Reinsurance 2019 2018 2017 2016 2015 Gross premiums written €m 33,807 31,286 31,569 31,463 Investments (incl. insurance-related investments) €m 92,429 85,605 85,804 91,928 Net technical provisions €m 77,166 72,407 68,109 67,067 Major losses (net) €m –3,124 –2,152 –4,314 –1,542 –1,046
Natural catastrophe losses €m –2,053 –1,256 –3,678 –929 –149 Combined ratio property-casualty % 101.0 99.4 114.1 95.7 89.7 Investment result €m 3,233 2,543 2,760 2,275 Consolidated result €m 2,268 1,864 120 2,540
Thereof: Life and Health Germany €m 187 264 175 114 –329 Thereof: Property-casualty Germany €m 148 45 57 –72 214 Thereof: International €m 105 103 40 –1 1 You will find this information as a downloadable Excel file in the financial supplement under www.munichre.com/results-reports. 2 Subject to approval by the Annual General Meeting. 3 Including those apportionable to minority interests and policyholders.
Due to rounding, there may be minor deviations in summations and in the calculation of percentages in this report.
The past year has been a successful one for the Group – Munich Re generated a profit of €2.7bn in 2019. We increased our results once again, and exceeded our profit target of €2.5bn. We want you, our shareholders, to benefit from this success through an increased dividend – and so we are proposing that the Annual General Meeting approve a dividend increase to €9.80 per share.
A central pillar here is our climate strategy. We have undertaken to make our investment portfolio climate-neutral by 2050, in line with the target of the Paris Agreement to limit the global temperature increase to 1.5°C. Munich Re has joined the Net-Zero Asset Owner Alliance under the leadership of the United Nations, in which we are working together with institutional investors with over US$ 4 trillion in assets under management.
This approach has paid off: last year we acquired further shares worth US$ 250m in Next Insurance. Once the transaction is completed, we will own almost 30% of the company which offers customised digital insurance solutions to small and medium-sized companies in the US market. This joint venture allows us to participate in a high-margin market segment with a premium volume of around US$ 140bn per year. By tapping into an identified target market through modern online sales, we are advancing our Group strategically.
Another area we are working on is the development of digital services: With a new online platform, we are giving life insurers the opportunity to clarify medical queries in the application process digitally. The quality of the collected data can thus be improved, and processing time reduced by up to 90%. At the same time, we provide software solutions that insurers can comfortably integrate into their IT systems, thereby reducing the length of the application process by up to two thirds.
We are also working on improving the quality and speed of our processes. ERGO has automated many of these in order to offer customers optimal service. The number of robotics applications that support staff in their daily work has risen significantly. Customer requests are now handled more quickly: we have halved the average processing time of applications in the life segment.
We are opening up new digital fields of business in the Internet of Things: We are setting up a company with sports-car manufacturer Porsche and its consultancy subsidiary MHP to offer digital, flexible production concepts and software solutions. It will allow industrial customers to develop innovations more quickly by means of very small but economical production runs – with minimum capital requirements and reduced investment risk.
ERGO has entered into a partnership with the Chinese automobile manufacturer Great Wall Motors. The joint aim is to establish a leading company for technology- and data-driven mobility solutions in the Chinese market, and to sell insurance, including through our trading partner Great Wall’s business partners.
These initiatives and efforts emphasise Munich Re’s commitment to being the leading provider of digital insurance solutions. This allows us to consolidate our existing business, broaden the Group’s profit base in the long term, and bolster our competitive position.
We are reducing complexity. Munich Re is now more focused and efficient than ever. ERGO has successfully sold 18 smaller international companies, in order to sharpen its focus on relevant core markets. In reinsurance, we have increased our impact in industry business by bundling facultative reinsurance units and direct industry business in a single global unit. We are doing more business with fewer resources and – through lower costs – opening up additional scope for investing in digitalisation and new areas of business.
We are earning higher revenues. Once again, we succeeded in increasing our profits and we also exceeded our profit guidance. Our primary insurer ERGO continued its upward trajectory and managed to beat its profit target. The basis for this success has been consistent implementation of the Strategy Programme launched in 2016. We have successfully implemented our growth initiatives in the reinsurance field of business – including in the USA, Asia and in the cyber risk market, which continues to grow. Here, too, we have beaten our target, despite high natural catastrophe losses in the second half of the year, due in part to the typhoons Hagibis and Faxai in Japan.
Munich Re Group Annual Report 2019 optimisation of our investments will drive profits. In increasingly difficult capital markets, since the appointment of our Chief Investment Officer we have made the Group’s investment process more stringent and have geared it to further enhancing the risk-return profile of our portfolio.
Composition of the Board of Management Committees 25 Members of the Supervisory Board and their mandates on statutory supervisory boards and comparable bodies
Focal points of the meetings of the full Supervisory Board There were six meetings of the Supervisory Board in the year under review. We regularly held in-depth discussions with the Board of Management about business performance and current topics, with a special focus on strategic considerations of the Board of Management with respect to the individual fields of business. The Board of Management reported to us regularly on Munich Re’s
Munich Re Group Annual Report 2019 investments, addressing developments in the global economy and financial markets in detail, as well as their impact on the Group’s assets, financial position and results. In addition, we advised the Board of Management on matters of strategic importance for the future of the Group, including its digitalisation, growth and investment strategies. The Supervisory Board also met regularly without the Board of Management. In addition to the above-mentioned issues, we dealt with the following topics at the individual meetings in 2019: The meeting on 19 March focused among other things on the Company and Group financial statements for 2018, the combined management report, the separate Non-Financial (Group) Statement for 2018 and the Supervisory Board’s motions for resolution by the 2019 Annual General Meeting. Furthermore, we conferred and took decisions regarding the evaluation of the 2018 annual bonuses and the consequent bonus payments to the individual members of the Board of Management. We also adopted a resolution on the change to the Board of Management’s rules of procedure that had become necessary when the Board of Management was expanded to include the additional position of Chief Investment Officer. In addition, we considered reports on the Compliance Management System (CMS) and examined the implementation status of the ERGO Strategy Programme. Representatives of the German Federal Financial Supervisory Authority (BaFin) attended this meeting as guests as a matter of routine.
Following the Annual General Meeting on 30 April 2019, there was a constituent meeting of the new Supervisory Board in which we held the election for the Chairman of the Supervisory Board and the Deputy Chair, and the election for members and chairs of the six Supervisory Board Committees.
On 16 July, we discussed in particular the planning for development of Munich Re’s strategy and the Group’s position with regard to the challenges posed by climate change. We were also informed about the projects to introduce the updated accounting standards IFRS 9 and IFRS 17.
On 16 October, the agenda included corporate governance issues: the resolutions concerning the Declaration of Conformity with the German Corporate Governance Code and the results of the year’s efficiency review. Other topics covered included the submission of the Group-wide remuneration report for the 2018 financial year in line with Solvency II and the Remuneration Regulation for Insurance Companies (VersVergV). The Board of Management also informed us about the investment strategy under the new Chief Investment Officer appointed in the spring, and about the development of reinsurance business in North America. We also received information about significant changes affecting the Supervisory Board as a consequence of the new version of the German Corporate Governance Code and the Act Implementing the Second Shareholders’ Rights Directive (ARUG II).
On 11 December, we made a decision about a change to the Board of Management. We also discussed and made a decision about the extension of an appointment to the Board of Management. Furthermore, we established the amount of remuneration for the Board of Management from 2020, as well as the assessment basis for variable remuneration for 2020. In preparation for ARUG II and the reform of the German Corporate Governance Code, and in order to enable flexible committee work, we decided to make changes to the rules of procedure for the Supervisory Board and the Audit Committee. In this regard, we transferred responsibility in accordance with Section 111a(2) of the Stock Corporation Act (AktG) to the Standing Committee to set up an internal
Munich Re Group Annual Report 2019 procedure to assess whether related party transactions are entered into in the ordinary course of business and concluded on normal market terms. We also slightly extended the catalogue of business transactions that require the approval of the Supervisory Board. In addition, we looked into the Group’s risk strategy in the course of the report on Munich Re’s risk situation by the Group Chief Risk Officer. Furthermore, the Board of Management reported on Group planning for the 2020 financial year, presented us with the Group human resources report, and explained the focus of human resources work in the Group. It also informed us about the Group’s IT strategy.
The Personnel Committee held five meetings in the period under review. The Committee essentially prepared the resolutions on matters involving the Board of Management already mentioned in the report on the work of the full Supervisory Board, unless these fell under the remit of the Remuneration Committee. One focus of the Personnel Committee’s work is the assessment of fitness and propriety requisite for the new appointment of a member of the Board of Management and the extension of the appointment of a member of the Board of Management. In addition, the Personnel Committee approved the assumption of mandates on supervisory, advisory and similar boards by members of the Board of Management. It also dealt with Groupwide succession planning, especially with regard to Board-level appointments. Furthermore, the Personnel Committee decided to abolish the existing framework for deferred compensation at the end of 2019 and to introduce a new system with effect from 1 April 2020.
The Remuneration Committee met five times in the period under review. In particular, it is responsible for preparing resolutions on matters involving the Board of Management – as already mentioned above when reporting on the work of the full Supervisory Board – as far as these resolutions concerned the amount of remuneration, the establishment of the assessment basis for variable remuneration and the corresponding evaluation, as well as the sections of the Board members’ contracts relating to remuneration. In addition, it looked at current trends and developments regarding the company pension scheme for members of the Board of Management. In addition, it dealt with the fringe benefits for members of the Board of Management disclosed in the 2018 Group Annual Report.
The Audit Committee held six meetings in the period under review. Five of these meetings were attended by the external auditor. In its meetings in February and March 2019, the Audit Committee discussed the Munich Reinsurance Company and Group financial statements, the combined management report, the auditor’s reports and the Board of Management’s proposal for the appropriation of the net retained profits for the 2018 financial year. The Committee also discussed in detail the material information underlying the quarterly reports for Q1 and www.munichre.com/supervisory-board www.munichre.com/supervisory-board
Q3 2019, and together with the auditor examined in detail the 2019 Half-Year Financial Report. The Committee heard regular reports on the key Solvency II figures and discussed the quarterly reporting to the Supervisory Authority in these meetings. Another key task of the Committee consisted in monitoring the Group’s risk situation and risk management on an ongoing basis, and discussing its risk strategy: the Group Chief Risk Officer provided detailed verbal input at several meetings of the Committee in addition to the quarterly written reports submitted. The Head of the Actuarial Function presented the report of the actuarial function of Munich Re (Group) at one Committee meeting. Further issues discussed regularly were the internal control system and compliance topics. The Group Chief Auditor informed the members of the Committee in full about the outcome of the audits for 2018 and the audit planning for 2019. The Committee received regular updates on the current status of individual compliance issues and the progress of audits. Without the Board of Management being present, the members of the Committee took the opportunity to confer amongst themselves or with the Group Chief Auditor, the Group Chief Compliance Officer, the Group Chief Risk Officer and the external auditor on a regular basis. In addition, the Audit Committee and the external auditor exchanged views on selected topics on an ad-hoc basis between meetings. Furthermore, the Audit Committee closely reviewed and monitored the auditor’s independence. It regularly called for reports on the auditor’s new activities beyond the auditing of the annual financial statements and on the utilisation of the statutory limit for awarding such contracts. The auditor presented the Audit Committee with explanations of the key audit matters for the 2019 financial year. The Audit Committee also prepared a report for the full Supervisory Board on the appointment of the external auditor for the 2019 financial year, determined the main points of the audits, and set the auditor’s fees. Following a resolution by the full Supervisory Board, the Chair of the Audit Committee commissioned KPMG Bayerische Treuhandgesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft (KPMG), Munich, with the audit for the 2019 financial year, and also commissioned the auditor’s review of the 2019 Half-Year Financial Report.
