Munich Re $MUV2 (-0,44 %) presented its figures for the first quarter of 2025 today and the share price reacted slightly lower.
The company is once again showing its resilience.
In this article, I will organize the current quarterly statement [1], the IR presentation [2] and the earnings call [3], so that the typical "hobby investor" (like me) is also well informed and has a better understanding of Munich Re's business and developments.
📊 Overview Q1 2025
- Group result: €1.094 billion (previous year: €2.115 billion)
- Operating result1.465 billion (previous year: € 2.891 billion)
- Insurance turnover: € 15.8 billion (previous year: € 15.1 billion)
- RoE (return on equity): 13.3% (previous year: 27.2%)
Digression: What does RoE mean and why has it fallen so sharply?
RoE (return on equity) stands for return on equity and measures how efficiently a company manages its shareholders' capital. The higher, the better.
The RoE is particularly important for insurance companies that work with a lot of capital (e.g. for provisions and investments), as it shows how profitably the tied-up capital is actually being used.
At Munich Re, the RoE fell from 27.2% to 13.3% in Q1. This is not due to operational weakness, but primarily to:
- a significantly lower profit (-48% compared to the previous year)
- high losses due to forest fires
- and currency losses of € -506 million
Nevertheless, the capital base remains strong and the RoE should recover once the claims experience normalizes.
Background to the decline in earnings
The sharp fall in earnings is still immediately apparent, and here are the main reasons for this:
Forest fires in Los Angeles:
The biggest negative factor was the devastating forest fires in Los Angeles, which cost Munich Re around €1.1 billion Group-wide.
Update from the call:
"The LA wildfires of €1.1bn altogether, which is a slight decline from the initially announced €1.2bn due to positive effects of a weaker USD and retrocession."
➡️ The net charge was therefore revised slightly downwards.
Currency losses (currency result):
Munich Re was heavily invested in the US dollar through so-called "long positions". As the US dollar depreciated during the quarter, this resulted in a currency loss of -506 million.
"A 10% decline in the USD would result in an approx. 5% decline in net income."
➡️ The impact of the USD loss is therefore not just a one-off, but will also have a structural impact if the weakness continues. Munich Re therefore reduced its long USD position in the course of Q1, but has not yet fully liquidated it.
Operating result halved:
- Especially compared to the strong Q1 2024 (with unusually low losses), the operating result thus fell by almost 50%.
Insights from the call on this:
CFO on earnings quality and operational strength despite decline:
"While our underlying technical profitability continues to be very strong overall, high large losses, fair value changes in the investment result and significant currency movement affected our net earnings."
The message: The decline in earnings is not operationally driven, but results from external volatilities (losses, capital markets, currencies).
This also confirms why Munich Re is sticking to its annual forecast of €6 billion.
Digression for understanding: What does the combined ratio mean and why is it so important?
The combined ratio is a key performance indicator in property and casualty insurance (P&C = Property & Casualty).
It measures the profitability of the insurance business:
Combined ratio = (claims expenditure + administrative costs) / premiums earned
- <100 %: The insurance business is profitable
- >100 %: The company pays out more than it earns
Examples in Q1 2025:
- Reinsurance P&C83.9% -> good despite high claims
- Specialty Insurance: 95.5 % -> close to the break-even point
- ERGO Germany P&C: 88,8 %
- ERGO International P&C: 89,0 %
Business segments
1️⃣ Reinsurance
Munich Re acts as a reinsurer here, they "insure insurance".
Particularly important in areas such as natural catastrophes, life, health and liability.
In the event of major claims, for example, Munich Re helps other insurers such as Allianz or AXA to cover the risk.
Highlights Q1 2025:
- Result853 million (previous year: €1,888 million)
- Turnover10.3 billion €
Property/casualty reinsurance:
Burdened by major losses (€ 1.0 billion), in particular:
- Forest fires in Los Angeles: ~€800 million loss
- Combined ratio83.9 % (target value is ~95 %, i.e. OK)
Life/health reinsurance: Very strong
- Result: 501 million €
- Technical result608 million (above target value)
What is the technical result here?
It measures the pure insurance performance, i.e. how profitable the underwriting is, excluding investment effects. This is particularly important in life/health reinsurance, as long-term contracts dominate here.
Insights from the call on this:
Life & Health reinsurance, explanation of the strong result:
"We benefited from positive experience driven by the U.S. portfolio [...] but we do not consider this to be the new run rate."
The strong technical result (€ 608 million) was due in part to lower mortality, fewer major claims and good contract development in the US. According to management, however, this level cannot be maintained in the long term.
2️⃣ Global Specialty Insurance (GSI)
A newly designated area for specialty insurance, managed by the reinsurance organization. Focus: commercial specialty risks.
- Resultonly € 8 million (previous year: € 163 million)
- Combined ratio: 95.5 % (heavily impacted by LA forest fires)
- Individual loss Los Angeles: ~€200 million
➡️ Result of the forest fires: Only €8m net profit, a sharp decline.
