Following Munich Re’s recent announcement that it expects to record over €800 million in profits for the first-quarter of 2018, analysts at J.P. Morgan say this supports their belief the reinsurer will likely beat its full-year profit guidance for 2018, and through to 2020.
For the full-year 2018 Munich Re is targeting between €2.1 billion and €2.5 billion of profit, up from the €2 billion to €2.4 billion it had targeted for 2017.
However, according to J.P. Morgan, €800 million for the first-quarter would annualise to €3.2 billion, which is someway above the upper end of Munich Re’s profit guidance for the full-year, and also above J.P. Morgan’s €2.56 billion forecast.
Analysts note that between 2014 and 2017 the Germany-based reinsurer cut its profit guidance in light of declining reinvestment yields as well as higher combined ratios as a result of lower pricing.
Now, in light of improved, albeit still challenging conditions in the global reinsurance market, J.P. Morgan notes that the firm is now returning to positive earnings growth.
Despite the positive outlook, analysts underline a number of potential downside risks, including a hit to earnings from increased cat losses, a potential end to the annual buybacks, and a potential capital markets crisis, such as a substantial rise in corporate bond spreads.
A number of reinsurers have now started to report their first-quarter 2018 results, which reveals an increase in the volume of catastrophe premiums underwritten in January, which is driven by rate improvements following the costly impacts of third and fourth-quarter 2017 catastrophe events.
The increase in premiums suggests that Munich Re might not be the only reinsurer that has the potential to beat profit expectations in 2018 as the business flows through the year. Of course, that’s so long as catastrophe losses remain low.
