Munich Re, the world’s largest reinsurer, reported a sharp drop in profits for the first quarter of 2025, as devastating wildfires in Los Angeles weighed heavily on the company’s earnings. According to the announcement made on Tuesday in Munich, the company posted a net income of approximately €1.1 billion — a figure that is just over half of what it earned in the same period last year. The fires alone are estimated to have cost Munich Re around €1.1 billion.

Despite this setback, Chief Financial Officer Christoph Jurecka stated that the company remains on track to meet its full-year profit target of €6 billion. He acknowledged, however, that falling prices in the core reinsurance business continue to pose challenges.

Stock Plunges on Earnings Report

Investors reacted negatively to the news. Shares of Munich Re dropped nearly 5% shortly after the market opened, hitting €553.40. Later in XETRA trading, the stock remained down by 4.10% at €557.00.

While the overall quarterly earnings aligned with analysts’ expectations, performance across the company’s business segments varied significantly.

According to Philipp Kett, an analyst at Jefferies, the life and health reinsurance segment outperformed, delivering profits 30% higher than anticipated. In contrast, the property and casualty reinsurance segment fell short, missing forecasts by around 20%. Additionally, returns from the company’s investment portfolio were roughly 30% below projections.

Revenue Grows but Costs Surge

Munich Re did manage to grow its revenues. Insurance premiums increased by 5% year-over-year to €15.8 billion. However, the extensive damage caused by the California wildfires led to higher expenses in claims, administration, and distribution, which consumed a much larger portion of revenue.

The combined ratio in the property and casualty reinsurance division — a key measure of profitability — deteriorated from 69.7% to 83.9%. Meanwhile, the company’s Global Specialty Insurance (GSI) unit, which serves large corporate clients directly, saw its combined ratio jump from 87.6% to 95.5%. This year marks the first time Munich Re is reporting the GSI business separately.

In an earlier forecast made in February, Munich Re had anticipated wildfire-related losses of around €1.2 billion. The reduction to €1.1 billion was attributed to the weaker U.S. dollar and the fact that some of the company’s exposure was covered by its own reinsurance arrangements, CFO Jurecka explained during a conference call.

Investment Losses Deepen Overall Decline

Overall, earnings from reinsurance operations fell by 55% year-over-year to €853 million. In addition to wildfire losses, weaker performance in the investment segment contributed to the decline. The company pointed to rising interest rates in Europe as a key factor behind falling bond values, which drove investment income lower across the group.

Ergo Delivers Strong Performance

On a more positive note, Munich Re’s primary insurance subsidiary Ergo, based in Düsseldorf, reported solid growth. Revenue rose by nearly 7%, and net income climbed to €241 million — a 6% increase compared to the previous year.

Pricing Pressure in Contract Renewals

Despite these gains, Munich Re continues to face pricing pressure in contract renewals with major insurers such as Allianz and Generali. As of April 1, reinsurance rates fell by an average of 2.5% on a risk-adjusted basis. When adjusted for changes in portfolio composition, the decline was still a notable 1.7%.