Munich Re, FY2023: higher than best expectations profit; optimistic outlook for 2024

29 February 2024 — Daniela GHETU

Munich Re posted a profit of EUR 4.59 billion for the 2023 financial year – slightly higher even than the revised profit target of EUR 4.5 billion announced in October 2023, up from the initial figure of EUR 4.0 billion. Insurance revenue from insurance contracts issued rose y-o-y to EUR 57.88 billion.

This was due in particular to organic growth both in the property-casualty reinsurance segment and at ERGO; conversely, currency translation effects negatively impacted insurance revenue.

In the 2023 financial year, Munich Re’s return on equity (RoE) amounted to 15.7%. Earnings per share totaled EUR 33.88. The Board of Management proposes to pay shareholders a dividend of EUR 15 per share for the 2023 financial year. This would constitute a y-o-y increase of 29.3%. The solvency ratio – less the proposed dividend, as usual – stood at around 267% at the end of the year, likewise at a very high level (31 December 2022: 260%).

The total technical result in the 2023 financial year rose to EUR 7.54 billion; the investment result increased to EUR 5.37 billion. Owing mainly to currency losses against the Japanese yen and the US dollar, the currency result fell considerably to – EUR 292 million, from EUR 1,067m million the previous year. Conversely, high currency gains were generated in 2022 – chiefly against the US dollar. The operating result fell to EUR 5.7 billion. Munich Re’s effective tax rate in the reporting year decreased to 16.9% thanks to several positive one-off effects. Equity was higher at the reporting date (EUR 29,772 million) than at the start of the year (EUR 27,245 million).

“2023 was another successful year for Munich Re. We beat our annual profit target for the third consecutive time and delivered a strong performance across all business segments. Thanks to a broadly diversified business portfolio, Munich Re is well placed and fully on track to meet the targets specified in its Ambition 2025 strategy program. Except for systemic risks – such as cyber and pandemic – our appetite for covering existential risks for people and enterprises is far from exhausted,” Joachim WENNING, Chair of the Board of Management.

The reinsurance field of business contributed to the net result EUR 3,876 million, down from EUR 4,737 million in 2022. Insurance revenue from insurance contracts issued rose y-o-y by 3.5% to EUR 37,786 million. The total technical result increased to EUR 5,402 million, while the operating result fell to EUR 4,738 million (5,923 million in 2022), chiefly due to the negative currency result.

Major-loss expenditure totaled EUR 3,278 million in the reporting year, of which EUR 873 million was in Q4. The previous year’s figure had been impacted by Hurricane Ian in particular. These figures include gains and losses from the run-off of major losses from previous years. Major-loss expenditure corresponded to 12.6% of net insurance revenue and was thus below the expected value of 14% in the financial year and in Q4 (13.0%). Man-made major losses amounted to EUR 943 million, down from EUR 1,623million last year. Major losses from natural catastrophes rose to EUR 2,335 million, slightly up from EUR 2,118 million in 2022. The major loss figures above take account of the effects from discounting and risk adjustment. The largest individual loss for Munich Re in 2023 was the earthquake in Turkey, with a nominal value of around EUR 0.7 billion; in Q4, it was Hurricane Otis in Mexico with losses of EUR 453 million.

Outlook: New profit target substantially higher than 2023 target

Munich Re is aiming to generate a net result of EUR 5 billion in 2024 and expects the Group’s insurance revenue to total EUR 59 billion and the return on investment to improve markedly, surpassing 2.8%.

Munich Re anticipates that its reinsurance field of business will increase its insurance revenue to EUR 39 billion and its contribution to the net result to EUR 4.2 billion in 2024. In a market environment poised to remain favorable, Munich Re will leverage its position of strength to grow once again and generate even more profits. The combined ratio for property-casualty reinsurance is expected to improve to 82%. In life and health reinsurance, Munich Re projects a slightly improved total technical result of EUR 1.45 billion in 2024.

The ERGO field of business is expected to generate insurance revenue of EUR 20 billion in 2024, perpetuating its strong performance of recent years with a higher profit contribution of EUR 0.8 billion. A combined ratio of 87% is expected in the ERGO Property-casualty Germany segment, and around 90% at ERGO International.

All figures have been rounded. As usual, this projection is subject to increased uncertainties stemming from geopolitical and macroeconomic developments to major losses remaining within normal bounds, and to the income statement not being impacted by severe fluctuations in the currency or capital markets, significant changes in the tax environment, or other one-off effects.

Note: Munich Re has been preparing and communicating financial data since January 2023 in accordance with two new financial reporting standards: IFRS 9 and IFRS 17. The 2022 comparative figures for insurance business are based on the new IFRS 17 regime. But the 2022 figures for financial instruments are predominantly still based on IAS 39, the standard applicable up to 31 December 2022. For that reason, they are only comparable to a limited extent with the figures for the 2023 financial year disclosed in accordance with IFRS 9. However, transition effects were anticipated in some cases – particularly with respect to the classification overlay approach applied to business with direct participation features in ERGO life and health insurance.