Munich Re Earnings: Half Year a Little Wobbly but Still Good

We believe Munich Re MUV2 delivered a reasonable set of results. In delivering net income of EUR 2.425 billion, or EUR 17.75 in earnings per share for the first six months, the company is tracking slightly ahead of consensus for EUR 31.85 in full-year EPS, as collected by Refinitiv. Munich Re’s earnings today imply a EUR 35.50 full-year EPS number, slightly better than the EUR 33.31 we forecast. Based on these results versus what Munich Re has historically delivered, we believe the company is capable of delivering full-year net income of around EUR 4.74 billion, slightly ahead of our EUR 4.54 billion forecast. That “capable” estimate implies EUR 34.81 in EPS, ahead of both us and consensus. First-half results were mainly affected by lower reinsurance and higher primary insurance results. Underwriting in the core property and casualty reinsurance division has deteriorated since last year, primarily as a result of higher natural catastrophe and human-made losses in the second quarter.

The group repaid EUR 57 million of debt in the first half, resulting in a debt/equity ratio of 18.4%, better than our 22.5% full-year forecast. Further, Munich Re is now operating with a 272% Solvency II ratio, above its 175%-220% target range and the 260% reported at the end of last year. Holding shareholders’ equity of EUR 27.4 billion as June 30, year to date Munich has delivered 8.9% of that in net income. Assuming stable shareholder value, our “capable” estimate for full-year net income would mean Munich Re would deliver a midteens return on equity to shareholders, above our 11% cost of capital. Return on equity delivered to shareholders does not deviate too much from this if we use our actual forecast for 2023 net income. We maintain our EUR 380 fair value estimate and no-moat rating. Our fair value estimate is around 11.5 times our 2023 net income forecast.