Munich Re hikes margins for 11 ratio points, but warns on early optimism

Global reinsurance group Munich Re hiked P&C reinsurance margins to the tune of 11 combined ratio points in the first quarter on a dearth of major losses, save for the Baltimore Bridge, against mid-single digit revenue gains, but warned against drawing longer-term conclusions quite yet.  

The P&C reinsurance combined ratio of 75.3% proved both “substantially better than expected” and a 11.2 point improvement from the prior year period.

Management liked the read, but warned against drawing overly optimistic conclusions. To-date earnings 2024 guidance remains in place even though the group has already raked in 40% of its FY earnings target.

The Q1 combined ratio “seems to reflect an element of earn through of margins,” CFO Christoph Jurecka told the company's Q1 earnings call to hint at an improved trend.

“But then again,” he went on, “let's see if it continues into Q2 and Q3 or towards something closer to the guidance.” Q1 may have brought a variation in claim submission tempos and loss ratios bring their own inherent volatility, he said to justify caution.

“It is rather our nature that we wait another quarter or two” before altering guidance, Jurecka said, “and not start to celebrate already after three months.”

Any reversion of the combined ratio would be ‘towards’ the mean, not necessarily ‘to’ the mean, Jurecka said by way of encouragement. “I would not expect it to be significantly higher, but somewhat higher? Why not?”

Top credit for the Q1 2024 reading went to “below average” major losses of €650 million, down 37% year on year, for a mere 9.9 ratio points, below the prior year's 16.4 and the budgeted 14 points.

The Baltimore bridge collapse figures tops in a 2.5x increase in the Q1 tally of man-made catastrophes to and at outsize €418 million. Management declined to offer a more specific estimate.

CFO Christoph Jurecka told his firm's morning media call that it remains “exceptionally difficult” to generate an early estimate of how the losses will filter through the industry.  

Natural catastrophes losses fell 73% to a minor €232 million.

Insurance revenues, the margin-inclusive IFRS17 top-line measure, rose 5.1% year on year in P&C reinsurance. Against declining claims and other costs, the segment technical result was up 74% to €1.61 billion and the segment's net contribution was up 76% to €1.34 billion.  

The primary insurance unit Ergo took a more modest increase in profit on a normalisation from what management had considered “extraordinarily low” loss measures in the prior year period.

P&C insurance revenue in Ergo rose 9.9%, ahead of 8.7% net insurance service expense, taking 0.9 points from the combined ratio to an even 87%.

Also on the P&L, life and health reinsurance increased its contribution to the group net result by 90% to €552 million, Ergo's net result, including life and health, was up 15% year on year.  Within those net segment results, total investment income had risen 34% year on year to 2.16 billion.

Tallied for the group bottom line, Q1 net income of $2.1 billion was up 68% year on year to render a return on equity of 27.3%, up handily from the 17.6% in the prior year period.

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