announce plans for a slight increase in stock investment, following in the footsteps of smaller peer Hannover Re AG (HNR1.XE), amid signs the sector is renewing its faith in the assets that caused some companies hefty losses during the financial crisis.

Joerg Schneider, Munich Re's chief financial officer, told reporters Thursday that in the fourth quarter the world's largest reinsurer increased the stock portion of its investment portfolio to 4% from 3% a year earlier, and that it was up slightly from 3.9% in the third quarter.

"We have invested a bit more in stocks, which reflects our general view that we want to be a bit more involved in stocks," Schneider said. He plans to increase the investment further this year, "but it will remain substantially below 10%," Schneider said. Munich Re told shareholders at its annual meeting in April that a stock investment of 5% to 7% would be acceptable.

He said the current and the targeted levels will ensure "that Munich Re will be able to meet capital requirements at any point in time."

Hannover Re Wednesday said it reinvested in stocks in the fourth quarter, returning to an asset class that it abandoned at the end of 2008. It took substantial hits while cutting its exposure after racking up significant losses on its investments. The firm was pushed to announce a profit warning for 2008 and cancelled its dividend for that year.

At the end of 2010, stocks accounted for about 2% of Hannover Re's overall investment portfolio. It said it plans to increase the figure to between 3.5% and 5% by the end of 2011.

Landesbank Baden-Wuerttemberg analyst Martin Peter cautioned, however, that stock investment by insurers won't reach levels seen before the financial crisis due to tougher regulatory capital requirements, known as Solvency II. These are currently in the works and will be introduced in 2013.

German life insurers on average had some 26% of their investments in stocks in 2000, according to WestLB estimates. But insurer Allianz SE (ALV.XE) and reinsurer Munich Re, which were heavily involved in post-World-War II cross-shareholdings with other German companies, known as Germany Inc., also had double-digit-percentage stock investments in the past.

Munich Re had around 23% of its investments in stocks in fiscal 1998, a company spokeswoman said. Hannover Re's highest level was 10.1%, a spokeswoman said. Allianz declined to comment on its stock investment strategy.

"Solvency II will require insurers to back up stock investment with more equity capital than in the past," LBBW's Peter said.

In a research note earlier this week, analysts also pointed out that insurers are usually laggards when taking up a trend, meaning that bullish sentiment in stocks may be nearing a peak.

"Due to lengthy decision-making processes, insurers often increase the stock portion in their portfolios when the market's uptrend is already coming to an end," Peter said.

-By Ulrike Dauer, Dow Jones Newswires; +49 69 29725 500; ulrike.dauer@dowjones.com

(Joerg Jaeger contributed to this report.)

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