In Frankfurt, take profits on Munich Re as the downward revision to 2026 revenue forecasts weighs on the share price

Munich Re falls on the Frankfurt Stock Exchange (DAX 30), after revising its revenue forecasts for the financial year downwards. The German reinsurance giant now expects insurance premiums totalling 62 billion this year, compared with the previous forecast of 64 billion. In the reinsurance sector alone, the estimate has been reduced to 38 billion euros, 2 billion less than previously estimated.

Reinsurance rates, following several years of sharp rises, continue to fall due to growing competition amongst operators in the sector. Faced with this trend, Munich Re prefers to terminate certain contracts rather than accept terms it considers insufficiently profitable. “We are deliberately turning down contracts for which we do not receive prices commensurate with the risk,” said CEO Christoph Jurecka during a conference call.

Following the contract renewals in July, prices fell by an average of 5.5 per cent, on a like-for-like basis and net of inflation and changes in the risks covered. As a press release states, ‘underwriting activity mainly concerned North America, South America, Australia and global clients. Turnover fell to €2.9 billion (-9.1%). Munich Re has consistently chosen not to renew or underwrite contracts that did not meet expectations in terms of prices or contractual conditions. The fall in prices also contributed to the reduction in volume.”

Munich emphasises that ‘thanks to the substantial stability of contractual terms, the quality of the portfolio remains high’. The decline in projected revenues, however, does not jeopardise profitability. As Munich Re’s CFO, Andrew Buchanan, explained, the contracts that were divested were mainly ‘low-margin’. Thanks to the excellent underwriting results recorded in the first half of the year, the group therefore believes it is still ‘on track’ to achieve its annual profit target of €6.3 billion.

As for the second-quarter results, Munich Re confirmed the preliminary figures released on 24 July, with a net profit of €2.2 billion (+6%), whilst the first half of the year ended with a net profit of €3.92 billion (up from €3.18 billion last year), benefiting from a particularly low level of large claims in the non-life business, as well as the solid performance of its equity investments. Insurance premiums for the quarter rose “marginally” to €14.9 billion from €14.77 billion, and for the first half of the year totalled €30.85 billion at constant exchange rates. The reinsurance sector contributed 1.89 billion to the quarter’s net profit (up from 1.83 billion), whilst the insurance subsidiary Ergo posted a profit of 321 million (up from 251 million). Jefferies has confirmed its ‘neutral’ recommendation on Munich shares and the target price remains at €600. RBC also maintains its ‘neutral’ rating with a target price of 500 euros. JP Morgan continues to view the share as a buying opportunity with an unchanged target price of 590 euros.