Cevian Capital Takes Stake in Munich Re

Shares of reinsurer Munich Re rose sharply on Friday after a Swedish investment fund disclosed it acquired nearly 3 percent of the world's second-biggest reinsurer.

Shares of the Munich-based company rose nearly 5.5 percent to 132 euros ($192) after the Stockholm-based Cevian Capital said it believed the reinsurer, and the entire sector, had good potential, calling its stake a long-term investment.

"We have a long-term ambition to be a constructive owner in Munich Re," Cevian partner Lars Foerberg told Dow Jones Newswires, adding that the fund made the investment recently.

Reinsurance companies sell backup coverage to other insurers, spreading risk so the system can handle huge losses from major disasters. Munich Re was overtaken as the largest in the industry last year when Swiss Re completed its takeover of General Electric's (GE is the parent company of CNBC) reinsurance operations.

Founded in 2002 by Christer Gardell and Foerberg, Cevian Capital has some 3.5 billion euros ($5.1 billion) in assets under management. Its other stakes include 5 percent of Swedish truck maker Volvo and 2 percent in TeliaSonera.

Cevian Capital's First Disclosed German Investment

The stake in Munich Re is its first disclosed German investment, but Foerberg said Cevian has other German assets among its portfolio, though he did not identify them.

Foerberg said Cevian's strategy in general is to "invest in one company in one sector at a time," but added that the fund had no immediate plan to invest in other reinsurers.

"Both the industry and the company has had a tough run historically, but going forward, we believe that there's potential for the industry and the company to develop," he said, adding that further investment in the company "cannot be ruled out."

He said Cevian seeks "a constructive and good dialogue with the management," but declined to comment on what improvements Cevian could have in mind for Munich Re.

A spokesman for Munich Re, Michael Able, said the company was familiar with Cevian and it plans.

"We have known Cevian for some time, and we have been communicating with them like with any of our investors," he said. "We welcome every interest in our share, which confirms the attractiveness of our company."

UniCredit analyst Lucio Di Geronimo, who has rated Munich Re shares as a buy, said that pressure from activist shareholders expressing their dissatisfaction with Munich Re's capital management "can be expected to increase in the run-up to the annual general meeting in April."

Munich Re Strategy

Several investors have said Munich Re would be better off focusing on its expertise in reinsurance business and spinning off the primary insurance, Ergo, which they say could better develop its business separately.

Meanwhile, the company's management has emphasized the benefits and synergies of operating in both reinsurance and primary insurance. Munich Re will comment on its strategy for Ergo at an investor's day in London on Thursday.

Last month, Munich Re said its third-quarter net profit rose 70 percent as a rise in premium income, tax gains and a benign hurricane season helped offset a drop in investment income. The company earned 1.2 billion euros ($1.75 billion) in the quarter compared with 707 million euros a year earlier.