Corporate governance and Declaration of Conformity The Supervisory Board pays close attention to good corporate governance. Together with the Board of Management, we therefore published the Declaration of Conformity pursuant to Section 161 of the German Stock Corporation Act (AktG) in November 2019. The Company has complied and intends to continue to comply with all of the recommendations of the German Corporate Governance Code as amended on 7 February 2017. We confirmed our assessment that all 20 members of the Supervisory Board are to be regarded as independent and that they do not have any relevant conflicts of interests.
For details, see the Statement of Corporate Governance on pages 16 ff.
Changes on the Board of Management The Company’s Board of Management was expanded with effect from 18 March 2019 to include the position of Chief Investment Officer. In this function, Nicholas Gartside is responsible for all of the asset management of Munich Re (Group).
For personal reasons, Hermann Pohlchristoph is not extending his appointment that expires on 30 April 2020, and will leave the Company. Achim Kassow has been appointed as his successor with effect from 1 May 2020, and he will take over responsibility for the Asia Pacific and Africa division and for the central divisions Central Procurement and Services.
Changes on the Supervisory Board The term of office of the Supervisory Board members expired at the end of the Annual General Meeting on 30 April 2019. The shareholder representatives Bernd Pischetsrieder and Henning Kagermann left the Supervisory Board. We would like to thank Dr. Pischetsrieder for his immense commitment to Munich Re during his 17 years as a member of the Supervisory Board, including six years as Chairman. During this time, he successfully monitored and supervised Munich Re with great responsibility and foresight. We would also like to express our thanks to Professor Kagermann for his many years of valuable and constructive support, especially during his time as Chairman of the Audit Committee.
Christian Fuhrmann, Marco Nörenberg, Andrés Ruiz Feger, Ina Hosenfelder, Beate Mensch and Angelika Wirtz stepped down from their roles as employee representatives on the Supervisory Board. The Supervisory Board would like to thank all departing members for their expert advice, with which they accompanied and supervised Munich Re in a committed manner, in some cases over many years.
Company and Group financial statements for 2019, Solvency II reporting and non-financial information The auditor KPMG duly audited the annual financial statements of Munich Reinsurance Company, the Group financial statements and the combined management report as at 31 December 2019, and issued them with an unqualified auditor’s opinion. The German Public Auditor responsible for the engagement is Dr. Frank Ellenbürger. He first took charge of the audit of the Company and Group financial statements for the financial year ending 31 December 2013.
The above-mentioned reports and the Board of Management’s proposal for appropriation of the net retained profits were submitted to the members of the Supervisory Board. On 21 February 2020, the Audit Committee intensively discussed the preliminary year-end figures as at 31 December 2019, along with the Board of Management’s proposal for appropriation of the net retained profits. At its meeting on 26 February 2020, the Supervisory Board also intensively discussed the preliminary year-end figures as at 31 December 2019, along with the Board of Management’s proposal for appropriation of the net retained profits. On 16 March 2020, the Audit Committee prepared the Supervisory Board’s resolution on the adoption of the Company financial statements and the approval of the Group financial statements. To this end, the Audit Committee examined the annual and consolidated financial statements and the combined management report in advance. It discussed these at length with the external auditor present at
Munich Re Group Annual Report 2019 the meeting, and gave detailed consideration to the auditor’s reports. The Audit Committee paid particular attention to the key audit matters described in the auditor’s opinion, including audit activity. The Chair of the Audit Committee briefed the full Supervisory Board about the outcome of its consultations at the balance sheet meeting. In its March meeting, the Audit Committee discussed the preliminary key figures under Solvency II reporting – and the Solvency II ratio in particular – and reported on this to the full Supervisory Board.
The full Supervisory Board also checked the financial statements of Munich Reinsurance Company and the Group, and the combined management report. The auditor’s reports were available to all members of the Supervisory Board and were discussed in detail at the balance sheet meeting of the Supervisory Board on 17 March 2020 in the presence of the external auditor. The auditor reported on the scope, the main points, and the key results of the audit, going into particular detail on the key audit (please refer to the auditor’s report on page 185) and the audit activity conducted. There were no reports of material weaknesses in the internal control system or the risk management system.
The Standing Committee received the separate Non-Financial (Group) Statement for the 2019 financial year. The Standing Committee considered the Statement on 17 March 2020. Also on 17 March 2020, the full Supervisory Board examined the separate Non-Financial (Group) Statement, taking due consideration of the external auditor’s findings, and approved it.
Bernd Pischetsrieder1 2/2 100% 3/3 3/3 1/1 2/2 1/1 Nikolaus von Bomhard2 4/4 100% 2/2 3/3 4/4 1/1 Marco Nörenberg1 2/2 100% 1/1 Anne Horstmann 6/6 100% 3/3 2/2 Ann-Kristin Achleitner 6/6 100% 5/5 6/6 2/2 Kurt Wilhelm Bock 6/6 100% 3/3 1/1 Clement Booth 6/6 100% Ruth Brown2 4/4 100% Stephan Eberl2 4/4 100% 2/2 2/2 3/3 Frank Fassin 6/6 100% Benita Ferrero-Waldner 6/6 100% Christian Fuhrmann1 2/2 100% 2/2 Ursula Gather 6/6 100% Gerd Häusler 6/6 100% 4/4 Eva-Maria Haiduk2 4/4 100% 2/2 Ina Hosenfelder1 2/2 100% 4/4 Renata Jungo Brüngger 6/6 100% 2/2 2/2 Henning Kagermann1 2/2 100% 3/3 1/1 2/2 1/1 Stefan Kaindl2 4/4 100% 4/4 Beate Mensch1 2/2 100% Gabriele Mücke2 4/4 100% Ulrich Plottke 6/6 100% 4/4 Manfred Rassy2 4/4 100% Andrés Ruiz Feger1 2/2 100% 1/1 Gabriele Sinz-Toporzysek 6/6 100% Karl-Heinz Streibich2 4/4 100% Angelika Wirtz1 2/2 100% 3/3 3/3 Maximilian Zimmerer 6/6 100% 4/4 Participation quota (average)
1 Member of the Supervisory Board until 30 April 2019. 2 Member of the Supervisory Board from 30 April 2019.
We apply the highest standards to our operations and activities and therefore comply with all the recommendations and proposals of the German Corporate Governance Code.
Since issuing its last Declaration of Conformity in November 2018, Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München has complied and intends to continue to comply with all of the recommendations of the German Corporate Governance Code as amended on 7 February 2017 (published on 24 April 2017).
The principle of “one share, one vote” applies at the Annual General Meeting of Munich Reinsurance Company. With the aim of making it easier for shareholders to take part and exercise their voting rights, the Company offers the possibility of postal and electronic voting as well as online participation in the Annual General Meeting.
In 2019, the Board of Management of Munich Reinsurance Company initially comprised eight members, and from 18 March 2019 there were nine members; there is one woman on the Board. The members of the Board of Management and their divisional responsibilities can be found on page 24.
The composition of these committees can be found on page 25.
The following applies to all Board of Management committees: Where decisions within the sphere of responsibility of a committee relate to issues reserved www.munichre.com/en/compliance
The work of these subcommittees is governed by their own written rules of procedure. The Group Investment Committee is responsible for substantiating investment principles for the Group and the fields of business, and for other important issues in relation to investments. Both the Group Risk Committee and the Global Underwriting and Risk Committee deal with risk management issues, albeit with different emphases. The Board Committee IT Investments is responsible for IT investments.
Conference Committee. The committees adopt decisions by the majority of votes cast. With the exception of the Conference Committee, the Chairman of the Supervisory Board has a casting vote in case of a tie. The full Supervisory Board is regularly informed about the work of the committees by their respective chairs.
Further details of the work of the Supervisory Board committees can be found in the report of the Supervisory Board on pages 11 f. and at www.munichre.com/supervisory board.
The main responsibilities of the committees are as follows: Standing Committee The Standing Committee prepares meetings of the Supervisory Board, unless another committee is responsible for doing so. It decides on matters of Company business requiring the Supervisory Board’s consent, unless the full Supervisory Board or another committee is responsible. The Standing Committee also prepares the Report of the Supervisory Board to the Annual General Meeting, the Declaration of Conformity with the German Corporate Governance Code pursuant to Section 161 of the Stock Corporation Act (AktG), and the Statement on Corporate Governance – including the corporate governance reporting for the Supervisory Board. It also prepares the annual review of the efficiency of the Supervisory Board and its committees. Further details about the efficiency review of the past financial year can be found on page 11 of the Report of the Supervisory Board. The Standing Committee is also responsible for preparing the Supervisory Board’s review of the separate non-financial reporting. This includes preparing the selection and appointment of the auditor for a voluntary external audit of the separate (combined) non-financial statement.
Remuneration Committee The Remuneration Committee is responsible for preparing the Supervisory Board’s resolutions on determining, amending, and regularly reviewing the remuneration system for the Board of Management; this Committee also determines and reviews the total remuneration of the individual members of the Board of Management. In addition, the Remuneration Committee prepares the Supervisory Board’s resolutions regarding determination of the level of variable remuneration components, determination of the performance criteria and objectives for variable remuneration, the assessment of objectives in cooperation with the Personnel Committee, and the determination of the variable remuneration to be granted to the individual Board of Management members. This Committee is also responsible for preparing the remuneration components of the employment contracts of members of the Board of Management, and for remuneration reporting with regard to the remuneration of members of the Board of Management and the Supervisory Board.
This Committee prepares decisions on the appointment of the external auditor, carries out the selection process, and makes recommendations in this regard to the full Supervisory Board. The Audit Committee is responsible for assessing performance and monitoring the independence of the external auditor; it also assures the quality of the audit and any additional services provided by the external auditor. In particular, it appoints the external auditor for the Company and Group financial statements, determines focal points of the audits and agrees the auditor’s fee for the annual audit; the same applies to the review of the Half-Year Financial Report and the review of the solvency balance sheets. Beyond this, the Committee handles the approval and monitoring of non-audit services.
After in-depth deliberations by the Board of Management, the Audit Committee prepares the annual discussion of the risk strategy by the Supervisory Board, and discusses any changes or deviations from the risk strategy with the Board of Management during the year.
Conference Committee If the first round of voting concerning the appointment or dismissal of members of the Board of Management does not result in the required two-thirds majority, the matter will be addressed by the Conference Committee before a second vote is held in the Supervisory Board.
Munich Re Code of Conduct The Munich Re Code of Conduct clearly states the Group’s definition of legally impeccable behaviour based on ethical principles. It contains regulations that are binding on all employees and management of the Group. On the basis of the Code of Conduct, staff undertake to comply with applicable laws and Munich Re corporate regulations to prevent loss, damage or harm to the Group.
United Nations Global Compact To make clear our understanding of important values inside and outside our Group, Munich Re joined the United Nations Global Compact in 2007. The ten principles of this declaration (covering human rights, labour standards, environmental protection and combating corruption) form the benchmark for our actions in all fields of business within the Group, and thus provide the fundamental framework for our corporate responsibility. Munich Re’s Code of Conduct takes full account of these principles.
As part of implementing the Act on Equal Participation of Men and Women in Private-Sector and Public-Sector Management Positions (FüPoG), the Supervisory Board and Board of Management of Munich Reinsurance Company set the following targets and deadlines to achieve these targets: As at 1 January 2016, the Supervisory Board set a target quota to be achieved by 31 December 2020 that at least 20% of the members of the Board of Management should be women.
As at 31 December 2019, the percentage of women on the Board of Management was 11.1%. The Supervisory Board is retaining its target of a quota of at least 20% to be achieved by 31 December 2020.
Munich Re Group Annual Report 2019 level. For these purposes, only staff members with disciplinary responsibility are categorised as managers.
In accordance with the Co-Determination Agreement, the employee and shareholder representatives ensure separate compliance with the statutory gender quotas on the Supervisory Board.
The differences between the business models within the Group and between divisions in the reinsurance field of business require that the Board of Management have a broad professional and educational background.
The average age of the members of the Board of Management at the end of the 2019 financial year was 53; the youngest Board member is 44, and the oldest is 59. The age limit for membership of the Board of Management is 67; members of the Board of Management must leave the Board no later than the end of the calendar year in which they turn 67. The requirements for age limits are thus met.
