Reinsurance News

Q2 result expected to keep Munich Re on track for 2017 profit ambition: J.P. Morgan

21st July 2017 - Author: Luke Gallin

Munich Re is expected to record increased first-half 2017 profits of roughly €1.45 billion (US$1.67 billion) driven by a strong Q2, which suggests the reinsurer is on track to meet its full-year 2017 €2 billion – €2.4 billion (US$2.31 billion – US$2.66 billion) net profit ambition, according to analysis from J.P. Morgan.

Munich Re logo on a signFollowing reinsurance giant Munich Re’s ‘Meeting with Management’ event held recently, J.P. Morgan had initially estimated the firm to record second-quarter 2017 net profit of €1 billion (US$1.16 billion), but has since reduced this slightly to an expected €946 million (US$1.09 billion).

“The reason for the slight caution is ERGO as the group is investing for a long-term turnaround rather than a short-term recovery,” explains J.P. Morgan, in its July 2017 Munich Re equity research note.

Regardless of the lower Q2 2017 profit expectation, analysis provided by J.P. Morgan suggests it feels Munich Re is still on track to meet its full-year 2017 net profit ambition, and the figures show how the Germany-based reinsurer is achieving greater profitability in 2017, so far, when compared with last year.

The €946 million expected Q2 2017 profit is above the €557 million (US$643 million) reported in Q1 2017, but slightly down on the €975 million (US$1.12 billion) recorded in Q2 2016.

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In its previous, June 2017 note, J.P. Morgan had estimated half-year 2017 profit of €1.6 billion (US$1.85 billion) for Munich Re, but factoring in the reduced Q2 profit estimate of €946 million, lowers the H1 2017 estimate to roughly €1.55 billion (roughly US$1.79 billion).

But despite the reduction, the €1.55 billion expected H1 2017 profit is above the €1.4 billion (US$1.62 billion) recorded in the first-half of last year, representing an increase in H1 profits of around €150 million (US$173 million), or approximately 11%, year-on-year.

J.P. Morgan maintains its Q2 2017 expected combined ratio of 95% for the reinsurer, an improvement from the 97.1% reported in Q1 2017, and better still than the 99.8% combined ratio Munich Re recorded in Q2 2016, “with 8.4% from nat cats and large claims 2Q17e down 1.1% and lower attritional claims.”

The increased profit expected at Munich Re during the first-half of this year might well read across to other large, global reinsurance companies. Second-quarter 2017 results will soon start to be reported by all firms, and it will be interesting to see how reinsurers coped with continued softening, ample capacity, low-interest rates, and the overall pressured reinsurance market landscape, and if profits so far in 2017 are an improvement on last year.

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