Gross premiums written €bn Investments €bn Net technical provisions €bn Reserve ratios property-casualty % Combined ratio property-casualty %
1 The Hamburg-Mannheimer brand will be subsumed into the ERGO brand in the second half of 2010 as part of ERGO’s new brand strategy. 2 The VICTORIA brand will be subsumed into the ERGO brand in the second half of 2010 as part of ERGO’s new brand strategy.
The World cup four years ago gave Germany the chance to show the world its fun-loving and friendly side. But the importance of this year’s World cup is even greater, as all of Africa hopes that this frequently forgotten continent can project a positive image.
There are major opportunities there, too, due to the fast-rising standard of living. Experience shows that the wealthier people are, the more they spend on healthcare. In developed countries, it is often the case that significantly more than 10% of gross national product flows into the healthcare sector. And this is a rising trend. In less developed regions, the figure is considerably lower. So there is a lot of potential there.
Obviously we are working fl at out to realise the synergies we planned when we set up our new fi eld of business. I attach particular importance to making transparent the many diff erent skills of our 5,000 staff worldwide – all specialists in their fi eld – via networks and joint projects. In future, they should be deployed precisely where they are most valuable for our clients, which is where we need them most. Our staff have understood that our strength lies in this interdisciplinary and international cooperation across specialisations and national boundaries. This new approach is very demanding on the individuals involved. It changes and redefi nes the way they work. Nevertheless, we manage to maintain a pioneering spirit. In addition, we have set ourselves very ambitious goals, individually as well as collectively. Starting this year, we will be reporting our business fi gures separately to our investors for the fi rst time.
in February, eRgO’s two major life insurers hamburg-Mannheimer and Victoria had their service quality tested by TÜV Süd for the first time and were rated “good”. Factors considered were commitment, professional competence and courtesy of staff, as well as availability, reliability and handling of complaints.
// New ERGO brand strategy as a growth engine in november, eRgO announced a revised multi-brand strategy. in future, it will offer life and property-casualty insurance under the eRgO brand in germany as well. The brands Victoria and hamburg-Mannheimer will be withdrawn from the market. health insurance will be pooled under the DKV brand, legal expenses insurance under D.a.S., and travel insurance will continue to be represented by the eRV brand. Direct insurer KarstadtQuelle Versicherungen is to be renamed eRgO Direkt Versicherungen, a change sub sequently implemented in February 2010.
Munich Re shares are no-par-value registered shares. each share carries one vote. First admitted for trading on the stock exchange in Munich on 21 March 1888, they are today listed on all the german stock exchanges, though trading takes place almost exclusively on the Xetra electronic trading platform.
Our corporate strategy geared to sustained increase in value is accompanied by ongoing and open communication with all capital market participants. in the course of 2009, for example, management and our investor relations unit presented Munich Re’s strategic and financial development at more than 40 roadshows, above all in the uSa and europe, and strengthened their presence at investor conferences of various investment banks. Management also held over 100 individual meetings with investors and analysts at our offices.
Our strategy of providing insurance and reinsurance under one roof has again proved its effectiveness. The contrasting developments we experience between markets and lines of business (e.g. in prices and conditions or in growth opportunities) compensate for each other in the group’s business as a whole. at the same time, we see uniform trends, particularly in issues of supervision, accounting, risk management and control, with corresponding synergies from the group perspective. The diversification resulting from the very different portfolios of our insurance and reinsurance business reduces the group’s risk capital requirements.
We have started the new business year with confidence. as a group, we are well positioned for organic growth. Known risks are assuming new dimensions, while at the same time risks that no one had previously thought of are emerging, e.g. through technological innovation. growing risk awareness and, in many areas, greater risk aversion are creating additional demand for insurance coverage. Beyond this, we aim to strengthen our growth with selected acquisitions where this makes strategic sense and is possible at a reasonable price. The following maxim continues to apply: for us, growth is not an end in itself; it must always be profitable.