First-time appointments of members of the Board of Management are for a maximum of three years. A reappointment more than one year before the end of the appointment period with simultaneous cancellation of the current appointment will only be made in special circumstances. With the exception of aspects relating to remuneration, which are dealt with by the Remuneration Committee, preparation for the appointment of members of the Board of Management is the responsibility of the Personnel Committee of the Supervisory Board, which provides suggestions for suitable candidates to the full Supervisory Board. The Personnel Committee is guided by the Fit and Proper Policy, the specific requirements of the relevant function, and the above-mentioned diversity considerations. In conjunction with the Board of Management, the Personnel Committee is also responsible for succession planning. Succession planning for the Board of Management is systematic and long-term. Some candidates are drawn from the Group’s top talent pool, called the Group Management Platform. Care is taken to make sure that there is a balanced composition of experience, gender and internationality. The succession plan is continually updated at the annual Group Career Session by the participating heads of the fields of business.
Diversity concept for the Supervisory Board/Objectives of the Supervisory Board concerning its composition and competences The composition of the Supervisory Board also follows a concept of diversity with regard to its members’ professional and educational background, internationality, age, and gender. Gender diversity is described in the section “Equal participation of men and women in management positions”. The aim of the diversity concept is to bring a pluralistic wealth of experience to the Supervisory Board through the interaction of members that have different professional and educational backgrounds and are diverse in terms of internationality, age and gender, thereby enhancing the Board’s efficiency for the benefit of the Company.
Members of the Supervisory Board of Munich Reinsurance Company must meet fitness and propriety requirements. Overseeing the Company professionally and competently and actively accompanying its development demands an appropriate level of diversity on the Supervisory Board in terms of qualifications, knowledge and relevant experience.
The Nomination Committee of the Supervisory Board selects candidates for the shareholder representatives based on this list of criteria, and prepares the Supervisory Board’s election proposals to the Annual General Meeting. This Committee draws up a requirements profile to be used in the selection process. Shareholders receive the detailed CVs of the respective candidates along with their invitation to the Annual General Meeting. When selecting candidates, care is taken to achieve diversity in terms of the composition of the Supervisory Board to ensure that the Supervisory Board as a whole fits the required competence profile.
The average age of members of the Supervisory Board at the end of the 2019 financial year was 60; the youngest Board member is 49, and the oldest is 71. There is therefore a sufficient age mix on the Supervisory Board. One member of the Supervisory Board, Benita Ferrero-Waldner, has exceeded the age limit. On the basis of her expertise and after careful consideration of the circumstances in the individual case, the Supervisory Board has determined a justified exception to the target age limit in her case.
Group Holdings (until 17 March 2019) Group Strategy and M&A Group Communications Group Audit Economics, Sustainability & Public Affairs3 Group Human Resources Group Executive Affairs Group Compliance and Legal
Dr. Thomas Blunck – – Life and Health Capital Partners Digital Partners Reinsurance Investments (until 17 March 2019)
Dr. Torsten Jeworrek ERGO Digital Ventures AG, Düsseldorf2 – Reinsurance Development Internet of Things (since 1 April 2019) Corporate Underwriting Claims Accounting, Controlling and Central Reserving for Reinsurance Information Technology
Hermann Pohlchristoph ERGO International AG, Düsseldorf2 – Asia Pacific and Africa Central Procurement Services
Dr. Markus Rieß ERGO International AG, Düsseldorf2 (Chair) – Primary Insurance/ERGO Third Party Asset Management (until 17 March 2019)
Dr. Peter Röder EXTREMUS Versicherungs-AG, Cologne Munich Re America Corporation, USA2 (Chair) Global Clients and North America Munich Reinsurance America Inc., USA2
Reinsurance Committee Dr. Torsten Jeworrek (Chair) Dr. Thomas Blunck Dr. Doris Höpke Hermann Pohlchristoph Dr. Peter Röder Chief Financial Officer for the reinsurance field of business2
Group Investment Committee Dr. Joachim Wenning (Chair) Dr. Christoph Jurecka Nicholas Gartside2 Chief Risk Officer (Group)2
Members of the Supervisory Board and their mandates on statutory supervisory boards and comparable bodies1
Dr. Anne Horstmann2 ERGO Group AG, Düsseldorf3 – (Deputy Chair) Employee of ERGO Group AG Member since 30 April 2014
Dr. Kurt Wilhelm Bock Fresenius Management SE, – Member of the Supervisory Board of Munich Reinsurance Company Member since 25 April 2018
Bad Homburg6 Bayerische Motorenwerke AG, Munich4 Fuchs Petrolub SE, Mannheim (Chair)4
Gabriele Mücke2 – – Chair of the Board of Management of Neue Assekuranz Trade Union – NAG Member since 30 April 2019
Ulrich Plottke2 ERGO Group AG, Düsseldorf3 – Employee of ERGO Group AG Member since 30 April 2014
Dr. Maximilian Zimmerer Deutsche Beteiligungs AG, Frankfurt4 Möller & Förster GmbH & Co. KG, Member of the Supervisory Board of Munich Reinsurance Company Member since 4 July 2017
Christian Fuhrmann2 – – Head of Divisional Unit at Munich Reinsurance Company Member from 22 April 2009 to 30 April 2019
Prof. Dr. Dr. E. h. Henning Kagermann Deutsche Post AG, Bonn4 – Chair of the Board of Trustees of acatech – German Academy of Science and Engineering Member from 22 July 1999 to 30 April 2019
Marco Nörenberg2 ERGO Group AG, Düsseldorf3 – Employee of ERGO Group AG Member from 22 April 2009 to 30 April 2019
Dr. E.h. Bernd Pischetsrieder Daimler AG, Stuttgart4 Tetra Laval Group, Switzerland Chairman of the Supervisory Board of Munich Reinsurance Company Member from 17 April 2002 to 30 April 2019
Angelika Wirtz2 – – Employee of Munich Reinsurance Company Member from 30 April 2014 to 30 April 2019 1 As at 31 December 2019 (former members: as at 30 April 2019). 2 Employee representatives. 3 Mandate within Munich Re (Group). 4 Listed on the stock exchange. 5 Membership of a non-statutory supervisory board. 6 Company with fewer than 500 employees.
Standing Committee Dr. Nikolaus von Bomhard (Chair) Dr. Kurt Wilhelm Bock Stephan Eberl Gerd Häusler Dr. Anne Horstmann
Remuneration Committee Prof. Dr. Dr. Dr. Ann-Kristin Achleitner (Chair) Stephan Eberl Renata Jungo Brüngger
Audit Committee Dr. Maximilian Zimmerer (Chair) Prof. Dr. Dr. Dr. Ann-Kristin Achleitner Dr. Nikolaus von Bomhard Stefan Kaindl Ulrich Plottke
Conference Committee Dr. Nikolaus von Bomhard (Chair) Dr. Kurt Wilhelm Bock Frank Fassin Dr. Anne Horstmann 1 As at 31 December 2019.
Important tools of corporate management 55 Munich Re’s management philosophy − Based on value creation 55 The Group’s corporate management tools 55 Other performance indicators 56
Business performance 57 Overall assessment by the Board of Management on the business performance and situation of the Group 57 Business performance of the Group and overview of investment performance 57 Reinsurance – Life and health 61 Reinsurance – Property-casualty 62 ERGO Life and Health Germany 65 ERGO Property-casualty Germany 67 ERGO International 68
Risk report 73 Risk governance and risk management system 73 Significant risks 73 Solvency ratio under Solvency II 81 Other risks 81 Summary 82
Opportunities report 83 Business environment 83 Digital transformation 84 Social trends 84 Climate change and natural catastrophes 84 Expanding the limits of insurability 84
Prospects 85 Comparison of the prospects for 2019 with the result achieved 85 Outlook 2020 87
Group Munich Re is one of the world’s leading risk carriers and provides both insurance and reinsurance under one roof. This enables the Group to cover large stretches of the value chain in the risk market. Almost all reinsurance units operate under the uniform brand of Munich Re. ERGO Group AG (ERGO) is active in nearly all lines of life, health and property-casualty insurance. The majority of Munich Re’s investments worldwide are managed by MEAG, which also offers its expertise to private and institutional investors outside the Group. For up-to-date information about Munich Re, visit www.munichre.com.
A core guiding principle for Munich Re is acting in a farsighted and responsible manner in the interests of both the Group and society. We have thus based our Groupwide corporate responsibility strategy on the shared value approach. This means that, in our business operations, we bring together economic and social progress. In this context, dealing with the consequences of climate change, increasing digitalisation and strengthening of risk awareness constitute Munich Re’s main objectives.
Our voluntary commitments to covenants such as the United Nations Global Compact, the Principles for Responsible Investment (PRI), and the Principles for Sustainable Insurance (PSI) constitute the basis underlying all our actions. We take environmental, social and governance (ESG) aspects into account when assessing risks, developing insurance solutions, making investment decisions, and in our internal processes (for example, in procurement).
As at 31 December 2019, our Group employed 39,662 (41,410) staff members worldwide, 31.2% (29.8%) of whom work in reinsurance and 68.8% (70.2%) at ERGO.
The “corporate responsibility in insurance” and “corporate responsibility in investment” sections include information on the statutory aspects of environmental protection, social factors and human rights. The separate non-financial (Group) statement prepared in accordance with Sections 289b(3) and 315b(3) of the German Commercial Code (HGB) can be found at www.munichre.com/cnfs in the information on corporate governance.
In reinsurance, we operate in life, health and propertycasualty business. Under reinsurance, we also include specialised primary insurance activities that are handled by the reinsurance organisation and business from managing general agencies (MGAs). Organisationally, we have pooled worldwide activities covering the Internet of Things (IoT) into the new divisional unit Global IoT.
The property-casualty reinsurance divisions The Global Clients and North America division handles our accounts with major international insurance groups, globally operating Lloyd’s syndicates and Bermuda companies. It also pools our know-how in the North American market and is responsible for our property-casualty subsidiaries in this region, as well as international special-lines business such as marine, aviation and space, and global large-risk business, which we pooled in our new Facultative & Corporate unit last year.
Our Europe and Latin America Division is responsible for property-casualty business with our clients from Europe, Latin America and the Caribbean. Business units – for example, in London, Madrid, Paris and Milan – afford us market proximity and regional competence. In the South American markets, our Brazilian subsidiary Munich Re do Brasil Resseguradora S.A. and our liaison office in Bogotá help to ensure client proximity. The division also includes the divisional unit Financial Risks. Great Lakes Insurance SE, which has its headquarters in Munich and a large branch office in London, is also assigned to this division. We pool a significant share of our Group-wide business activities in the United Kingdom in these units. Munich Re is prepared for the consequences of the United Kingdom leaving the European Union.
The Asia Pacific and Africa Division conducts propertycasualty business with our clients in Africa, Asia, Australia, New Zealand and the Pacific Islands. Branches in Mumbai, Beijing, Seoul, Singapore, Sydney and Tokyo allow us to take full advantage of the business opportunities in the rapidly growing Asia-Pacific insurance market. In the African market, we are represented by our subsidiary Munich Reinsurance Company of Africa Ltd., headquartered in Johannesburg. These units and other liaison offices guarantee our competitiveness in these key growth markets.
Operating under the umbrella of ERGO are four separate units: ERGO Deutschland AG, ERGO International AG, ERGO Digital Ventures AG and ERGO Technology & Services Management. German business is concentrated in ERGO Deutschland AG. ERGO International AG manages the ERGO Group’s international business. ERGO Digital Ventures AG is responsible for digital and direct business of the Group, while ERGO Technology & Service Management AG is increasingly managing all of the Group’s technology activities.
Via ERGO, we offer products in all the main classes of insurance: life insurance, health insurance, and in nearly all lines of property-casualty insurance, including travel insurance and legal protection insurance. With these products – in combination with the provision of assistance, other services and individual consultancy – we cover the needs of private and corporate clients. ERGO serves around 37 million clients, most of them private, in more than 30 countries, with the focus on Europe and Asia. The latest information on ERGO can be found at www.ergo.com.
