German reinsurance giant Munich Re has unveiled its “Ambition 2025” growth and results targets, in which the company is targeting a return on equity (RoE) of between 12 – 14% by 2025 and a combined ratio of approximately 95% in property / casualty reinsurance.
Underpinned by scale, shape and success, the Munich Re Group Ambition 2025 sets out bold targets for the next five years as the firm looks to retain and bolster its core business model, while at the same time advance its transformation towards new business models.
Overall, Munich Re is aiming to produce a higher RoE of between 12 and 14% by 2025, which would establish the firm as one of the best in its peer group. The reinsurer states that improvements in the RoE will be driven by higher profitability, growth, and a return on investment (RoI) performance that it says will counteract the erosion of regular income as a result of the lower for longer interest environment.
Additional earnings growth, continues Munich Re, will translate into higher earnings per share, which are expected to increase annually by ≥5% on average by 2025.
The solvency ratio is projected to remain in the ideal range of 175 – 220%, adds the reinsurer.
Munich Re underlines its ongoing commitment to being one of the leading providers of property / casualty and life / health reinsurance in the world, with plans to further grow its specialty reinsurance operation in the future.
The company’s reinsurance business is expected to play a key role in the firm reaching its latest targets, by delivering an RoE of 12 – 14% by 2025, and a combined ratio of around 95% each year through 2025 in property / casualty reinsurance. In life and health reinsurance, Munich Re is targeting an increase in the technical result to roughly €850 million in 2025.
Turning to premiums, and Munich Re says that in property / casualty reinsurance, these are expected to increase to roughly €31.5 billion by 2025, with traditional reinsurance business accounting for approximately €22 billion, and the remaining €9.5 billion coming from its Risk Solutions field of business.
Moving forward, the reinsurer expects that its entire portfolio will be less cyclical in general, as its Risk Solutions arm is projected to play a comparatively greater role by contributing a greater percentage of premium income in property / casualty reinsurance.
In life and health reinsurance, the firm is expecting premium income to increase by around 4% per year on average, reaching a total of roughly €15 billion by 2025.
Of course, the reinsurer also has its own primary insurance business, ERGO. Munich Re has set some pretty ambitious goals for the unit in order to improve profitability to match its best peers and further consolidate its presence in Germany. The company anticipates that moving forward, ERGO’s international portfolio will contribute more to profits, while the primary insurance unit will assume a leading role in digitisation.
All in all, Munich Re expects ERGO to contribute an RoE of 12 – 14% to the financial objectives of its new 2025 plan; higher premium income of roughly 2.5% per year on average; a combined ratio of roughly 90% for property / casualty business in Germany; and a combined ratio of 91% for ERGO International.
On investments and asset management, the firm plans to counteract the erosion of returns caused by low interest rates by modifying its organisational set-up for investments.
The primary change, explains Munich Re, is a clear separation of investment management, i.e. asset owner activities, which focus on strategic asset allocation, tactical asset allocation, and also asset manager selection, from pure asset management activities.
Joachim Wenning, Munich Re’s Chief Executive Officer (CEO), commented: “With our Munich Re Group Ambition 2025, we’ve created a strategy that is uniform across the Group – spanning reinsurance, primary insurance and asset management. We have committed ourselves to ambitious financial targets, and we will continue adding value for our shareholders, clients, staff and communities. The Munich Re Group Ambition 2025 will help us to elevate Munich Re to a new level of success.”
The carrier has also provided an update on its role in meeting the targets of the Paris Climate Agreement, setting itself ambitious climate projection targets for its investments, its re/insurance transactions, and its own business operations.
Between now and 2025, Munich Re is aiming to reduce net greenhouse gas emissions in its investment portfolio by 25 – 29%, before achieving net-zero emission by 2050.
Concerning the exploration and production of oil and natural gas, the company says that it will be reducing its climate-related industry exposure in such a way that there will be no attributable net CO2 emissions by 2050. To start, the reinsurer will look to lower greenhouse gas emissions by 5% between now and 2025, while at the same time will reduce its coal-related exposures, in both direct and facultative business, by 35% worldwide, before eliminating this exposure completely by 2040.
