Munich Re, one of Europe’s largest reinsurers, has reported a net result of €4.6 billion for the 2023 financial year, which is above its revised €4.5 billion profit target announced in October, supported by a reinsurance result of €3.9 billion and an improved performance at ERGO.
Despite beating the revised profit target and the initial target of €4 billion, total profit for the year did come in below the €5.3 billion reported in 2022, with a net result of just over €1 billion in Q4 2023, down from €1.1 billion in the prior year quarter.
Group-wide, insurance revenue from insurance contracts issued rose to €57.9 billion from €55.4 billion, due in part to organic growth in the property and casualty (P&C) reinsurance segment and at ERGO, offset by currency translation effects.
For 2023, the reinsurer’s return on equity (RoE) amounted to 15.7% compared with 20.2% a year earlier, as the technical result increased to €7.6 billion from €7.1 billion.
At the same time, the investment result increased from €2.9 billion to €5.4 billion, while the operating result fell from €6.8 billion in 2022 to €5.7 billion in 2023.
By segment, Munich Re’s reinsurance operation contributed €3.9 billion (€4.7bn in 2022) to the net result of which €926 million (€1.1bn in Q4 2022) was in the fourth quarter. Insurance revenue rose to €37.8 billion, as the technical result increased 3% year-on-year to €5.4 billion, and the operating result fell 20% to €4.7 billion.
In P&C reinsurance, the net result moved from €3.4 billion in 2022 to €2.4 billion in 2023, while insurance revenue rose 7% to €27.1 billion. The P&C combined ratio deteriorated slightly to 85.2% from 83.2%.
Major loss expenditure fell from €3.7 billion in 2022 to €3.3 billion in 2023, of which €873 million was in Q4. The company reports that major loss expenditure corresponded to 12.6% of net insurance revenue and was below the expected value of 14% in the financial year and in Q4.
Losses from natural catastrophes rose to €2.3 billion from €2.1 billion, with the largest individual loss for the firm the earthquake in Turkey, with a nominal value of around €700 million. In Q4 2023, the largest loss was Hurricane Otis in Mexico at €453 million. Man-made losses amounted to €943 million for Munich Re in 2023, down on the €1.6 billion seen a year earlier.
Commenting on the more frequent extreme weather, Munich Re says that it will continue to offer sufficient insurance capacity for such risks, with an eye to sustained growth in this market.
“The private insurance industry supplies enough global capacity in principle to cover the rising risks associated with extreme weather. But prices for cover must be appropriate in order to create incentives for better preventative measures. Superior prevention can substantially reduce the losses caused by extreme weather events, in turn easing the financial burden on society. And governments can certainly exert a positive influence on insurability and the price for insurance cover by way of state-mandated preventative measures,” says the firm.
In the life and health (L&H) reinsurance division, the technical result rose 38% year-on-year to €1.43 billion, beating the target of €1.4 billion. The net result in L&H reinsurance increased to €1.4 billion from €1.3 billion, while insurance revenue from insurance contracts issued declined to €10.7 billion from €11.2 billion due to currency translation effects.
Munich Re has also provided an update on the January 1st, 2024, reinsurance renewals, when around two-thirds of non-life reinsurance treaty business was renewed, with a focus on Europe, the US, and global business.
At 1.1 2024, the company grew the volume of business by 3.5% to €15.7 billion, taking advantage of attractive business opportunities in nearly all regions and classes of business. The firm says that it was able to maintain the high quality of its portfolio thanks to stable or improved contractual terms and conditions, while price development was stable overall.
In fact, overall, the price level of Munich Re’s portfolio was practically unchanged following an increase of just 0.3% at the renewals.
“Despite market pressure increasing slightly, Munich Re expects the environment to remain positive in the upcoming April and July renewal rounds,” says the firm.
Turning now to ERGO, the reinsurer’s primary insurance business, the net result increased from €572 million in 2022 to €721 million in 2023, of which €78 million was in Q4. This is slightly above the target of €700 million for the year.
Insurance revenue increased to €20.1 billion in 2023 compared with €18.9 billion a year earlier, meeting the revised Q3 target. The total technical result for the field of business rose considerably in 2023 to €2.1 billion from €1.8 billion, while the operating result reached €963 million, up from €889 million in 2022.
On the asset side of the balance sheet, Munich Re’s investment result increased to €5.4 billion compared with €2.9 billion, as regular income from investments rose to almost €7 billion. Overall, the 2023 investment result represents a return of 2.5% on the average market value of the portfolio.
Looking forward, Munich Re has announced a target net result of €5 billion in 2024, with Group insurance revenue of €59 billion and the return on investment to surpass 2.8%.
The company expects its reinsurance business to increase its insurance revenue to €39 billion and its contribution to the net result to €4.2 billion in 2024. The P&C combined ratio is expected to strengthen to 82%, while the L&H technical result is expected to improve to €1.45 billion in 2024.
At ERGO, Munich Re expects to generate insurance revenue of €20 billion in 2024, with a higher profit contribution of €800 million.
Joachim Wenning, Chair of the Board of Management, commented: “2023 was another successful year for Munich Re. We beat our annual profit target for the third consecutive time and delivered a strong performance across all business segments. Thanks to a broadly diversified business portfolio, Munich Re is well placed and fully on track to meet the targets specified in its Ambition 2025 strategy programme. With the exception of systemic risks – such as cyber and pandemic – our appetite for covering existential risks for people and enterprises is far from exhausted.”
Christoph Jurecka, Chief Financial Officer, said: “All KPIs are near or even better than the Ambition 2025 targets at the end of 2023. Our financial strength makes it possible for our shareholders to participate in our success through a substantially higher dividend. They’ll also benefit from a new share buy-back that will likewise be substantially higher. And we remain ambitious, as we seek to boost our annual profit to €5bn this year.”