With ERGO Versicherung AG, our primary insurance arm is one of Germany’s largest providers of property and legal protection insurance. As a specialist in capital-marketoriented insurance, ERGO Vorsorge Lebensversicherung AG is shaping change in the area of private provision and biometric risk products. ERGO Lebensversicherung AG and Victoria Lebensversicherung AG are responsible for running off our traditional life insurance portfolio. DKV Deutsche Krankenversicherung AG is a leading provider and specialist in the healthcare market, catering to both privately and statutorily insured individuals with its broad range of supplementary insurance covers. The specialist travel insurer ERGO Reiseversicherung AG is a market leader internationally as well as in Germany.
ERGO Digital Ventures AG is responsible for digital transformation in the ERGO Group, and provides support via innovative sales channels, manages the fully digital player nexible, and is setting up automated technologies such as artificial intelligence and robotics. Digital Ventures is also responsible for further developing international legal protection business, ERGO Reiseversicherung and ERGO Direkt property business, and driving ahead their
The overview does not show all companies of the Group or give a precise representation. The detailed breakdown of participations can be seen in the list of shareholdings on pages 176 ff. In the course of 2019, ERGO brought ERGO Direkt, ERGO Vorsorge and D.A.S. Rechtsschutz under the ERGO brand in the German market. In addition, steps were taken to bring ERV under the ERGO brand. The process of bringing ERV under the ERGO brand at international level will be completed in 2020.
Remuneration of the members of the Board of Management in 2019
The Personnel Committee is responsible for preparing the full Supervisory Board’s resolutions on all other personnel matters relating to the Board of Management, in particular appointing and dismissing Board members and concluding Board members’ contracts. It is composed of the Chairman of the Supervisory Board and one representative each of the shareholders and employees.
The remuneration system introduced in 2018 meets the relevant company and supervisory law requirements, including those of the German Corporate Governance Code.
Remuneration comprises fixed (non-performance-related) and variable (performance-related) components and a company pension scheme. Details are included in the following table: Structure of the remuneration system for the members of the Board of Management
Evaluation of overall performance: Adjustment of achievement figures by the Supervisory Board, taking into account – individual and collective management performance – financial situation, performance and future prospects of the Company
The equal shares of basic remuneration and variable remuneration provide for a balanced composition of overall remuneration as stipulated in the Solvency II regulations. In accordance with Solvency II, fixed and variable remuneration components must be in balance, so that the fixed component represents a sufficiently high proportion of the total remuneration and enables the undertaking to apply a flexible bonus policy, including the possibility of paying no variable remuneration at all. There should be no incentive for members of the Board of Management to engage in unreasonably excessive risk-taking in order to achieve higher bonuses.
Variable remuneration Assessment bases and link to corporate strategy Variable remuneration comprises an annual and a multiyear component, both of which are related to future performance.
As regards the total shareholder return (TSR) of Munich Re’s shares used for the multi-year bonus, which is measured in relative terms in comparison with the peer group, the specific values for assessing the achievement of objectives will not be available until the end of the scheme. The lowest TSR figure in the peer group comparison is taken as 0% on the linear scaling, and the highest figure as 200%. After assessing the achievement of objectives, this too will be communicated together with the comparable values for the peer group. This ensures comprehensive transparency regarding the financial objectives.
Based on its long-term strategic orientation and economic management of the Group, Munich Re would like to sustainably create value for its shareholders in the form of TSR. TSR takes account of dividend payments as well as share price performance. A multi-year component based on an increase in TSR in comparison with our peer group makes up the largest portion of variable remuneration for the Board of Management. From Munich Re’s point of view, the relative TSR is well suited for bringing in line the interests of shareholders and of the members of the Board of Management. The TSR over a period of several years reflects Munich Re’s long-term performance not only in absolute terms, but also in relative terms. After all, aboveaverage TSR development in comparison with the peer group is not conceivable in the long term without sustainably generating good results and creating value for our shareholders. Surpassing the performance of our peer group is in the interests of shareholders – even in a weak market environment.
Annual and multi-year bonus: Criteria for the evaluation of overall performance1
Targets for 2020 A target of €2,800m was set for 2020, with the following linear scaling for the 0–200% target corridor: €2,100m = 0% achievement of objective €2,800m = 100% achievement of objective €3,500m = 200% achievement of objective
The multi-year bonus spans five calendar years. In the first calendar year, the initial TSR is established, and at the end of the scheme, the end TSR is computed and compared in order to determine achievement of the objective. The calculations are based on reporting date figures.
Because the specific figures for assessing the achievement of objectives will not be available until the end of the scheme, they will be published alongside the target assessment.
Corporation Act (AktG), a member of the Board of Management is required to reimburse the Company for any damage attributable to them as a result of a breach of duty.
Share ownership of the members of the Board of Management The current remuneration system does not require members of the Board of Management to invest in Company shares.
Other Continued payment of remuneration in the case of incapacity to work In the case of temporary incapacity to work due to illness or for another cause beyond the Board member’s control, the remuneration is paid until the end of the contract of employment. The Company may terminate the contract prematurely if Board members are incapacitated for a period of longer than twelve months and it is probable that they will be permanently unable to fully perform the duties conferred on them (permanent incapacity to work). In this event, the Board member will receive a disability pension.
Members of the Board of Management appointed for the first time after 1 January 2017 whose contracts are terminated by the Company without good cause have a contractual right to a severance payment. Such payments may not exceed the equivalent of two years’ total remuneration, and are restricted by the remaining term of the Board member’s contract if this term is shorter. Annual remuneration is calculated on the basis of fixed annual remuneration and variable remuneration paid out for the prior full financial year before the contract was terminated; remuneration in kind, other fringe benefits and contributions to occupational retirement schemes are not taken into account. Payments received by a Board member during a period of notice after termination of the appointment are offset against any severance payment. There will be no right to severance payments in the event of extraordinary termination of the Board member’s contract by the Company for good cause.
Pensions Up to and including 2008, the members of the Board of Management were members of a defined benefit plan, providing for payment of a fixed pension amount.
Disability pension Disability in this respect means that the member of the Board of Management is likely to be unable, or has already been unable, to exercise their position for six months without interruption, as a result of illness, injury, or infirmity beyond what is normal for their age. The entitlement to a disability pension does not arise until expiry of remuneration payment obligations or continuation of remuneration payment obligations after a mutual agreement to terminate the employment contract, as a result of non-extension or revocation of their appointment to the Board or where the contract of employment has been terminated by the Company due to permanent incapacity.
− In the case of a combination of defined benefit plans and defined contribution plans: Vested pension from the defined benefit plan and 80% of the insured occupational pension benefit up to age 59, with subsequent occupational pension based on the defined contribution plan.
Reduced occupational pension on early retirement Board members appointed before 1 January 2017 are entitled to a reduced occupational pension on early retirement if the contract of employment is terminated as a result of non-extension or revocation of their appointment without the Board members having given cause for this through a gross violation of their duties or having requested it. This applies where the Board members have already passed the age of 50, have been in the employment of the Company for more than ten years when the contract terminates, and have had their appointment to the Board of Management extended at least once.
− In the case of a combination of defined benefit plans and defined contribution plans: Entitlement of between 30% and 60% of pensionable basic remuneration, reduced by 2% for each year or part thereof short of the Board member’s 65th birthday; the Company assumes payment of the difference between the monthly occupational pension and the monthly incremental pension from the external insurance.
Members of the Board of Management appointed for the first time after 1 January 2017 do not have any entitlement to a reduced occupational pension on early retirement.
Provision for surviving dependants In the event of the death of a Board member during active service, the surviving dependants continue to receive the previous monthly basic remuneration for a period of six months if the deceased was appointed to the Board of Management before 2006. In the case of Board members appointed for the first time as from 2006 and until 2018, the previous monthly basic remuneration is paid to the beneficiaries for a period of three months. If the Board member’s death occurs after retirement, the surviving dependants of members of the Board of Management that were appointed for the first time before 2018 receive the previous monthly occupational pension for a period of three months, provided the marriage/registration of the civil partnership took place and/or the child was born before the Board member started drawing the occupational pension.
Amount of remuneration The level of the target overall direct remuneration for the individual members of the Board of Management is set by the full Supervisory Board, acting on recommendations from the Supervisory Board’s Remuneration Committee, and taking into account the responsibilities and performance of each member of the Board of Management, the performance of the full Board of Management and the situation, performance and future prospects of Munich Re. It takes into consideration whether the remuneration is standard practice and appropriate compared with other companies of the peer group (including DAX 30 companies). The target overall direct remuneration for the Chairman of the Board of Management is based on the median remuneration paid to the chairs of the boards of management of DAX 30 companies. In addition, the Supervisory Board takes into account the level of the salaries paid to the Board of Management in relation to the level of salaries paid to senior managers and to general staff members over time.
Disclosure of Board of Management remuneration Board of Management remuneration is disclosed under two different sets of rules, namely German Accounting Standard No. 17 (DRS 17, revised 2010) and the German Corporate Governance Code. There are therefore deviations in individual remuneration components and total remuneration.
Provisions for personnel expenses2 €/year € € Joachim Wenning3, 4 2019 – 18,173 1,643 2018 – 16,424 1,698 Thomas Blunck3, 4 2019 120,000 4,424,945 211,946 2018 120,000 3,693,367 189,535 Nicholas Gartside (since 18 March 2019)5 2019 – – – 2018 – – – Doris Höpke3, 4 2019 – 12,532 592 2018 – 10,625 574 Torsten Jeworrek3, 6 2019 171,000 7,316,522 249,534 2018 171,000 6,437,429 225,482 Christoph Jurecka3, 7 2019 – – – 2018 – – – Hermann Pohlchristoph3, 7 2019 – 5,394 324 2018 – 5,761 345 Markus Rieß3, 8 2019 – 57,772 11,842
Thereof for Munich Reinsurance Company – 57,772 11,842 2018 – 37,192 18,271 Thereof for Munich Reinsurance Company – 37,192 18,271
% €/year € € Joachim Wenning3, 4 2019 25.50 239,933 –9 1,134,750 2018 25.50 201,663 –9 1,134,750 Thomas Blunck3, 4 2019 16.25 151,726 7,079,079 349,375 2018 16.25 137,577 5,718,540 349,375 Nicholas Gartside (since 18 March 2019)5 2019 – – – – 2018 – – – – Doris Höpke3, 4 2019 25.50 94,836 –9 548,250 2018 25.50 76,800 –9 548,250 Torsten Jeworrek3, 6 2019 19.50 253,325 11,820,896 604,500 2018 19.50 229,892 9,874,883 604,500 Christoph Jurecka3, 7 2019 25.50 16,730 –9 663,000 2018 – – – – Hermann Pohlchristoph3, 7 2019 25.50 35,165 –9 548,250 2018 25.50 21,356 –9 516,375 Markus Rieß3, 8 2019 25.14 92,977 2,272,93810 779,250
Other Total 4,490,963 2,265,963 6,715,963 4,489,201 2,183,913 1,108,913 3,258,913 2,183,797 Pension expenses 1,136,393 1,136,393 1,136,393 1,136,448 561,321 561,321 561,321 538,910 Total remuneration 5,627,356 3,402,356 7,852,356 5,625,649 2,745,234 1,670,234 3,820,234 2,722,707
Board member € 2019 2019 (min) 2019 (max) 2018 2019 2019 (min) 2019 (max) 2018 Basic remuneration 848,909 848,909 848,909 – 1,075,000 1,075,000 1,075,000 1,075,000 Remuneration in kind/fringe benefits 19,478 19,478 19,478 – 31,532 31,532 31,532 32,273 Total 868,387 868,387 868,387 – 1,106,532 1,106,532 1,106,532 1,107,273 One-year variable remuneration
Multi-year variable remuneration Multi-year bonus 2018 – 752,500 Multi-year bonus 2019 594,236 0 1,188,472 752,500 0 1,505,000
Multi-year variable remuneration Multi-year bonus 2018 708,750 Multi-year bonus 2019 752,500 0 1,505,000
Other Total 2,198,370 1,123,370 3,273,370 2,074,237 Pension expenses 548,574 548,574 548,574 516,720 Total remuneration 2,746,944 1,671,944 3,821,944 2,590,957
Other Total 3,219,459 2,794,459 3,644,459 3,220,626 873,888 448,888 1,298,888 1,322,250 Pension expenses 791,092 791,092 791,092 799,646 228,592 228,592 228,592 343,396 Total remuneration 4,010,551 3,585,551 4,435,551 4,020,272 1,102,480 677,480 1,527,480 1,665,646
→ Peter Röder Board member € 2019 2019 (min) 2019 (max) 2018 Basic remuneration 1,075,000 1,075,000 1,075,000 1,075,000 Remuneration in kind/fringe benefits 30,446 30,446 30,446 31,713 Total 1,105,446 1,105,446 1,105,446 1,106,713 One-year variable remuneration
Multi-year variable remuneration Multi-year bonus 2018 752,500 Multi-year bonus 2019 752,500 0 1,505,000
Other Total 2,180,446 1,105,446 3,255,446 2,181,713 Pension expenses 554,553 554,553 554,553 542,425 Total remuneration 2,734,999 1,659,999 3,809,999 2,724,138 1 Nicholas Gartside does not receive an employer-financed pension. By way of compensation for this, a conditional one-off payment will be made at the end of his appointment. In the event of his death or disability prior to the end of his term of office, this payment will be made pro rata temporis for the period until then.
