**Munich Re's Equity Drops - Insurance Rates Plummet**
In a surprising turn of events, the shares of Munich Re, the world's largest reinsurer, took a significant hit, plummeting over 8% in Xetra trading. This drop follows the release of the company's second-quarter figures and a renewed rate decline in reinsurance renewals.
Despite confirming its net profit target of €6 billion for the year, Munich Re narrowed its reinsurance revenue guidance for 2025. The company now expects insurance revenues to be around €62 billion, a decrease from the previous forecast of €64 billion, and reinsurance revenue to be €40 billion, down from €42 billion. These changes were attributed to macroeconomic and currency challenges.
The reinsurance market, currently described as "hard," has been experiencing a decline in reinsurance pricing. Munich Re reported a decrease of around 1.2% to 2.5% during recent renewal periods, coupled with a volume contraction of about 3.2%. This pricing pressure and the risk of sustained rate declines and volume decreases have caused investor uncertainty.
CEO Joachim Wenning addressed these concerns, stating that despite recent price decreases in new business transactions, the company remains confident in maintaining rates for catastrophe risk coverage at a high level. However, Wenning also explained that major loss events occurring regularly each year prevent a dramatic drop in rates.
The stock loss was not solely due to the pricing decreases. Munich Re benefited from an unusually low number of major natural disaster losses in the second quarter, totaling just €20 million. This positive factor, however, was overshadowed by the fear that the favorable market cycle for reinsurers may be coming to an end.
The new business written decreased by 3.2% to €3.2 billion, affecting activities in North and South America as well as Australia. The California wildfires cost Munich Re 1.1 billion euros, leading to a nearly 20% drop in the company's quarterly surplus to €1.3 billion.
Swiss Re and Hannover Re, Munich Re's largest competitors, also experienced losses following the price decrease at Munich Re, with Swiss Re's stock losing 2.1% and Hannover Re's stock falling by 4.1%.
In summary, Munich Re’s stock price fall reflects market worries about ongoing rate decreases and slower revenue growth amid a challenging reinsurance market, overshadowing the firm’s robust current earnings and confirmed profit targets. Investors are weighing the risk of sustained rate declines and volume decreases, which may impact future underwriting margins and growth despite current profitability.
- The decline in Munich Re's stock price is linked to investors' concerns about the challenging reinsurance market, where ongoing rate decreases and slower revenue growth are expected, potentially affecting future underwriting margins and growth.
- In the current reinsurance market, where pricing pressure and the risk of sustained rate declines and volume decreases are prevalent, Munich Re's decision to narrow its reinsurance revenue guidance for 2025 was influenced by macroeconomic and currency challenges.
- The technology sector, particularly data and cloud computing, could play a significant role in the future of personal finance and investing, as companies strive to leverage these advancements for better risk analysis and decision-making in the business world, including the reinsurance sector.
