Munich Re's Profit Jumps 57% as Margin-First Strategy Cuts Volumes and Defies Currency Drag

Munich Re has served up a blockbuster first quarter, with net profit soaring 56.7 percent to €1.7 billion, yet investors have responded with a collective shrug. The stock trades near €485, down roughly 11.6 percent since the start of the year and not far from its 52-week low of €467.30. The disconnect between operational strength and market sentiment stems from two distinct pressures: a self-imposed pullback in underwriting and a strengthening euro that is eating into reported premiums.

The German reinsurer walked away from business it deemed insufficiently priced at the April renewals, when risk-adjusted prices fell by around three percent. As a result, written volumes slumped by 18.5 percent year-on-year. Munich Re deliberately let contracts lapse in Japan and India rather than accept terms below its internal return hurdles. "Margin before market share" is the clear directive, and it shows up in the combined ratio, which improved to 66.8 percent, helped by a benign catastrophe quarter. Large losses totalled just €130 million, a fraction of the €1 billion-plus hit from California wildfires in early 2025.

Currency movements told a different story. The euro averaged between $1.15 and $1.20 in the first quarter, compared with $1.03 a year earlier, stripping around five percent from premium income. Munich Re booked a €162 million hit from unfavourable exchange rates, pushing reported insurance revenue to just over €15 billion. The Gulf conflict added a further €90 million in claims, but the overall loss burden remained exceptionally light.

Should investors sell immediately? Or is it worth buying Münchener Rück?

On the capital front, the group remains comfortably cushioned. The Solvency II ratio stood at 292 percent, well above the strategic floor of 200 percent. That firepower is being deployed through a share buyback programme launched on 14 May, under which Munich Re intends to repurchase up to €900 million of its own stock by the end of August. The buyback has provided some support to the share price, which has recovered about four percent over the past week to around €487.50, though on a one-year view the stock still shows a double-digit loss.

Management is also working to reshape the business mix. By 2030, the share of earnings from life and health reinsurance, global specialty insurance and ERGO is targeted to rise to 60 percent, from roughly 50 percent today. Cost-cutting is part of the plan: Munich Re aims for recurring savings of €600 million by the end of the decade, with €200 million already pencilled in for this year. Return on equity is set to exceed 18 percent, while earnings per share should grow at more than eight percent annually.

The next major test comes in July, when the mid-year renewal season begins. Munich Re expects to defend current pricing levels despite market pressure. If it succeeds, the path to the full-year 2026 profit target of around €6.3 billion remains intact. The biggest wild card remains the currency market: a further rally in the euro would keep the gap between operational strength and reported performance wide, and investors may continue to look past the underlying earnings power.

Ad

Münchener Rück Stock: New Analysis - 20 May

Fresh Münchener Rück information released. What's the impact for investors? Our latest independent report examines recent figures and market trends.

Read our updated Münchener Rück analysis...

en | DE0008430026 | MUNICH | boerse | 69384263 |