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Analysts lower Munich Re’s FY19E net income by 8%

12th February 2020 - Author: Luke Gallin

Analysts at J.P. Morgan expect reinsurance giant Munich Re’s property and casualty (P&C) segment to fall to an underwriting loss in the fourth-quarter of 2019, while the firm’s Life reinsurance division is expected to produce a below run-rate quarter.

Munich ReOverall, analysts expect that Munich Re will report a combined ratio of 106.5% for the fourth-quarter of 2019, and 99.5% for the full year 2019.

The Q4 underwriting loss in P&C Re is mostly a reflection of the impacts of Typhoon Hagibis in Japan, but also includes some smaller catastrophe losses as well as some manmade claims, say analysts.

J.P. Morgan assumes natural catastrophe losses of €856 million for Munich Re in the fourth-quarter of 2019, and, as a result, expects the firm to witness a relatively weak end to the year in terms of net income.

In fact, analysts at the company have lowered Munich Re’s estimated full year 2019 net income by 8% to €2.796 billion, and, for the fourth-quarter, expects the reinsurer to report net income of €286 million.

As well as elevated cat losses within its P&C segment, analysts note issues in Australia that have previously been highlighted by Munich Re as a challenge to the technical income guidance within Life reinsurance.

Munich Re has a net technical result guidance of €500 million for the Life reinsurance unit, but owing to challenges in Australia, J.P. Morgan analysts expect the division to produce a result of €399 million.

At Ergo, notes J.P. Morgan, the expectation is that performance will be in line with the prior year quarter.

“Overall, given the very strong share price performance at Munich Re, we believe the risk/reward is becoming increasingly unfavourable; however, we do not see any reason why the FY20E net income guidance of €2.8bn should need to change, which in our view is likely to keep forward estimates well underpinned,” explain analysts.

The German reinsurer is also set to report on its experience at the January 1st, 2020 renewals, and analysts anticipate that the firm will report a modest improvement in pricing, of around 5%, with mid-single-digit premium growth.

So far, European reinsurers SCOR and Hannover Re have reported on the January renewals, with analysts noting divergent growth trends.

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