Other5 411,188 Total 1,610,650 – 2,491,709 2,296,178 Pension expenses – – 548,842 548,824 Total remuneration 1,610,650 – 3,040,551 2,845,002
Multi-year variable remuneration Multi-year performance 2016–20181, 3 1,098,580 76 – Multi-year performance 2017–20193, 4 1,389,993 96 –
Other Total 4,400,818 4,433,511 1,224,872 1,535,363 Pension expenses 791,092 799,646 228,592 343,396 Total remuneration 5,191,910 5,233,157 1,453,464 1,878,759
4 At the time of preparation of this report, no Supervisory Board resolution had yet been passed on the amounts to be paid for the 2017–2019 multi-year performance, the amount shown is based on estimates and the relevant provisions posted.
6 Markus Rieß’ remuneration also includes compensation components and pension expenses for work at ERGO Group AG.
Members of the Supervisory Board receive a daily attendance fee of €1,000 for Supervisory Board/ Supervisory Board committee meetings – with the exception of the Conference Committee.
For membership of supervisory boards at Munich Reinsurance Company subsidiaries, in accordance with the companies’ respective articles of association
Both the European Central Bank (ECB) and the US Federal Reserve pivoted their monetary policy during 2019. The ECB cut the interest rate for deposits. In addition, the Bank resumed making monthly net purchases as part of its asset purchase programme. The Fed lowered its policy rate corridor three times in 2019, and ended its balance-sheet reduction programme. Yields on government bonds were impacted by monetary policy easing, weaker economic growth, lower inflation, and political risks – particularly the trade war between the United States and China. Yields on ten-year German government bonds dropped to a new all-time low at one point in the year – and remained in negative territory at the end of 2019. There was an even greater decline in yields on ten-year US government bonds.
Monetary policy easing boosted stock markets over the course of 2019. Important stock indices such as the US Dow Jones index and the DJ EURO STOXX 50 closed the year with substantial gains. The trade war between the USA and China led to volatility, with prospects of renewed escalation dragging down share prices and news of an impending trade agreement buoyed the markets.
At the end of December, the euro exchange rate was lower than the previous year against the US dollar, the Canadian dollar and the pound sterling. Compared with the previous year, the average value of the euro in 2019 was much lower against the US dollar and the Canadian dollar, and slightly lower against the pound sterling. Because of ongoing uncertainty about Brexit, the pound sterling fluctuated considerably throughout 2019. Further information on exchange rates can be found in the Notes to the consolidated financial statements on page 122.
According to preliminary estimates, premium income in the German insurance industry increased significantly in 2019. In life insurance, premium growth was above average due to a robust increase in single-premium volume. Premiums in property-casualty business and in private health insurance were in line with the average in recent years.
Important tools of corporate management Munich Re’s management philosophy − Based on value creation
With respect to the management of economic value added, we use conceptually consistent value-based and risk-capitalbased measurement approaches that are individually geared to the characteristics of each respective field of business. Our approach for property-casualty reinsurance is the adjusted result, which comprises the anticipated discounted cash flows of underwriting and an adjustment for major claims. In life and health reinsurance, we apply value added by new business and the change in value of in-force business, which are based on the solvency balance sheet. As part of our asset-liability management, we consider the excess return from our investment operations in reinsurance. The management tool of economic earnings is used directly for ERGO.
1 Expenses for claims and benefits not taken into account in the calculation of the combined ratio are set out on page 128 in the notes to the consolidated financial statements.
Technical result life and health reinsurance including the result from business with nonsignificant risk transfer
Owing to the long-term nature of business in life and health reinsurance, the combined ratio used in propertycasualty insurance is only of limited use in this segment. We therefore track and post the technical result for life and health reinsurance. It shows the contribution made directly to the IFRS consolidated result and separates income from risk in reinsurance investments in particular. Some reinsurance operations are disclosed separately from the underwriting result owing to non-significant risk transfer. This part of the business and its contribution to the consolidated result is a further performance indicator for the life and health reinsurance segment.
Business performance Overall assessment by the Board of Management on the business performance and situation of the Group
The investment result (excluding insurance-related investments) improved to €7,737m (6,526m). This was particularly due to higher gains on the disposal of fixedinterest securities, and lower write-downs of shares. The lower net balance of derivatives affected the result.
Thereof: Fixed-interest 132,120 124,095 10,738 4,953 132,120 124,095 Thereof: Non-fixed-interest 19,438 15,177 3,632 1,817 19,438 15,177
Other securities at fair value through profit or loss 2,781 2,616 0 0 2,781 2,616 Thereof: Derivatives 2,099 2,078 0 0 2,099 2,078
The fair value of our investment portfolio increased mainly as a result of falling interest rates, exchange rate developments and rising stock market prices. The portfolio continued to be dominated by fixed-interest securities and loans.
At the reporting date, over half of our portfolio of interestbearing securities was invested in government bonds. The vast majority of these continue to come from countries with a high credit rating. The fair value of our German and US government bond holdings constituted 12.8% (13.4%) and 8.8% (8.3%) of the total portfolio of interest-bearing securities. Italian and Spanish government bonds each accounted for around 0.8% (1.1%) and 2.3% (2.0%) of the portfolio of interest-bearing securities. Our new investments in the reporting year were mostly in US and Israeli government bonds. We reduced our bond holdings mainly from issuers in Germany, France and Italy in the reporting year. The purchase of government bonds from emerging markets is part of our balanced investment strategy. They constituted 9.9% of our government bond portfolio.
Our investment in covered bonds remains focussed on German securities, at around 35%. We also held bonds from France (19%) and the United Kingdom (10%) in our portfolio.
The portfolio of structured credit products at fair value increased slightly as a result of acquisitions, and totalled 2% of the overall portfolio of interest-bearing securities as at the reporting date. This asset class is composed of securitised receivables (asset-backed securities or mortgage-backed securities), e.g. securitisations of real estate finance or consumer credit. Around 60% of our structured credit products have a rating of AAA.
We posted lower net write-downs of non-derivative investments, given that in the previous year, our equity portfolio, in particular, had been impacted by heavy price falls on the stock markets. In the financial year under review we also profited from write-ups of our forestry and gold investments.
Net gains on disposal were higher than in the previous year, and chiefly related to our portfolio of fixed-interest securities, as well as – particularly in Q4 – gains from the disposal of equities.
We posted a net loss from write-ups and write-downs of derivatives and from the disposal of derivatives, primarily due to market-related losses on equity derivatives.
Result from equities and equity derivatives1 €m 2019 Prev. Year Regular income 748 614 Write-downs –311 –964 Realised gains/losses 1,037 739 Result from equities 1,475 389 Change in on-balance-sheet unrealised gains and losses in equity (gross) 1,814 –1,444 Result from equity derivatives –927 341 Total 2,362 –714 1 To determine the total annualised return on our equity portfolio (see text), we calculate the ratio of the total result shown in the table and the mean value of the following figures: Equity portfolio (carrying amounts) as at 31 December 2018 (€15,177m), 31 March 2019 (€17,674m), 30 June 2019 (€18,539m), 30 September 2019 (€19,733m) and 31 December 2019 (€19,438m).
The return on equities benefited from the overall positive market development in the financial year. The return on our equity portfolio including equity derivatives increased to 13.0% (–4.2%).
We saw increased claims expenditure in Australian disability business, particularly in the first half of the year – despite continued remediation measures. We performed a detailed analysis of the business, and in Q4 adjusted our provisions to claims experience. This resulted in a negative impact of around €200m. In the course of the year, we also had to increase our provisions for outstanding claims due to lower interest-rate levels.
The restructuring of investments in Canada resulted, as expected, in a negative impact on the technical result. However, this was more than offset by positive effects on the investment result.
There also were a number of positive effects: With the exception of Australia, Munich Re’s annual review of its reserves had a favourable impact on the result. This includes in particular reserve releases in health reinsurance.
The investment result was up €92m on the previous year; this increase was primarily due to an improved net balance of write-ups and write-downs. The previous year, by contrast, had been impacted by price falls in the capital markets.
Based on premium volume, around 40% of our global reinsurance business is written in North America, with the USA (around 25%) ranking before Canada (around 15%). An additional 25% of our premium stems from Europe, with approximately 15% generated in the United Kingdom and Ireland and about 5% in Germany. Another significant share of around 25% stems from Asia and the MENA region. Australia and New Zealand account for slightly more than 5% of premium. We are also well positioned in Africa and Latin America, but due to the small size of these markets, their share of our global business is modest (less than 5% in total).
In Asia/MENA, our premium income climbed to €3.0bn (2.6bn). New business continued to develop very well. Thanks to our broad diversification, we are in a position to benefit from the growth potential in the region. The technical result was good, and in line with expectations.
Key figures 2019 Prev. year Change % Gross premiums written €m 22,091 20,437 8.1 Share of gross premiums written in reinsurance % 65.3 65.3 Loss ratio % 66.6 65.2
Premium income in property-casualty reinsurance increased by 8.1% compared with the previous year. Changes in exchange rates had a positive impact on premium development. Approximately 11% of the portfolio is written in euros and 89% in non-euro currencies, of which 55 percentage points is in US dollars and 12 percentage points in pounds sterling. If exchange rates had remained the same, premium volume would have risen by 5.0% year on year.
The substantial increase in premium volume was due to an expansion of business across almost all lines and regions. Key drivers included the development of existing and new business with targeted clients in North America, and selective growth in India and China. Fire, liability, marine, credit and bond, and aviation and space business were the main sources of growth.
Major losses – in excess of €10m each – totalled €3,124m (2,152m) in 2019, after retrocession and before tax. This amount includes run-off profits and losses for major claims from previous years, and is equivalent to 15.2% of net earned premium. It is much higher than in the previous year, and above our major-loss expectation of 12% of net earned premium.
Reinsurance prices saw an improvement as a result of the loss events in the previous year. Natural hazard events in 2019 were in line with expectations – despite the hurricanes, as well as local hail events and tornados.
European business is dominated by property business and UK motor business. In the United Kingdom, premium volume remained stable at €3,517m (3,588m). In Continental Europe, premium volume was up despite the difficult market environment. The increase was driven by the targeted development of business with selected clients and markets, e.g. France, and additional profitable new business.
In Germany, we succeeded in keeping premium income virtually stable at €608m (612m) – despite the still-challenging market environment.