at the company’s annual general Meeting, the principle of “one share, one vote” applies. Shareholders may exercise their voting rights personally or authorise a proxy to cast their votes. Munich reinsurance company also offers its shareholders the opportunity to have their voting rights exercised in accordance with their personal instructions by one of the proxies nominated by the company. at the annual general Meeting in 2009, an amendment to the articles of association was adopted allowing for electronic participation in the annual general Meeting and postal voting. the details of the procedure are to be determined by the Board of Management and notified when the annual general Meeting is announced. a precondition for taking part in the annual general Meeting is that shareholders have given notice of their intention to participate by the deadline specified in article 6 of the articles of association and are entered in the register of shareholders. insofar as shareholders are entered under their own name as being the holders of shares which belong to a third party and exceed the upper limit of 2% of the share capital as stated in the articles of association, the shares entered do not carry any voting rights. the aim of this provision is greater transparency of the share register. Besides this, it is intended to facilitate direct contact with the real shareholders, especially in connection with the convening of the annual general Meeting and the exercising of voting rights. this regulation applies as from 1 January 2010, also for existing entries.
Corporate governance topics in 2009 the central corporate governance topic in the financial year 2009 was the adjustment of the remuneration system for the Board of Management as from 1 January 2010 to provide even greater incentives for sustainable, long­term­oriented corporate policy.
in the past year, the Supervisory Board again performed an efficiency audit. Both the content and the scope of reports from the Board of Management to the Supervisory Board and the work of the Supervisory Board and its committees were assessed as consistently positive and efficient.
Provision for surviving dependants in the event of the death of a Board member during active service, the surviving dependants (widow/widower, orphans) receive the previous monthly basic remunera­ tion for a period of six months if the deceased was appointed to the Board of Manage­ ment before 2006. in the case of Board members appointed as from 2006, the previous monthly basic remuneration is paid to the beneficiaries for a period of three months.
achievement of annual objectives in the second year, on condition that 50% of the net amount paid out is invested by the Board member in Munich Re shares that must be held for at least a four-year period 70% multi-year performance (for 100% achievement of objectives)
the limitation of the total remuneration of each member of the Supervisory Board to three times the fixed remuneration ensures that the overall remuneration of individual Supervisory Board members remains appropriate even if further committees are set up.
ManageMent RepoRt Munich Re in the reinsurance segment life and health. likewise, health primary insurance outside germany is accounted for in the primary insurance segment health for the last time in 2009.
HealthCare3 Sterling life insurance company, Bellingham, Washington apollo DKV insurance company limited, hyderabad4 cairnstone inc., andover, Massachusetts5
Rappresentanza generale per l’italia, Milan Munich Re France Branch, paris Munich Reinsurance company uK general Branch, london
our value-based management is characterised by the following aspects: // We assess business activities not only according to their earnings potential but also relative to the extent of the risks assumed, which is material in measuring added value as well. only the risk-return relationship reveals how beneficial an activity is from the shareholder point of view.
the change in mceV within one year, adjusted for effects of exchange rate fluctuations, acquisition or sale of companies, dividends and capital injections, is shown by us as the total embedded value earnings. adjustments to eliminate the influences of changes in fiscal and capital-market parameters give the operating embedded value earnings, which are a measure of the operative business performance for one year.
What we aim to achieve – Situation in 2009 the financial crisis, whose repercussions have in the meantime weakened, also had an impact on insurance business in 2009. We nevertheless reached our long-term target of a 15% return on risk-adjusted capital after tax (RoRac) over the full cycle (for a definition of RoRac see page 68). our RoRac of 15.1% for 2009 was a respectable result given the still appreciable financial upheavals and low level of interest rates. this achievement was mainly due to positive claims experience in reinsurance and primary insurance and the improved return on investment of 4.3% (3.4%). the return on investment is the ratio between the investment result of €7.9bn and the average market value of the investment portfolio at the year-end and quarterly reporting dates, totalling €181bn. With Munich Re’s absolute consolidated profit rising to €2.6bn, the return on equity or Roe rose to 11.8% in terms of the average value of iFRS equity at the year-end and quarterly reporting dates. compared with its competitors, Munich Re has weathered the financial crisis relatively well, thanks to its robust capitalisation, prudent risk management and balanced investment policy.
