Munich Re’s Strong Earnings and Moody’s Upgrade Can’t Shake Off 13% Stock Decline Amid Pricing Glut

Excess capital in global reinsurance market weighs on Munich Re shares, overshadowing record Q1 profit, €2.25B buyback, and a credit rating upgrade from Moody's.

The Munich Re share has been marching in the opposite direction to its fundamentals. Despite a bumper first quarter, a multi-billion-euro buyback programme and now a rating upgrade from Moody’s, the stock is down nearly 13% since the turn of the year. The disconnect highlights just how much the global reinsurance market’s excess capital is weighing on sentiment.

Moody’s lifted the Dax-listed reinsurer’s financial strength rating from Aa3 to Aa2 with a stable outlook, citing a strategic shift away from traditional property and casualty reinsurance that is diversifying the business and lowering risk. The solvency ratio stood at 292% at the end of March, giving the group ample headroom. RBC, meanwhile, stuck with its “Sector Perform” rating and a €490 price target – only a whisker above last Friday’s closing price of €478.40. Analyst Ben Cohen acknowledged a good year so far but flagged persistent uncertainty around the premium cycle as the chief obstacle to any meaningful share price advance.

Operational performance certainly supports the positive view. Net profit for the first quarter of 2026 surged to €1.714 billion from €1.094 billion a year earlier. Earnings per share came in at €13.41, up from €8.34. Insurance revenue reached approximately €15 billion. Management is standing by its full-year net result target of €6.3 billion and has backed that confidence with an aggressive capital return programme. Since the €2.25 billion buyback kicked off on 14 May, Munich Re has repurchased roughly 1.02 million shares – 169,692 of them between 10 and 18 June alone. All acquired shares will be cancelled, providing a mechanical boost to earnings per share. The programme is scheduled to run until the annual general meeting on 29 April 2027.

Yet for all that strength, the market’s appetite for reinsurance risk is shrinking. An estimated $805 billion of excess capital continues to depress premium rates across the sector. In June, property catastrophe rates slumped by as much as 20%. Munich Re has responded with strict underwriting discipline, slashing its written volume by 18.5% at the April renewals. The next test will come in July, when contracts for the second half of the year are signed – and investors will be watching closely when the half-year report lands on 7 August.

A far bolder signal of the company’s confidence is the more than 60% reduction in its own retrocession cover. The group has cut its protection from $1.55 billion to $600 million, effectively keeping more premium income in-house while accepting higher retained risk in the event of a major catastrophe. This bet rests on expectations of a relatively mild Atlantic hurricane season. The Colorado State University’s updated forecast on 10 June calls for 11 named storms and five hurricanes, well below the long-term average. The key driver is an increased probability of a moderate to strong El Niño, which typically suppresses hurricane formation in the Atlantic Basin.

But the picture is more complex in the western Pacific, where Munich Re expects 27 named storms, 18 typhoons and 11 severe typhoons. El Niño tends to steer those systems toward eastern China, Korea and Japan, raising the stakes for the group’s Asian exposures. Without the safety net of a full retrocession programme, any severe weather event this season will hit Munich Re’s bottom line harder than in previous years.

The stock currently trades well below its 200-day moving average of €527.08, reflecting the market’s scepticism about whether pricing headwinds can be offset by operational discipline and buybacks alone. The half-year results on 7 August will provide the first real glimpse of whether Munich Re’s high-stakes retrocession strategy has paid off and whether the July renewal round can arrest the downward drift in premiums.