German reinsurers took a $1.9 billion profit hit from LA wildfires in first quarter

CNBC

13-05-2025

Germany's biggest reinsurers took a $1.9 billion profit hit in the first quarter from claims related to the recent Los Angeles wildfires.
Munich Re, the world's largest reinsurance company, said Tuesday that it anticipated all claims attributable to the wildfires will total around 1.1 billion euros. Meanwhile, Hannover Re, the world's third largest reinsurer, said its largest net individual loss amounted to 631.4 million euros on the back of the wildfires.
Combined, the two companies' wildfire costs amounted to around 1.73 billion euros, or $1.9 billion.
Reinsurance firms offer policies to primary insurance providers, who typically deal directly with customers on the ground. Reinsurance policies usually only kick in after about 400 million euros ($444.4 million) worth of losses are absorbed by the primary insurance provider.
Around 80% of Munich Re's claims arose in the company's property-casualty segment, while around 20% hit the firm's Global Specialty Insurance division. In both divisions of the business, the LA wildfires were the largest single claims event in the three months to March.
The influx of wildfire claims saw overall claims expenditure in Munich Re's property-casualty segment more than double, pulling quarterly net profit in the division 72% lower year-on-year to 343 million euros.
In the company's Global Specialty Insurance division, net profit nosedived 95% to 8 million euros.
Despite the hit, the group reported an overall net profit of 1.1 billion euros, down 48% from the previous year.
CFO Christoph Jurecka acknowledged that Munich Re "did not emerge unscathed from the devastating wildfires in Los Angeles," but argued that the group's earnings demonstrated resilience and "prudent management" of the firm's business portfolio.
"We're sticking with our profit guidance of €6bn for the 2025 financial year – thanks in no small part to ongoing favourable market conditions and the high quality of our portfolio," he said in a statement alongside the company's first-quarter report.
Frankfurt-listed shares of Munich Re and Hannover Re's stock were both trading around 4% lower Tuesday afternoon, making them the worst performing companies on the European Stoxx 600 index.
Hannover Re also posted a drop in net profit for the quarter, with the metric falling 14% to 480.5 million years compared to the previous year.
"Payments for large losses reached EUR 764.7 million in the first quarter — driven above all by the California wildfires — and thus came in significantly higher than the envisaged large loss budget of EUR 435 million," Hannover said in its quarterly statement.
In a Tuesday morning note, analysts at RBC Europe said their sentiment on Munich Re was negative, although they noted that the company's total losses arising from the wildfires was "lower than the €1.2bn previously indicated due to currency effects and a positive effect from retrocession."
Giving the company's target price of 559 euros — little changed from current prices — RBC's analysts said Munich Re had posted mixed first quarter results, with its net income coming in 2% below market consensus.
Analysts at J.P. Morgan, meanwhile, said they had a neutral stance on Munich Re, with a price target of 530 euros.
"Despite the small miss to expectations, we only see limited potential for downgrades given the limited scale of the miss to consensus," they said.
On Hannover Re, Deutsche Bank analysts said the company's strong investment performance had helped it notch a quarterly net income that was 7% above consensus.
The lender has a buy rating on Hannover Re stock, with a price target of 279 euros — a premium of around 4% on current prices.