Risk-based Group return target for the financial year 2010 given the continued uncertainties involved in estimating possible implications of the financial and economic crisis, it is difficult to define guidelines for our future entrepreneurial success. nevertheless, the targets we have set ourselves for 2010 are ambitious against the background of continuing uncertainties. For this purpose, we are again employing a risk-based performance measure which we have used for external communication since 2006: return on risk-adjusted capital (RoRac). We derive this target by placing the profit achieved or aimed at, expressed in euros, in relation to the necessary risk capital, the amount of which we determine using our internal risk model and publish once a year. information on the internal risk model is provided on page 155 ff. We thus take into account the economic standards currently underlying (at least to some extent) the requirements of supervisory authorities and rating agencies – standards that are set to play a decisive role in future.
Our targets – Ambitious but attainable in selecting suitable targets, contrasting aspects have to be considered and weighed. on the one hand, undue complexity should be avoided in order to ensure transparency for investors, staff and the public. on the other hand, the challenge lies in reflecting economic realities as closely as possible, avoiding oversimplification, and enshrining added value as the group’s overriding guiding principle. as the above description shows, the background is multifaceted, especially as the parallel use of different performance indicators is unavoidable.
Holger Emmert Member until 22 april 2009 employee of Munich Reinsurance company
Wolfgang Mayrhuber Member since 13 December 2002, last re-elected on 22 april 2009 chairman of the Board of Management of Deutsche lufthansa ag
the european central Bank lowered its reference interest rate from 2.5% to 1.0%, and the Bank of england took similar measures, cutting its interest rate from 2.0% to 0.5%.
1 The previous year’s figures were determined on the basis of European Embedded Value (EEV) Principles. The MCEV for 2008 is €4.7bn. 2 The previous year’s figures were determined on the basis of EEV Principles. The revaluation according to MCEV Principles results in only minor changes.
Munich Re’s reinsurance business performance was pleasing overall in the past financial year. unlike in the previous year, we were largely spared major claims burdens from natural catastrophes. The share of natural catastrophes in the loss ratio was 1.4 (6.2) percentage points, appreciably lower than in the previous year. however, there was a significant increase in man-made losses as a result of the financial crisis. The combined ratio amounted to 95.3% (99.4%) in 2009. We also posted a good result in life and health business in the year under review.
At €24.8bn (21.9bn), our premium income in 2009 was significantly up on the previous year (13.5%). If exchange rates had remained unchanged, our premium income would have been 13.1% higher. Approximately €19.6bn or 79% of premium was written in foreign currency, of which 34.5% was in uS dollars, 12.9% in Canadian dollars, and 12.5% in pounds sterling. 21% of our premium volume was transacted in euros.
We nevertheless expect fundamental growth impulses for our future new business to continue emanating from several factors: the restructuring of the European solvency regime (Solvency II), the continuing privatisation trends in provision for old age, long term care and disability, the need for asset protection, and the dynamic expansion of the insurance markets in Asia.
Gross premiums written in property-casualty 2009 2008 2007 2006 2005 €m Germany, Asia Pacific and Africa Europe and latin America Global Clients and north America Special and Financial Risks
One-third of treaty business at differential terms or on private placement basis
Our premium volume in Japan and Korea remained nearly constant at €554m (559m) with a marked improvement in the quality of the portfolio, which benefited from our financial strength in the renewals and systematic withdrawal from unprofitable business. The good result was also favoured by the fact that 2009 was another year with a low incidence of natural catastrophes and moderate earthquake activity in Japan. In primary insurance, the terms and conditions for Japanese fire business and engineering business are not yet satisfactory from our point of view. We therefore wrote a greater quantity of profitable natural catastrophe covers (earthquake/typhoon) in Japan while simultaneously withdrawing from proportional fire business. besides this, we secured a rise in the number of treaties in the natural catastrophe sector written at differential terms. In addition, we supported Japanese insurers in expanding abroad through appropriate international reinsurance programmes.
Munich Reinsurance Canada Non-Life Group – Munich Reinsurance Company of Canada (MROC) and Temple Insurance Company – continued its pattern of producing very good results. Whilst in-force business in the market’s highly competitive environment was managed profitably, we made further progress with the extension of our activities in specialised insurance via Temple Insurance Company, in particular.
