Munich Re takes inside lane in reinsurance hard market final stretch

Munich Re may be best poised among major reinsurers to capture the most profitable premium growth at the cycle peak, having proven its mettle through the cycle to bring a market-beating balance sheet to the game, analysts at the Jeffries brokerage are advising investors.

“ Munich Re has capitalised effectively on rising prices,” analysts wrote after reviewing the full slate of Q1 earnings reports.

Munich Re's growth may top that of rivals with similar mid-20-percent growth rates in the first quarter and proven cycle management, if only for the benefit of scale. Jeffries had waxed poetic on the strong 26% y/y premium growth and strong cycle management at  Hannover Re, but the nominal capture will be lower.

“While several of  Munich Re's peers have reported similar growth in % terms, we’re especially impressed by  Munich Re's growth as the group was already the largest reinsurer.”

Cycle management has proven supportive of an outperform growth call. “Unlike many peers, [ Munich Re] is enjoying similar upside as the market improves, despite not experiencing the same reserving volatility that others reported when the cycle was at its toughest,” analysts say.

“This track record reassures us that this rapid top line growth is still prudently priced,” Jeffries analysts Philip Kett, James Pearse and Minh Duong write.

That contrasts with rival  SCOR where Jeffries analysts may have liked similar 25% premium growth, but not enough to overlook losses.  “Although we acknowledge the strength of  SCOR's premium growth, the rear mirror creates some uncertainty in our view,” analysts said of their Q1 results.

Better underwriting through the cycle has also meant that  Munich Re walks into the peak rate season, perhaps even the swan song of the market’s hardening, with the “stronger” balance sheet.

Fortunate investment positioning going into the market's current period of monetary tightening has also assured balance sheet strength, analysts note. Sensitivity studies in the Q1 earnings presentation added eight percentage points to Solvency II ratios for every 50 bps added to interest rates.

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