No losses for the Munich Re Group caused by the date changeover from 1999 to 2000.
Retroactively, with effect from 1st January, Munich Re acquires the majority of shares in Alte Leipziger Europa; this holding company has sizeable shareholdings in insurance companies in Central and Eastern Europe. With effect from 1st July, ownership of Alte Leipiziger is transferred to ERGO.
During the period under review we monitored the Board of Management and gave counsel where appropriate. The Board of Management regularly informed us about business progress and the state of the company.
At four meetings, the Supervisory Board obtained detailed information from the Board of Management on the situation in the main insurance and reinsurance markets, the development of business and the position of the company and its main participating interests. We discussed these reports and important individual measures intensively. Between the meetings, the Chairman of the Supervisory Board remained in close contact with the Chairman of the Board of Management and obtained ongoing information on all relevant business transactions.
The Board of Management explained at length why Munich Re is being given a new organizational structure in its reinsurance business.
Our most important shareholder Allianz, with a stake of just under 25% at present, followed by HypoVereinsbank with 13.3% and Deutsche Bank with 9.6%. When the extensive shareholding transactions with Allianz have been completed, the latter’s stake will have fallen to approximately 23% and our free float will have increased to around 54%. The larger free float and resultant higher weighting in important share price indices will enhance the attractiveness of our shares.
Munich Re’s warrants 98/02 and the exchangeable bonds on Allianz shares are also attractive capital market instruments: – During the exercise period, bearers of the warrants are entitled to subscribe for one Munich Re registered share for every two warrants held, at a strike price of €163.61. In the year 2000 the warrants increased in value by 104.6% to €108.00; on 11th May 2001 the price of the warrants on the stock exchange was €78.00. Of the original 3,500,000 warrants issued, a total of 49,562 have so far been exercised.
On the basis of a price of €315.00 per share and €78.00 per warrant on 11th May 2001, the value of the portfolio amounts to €778,353, equivalent to an increase of 556%. According to the internal rate of return method, this works out at an average annual return of 22.3%.
Consolidation processes are continuing around the globe. They are also affecting demand for reinsurance cover. For the reinsurance sector, this harbours risks but also offers opportunities: mergers and acquisitions mean that the primary insurers remaining in the market are better capitalized on average, with the result that their reinsurance requirements are tending to diminish. Improved methods of risk assessment are having the same effect, while new players and changes in distribution channels are increasing the competitive pressure in many markets.
We also see the life insurance sector offering great potential for growth in the future. In many of the world’s markets, the demographic trend and the financial problems being experienced by the state social security systems are leading to increased demand for private pension plans and also for disability and long-term care insurance. This in turn is proving to be a stimulus for growth in both the insurance and reinsurance sectors. In Germany, for example, as part of the pension reform, the government plans to promote funded pension provision through subsidies and tax breaks. The general opportunities for growth in life reinsurance are somewhat muted in many traditional markets because of the fierce price competition and continuing consolidation processes in the primary insurance sector. These processes nonetheless often open up avenues for innovative reinsurance solutions, for which we are very well equipped both financially and in terms of personnel.
Our HEALTH business recorded a leap in premium income of no less than 44.6% (62.8%). Growth was above average in North America, where our subsidiary American Re has within a few years become an important reinsurer in this special class of business. We also managed to further consolidate our position in Latin America and the Middle East. Price increases due to remedial measures also contributed to the pleasing premium development. The result improved further.
In PERSONAL ACCIDENT our premium income in the year under review declined by 8.5% (compared with an increase of 14.0% the previous year). The result improved appreciably. In workers’ compensation business, which last year brought us particularly high losses, our remedial measures are beginning to bear fruit.
Premium in MOTOR business grew by 29.8% (3.5%). In individual markets, prices and conditions in the primary insurance sector improved considerably during the year under review, leading us to selectively write new business there. Compared with the previous year though, our result deteriorated somewhat, the main contributory factor being the losses we sustained in the difficult German market.
Our premium in the MARINE, AVIATION and SPACE classes of business was up by 36.9% (3.8%). This was attributable in the main to currency effects, but also to rate increases and to the selective expansion of business in areas where we expect good experience over the next few years.
The result before amortization of goodwill increased by 39.3% (10.1%) to €1.2bn (0.8bn). ERGO’s profit for the year improved to €804m (467m), or 72.3% more than in the previous year.
Gross premiums €m 301 299 Net premiums €m 252 267 Profit for the year €m 8.5 4.8 * Consolidated financial statements in accordance with IAS.
We filter out those risks which could have a significant or even jeopardizing effect on the assets, liabilities, financial position or results of our Group. This analysis confirms that our risk policy is appropriate for effectively reducing the inevitable hazard potential which exists.
We began our preparations for the euro at a very early stage. In the reinsurance group, all conversion work has now been successfully completed. At our primary insurance companies, it will be finished according to plan by 31st December 2001.
It goes without saying that in business transactions we must observe the laws and regulations of each country and compete in the markets with legal and fair means. Only a group that respects the law can claim to be a reliable and trustworthy business partner. On the other hand, precautions must also be taken to ensure that other companies or third parties do not resort to unfair methods in business transactions with us.
The companies in the Munich Re Group are much sought-after employers. Munich Re and ERGO, for their part, are giving increasing weight to variable remuneration. In addition, staff can invest in their companies: ERGO has again set up a stock participation plan, whilst Munich Re has for some 20 years now been promoting the acquisition of units in the Munich Re staff investment fund, of which Munich Re shares make up a material part.
– In MEAG, in just one year, we have combined the portfolio management systems for the investments of the Group and third parties, i.e. the main tool for asset management, into a modern system that also takes account of future requirements. The IT tools used meet the highest standards.
C. Investments for the benefit of life insurance policyholders who bear the investment risk – – – –
Minority interests are shown separately in the balance sheet and the income statement. They represent the amounts apportionable to other shareholders outside the Group from the consolidated shareholders’ equity and profits for the year of the subsidiaries concerned.
The acquisitions in the year 2000 result mostly from the acquisition of Alte Leipziger Europa Beteiligungsgesellschaft AG, Bad Homburg, and BBV Italia S.p.A., Milan.
AAA 347 AA 381 A 30 BBB and lower – No rating 455
Unrealized gains and losses 630 643 Consolidated profit 321 185 Other equity components 1,403 1,297
Status 31st December 5,979 5,014 b) Deferred premium refunds (gross) Status 1st January 15,339 13,593 Change resulting from unrealized gains and losses on investments –2,060 2,158 Change resulting from revaluations 829 –412
Under defined benefit plans the staff member is promised a particular level of retirement benefit either by the company or by a pension fund. The company’s contributions needed to finance this are not fixed in advance.
The consolidated companies used the following actuarial assumptions (weighted average values) for calculating their pension commitments: 31.12.2000 Prev. year