In marine reinsurance, where total premium income amounted to €1.3bn, our Watkins Syndicate at lloyd’s in london generated premium revenue of €361m (372m). Since the 2009 financial year, we have reported the business of the syndicate in the reinsurance segment. The expansion of our international network of marine underwriting agencies is making good headway – for instance via the activities of Köln.Assekuranz and of Roanoke in the uSA. Given the high natural catastrophe losses in 2008, we were able to exploit business opportunities, especially in the energy sector, where increased prices and positive business performance produced a satisfying result. The primary insurance and reinsurance markets are continuing to develop differently in certain areas. While the reinsurance market remained technically stable, the primary insurance market continued to be subject to pressure on original rates, in particular in cargo business. In reinsurance business exposed to natural hazards and major losses, significant improvements in prices, terms and conditions were achieved in 2009. The recession led to initial declines in premium income, but the loss ratios are developing positively as expected. For 2010, we anticipate a clear decline in premium, above all in cargo business. We have recorded a decrease in premium volume in offshore energy business, since a number of policyholders have refrained from purchasing cover for hurricane damage in the Gulf of Mexico due to the strong rise in original premiums. This trend is likely to continue in 2010.
Our Risk Trading Unit places insurance risks on the capital and retrocession markets. We provide this unit’s services primarily for our clients but we also use them for our own purposes when laying off insurance risks is opportune from the risk management point of view. In 2009, we carried out a client transaction in the first half of the year (IAnuS, uS$ 70m; €50m) to cover the Turkish earthquake and European windstorm scenarios. In another client transaction involving a volume of over uS$ 225m, Earthquake California capacity was placed with investors. Moreover, Munich Re provided advice in a Multiple-Catastrophe Mexico transaction with a volume of uS$ 290m.
The MCEV of life reinsurance business increased to €3,155m (1,726m) in the financial year 2009. The revaluation of the previous year’s figure in connection with the conversion from EEV to MCEV Principles resulted in a decrease of €60m. Total MCEV earnings increased to €1,329m (–2,461m), reflecting not only the positive trends on the capital markets last year but also our higher operating result. The value added by new business improved to €96m (–85m). A presentation of MCEV is available on Munich Re’s website.
In the year under review, premium volume increased to €5.2bn (5.1bn), 1.0% up on the previous year. As mentioned above, ERV and almeda (formerly Mercur) have been recognised in the health primary insurance segment since 1 January 2009, and the Watkins Syndicate is now reported in reinsurance. The previous year’s figures have been adjusted accordingly. In our international business, we posted a premium volume of €1.99bn (2.00bn) for 2009, a decline of 0.4% against the previous year. While there was growth in premium income generated by the South Korean company ERGO Daum Direct, which has been part of our consolidated group since April 2008, there were also strong decreases due to changes in exchange rates, especially in Poland and Turkey. In German business, our premium income totalled €3.2bn (3.1bn), climbing by a modest 1.9%. This increase was largely driven by commercial and industrial business, where we posted 4.5% growth in premium to €752m (719m). In our target lines of commercial property and liability business, we recorded year-on-year increases of 2.8% and 3.1% respectively. The performance of personal lines business, by contrast, was impacted by the highly competitive class of motor business. Although we endeavoured to avoid being caught up in the ongoing price competition, our premium nevertheless suffered a decline of 1.3%. In personal accident insurance, we posted a year-on-year increase of 3.1%. legal expenses insurance showed a rise of 2.6% to €940m (917m), mainly thanks to international business.
The revaluation of the whole portfolio of fixed-interest securities categorised as “available for sale” led to write-downs of €139m (478m) in 2009. In this connection, we made write-downs totalling approximately €52m on our structured-credit portfolio, with mortgage-backed securities and collateralised debt obligations being particularly affected. To take account of the risk of non-payment and capital reductions in respect of participation certificates, dormant holdings and similar banking-sector equity instruments, we booked write-downs of around €110m on such investments, €75m of which was apportionable to fixed-interest securities available for sale.
