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Investing.com -- Munich Re is set to take a substantial hit from the recent Los Angeles wildfires, with estimated claims reaching €1.2 billion.
Shares of the company were up 4.8% at 04:53 ET (09:53 GMT), on Wednesday.
The wildfires, which have caused widespread destruction across Southern California, add to the growing impact of natural catastrophes on the insurance sector.
The german insurance company will shoulder a major share of the payouts, reflecting the increased frequency and severity of climate-related disasters.
However, Jefferies analysts noted that the estimated claims, though material, are within the company’s expected loss absorption capacity.
The company’s fourth-quarter operating profit came in 17.1% above market consensus, driven by a strong performance in property and casualty (P&C) reinsurance.
“We note a very strong P&C Re operating result, offset by underwhelming numbers (though nothing of concern) in both L&H Re and Ergo L&H Germany,” said analysts at Morgan Stanley (NYSE:MS) in a nomte.
The segment exceeded expectations by 63.8% in Q4 and 10.8% for full-year 2024, benefiting from a better-than-anticipated combined ratio, which was 2.2 percentage points lower than forecasts.
While P&C outperformed, Munich Re’s life and health (L&H) reinsurance segment struggled, missing expectations by 25% in Q4 and 4.5% for the full year.
The company’s primary insurance business under its ERGO unit also saw mixed results, with ERGO L&H Germany falling €90 million short and ERGO International missing by 24.4% in Q4.
On the investment side, Munich Re reported a 7.7% shortfall in Q4 investment results, contributing to an overall net profit that was 3.7% below expectations.
However, the company’s return on equity (ROE) remained strong at 18.2%, exceeding its 14%-16% target range. Additionally, Munich Re’s Solvency II ratio stood at 287%, reflecting a solid capital position even after substantial claims payouts.
The €1.2 billion wildfire-related claims will weigh on Munich Re’s Q1 2025 results, but Jefferies analysts do not expect it to derail the company’s broader financial targets.
The loss, while significant, remains manageable within the context of Munich Re’s capital reserves and risk management framework.
Despite ongoing pressures from natural catastrophe events, the reinsurer has reaffirmed its ability to sustain profitability through disciplined underwriting and pricing adjustments. Munich Re has been actively revising its risk models to account for the increasing threat posed by wildfires, particularly in high-risk regions like California.
While the Los Angeles wildfires represent a considerable claims burden, analysts at Jefferies believe Munich Re remains well-positioned to navigate the challenges ahead.
The company’s strong dividend increase—beating expectations by 21.2%—signals confidence in its long-term financial stability, even amid heightened catastrophe losses.