The decline in premium to €954m (1,210m) in Australia and New Zealand was attributable to a one-off effect owing to renewal dates being brought forward. The losses from the bushfires in Australia were taken into account.
In China, the drop in premium volume to €682m (822m) was mainly due to a one-year agreement concluded in 2018 not being renewed in 2019.
Total premium volume in marine business increased by around 16% to €1,022m (884m), supported by a positive market environment. As in the previous year, the result was once again pleasing.
Premium in aviation and space business saw a significant increase to €595m (504m) owing to rising prices in the wake of numerous major losses. In aviation reinsurance, we saw the biggest loss events since 2001, which had a considerable impact on our result in this class of business.
Approximately 60% of the segment’s gross premiums written derives from the Health Germany operations, around 32% from Life Germany and approximately 8% from Digital Ventures.
The technical result in the ERGO Life and Health Germany segment declined, in particular because the previous year had benefited from a one-off effect in Life Germany, and because of higher claims expenditure in Health Germany. Owing chiefly to higher gains from the disposal of equities and interest-bearing investments, as well as lower writedowns, the investment result was up on the previous year.
Compared with the previous year, premium income grew by 2.0% in supplementary health insurance and by 0.4% in comprehensive health insurance. Growth in supplementary insurance benefited from the performance of business not similar to life insurance, which increased by 10.4%. The slight increase in comprehensive cover was mainly due to a premium adjustment in private long-term care insurance. Travel insurance, which was up 13.2% to €655m (579m), contributed to premium growth in Health Germany.
At 93.4%, the 2019 combined ratio for property-casualty business was up 8.5 percentage points on the previous year (84.9%), in particular on account of higher claims expenditure.
The technical result was up on the previous year. Overall, this was due to lower expenditure for major natural catastrophe losses, despite storms Eberhard and Jörn in the first half-year of 2019, and good claims experience in core business. Operating expenses also decreased.
Key figures 2019 Prev. year Change % Total premium income1 €m 5,148 5,337 –3.5 Gross premiums written €m 4,912 5,057 –2.9 Share of gross premiums written by ERGO % 27.8 28.4 Loss ratio % 63.7 62.2 Expense ratio % 30.6 32.5 Combined ratio % 94.3 94.6 Technical result €m 171 228 –24.8 Investment result €m 430 348 23.6 Operating result €m 302 242 24.7 Consolidated result €m 105 103 1.8 1 Total premium income includes not only gross premiums written but also savings premiums for unit-linked life insurance and capitalisation products in accordance with the applicable statutory accounting guidelines.
Gross premiums written decreased overall, mainly owing to the sale of companies outside Germany as part of portfolio optimisation. Adjusted for the sales and for currency effects, gross premiums written in the ERGO International segment would have increased by 0.5% year on year. The segment’s total premium income was down on the previous year.
In international property-casualty business, gross premiums written were down 1.7% to €2,791m (2,840m). This decline was mainly attributable to the sale of companies outside Germany in the 2018 and 2019 financial years. Premium growth was strongest in Poland, at 4.0%, and in the Netherlands, at 14.8%.
Gross premiums written developed favourably in international health business, climbing by 3.7% to €1,424m (1,374m) between January and December.
In international property-casualty business, the combined ratio further improved year on year. Improvement was especially pronounced in Greece, at 16.5 percentage points, mostly because of lower expenses compared with the previous year, which had been impacted by a one-off effect. In international health insurance, the combined ratio was slightly higher (0.2 percentage points) than the previous year’s. Paid claims and the change in claims provisions totalled €2,107m (2,047m), along with net operating expenses of €1,012m (1,068m), compared with net earned premiums of €3,309m (3,292m).
The investment result was up on the previous year, chiefly owing to gains on the disposal of interest-bearing investments and shareholdings.
Debt leverage 31.12.2019 Prev. year Change €m €m % Strategic debt1 4,172 4,015 3.9 Group equity 30,576 26,500 15.4 Total 34,748 30,515 13.9 Debt leverage % 12.0 13.2 1 The main components of our strategic debt are subordinated liabilities, and bonds and notes issued (see pages 150 and 159 of the Notes to the consolidated financial statements).
Under the supervisory regulations of Solvency II, subordinated liabilities are recognised as own funds provided that they are available at all times to cover losses on a going-concern basis. Munich Re’s subordinated liabilities amount to €3,839m. Of this sum, €3,681m were recognised as at the reporting date as eligible own funds pursuant to Solvency II. As a consequence, strategic debt is reduced to €491m and the debt leverage amounts to only 1.4%.
Since we are an international (re)insurance group, some of our financial resources are subject to restraints on disposal. Supervisory authorities in some countries, for example, require foreign reinsurers to establish premium and reserve deposits to the benefit of primary insurers, or set up trustee accounts or guarantees with certain financial institutions. At the reporting date, this involved investments with a volume of €9.8bn (9.2bn). In addition, there were contingent liabilities. Information on these can be found on page 173 in the Notes to the consolidated financial statements.
Each share carries one vote at the Annual General Meeting and determines the shareholders’ participation in the Company’s profit. This excludes own shares held by the Company, from which it enjoys no rights. In the cases specified in Section 136 of the Stock Corporation Act, voting rights from the shares concerned are excluded by law. If shareholders are entered under their own name for shares which belong to a third party and exceed at this time the upper limit of 2% of the share capital as stated in the Articles of Association, pursuant to Article 3(5) of the Articles of Association the shares entered shall not carry any voting rights.
Munich Reinsurance Company has not been notified, nor has it otherwise learned, about any direct or indirect shareholdings in the Company that exceeded 10% of the voting rights as at 31 December 2019.
The legal parameters for the appointment and dismissal of members of the Board of Management are specified in the Company’s Co-determination Agreement, Articles 13(3) and 16 of the Articles of Association, Sections 84 and 85 of the Stock Corporation Act (AktG), and Sections 24, 47 and 303 of the German Insurance Supervision Act (VAG). Munich Re’s Co-determination Agreement and Articles of Association follow the legal tenets of the German CoDetermination Act (MitbestG). Pursuant to Article 16 of the Articles of Association, the Board of Management must comprise a minimum of two persons; beyond this, the number of members is determined by the Supervisory Board. There are currently nine members of the Board of Management. The Supervisory Board appoints the members of the Board of Management pursuant to Section 84 of the Stock Corporation Act and may dismiss them at any time for good cause. On initial appointment, members of the Board of Management are usually given contracts for a term of three years. Extensions of up to five years are possible. For the appointment or dismissal of members of the Board of Management, Article 13(3) of the Articles of Association stipulates a two-thirds majority of the votes cast on the Supervisory Board. If the requisite majority is not obtained in the initial resolution, the appointment or dismissal of the Board of Management requires a simple majority of the votes cast. The second resolution is only possible following a suitable period of reflection and after the issue has been dealt with in the competent committee, but is thereafter also possible by written consent in lieu of a meeting. In exceptional cases, members of the Board of Management may also be appointed by a court of law, pursuant to Section 85 of the Stock Corporation Act.
The Stock Corporation 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, 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
Munich Re Group Annual Report 2019 share capital, in accordance with the respective bond or warrant conditions. As a precautionary measure, capital of €117m was conditionally authorised under Article 4(3) of the Articles of Association (Contingent Capital 2015).
− Under Article 4(1) of the Articles of Association, the Board of Management is authorised, with the consent of the Supervisory Board, to increase the Company’s share capital at any time up to 25 April 2022 by an amount of up to €280m by issuing new shares against cash or non-cash contribution (Authorised Capital 2017). In accordance with the above-mentioned provisions of the Articles of Association, it may exclude subscription rights. As regards the resolution of 26 April 2017, the Board of Management declared that it will utilise the Authorised Capital 2017 only up to a maximum amount of 33% of the share capital at the time of the Annual General Meeting. It further stated that it will only exercise the authority to exclude shareholders’ subscription rights where such shares do not exceed 10% of the existing share capital at the time the authorisation is exercised for the first time.
Consolidated cash flow statement 2019 Prev. Year Change €m €m % Cash flows from operating activities 9,493 2,998 216.6 Cash flows from investing activities –6,919 –95 <–1,000,0 Cash flows from financing activities –2,496 –1,338 –86.5 Cash flows for the financial year 78 1,565 –95.0
Outflows from investing activities were determined by the change from the acquisition/sale and maturity of investments totalling €6,564m and the loss of control of consolidated subsidiaries amounting to €59m.
Overall in the year under review, cash – which comprises cash with banks, cheques and cash in hand – rose by €78m (including currency effects) to €5,006m. There were items pledged as security and other restrictions on title amounting to €11m (12m).
We determine the risk strategy by defining risk tolerances for a number of risk criteria and limits for risk concentrations that are based on the capital and liquidity available, and on our earnings target, and provide a frame of reference for the Group’s operating divisions.
As part of the risk analysis, a quantitative and qualitative assessment of all risks at consolidated Group level is made in order to take into account possible interactions between risks across all fields of business. Internal risk reporting provides the Board of Management with regular, detailed information on the risk situation, as regards the individual risk categories and the entire Group alike. This ensures that negative trends are identified in sufficient time for countermeasures to be taken. The purpose of our external risk reporting is to provide clients, shareholders and the supervisory authorities with a clear overview of the Group’s risk situation. Actual risk limits are derived from the risk strategy: taking the defined risk appetite as a basis, limits, rules and any risk-reducing measures required are approved and implemented. We also have a comprehensive earlywarning system that draws our attention to any potential shortages of capacity.
Munich Re Group Annual Report 2019 specially modelled distributions for the risk categories property-casualty, life and health, market, credit and operational risks. We use primarily historical data for the calibration of these distributions, complemented in some areas by expert judgement. Our historical data covers a long period to take account of the one-year time horizon and to provide a stable and appropriate estimate of our risk parameters. We continue to take account of diversification effects we achieve through our broad spread across various risk categories and the combination of primary insurance and reinsurance business. We also take into account dependencies between the risks, which can result in higher capital requirements than would be the case if no dependency were assumed. We then determine the effect of the loss absorbency of deferred taxes.
The table shows the solvency capital requirement for Munich Re and its risk categories as at 31 December 2019.
Reinsurance ERGO Diversification 31.12.2019 Prev. year 31.12.2019 Prev. year 31.12.2019 Prev. year €m €m €m €m €m €m Property-casualty 8,774 7,557 434 425 –375 –347 Life and health 5,525 4,527 1,215 1,116 –380 –356 Market 6,257 5,513 5,975 5,746 –2,152 –2,042 Credit 2,500 2,112 1,867 1,156 –161 –107 Operational risk 706 752 565 528 –220 –218 Other1 435 446 235 221 Subtotal 24,197 20,907 10,291 9,192 Diversification effect –8,836 –7,764 –1,158 –1,985 Tax –2,793 –2,346 –787 –633 Total 12,568 10,798 8,347 6,574 –3,383 –2,702
→ Group 31.12.2019 Prev. year Change €m €m €m % Property-casualty 8,833 7,634 1,199 15.7 Life and health 6,359 5,288 1,071 20.3 Market 10,080 9,217 863 9.4 Credit 4,206 3,161 1,045 33.1 Operational risk 1,051 1,063 –12 –1.1 Other1 670 667 3 0.4 Subtotal 31,199 27,030 4,169 15.4 Diversification effect –10,681 –9,912 –769 –7.8 Tax –2,987 –2,448 –539 –22.0 Total 17,531 14,670 2,861 19.5 1 Capital requirements for other financial sectors, e.g. institutions for occupational retirement provision.