1 Previous year adjusted owing to a change in valuation methodology.
Development of Group equity in €bn issued capital and capital reserve Retained earnings other reserves consolidated result attributable to Munich Reinsurance company equity holders
Restrictions on voting rights or the transfer of shares the listed registered shares are subject to transfer restrictions. the issuing of restrictedly transferable registered shares by Munich Reinsurance company dates back to the company’s foundation in 1880 and is a very common phenomenon in the insurance industry. Restricted transferability means that these shares may be transferred to another holder only with the company’s consent, which, according to article 3 para. 2 of Munich Reinsurance company’s articles of association, is granted at the company’s discretion. since the share-trading processes have been made very efficient, the consent requirement does not lead to any delays in entry in the register. in recent decades, it has been granted without exception.
the german stock companies act contains special regulations on amendments to the articles of association where increases and reductions in share capital are concerned (sections 182–240 of the act). under these regulations, all resolutions on capital measures are generally to be made by the annual general Meeting. Within a self-determined scope, however, the annual general Meeting can authorise the Board of Management to initiate certain (capital) measures (the authorisations relating to Munich Reinsurance company are listed below). in all such cases, a resolution of the annual general Meeting is required that has been adopted by at least a three-quarter majority of the share capital represented in the vote. Where these resolutions are concerned, the company ’s articles of association again do not provide for other (i.e. higher) majorities or further requirements.
127ManageMent RepoRt financial position the above-mentioned authorisations to issue or buy back shares are within the range of what is customary in the market and allow the company to engage in active capital management. they enable it to cover any capital needs, even at short notice, for taking swift and flexible advantage of market opportunities in different fields of business. as demonstrated by the company’s share buy-backs, the authorisations also offer the opportunity to return capital that is no longer required to the equity holders.
Due to the diversity and complexity of Munich Re’s business, it is not possible to produce a set of rules for acceptance that would fully cover all relevant risks. the training of operational underwriters is therefore of prime importance. this is achieved through organised training, provision of it systems for risk assessment and pricing, circulation of information papers and underwriting recommendations, and working groups set up to prepare underwriting knowledge for transmission to underwriters.
of importance for health primary insurance are the biometric risk, the lapse risk and the benefits risk for long-term policies. however, if there are permanent changes in the biometric actuarial assumptions, i.e. assumptions regarding mortality and morbidity development, there is generally the possibility of a premium adjustment. for short-term health primary insurance business, on the other hand, the primary risk is a sudden increase in expenses due to exceptional one-off events, e.g. pandemics.
in addition to credit risks arising out of investments and transactions with suppliers and clients, we actively assume credit risk through the writing of insurance and reinsurance business. this includes trade credit reinsurance and surety business, financial reinsurance (life and non-life) and the granting and insurance of loans. credit risks can also arise through reinsurance, risk transfers to the capital markets and other financial transactions.
the diagrams below show our estimated exposure to the two peak scenarios for a return period of 200 years.
in calculating RoRac (see definition on page 68), the factor “additional available economic equity” is also relevant. it is the difference between the economic equity and the economic risk capital and amounted to €6.2bn (3.1bn) at 31 December 2009.
(B) minus (D): Economic capital buffer (C) divided by (D): Economic solvency ratio
in property-casualty insurance, we expect slight premium growth to a good €5bn, stemming from both german and international business. in germany, we expect an increase even though market premium as a whole is likely to decline somewhat. our goal is to keep the combined ratio for property-casualty business including legal expenses insurance at the good level of under 95%.
Besides this, we raised our investments in inflation-indexed bonds with the aim of further hedging the inflation sensitivity of our liabilities. at present, we see no indicators for an immediate rise in inflation in 2010. We are nevertheless preserving the option of moderately expanding our portfolio of indexed bonds in 2010. We marginally reduced our large portfolio of government bonds compared with the previous year.
in the area of alternative investments, we intend to invest more strongly in renewable energy and new technologies. given adequate profitability prospects, we envisage investing a sum of around €2.5bn over the coming years. We do not plan to actively expand our relatively small investment volume in hedge funds and private equity, which had a market value of around €485m at 31 December 2009 and investment commitments of some €1,025m at 31 December 2009.
