Munich Re is currently enjoying one of the best periods in its recent history, with risk-reward remaining very attractive, Berenberg stated as it was reassured by the reinsurer’s management confidence on both the outlook for the business and implicitly for its core reinsurance market.
According to Berenberg, Munich Re has suggested that reinsurance property rates can stay higher for longer given: a) some insurers have structurally chosen to come out of natural catastrophe reinsurance; b) the higher cost of retrocession insurance, which put pressure on insurers reliant on retro to push rates higher; and c) no substantial new capital entering the space.
Analysts also noted that the reinsurer is being very transparent in terms of the current steering of earnings, i.e. adding more to reserves in order to allow for better cycle management.
Munich Re also highlighted that despite the unwinding of discount rates continuing to be a drag tear-on-year, the impact will diminish.
Berenberg concluded that the firm is very confident on its earnings trajectory. Analysts stated: “The group’s strong top-line growth, margin expansion from the hard reinsurance market, and front-loading of realised losses to increase the investment running yield, give management more confidence that the earnings trajectory will indeed more than offset this going forward.”
Finally, Berenberg also noted that global speciality insurance (GSI) is becoming a crucial earnings contributor.
Analysts explained: “Munich’s primary speciality businesses, American Modern, Hartford Steam Boiler, Munich Re Speciality insurance and its Lloyd’s syndicate, have now been bundled together under a new organisation structure and new leadership with the idea to improve operational and commercial efficiencies.
“GSI premiums stood at €8bn in 2022 and are expected to grow to €10bn by 2025 or +c30% of total P&C Re, in line with the Munich Re Group Ambition 2025 plan. We would not be surprised if GSI’s earning power grows in excess of €1bn by 2025, which will mean that not only it will be a substantial contributor to group profitability, but it will also complement and balance the inherently more volatile reinsurance business.”
