Munich Re Beats Consensus on Strong Currency, Investments, and Reserve Releases

We are maintaining our EUR 285 per-share fair value estimate and no moat rating for Munich Re MUV2. While full-year results are impressive, we remain cautious about them.

Munich Re is further entrenching itself with customers that clearly value the services it offers, as can be seen across traditional reinsurance. We think that is reflected in January 2023 renewals that seemed to have gone off without a hitch. For example, in this renewal Munich Re has raised premiums by 1.3% to EUR 15.3 billion. Yet the traditional capital constraints, high macroeconomic uncertainty, and inflation outlook have resulted in improved terms and conditions for reinsurers continuing this year. Munich Re has focused on the nonproportional business in this renewal period. This is where we think there have been the highest price increases and is certainly a domain for highly specialized and experienced reinsurance businesses. There has been a particular focus on the natural catastrophe unit. Yet, we remain a little cautious for the outlook of this business. Munich Re has become excellent at building out its primary insurance division and has great expertise in other lines of business. However, nonproportional natural catastrophe is not to be trifled with. The year’s property and casualty reinsurance combined ratio came in at 96.2%, a little lower than the 94.7% that we expected. Released reserves of EUR 1,304 million remain 4% of net premium earned; they are nonetheless buoyed by the double-digit premium increase.