182 consolidated financial stateMents consolidated balance sheet consolidated balance sheet as at 31 december 20091
F. Cash at bank, cheques and cash in hand G. Deferred acquisition costs (14) Gross Ceded share Net H. Deferred tax assets (15) Thereof: Deferred tax assets relating to disposal groups (17) I. Other assets (16) Thereof: Owner-occupied property held for sale Total assets
– – – – – –29 – – –10 –39 – – – – –2,781 – – – –10 –2,791 – – –4 – –15 – – – – –19
the combined opening balance sheet of the hsB group at the time of acquisition, after elimination of its intra­group business, includes the following provisional ifRs figures (the amounts in brackets are the figures directly prior to the business combination): intangible assets of €116.9m (1.7m), investments of €888.8m (888.8m), a ceded share of technical provisions of €147.6m (147.6m), cash at banks, cheques and cash in hand of €31.1m (31.1m), deferred acquisition costs of €58.8m (58.8m), receivables, deferred tax assets and other assets of €296.5m (281.9m), subordinated liabilities of €31.5m (60.2m), gross technical provisions of €676.1m (676.1m), and other provisions, liabilities and deferred tax liabilities of €322.7m (226.8m).
WfB’s opening balance sheet at the time of acquisition includes the following provi­ sional ifRs figures (amounts directly prior to the business combination): investments of €187.3m (85.8m), cash at banks, cheques and cash in hand of €31.4m (0.9m), receivables, deferred acquisition costs and other assets of €11.9m (3.9m), other provisions and liabilities of €93.1m (90.5m), and deferred taxes of €26.7m (–).
in connection with the acquisition of WfB, goodwill of €17.5m was recognised. this goodwill was based mainly on expected future rental increases for real estate. given the deterioration in the financial market situation since conclusion of the purchase contract in June 2007, the goodwill was reviewed with regard to impairment and was fully written off in the fourth quarter of 2009.
203consolidated financial stateMents notes all unrealised gains or losses from such valuation are included in the investment result.
securities lending securities that we lend by way of securities lending continue to be recognised in our balance sheet, as the main risks and rewards remain with Munich Re; securities that we have borrowed are accounted for by the lender. fees from securities lending are shown in the investment result.
214 consolidated financial stateMents notes 1 previous year’s figures adjusted pursuant to ifRs 3.62 (see “consolidation”) and to ifRs 8 and ias 8 (see “changes in accounting policies”).
the goodwill of WFB Stockholm Management AB (formerly fastighets aB Bangardsposten ), acquired on 1 december 2009, was fully written off in the fourth quarter of 2009. the write-down amounts to €18m and is due to the financial market situation, which has deteriorated since the purchase contract was signed in June 2007, and a related reduction in the future rent increases expected for real estate.
Main assumptions for calculating the cash-generating units’ value in use the impairment test for the goodwill from the acquisition of Munich Re america and from the acquisition of eRgo was carried out on the basis of the current cash flow plans at the time of testing in the third quarter.
Underlying assumptions for the Reinsurance eRgo cash flow prognoses at the time property-casualty of the impairment test segment significant assumptions regarding in the detailed planning phase, we expect for the detailed planning, growth in results cash flow planning (at the time of rising premium income with a slight is expected on average. the planning) reduction in the loss ratio. our general assumption was that there will our general assumption in the investment be moderate upward movement on the planning was that the interest-rate level equity markets and a stable interest-rate will remain stable. level.
Breakdown of investments in 31.12.2009 prev. year opening aff iliated companies and associates balance sheet prev. year €m Aff iliated companies recognised at fair value Associates valued at equity thereof: primary insurance life primary insurance health primary insurance property-casualty Reinsurance asset management Associates recognised at fair value Total
Contractual period to maturity carrying amounts fair values €m 31.12.2009 prev. year 31.12.2009 prev. year up to one year over one year and up to two years over two years and up to three years over three years and up to four years over four years and up to five years over five years and up to ten years Total
7 // Hierarchy for the fair value measurement of investments at 31 december 2009, around 76% of the investments measured at fair value derives from investments allocated to level 1 of the fair value hierarchy, 22% from level 2, and 2% from level 3.