At Group level, the SCR increased slightly to €17.5bn compared with €14.7bn as at 31 December of the previous year. It was due to increases in almost all risk categories. The increase in the property-casualty category is mainly a consequence of further growth in business with natural hazard exposure in line with our business strategy. The SCR in life and health increased, mainly due to the fall in interest rates, movements in exchange rates and new business in life reinsurance. The main driver behind the increase in market risk is higher risk exposure in the reinsurance field of business and the effects of lower interest rates for the ERGO life insurance companies. The credit risk SCR is also rising as a consequence of lower interest rates, as the fair value of fixed-interest investments increases. This effect is more pronounced for the ERGO life insurance companies, as the fall in interest rates reduces the risk-mitigating effect of policyholders’ bonuses. In comparison with the previous year, the mitigating effect of policyholders’ participation in profits in the ERGO field of business is now shown in full in the individual risk categories, whereby ceteris paribus the values in the risk categories are reduced. In contrast, the diversification effect takes account of the fact that the risk-mitigating funds are only available once to absorb losses. This year, when calculating solvency capital requirements, for the first time account was taken of the static volatility adjustment for DKV Belgium S.A., ERGO Insurance N.V. (Belgium), ERGO Lebensversicherung Aktiengesellschaft and Victoria Lebensversicherung Aktiengesellschaft.
In addition to natural hazard risks, exposure to cyber risks has also increased once again year on year.
Reinsurance ERGO Diversification 31.12.2019 Prev. year 31.12.2019 Prev. year 31.12.2019 Prev. year €m €m €m €m €m €m
Life and health underwriting risk The underwriting risk is defined here as the risk of insured benefits payable in life or health insurance business being higher than expected. Of particular relevance are biometric risks and policyholder-behaviour risks, such as lapses and lump-sum options. We differentiate between risks that have a short-term or long-term effect on our portfolio. In addition to the simple risk of random fluctuations resulting in higher claims expenditure in a particular year, the adverse developments with a short-term impact that we model notably include rare – but costly – events such as pandemics. More information on the risks in life and health business can be found in the Notes to the consolidated financial statements on pages 165 ff.
Our largest short-term accumulation risk in the life and health risk category is a severe pandemic. We counter this risk by examining our overall exposure in detail using scenario analysis, and by defining appropriate measures to manage the risks.
In reinsurance, we control the assumption of biometric risks by means of a risk-commensurate underwriting policy. Interest-rate and other market risks are frequently ruled out by depositing the provisions with the cedant, with a guaranteed rate of interest from the deposit. In individual cases, these risks are also hedged by means of suitable capital-market instruments. We also limit our exposure to individuals and groups of persons in life insurance.
Solvency capital requirement – Life and health In the reinsurance field of business, the increase in solvency capital requirements is mainly due to lower interest rates, the depreciation of the euro against main currencies, and new business. In the ERGO field of business, lower euro interest rates result in a slight increase in solvency capital requirements.
Health 304 292 602 517 –51 –42 855 766 Mortality 4,025 3,331 247 241 –16 –16 4,255 3,555 Disability 2,970 2,373 418 313 –22 –15 3,366 2,671 Longevity 985 813 641 722 –26 –24 1,600 1,511 Other 484 290 484 290 Diversification –3,242 –2,571 –694 –676 –4,200 –3,506 Total 5,525 4,527 1,215 1,116 –380 –356 6,359 5,288
Reinsurance ERGO Diversification 31.12.2019 Prev. year 31.12.2019 Prev. year 31.12.2019 Prev. year €m €m €m €m €m €m Equity risk 2,792 2,433 1,479 1,169 –109 –50 General interest-rate risk 1,549 1,194 2,800 3,362 –1,338 –891 Specific interest-rate risk 1,623 1,381 3,081 2,530 –632 –692 Property risk 1,540 1,442 758 787 –55 –91 Currency risk 4,457 3,633 232 220 –59 –80 Subtotal 11,962 10,084 8,348 8,068 Diversification effect –5,705 –4,572 –2,373 –2,321 Total 6,257 5,513 5,975 5,746 –2,152 –2,042
→ Group 31.12.2019 Prev. year Change €m €m €m % Equity risk 4,162 3,552 610 17.2 General interest-rate risk 3,012 3,664 –652 –17.8 Specific interest-rate risk 4,071 3,220 851 26.4 Property risk 2,243 2,138 105 4.9 Currency risk 4,630 3,773 857 22.7 Subtotal 18,118 16,348 1,770 10.8 Diversification effect –8,038 –7,131 –907 –12.7 Total 10,080 9,217 863 9.4
Solvency capital requirement – Market Equity risk The higher equities exposure after derivatives of 6.4% compared with the previous year (5.2%) was reflected in a rise in the solvency capital requirement.
Interest-rate risk The rise in the general and specific interest-rate risk in the reinsurance field of business was the result of an increased interest-rate exposure due to a lower degree of matching maturities between investments and liabilities, and a moderate increase in credit risk exposure. As the interestrate exposure of reinsurance runs contrary to that of ERGO, this has a risk-minimising effect at Group level.
In the ERGO field of business, the change in reporting of the effect of policyholders’ participation in profits and the introduction of static volatility adjustment will lead initially ceteris paribus to a reduction in the market risk figures. In specific interest-rate risk, this effect is overcompensated by the fact that the available risk buffers in the life units are reduced by the general decline in interest rates, leaving more specific interest-rate risk with the shareholder.
Munich Re determines credit risks using a portfolio model, which is calibrated over a longer period (at least one full credit cycle), and which takes account of both changes in fair value caused by rating migrations and debtor default. The credit risk arising out of investments (including deposits retained on assumed reinsurance, government bonds and credit default swaps – CDSs) and reserves ceded is calculated by individual debtor. If the credit risk does not exclusively depend on the debtor’s creditworthiness, but also on other factors (such as subordination, guarantees or collateralisation), these are also taken into account. We use historical capital-market data to determine the associated migration and default probabilities. Correlation effects between debtors are derived from the sectors and countries in which they operate, and sector and country correlations are based on the interdependencies between the relevant stock indices. The calculation of the credit risk in “other receivables” is based on internal expert assessments. We also capitalise the credit risk for highly rated government bonds. Information on the ratings of the fixedinterest securities and loans can be found in the Notes to the consolidated financial statements on pages 138 ff.
Risk concentrations are mainly in government bonds issued by countries inside and outside the European Union. In addition, pfandbriefs and similar covered bonds account for a large proportion of the investments. These partly result in issuer risk, and partly in risks related to the assets belonging to the cover pool.
We use a cross-balance-sheet counterparty limit system valid throughout the Group to monitor and control our Group-wide credit risks. The limits for each counterparty (a group of companies or country) are based on its financial situation as determined by the results of our fundamental analyses, ratings and market data, and the risk appetite defined by the Board of Management. The utilisation of limits is calculated on the basis of credit-equivalent exposure (CEE). There are also volume limits for securities lending and repurchase transactions. Group-wide rules for collateral management – for example, for over-the-counter (OTC) derivatives and catastrophe bonds issued – enable the associated credit risk to be reduced. Exposure to issuers of interest-bearing securities and CDSs in the financial sector is limited by a financial sector limit at Group level.
With the help of defined stress scenarios, our experts forecast potential consequences for the financial markets, the fair values of our investments, and the present values of our underwriting liabilities. At Group level, we counter any negative effects with the high degree of diversification in both our investments and our liability structure, and with our active Group-wide asset-liability management.
Operational risks are managed through our internal control system (ICS). It addresses Group management requirements, while complying with local regulations. Appropriate measures – up to and including larger projects – are used to correct identified weaknesses or mistakes. The identification of risks that are significant from a Group perspective is covered by our ICS, and these risks are reviewed by the risk carriers and process owners on a regular basis. Furthermore, the design of the ICS and compliance with the system is regularly reviewed by Group Audit.
A key component of the ICS lies in ensuring the reliability of annual financial statements at both consolidated and solo-undertaking level, and the identification, management and control of risks arising out of the accounting process. The Group has established an accounting manual and a system providing regular information on changes to rules applied throughout the Group. Financial accounting and reporting are subject to materiality thresholds to ensure that the cost of the internal controls performed is proportionate to the benefits derived. The risks that are significant from a Group perspective for our financial reporting are covered by the ICS and are reviewed by the risk carriers on a regular basis.
Solvency capital requirement – Operational risk The SCR requirement for operational risk as at 31 December 2019 was €1,051m, slightly lower than in the previous year.
Strategic risk We define strategic risk as the risk of making wrong business decisions, implementing decisions poorly, or being unable to adapt to changes in the operating environment. Existing and new potential for success in the Group and the fields of business in which it operates creates strategic risks, which we manage by carrying out risk analyses for significant strategic issues and regularly monitoring the implementation of measures deemed necessary. The Chief Risk Officer is involved in operational business planning and the processes for significant company mergers and acquisitions.
Security risk committees have been set up in the fields of business to steer and coordinate measures aimed at managing security risks. The members of the security risk committees are managers from operational units (e.g. IT Security), the control functions (for example, risk management, the Information Security Officer, data protection) and representatives of the divisional units and central divisions. The role of Group Chief Information Security Officer with central and Group-wide responsibility for information security has been created to strengthen the risk management function in this area.
The medium-term strategic build-up of more illiquid investments (such as infrastructure investments) is leading to a gradual switch from liquid funds to illiquid assets, which has already been taken into account for the planned investments in the liquidity planning.
The eligible own funds as at the balance sheet date take into account deductions for the dividend agreed by the Board of Management and proposed to the Annual General Meeting for the 2019 financial year of €1.4bn, and purchases not yet made under the share buy-back programme for 2019/2020 in the amount of €339m. In order to make the effects of potential further capital measures on the Solvency II ratio transparent to financial statement users, we further recognise a possible share buy-back programme for 2020/2021 in the amount of €1bn.
A number of political risks persist in the eurozone, including those resulting from the conflict of national interests. In Italy, refinancing costs have fallen significantly since the change of government in 2019, and the new government seems willing to compromise to pursue an EU-friendly course. In addition, the European Central Bank has reduced potential tensions by further relaxing monetary policy. A return to a tighter monetary policy – for example, due to an unexpectedly rapid rise in inflation – could lead to higher borrowing costs for Italy and some other countries. Higher credit spreads and possible falls in ratings would lead to corresponding falls in market values for the bonds of the affected countries.
The exit negotiations between the EU and the United Kingdom have been concluded, and the United Kingdom officially left the EU on 31 January 2020. A transition phase has come into force until the end of 2020, by which time the negotiations concerning the future relationships between the EU and the United Kingdom should be concluded – with a special focus on trading relationships. As the UK has so far strictly refused to accept that there may be an extension of the transition phase, there is a risk that negotiations will not be concluded in time and that trade between the two regions will be on the basis of WTO rules as from 2021. This would imply a significant deterioration of the status quo, with corresponding consequences for the individual EU countries. A number of Munich Re insurance and reinsurance units conduct business in the United Kingdom, and the UK’s departure from the EU will have implications for that business. We have adapted our local organisations to the direct effects of Brexit. These preparation measures will enable Munich Re to continue to write business in the UK, regardless of the outcome of the negotiations. In addition, there may be indirect effects on our business – for instance, owing to negative economic development, wider fluctuations in exchange rates or rising inflation. As things stand at present we do not expect any significant negative direct or indirect effects overall on Munich Re’s assets, liabilities, financial position or results.
In Germany, government action with implications for private health insurance cannot be ruled out, especially if political parties advocating a “citizens’ insurance scheme” influence the policies of a future Federal Government. At the present time, however, it is not possible to predict what these implications might be.
Climate change represents one of the greatest long-term risks of change for the insurance industry. We expect climate change to lead to a lasting increase in extreme weather events, affecting natural hazard risks. Our riskmanagement competence built up over many years, the consideration of findings from current climate research and our highly developed risk models allow us to professionally assess these altered natural hazard risks and to adequately account for these risks in the solvency capital requirement as well as in contract wording and pricing. In addition to the physical risks arising out of climate change, our analyses increasingly look at how risks are changing as the transition to low-carbon economies proceeds, due to the replacement of carbon-based energy technologies, for example (transitional risks). We are also closely monitoring developments of direct and indirect climate liability risks. For example, claims for damages as a consequence of greenhouse gas emissions could be recognised in court – for instance, in connection with rising sea levels on coasts.
