The world’s largest reinsurer Munich Re has exceeded its increased profit target for 2023.
The bottom line is that, thanks to lower taxes, the DAX 40 group earned around 4.6 billion euros, around 100 million more than it had targeted since autumn. In the current year, further rising prices for reinsurance protection are expected to increase the surplus to around 5 billion euros as planned, as the Munich Reinsurance Company announced on Tuesday in Munich. The shareholders will receive a surprisingly high dividend – and a share buyback worth billions.
Analysts were positively surprised by the profit distribution. For 2023, shareholders should receive 15 euros per share certificate, 3.40 euros more than a year before. On average, analysts had only expected an increase of around one euro. The group also wants to buy back its own shares for 1.5 billion euros. This was roughly what experts expected.
CFO Christoph Jurecka informed the shareholders that they can expect higher dividends in the future. “We haven’t lowered the dividend in 50 years,” the manager said in a video conference with journalists. Munich Re wants to build on this new level in the future.
The fact that Munich Re exceeded its 2023 profit target was primarily due to a high tax credit in the fourth quarter. However, operating profit for the year as a whole fell significantly more than analysts expected on average. However, the surplus of 4.6 billion euros slightly exceeded estimates.
Munich Re boss Joachim Wenning raised his profit target from 4 to 4.5 billion euros in the fall. The group ultimately earned 13 percent less than in the previous year. At that time, however, he benefited from positive interest rate effects and changes in loss provisions as a result of the change to the new accounting rules for insurers. Jurecka put the special effect for 2022 at around one billion euros. Since 2023, large insurers have also been calculating their business figures according to the new rules. The previous year’s figures were adjusted accordingly.
In any case, Wenning sees Munich Re as “well on the way” to achieving its medium-term goals set for the period up to 2025. “With the exception of systemic risks – for example cyber and pandemics – our appetite for covering existential risks for people and companies is far from exhausted.” According to Jurecka, all of the group’s key figures were recently within or above the targets set for 2025.
Last year, Munich Re increased its insurance sales by 4.5 percent to almost 57.9 billion euros. In property and casualty reinsurance, however, expenses for claims, administration and sales consumed a larger portion of sales than in the previous year: the combined combined ratio deteriorated from 83.2 to 85.2 percent.
The reinsurer’s cost was the devastating earthquake in Turkey. The group estimated its burden at around 700 million euros. In the fourth quarter, the destruction caused by Hurricane Otis in Mexico cost the reinsurer 453 billion euros.
The group’s subsidiary Ergo continued to improve: the primary insurer from Düsseldorf earned 721 million euros last year, a good quarter more than the year before. In the property and casualty business, both in Germany and abroad, a smaller proportion of sales went to claims, administration and sales than in 2022. In the current year, Munich Re’s former problem child is expected to increase its surplus to around 800 million euros as planned.
In order to increase consolidated profits to around 5 billion euros in 2024, the reinsurance business in particular should generate even more. Wenning has set the division’s target of a profit of 4.2 billion euros. Last year it was almost 3.9 billion euros.
According to CFO Jurecka, the expected decline in interest rates should not have a particularly negative impact on Munich Re’s results. The same applies to a decline in real estate prices.
The board’s recent business deals with primary insurers such as Allianz and Assicurazioni Generali give the board hope. Because when the industry-wide contract renewal took place on January 1st, Munich Re once again imposed higher premiums on its customers. Adjusted for inflation and changed risks, the increase was reportedly 0.3 percent.
The reinsurer increased its premium volume by 3.5 percent to 15.7 billion euros. The world’s second largest reinsurer, Swiss Re, and the third in the industry, Hannover Re, had previously reported higher prices.
According to Wenning’s assessment, the price increase is likely to continue in the further renewal rounds of the year. He did not yet dare to make a forecast for 2025. However, he sees no signs why the positive trend should then end.
Jefferies leaves Munich Re at ‘Buy’ – target of 435 euros
The analysis firm Jefferies has left the rating for Munich Re at “Buy” with a price target of 435 euros. The capital distributions to shareholders reported the evening before after the stock market closed are likely to be very well received by the market, wrote analyst Philip Kett in a study available on Tuesday. The same does not apply to the fourth quarter results that the reinsurer reported this morning, he added. The net result, for example, met the consensus estimate and was even ten percent above the company forecast, but the reason for this was a positive tax rate.
This is how the stock reacts
Munich Re’s exceeded profit targets and a surprisingly high dividend did not sustainably boost the reinsurer’s shares on Tuesday. After a jump of more than 2 percent at the start of trading to a record high of 430.30 euros, the shares turned downwards. Most recently they were quoted on XETRA at 420.10 euros, 0.33 in the red. Nevertheless, the 2024 shares are among the strongest DAX stocks with a price gain of almost 12 percent.
The world’s largest reinsurer has exceeded its profit target for 2023, which it raised in the fall. The shareholders should also receive a dividend of 15 euros per share, 3.40 euros more than a year before. Experts had expected significantly less. In addition, as expected, the group wants to buy back its own shares for 1.5 billion euros.
Traders viewed the news of the reflows positively in initial comments. Business development in the previous year was initially assessed as “mixed”. Analysts were also positively surprised by the profit distribution.
The reinsurer has once again proven its ability to meet its own goals, said JPMorgan analyst Kamran Hossain. Although the Munich-based company earned unexpectedly little operationally, there is little reason to doubt this year’s profit targets. After the above-average price development since mid-2022, the challenge is to make the results more sustainable or to grow even faster than the market expected.
RBC analyst Derald Goh called the surprisingly strong increase in dividends to shareholders the “highlight of the day”. His colleague Philip Kett from the analysis firm Jefferies also praised the promised capital returns to shareholders, but criticized the results for the fourth quarter. The net profit met the consensus estimate and was even ten percent above the company’s target, but only for tax reasons.
MUNICH (dpa-AFX)