Disposal proceeds in the fi nancial year 2009 prev. year €m Fixed-interest securities Non-fi xed-interest securities Quoted unquoted Total
231consolidated financial stateMents notes the rating categories are based on those of the leading international rating agencies. in deviation from the purely economic view, the carrying amount of the securities represents the maximum exposure to credit risk at the balance sheet date, in accordance with ifRs 7.
232 consolidated financial stateMents notes the rating categories are based on those of the leading international rating agencies. in deviation from the purely economic view, the carrying amount of the securities represents the maximum exposure to credit risk at the balance sheet date, in accordance with ifRs 7.
233consolidated financial stateMents notes the following table shows the fair values and the related notional principal amounts of all our open positions, broken down according to risk types. positive and negative fair values have been netted. at 31 december 2009, the open positions amounted to €160m (2,015m), or 0.1% (0.9%) of the balance sheet total.
4 eRgo international ag holds bonds with a nominal value of €3m; the volume outstanding has been reduced accordingly.
247consolidated financial stateMents notes the item “change/other” contains €326m in savings premiums for capitalisation products and €54m for portfolio entries and withdrawals. scheduled changes in the provision for future policy benefits contain the changes deriving from prospective calculation as a result of premium payments, benefit cases and the unwinding of discount in the year under review. unscheduled changes stem from alterations in the assumptions underlying the calculations, which required an adjustment in the measurement.
Development of provision for premium refunds based on 2009 prev. year national regulations €m status at 31 dec. previous year change in consolidated group allocations/Withdrawals Status at 31 Dec. fi nancial year
in addition to expenses of €292m (250m) for services rendered, the other operating expenses chiefly include interest charges and similar expenses of €132m (182m), other write-downs of €85m (62m), and other tax of €36m (20m). they also contain expenses of €44m (17m) for owner-occupied property, some of which is also leased out.
Interest-rate risks a distinction must be made between risks of changes in interest rates on the one hand and interest-rate guarantee risks on the other. Risks of changes in interest rates would result from the discounting of the provision for future policy benefi ts and of parts of the provision for outstanding claims. in accordance with accounting valuation rules, the discount rate is fi xed at contract commencement and will generally not be adjusted during the term of the contract. to this extent, the accounting valuation of these technical provisions does not depend directly on the level of the market interest rates.
Payment flows and liquid funds 2009 2008 2007 2006 2005 in the individual calendar years (gross) €m premiums received claims payments for financial year claims payments for previous years costs liquid funds
Market risk – Exchange rates our asset-liability management gears the currency structure of our assets to that of our liabilities. as a substantial portion of our non-euro liabilities is in us dollars, around 60% of the investments’ sensitivity to exchange rates shown above stems from the us dollar. the British pound and the canadian dollar contribute a further 23%. in this analysis, an increase of 10% in the exchange rate means that the foreign currency appreciates by 10% against the euro.
42 // Related parties information on the remuneration of Board members and transactions with these persons can be found in the remuneration report, starting on page 36 and under (46) Remuneration report. transactions between Munich Reinsurance company and subsidiaries that are to be deemed related parties have been eliminated in consolidation and are not disclosed in the notes. Business relations with unconsolidated subsidiaries are of subordinate importance as a whole; this also applies to business relations with associates.
Due dates 31.12.2009 prev. year €m not later than one year later than one year and not later than five years later than five years Total
Due dates 31.12.2009 prev. year €m Minimum interest present value Minimum interest present value lease component of minimum lease component of minimum payments lease payments lease payments payments not later than one year later than one year and not later than five years later than five years Total
53 // Earnings per share diluting effects to be disclosed for the calculation of earnings per share were not present either in the financial year or in the previous year. earnings per share can be potentially diluted in future through the issue of shares or subscription rights from amounts authorised for increasing the share capital and from contingent capital.
