Currency Headwinds Eclipse Munich Re's Stellar First Quarter Despite Buyback Support

The math looks contradictory on the surface: Munich Re booked a 57-percent leap in quarterly net profit, yet its share price has slumped nearly 12 percent since January and closed yesterday at 482.80 euros, just 3.32 percent above the year's low. The disconnect is almost entirely down to one factor — the euro's relentless rise.

A sizeable chunk of the reinsurer's business is written in US dollars, and with the euro rallying from around 1.03 dollars at the start of 2024 to a range of 1.15-1.20 during the first quarter, reported premiums and earnings are getting squeezed in translation. The insurance revenue fell five percent to roughly 15 billion euros in the period, a miss that caught analysts off guard, who had been expecting growth.

Management is not sitting idle. In mid-May, the group launched the first tranche of a 2.25-billion-euro share buyback programme, committing 900 million euros to repurchasing its own stock through the end of August. The shares will be cancelled, delivering a direct boost to earnings per share. The move comes alongside a bumper dividend of 24 euros per share and, combined with the buyback, means Munich Re will return around 5.3 billion euros to shareholders for the 2025 financial year — nearly 90 percent of its net profit.

Should investors sell immediately? Or is it worth buying Münchener Rück?

Operational excellence, but at a price

Under the hood, the first-quarter numbers are impressive. Net profit hit 1.714 billion euros, up from 1.094 billion a year earlier, when heavy California wildfires weighed on the result. The combined ratio in property-casualty reinsurance tightened to a strong 66.8 percent. That improvement was largely driven by a dramatic fall in large-loss expenses: they dropped from roughly one billion euros to about 130 million euros, with catastrophe-related claims tumbling from 757 million euros to just 55 million. Losses from the Iran conflict added around 90 million euros, but remained contained.

The strong earnings were underpinned by disciplined underwriting. At the April renewal season, the risk-adjusted price level slipped 3.1 percent, and the volume of business written contracted by 18.5 percent. Munich Re deliberately walked away from contracts that did not meet its minimum return thresholds, protecting margins even as top-line growth suffered. That strategy, while conservative, leaves the group with ample capital. The Solvency II ratio stood at 292 percent at the end of March.

Cost-cutting and AI lift efficiency

On the operational side, Munich Re is pressing ahead with a cost-reduction programme that aims for annual recurring savings of around 600 million euros. This year, the company expects to capture 200 million euros of those savings, with more than 300 artificial-intelligence applications already identified or in deployment. The efficiency drive is designed to offset some of the currency drag and the deliberate volume shrinkage.

What to watch next

The full-year profit target remains unchanged at 6.3 billion euros. The next major catalyst will be the July renewal round, where stable pricing would help sustain the underwriting momentum. At the same time, the trajectory of the euro-dollar exchange rate will be a dominant theme for the shares, as will the onset of the North American hurricane season, which could test the low large-loss environment. The half-year financial report is scheduled for August 7 and will provide the first detailed look at how the second quarter has shaped up under these cross-currents.

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