Munich Re splashes IFRS 17 conservatism on underlying 2023 profit gains

Munich Re will hit an improved return on equity under the new IFRS17 accounting standard while heading to the same mid-term EPS growth and solvency targets as established for the outgoing regime.

For 2023,  Munich Re should hit a consolidated profit of around €4 billion under IFRS 17, management said, without offering a comparable 2022 figure in the new standard. That sum should include €3.3 billion from the core segment of reinsurance.

"As much as operationally the plan is realistic and very well substantiated, for the IFRS 17 component we’ll be a little bit conservative given the uncertainties," CFO Christoph Jurecka told analysts. "The gut feeling is still not there."

Volatility could increase, more notably in P&C than in life, chiefly on IFRS 9 changes to investment accounting.

The combined ratio in property-casualty reinsurance is  likely to improve significantly to around 86%, chiefly on the inclusion of liability/claims discounting in the new standard, but with an operational contribution from strong markets, Jurecka said.

"It is not only driven by the translation, but of course there is also an element of operational improvement in there, given the very favourable market environment," Jurecka said. “We expect continued profitable growth.”

The insurance revenue decrease (some €12 billion from the GWP figure) in the new standard looks “significant” versus the prior regime, Jurecka said. The insurance revenue total includes €39 billion from reinsurance activities, below €50 billion in expected gross written premium. At Ergo, a €19 billion revenue target is just fractionally off the €20 billion GWP measure.

Munich Re's ROE targets for 2025 have undergone a "mechanical" translation to a 14 to 16% range from the prior 12-14% range. Much of the gains comes on a recalculation of the equity side of the ratio.  ROE of 14-16% applies to both the group and the individual reinsurance and ERGO divisions.

Average annual EPS growth (2023-2025) is still likely at above the 5% mark, as is the dividend per share target. The Solvency II target range remains 175-220% under the new regime.

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