Reinsurance, consolidated companies and associates american alternative insurance corporation, Wilmington, Delaware 100.00% 44,787 10,279 american Family home insurance company, Jacksonville, Florida 100.00% 103,542 13,126 american Modern home insurance company, amelia, ohio 100.00% 233,238 24,548 american Modern insurance company of Florida, inc., Jacksonville, Florida 100.00% 5,766 328 american Modern insurance group, inc., amelia, ohio 100.00% 51,672 3,923 american Modern life insurance company, amelia, ohio 100.00% 28,519 1,347 american Modern Select insurance company, amelia, ohio 100.00% 19,743 2,742 american Modern Surplus lines insurance company, amelia, ohio 100.00% 18,861 1,933 american Southern home insurance company, Jacksonville, Florida 100.00% 20,339 2,169 american Western home insurance company, oklahoma city, oklahoma 100.00% 35,079 4,049 apollo DKV insurance company limited, hyderabad5 25.06% 30,669 -11,004 B&c international insurance, hamilton, Bermuda 100.00% 2,272 157 Beaufort underwriting agency limited, london 100.00% 4,613 843 Bell & clements (london) ltd, london 100.00% -1,287 -49 cairnstone inc., Wilmington, Delaware 100.00% 701 133 DaMan – national health insurance company, abu Dhabi5 20.00% 56,303 6,477 DKV globality S.a., luxembourg 100.00% 2,929 -4,597 DKV Salute S.p.a., Milan 100.00% 15,605 -5,128 global Standards llc, Wilmington, Delaware 100.00% 54,705 11,936 great lakes Reinsurance (uK) plc., london 100.00% 330,374 84,779 hSB engineering insurance limited, london 100.00% 114,477 14,843 hSB group, inc., Wilmington, Delaware 100.00% 447,361 -1,004 hSB professional loss control, inc., lenoir city, tennessee 100.00% 1,316 11 hSB Solomon associates llc, Wilmington, Delaware 100.00% 5,724 1,386 lifeplans inc., Waltham, Massachusetts 100.00% 4,106 599 Mednet holding gmbh, Munich 100.00% 25,382 4,583 MSp underwriting ltd., london 100.00% 19,905 772 Münchener Rück do Brasil Resseguradora S.a., São paulo 100.00% 32,915 -8,129 Munich american holding corporation, Wilmington, Delaware 100.00% 7,362,997 82,377 Munich american Reassurance company, atlanta, georgia 100.00% 1,052,603 45,124 Munich health holding ag, Munich3 100.00% 65,248 -557 Munich holdings of australasia pty. ltd., Sydney 100.00% 50,697 2,802 Munich Mauritius Reinsurance co. ltd., port louis 100.00% 23,675 663 Munich Re america corporation, Wilmington, Delaware 100.00% 3,074,614 98,005 affiliated companies, participating interests and other shareholdings1 conSoliDateD Financial StateMentS noteS
Interest-rate curve // plotted on a graph, it models the relationship between interest rates and the term of an investment (e.g. fixed-interest securities). as a rule, the interest rate increases the longer the term. this type of interest-rate curve is therefore referred to as rising (or normal). an interest-rate curve is defined as flat if the interest rate is independent of the term. inverse (or declining) interest-rate curves are rare. they are produced when less interest is paid on long-term securities (bonds) than on short-term securities.
Premiums // the amount that has to be paid for the insurance cover provided by an insurer. it may be paid as a regular or single premium. premiums written means all premium income that has become payable in the financial year. the portion of this premium income that constitutes payment for insurance cover in the financial year is referred to as earned premiums. in the case of products that are largely of an investment nature (e.g. financing treaties and unit-linked life insurance), it only includes – under iass/ifRss – the amount serving to cover the risk and costs. however, under statutory accounting rules in the insurance company’s home country, premium income may also include the policyholders’ savings premiums from unit-linked life insurance and capitalisation products.
Midland company 58, 102 Münchener Rück do Brasil 101 Münchener Rück italia 31, 57, 101 Munich american Reassurance company (MaRc) 94 Munich health 8, 18 ff., 56 f., 62 ff., 88 ff., 145, magazine 16 ff. Munich Re foundation 142 net asset value method 202 new Re 103
staff 136 ff. sterling life insurance company 56, 96, 171 strategic debt 120 ff. subordinated bonds 128 f. supervisory Board 23 ff.