The GSI division was hit hard, mainly due to one-off major losses and the segment change. Without these effects, the company would have been on target according to management.
3️⃣ ERGO acquires Munich Re's direct insurance business
Traditional insurance for end customers, such as motor, household, life and health insurance. Divided into Germany and International.
Q1 2025 at a glance:
- Overall result ERGO241 million (previous year: € 226 million)
- Turnover5.56 billion €
ERGO Germany:
- Result140 million €
- Combined ratio P&C88.8 % (slightly above previous year, but within target range)
ERGO International:
- Result100 million (previous year: € 65 million)
- Strong contributions from Poland, Greece and the Spanish healthcare business
Major losses Q1 2025
- Total losses from natural catastrophes757 million €
Man-made major losses251 million (->
- z. e.g. industrial fires, infrastructure accidents, disasters, everything that is not caused by nature)
- Largest single lossForest fires in Los Angeles (~€1.1 billion across all segments)
This is the most expensive forest fire loss to date for the insurance industry worldwide.
Investment result & financial markets
- Investment result1.32 billion (previous year: € 2.16 billion)
- Main reasonLosses on fixed-interest securities due to higher interest rates
- Return on investment2.2 % (previous year: 3.8 %)
- Currency losses (mainly USD): € -506 million
Share buybacks & dividend
- Munich Re confirms share buy-back program of 2 bn € .. read correctly 2 billion buyback!💰
- Dividend of € 20.00 per share (as already announced for the 2024 annual financial statements)
➡️ How should this be assessed?
The buyback volume is exceptionally high, especially in comparison with other insurers or DAX companies.
It continues to show:
- Capital discipline
- Confidence in its own business model
- Focus on shareholder value
- Repatriation of excess capital in times without takeovers
Despite massive capital returns, the capital base is exceptionally robust.
Munich Re "earned the share buy-back virtually within one quarter", as the CFO put it.
April renewals & market outlook
- New business in reinsurance contracts: +6.1 % volume
- Price level: slightly down (-2.5 %), but risk-adjusted
- Important growth marketsIndia, Latin America, Europe
Risk-adjusted means: Prices were calculated taking into account current claims inflation and risk situation.
A price decline of -2.5 % therefore does not mean that the contracts are cheaper or weaker, but that the premium level has fallen slightly after risk adjustment.
At the same time, the total volume of renewed contracts rose by +6.1%, which is a positive development.
What does "April renewal" actually mean?
In the reinsurance industry, many contracts are renegotiated every year - this is called "renewals".
These do not all take place at the beginning of the year, but are staggered regionally:
- January renewalse.g. Europe, North America
- April renewale.g. Japan, India, parts of Latin America
- July renewale.g. Australia, South Africa, special programs in the USA
The April renewals thus include all reinsurance treaties renewed as at April 1.
Munich Re was able to increase its business volume by +6.1%, despite a slight decline in prices (risk-adjusted: -2.5%).
This shows that Demand remains high and Munich Re can continue to conclude profitable new business.
Strategic development: acquisition of NEXT Insurance
Munich Re has announced the complete takeover of NEXT Insurance via its primary insurance subsidiary ERGO.
The transaction values the US insurtech company at USD 2.6 billion.
NEXT Insurance was founded in 2016 and offers digital insurance for small and medium-sized enterprises (SMEs) in the USA. With over 600,000 customers and a turnover of USD 548 million in 2024, the company represents a significant addition to the ERGO portfolio.
The integration of NEXT Insurance enables ERGO to directly enter the US SME insurance market, which is considered to be extremely attractive.
The transaction is expected to be completed in the third quarter of 2025 and is expected to contribute hundreds of millions to ERGO's net profit in the medium term.
"We expect earnings uplift from the Next Insurance acquisition in Q3.
"M&A remains on the table - we are monitoring opportunities."
Munich Re expects positive earnings contributions from the NEXT Insurance acquisition in Q3.
The company is also keeping its options open for further acquisitions, particularly in the area of specialty insurance.
🔮 Outlook for 2025
- Annual target: Group profit of € 6 billion is confirmed
Expected:
- Insurance sales: ~€64 billion
- Return on investment: >3%
- Reinsurance: stable margins despite climate risks
🏷️ Conclusion:
Strong basis, high burdens, share price dampened, fundamentals remain robust
Munich Re shows once again:
The business model is resilient.
Despite extreme natural events (LA forest fires) and unfavorable currency effects, the company remains profitable. The life/health segment shines.
What remains: The operating result has halved and comparison with the exceptionally strong Q1 2024 is difficult.
The markets had probably expected more.
With a €20 dividend, a €2 billion share buyback and a stable outlook of €6 billion in annual earnings, Munich Re nevertheless remains a reliable value stock for me with growth in reinsurance and solid risk management.
The position in my portfolio will double within the next few months.
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Thanks for reading! 🤝
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Sources:
[3] https://web.quartr.com/link/companies/6425/events/345177/transcript?targetTime=0.0
More:
https://www.reinsurancene.ws/munich-re-acquires-next-insurance-to-become-part-of-ergo/?
