EUR 850.00 For Business Accounts Only

Morningstar | MUV2 Updated Forecasts and Estimates from 13 May 2019

Munich Re is probably one of the most conservative and well-run reinsurance companies under our coverage. But the business is dragged down by its collection of primary insurance units, that span life and health Germany, property and casualty Germany, and International. Life and health Germany is the biggest of these three franchises, but it is also where the business has had the most problems in generating adequate returns for shareholders. We think International has had problems with keeping pressure on cost control. Overall, ERGO accounts for about 35% of full year 2018 Group operating profit. The unit is highly dependent on its investment result. Non-life and life reinsurance account for 40% and 25% respectively.The ERGO Life and Health Germany business is undergoing some dramatic restructuring in order to reorientate the business to capital light market based investment products that will require less capital to back up shareholders guarantees, and are also more appealing to prospective customers in terms of investment return given the low yield environment. We think the ERGO Property and Casualty business in Germany is a quality underwriting franchise but lacks expense discipline. When we compare the underwriting quality of this business to a local peer, ERGO stands out. And while we can see reasonable explanations for the differential in expense ratios, we still think the business can make up ground here. For ERGO International, the business has been on a long overhaul, divesting underperforming businesses, developing a more focussed portfolio, and growing in what look like high growth regions. ‘Portfolio optimisation’ is coming to a close and we expect to see more reliable results going forward.