Interest rates remain low and this continues to pose many challenges for our own investments and creates a variety of difficulties for our cedants, particularly in life insurance. Though at the same time, the situation is also creating new opportunities for our reinsurance business. A less expansionary monetary policy could lead to higher interest rates and allow the bond markets to normalise. This would entail some investment losses in the short term, but would be favourable to our insurance business and bring higher returns in the long run.
Digitalisation is increasingly transforming the markets, and the corresponding changes in customer behaviour are demanding greater flexibility in providing access, coverage and solutions, as well as in our underlying internal structures. Driving digital transformation is therefore one of Munich Re’s strategic priorities.
On the one hand, we are continually adjusting our internal structures and processes to reduce complexity and costs, while at the same time seizing the opportunities that the digital transformation offers. We are attempting to automate as much as possible, along the entire value chain and across all units. We want to deliver what our clients and we ourselves expect in terms of quality, rapidity, and security, while continuing to increase efficiency. This applies not just to traditionally client-focused areas such as sales and contract administration, but also for example to the digitalisation of our investment management.
On the other hand, significant investments in data, infrastructure, and human resources make it possible for us to use big data analytics even more systematically for our own business and make the technology available to our clients. We are supporting our transformation towards more innovative products and services through major investments in our digital infrastructure and know-how, as well as through joint ventures with strategic partners such as start-ups. With Munich Re’s presence in major start-up hubs, our collaboration with accelerators, and the work of our Digital Ventures unit, numerous new business and cooperation ideas are arising which will help us to expand our business model beyond the insurance value chain, and tap the growth opportunities offered by the digital world. Given our clients’ changing and increasingly hybrid requirements, we are actively driving the integration of various products and sales channels, and the expansion of direct sales in all classes of primary insurance. Beyond investments in products for ERGO’s hybrid customers, we have established nexible, ERGO’s purely digital insurer. Since its successful start in Germany, nexible has expanded into other European countries and aims to further broaden its product range.
Besides expanding our own digital expertise, we also plan to strategically acquire or partner with different promising technology companies to continue generating growth. For example, in addition to smaller excursions into venture capital, we increased our share in Next Insurance, in order to better seize the potential for digital insurance solutions on the SME market in the USA. By integrating the services offered by the Internet of Things provider Relayr, which we acquired last year, and by cooperating with key players on the industrial IoT market, we are driving new business models and helping shape the transformation of the manufacturing industry. For this purpose, we recently pooled all our IoT activities together into a single unit for the entire Group.
The generally positive economic dynamics and low levels of insurance penetration in many developing and emerging markets provide opportunities to profitably expand and further diversify our business portfolio, and we are utilising these in order to expand strategically. An ageing population coupled with diminishing state benefits are leading to greater demand for life and health insurance, which we are catering to with our broad spectrum of products in life primary insurance. MEAG is also playing a key role in this respect with its investment expertise. As reinsurers, we also offer integrated reinsurance and financial solutions to life insurance companies outside of the Group.
Comparison of prospects for Munich Re (Group) for 2019 with results achieved
At the beginning of the year, we projected gross premium of around €49bn for Munich Re for the 2019 financial year. After a good performance in the first nine months, especially in reinsurance, we raised our forecast to more than €49bn. At €51.5bn, we significantly exceeded this target figure.
For the 2019 financial year, we had forecast a consolidated result of around €2.5bn. After the good performance in the first nine months, we increased this forecast to over €2.5bn. And despite high losses from natural catastrophes having a negative impact on the result in the second half of the year, we exceeded this figure at €2.7bn.
At the beginning of the year, we had aimed for a combined ratio of around 95% in the ERGO International segment, provided major losses remained within normal bounds. As the combined ratio saw a significant improvement, especially in Greece after a negative special effect in the previous year, at the end of the financial year the combined ratio was a pleasing 94.3%.
In life and health reinsurance, we expect an increasing result contribution. We aim to achieve a technical result of around €550m, including the result from business with non-significant risk transfer.
We expect a combined ratio of around 97% of net earned premiums in property-casualty reinsurance. The decrease in this ratio will be achieved with a change in the method of cost allocation, which should result in a 0.5–1.0 percentage point reduction. At 12% of net earned premiums, our major-loss expectation remains the same as in the previous year, namely almost €2.5bn.
The combined ratio for the Property-casualty Germany segment should be around 92% provided that major losses are at a normal level.
We estimate that the Group’s gross premiums written will total around €52bn in 2020.
We aim to achieve a consolidated result of around €2.8bn, which is €0.1bn higher than the previous year’s figure. This profit guidance is subject to claims experience with regard to major losses being within normal bounds, to claims provisions remaining unchanged and to our income statement not being impacted by severe currency or capital market movements, significant changes in tax parameters, or other one-off effects.
For the 2020 financial year, we predict economic earnings of over €2.8bn. The higher target figure compared with the envisaged IFRS result is chiefly due to new business, in particular in the life and health reinsurance segment. In economic metrics, the corresponding profit fully materialises at the start of the treaty, and thus earlier than in IFRS.
This projection is also based on the assumption of stable conditions and capital markets, normal major-loss incidence and unchanged modelling parameters. Deviations from these assumptions may have a different impact on economic earnings than on IFRS accounting. Further information on economic earnings as a management tool can be found on page 55.
Subject to approval by the Annual General Meeting, the dividend will rise by 55 cents to €9.80 per share. This is equivalent to a total payout of €1.4bn.
The annual financial statements of Munich Reinsurance Company are prepared in accordance with German accounting rules (HGB). By contrast, the consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs). As a result, there are some deviations in the accounting policies – mainly with regard to intangible assets, investments, financial instruments, individual underwriting assets and liabilities, and deferred taxes.
The macroeconomic and industry environment of Munich Reinsurance Company essentially corresponds to that of the Group. Further information on this can be found on page 54.
The accounting result of Munich Reinsurance Company developed as follows: Condensed income statement for Munich Reinsurance Company 2019 Prev. year Change €m €m % Earned premiums for own account 18,734 16,856 11.1 Interest on technical provisions for own account 367 398 –7.6 Other underwriting income for own account 16 18 –13.3 Claims incurred for own account –13,535 –11,562 –17.1 Change in other technical provisions for own account 229 418 –45.2 Expenses for performance-related and non-performance-related premium refunds for own account –1 0 – Operating expenses for own account –5,641 –4,964 –13.6 Other underwriting expenses for own account –7 –133 94.8 Subtotal 162 1,031 –84.3 Change in claims equalisation provision and similar provisions –795 –780 –1.9 Underwriting result for own account –632 251 – Investment income 4,856 4,789 1.4 Investment expenses –1,754 –2,305 23.9 Interest income on technical provisions –391 –403 3.0 Other income 1,288 465 177.0 Other expenses –1,340 –617 –117.3 Non-technical result 2,658 1,929 37.8 Operating result before tax 2,026 2,179 –7.0 Taxes on income and profit and other taxes –534 –20 <–1.000,0 Profit for the year 1,492 2,160 –30.9 Profit brought forward from previous year 48 47 2.3 Transfers from other revenue reserves 0 0 – Appropriations to revenue reserves –126 –824 84.8 Net retained profits 1,414 1,383 2.2
In property-casualty reinsurance, we posted growth in gross premium income of 9.5% to €14,773m (13,489m) in 2019. The increase was due to an expansion of business across almost all lines and regions, buoyed by positive currency translation effects. If exchange rates had remained the same, premium volume would have been up by 7.4%.
Reinsurance treaty renewals once again took place in a very competitive market environment. Nevertheless, the moderately positive development in prices continued with a slight increase of 0.3%, after the marginally positive price trend of 0.8% in the previous year. This increase was particularly due to the regions hit by natural catastrophes. We were able to expand our business selectively in individual markets. In other regions and lines of business, prices remained largely stable or increased slightly. Overall, we are adhering to our profit-oriented underwriting policy.
The underwriting result before claims equalisation provision amounted to €162m in the 2019 financial year, compared with a profit of €1,031m in the previous year. This decline in the result was primarily due to much higher major-loss expenditure in comparison with the previous year and some losses in life reinsurance. A customary review of provisions for the full year resulted in a reduction in the provisions for claims from prior years, which was at a higher level than in the previous year. Over the years, the safety margin in the provisions has remained unchanged at a high level.
Major-loss expenditure totalling €2,686m (1,316m) after retrocession and before tax was significantly higher than in the previous year and above our expectations. There were also a large number of major losses in 2019, the largest by far being the typhoons Hagibis and Faxai, which caused severe damage in Japan in September and October.
In property-casualty reinsurance, man-made major losses totalled €790m (686m), equivalent to 5.6 (5.4) percentage points of net earned premium.
In life reinsurance, the increase in premium income was mainly due to business expansion in Asia and the ongoing high demand for financially motivated reinsurance.
Personal accident 2019 Prev. year Change % Gross premium written €m
In personal accident reinsurance, premium income was up in the reporting year. The result before claims equalisation provision decreased substantially owing to higher claims expenditure than in the previous year.
Third-party liability 2019 Prev. year Change % Gross premium written €m
Combined ratio % 79.2 106.7 Underwriting result before claims equalisation provision and similar provisions €m
In third-party liability reinsurance, premium income increased in the reporting year mainly on account of business growth. Higher reserve releases for claims from prior accident years caused the technical result before claims equalisation provision to improve significantly compared with the previous year.
Premium volume in motor reinsurance was down slightly in the reporting year, mainly because of the termination of a large-volume treaty in Asia. By contrast, the technical result improved compared with the previous year, essentially owing to increased reserve releases for claims from prior accident years.
Combined ratio % 86.7 30.0 Underwriting result before claims equalisation provision and similar provisions €m
Premium income in marine reinsurance increased in the reporting year. The technical result before claims equalisation provision decreased year on year owing to higher major-claims expenditure.
Combined ratio % 112.3 91.9 Underwriting result before claims equalisation provision and similar provisions €m
In engineering reinsurance (machinery, EAR, CAR, EEI, etc.), premium income increased slightly on the previous year. The technical result improved year on year, mainly thanks to a fall in major-loss expenditure.
Monetary policy easing boosted stock markets over the course of 2019. Important stock indices such as the US Dow Jones index and the Euro STOXX 50 closed the year with substantial gains. The trade war between the USA and China led to volatility, with prospects of renewed escalation dragging down share prices and news of an impending trade agreement boosting the markets.
Investment result €m 2019 Prev. year Regular income 2,351 1,659 Write-ups and write-downs 301 37 Realised gains/losses on the disposal of investments
In the 2019 financial year, Munich Reinsurance Company’s investment result was up by €619m, mainly due to an increase in regular income, in particular from associated companies.
On the whole, counter-effects from impairment losses and reversals of impairment losses, from gains on disposals, and from other return on investment nearly balanced each other out.
Balance sheet structure of Munich Reinsurance Company €m 2019 Prev. year Change €m €m % Intangible assets 167 186 –10.2 Investments 75,622 74,450 1.6 Receivables 16,526 10,184 62.3 Other assets 655 971 –32.5 Deferred items 203 355 –42.7 Excess of plan assets over pension liabilities 570 453 25.9 Total assets 93,743 86,598 8.3 Equity 10,894 11,701 –6.9 Subordinated liabilities 3,681 3,651 0.8 Technical provisions 63,431 59,133 7.3 Other provisions 2,001 1,991 0.5 Deposits retained on retroceded business 1,751 1,407 24.4 Other liabilities 11,957 8,686 37.7 Deferred items 28 28 0.2 Total equity and liabilities 93,743 86,598 8.3
The carrying amount of Munich Reinsurance Company’s investments excluding deposits retained on assumed reinsurance increased slightly to €64,465m (64,296m).
Equity1 €m 2019 Prev. year Issued capital 576 573 Capital reserve 6,845 6,845 Revenue reserves 2,059 2,900 Net retained profits 1,414 1,383 Equity 10,894 11,701 1 Information on Section 160(1) no. 2 of the German Stock Corporation Act (AktG) can be found under Note 6 of Munich Reinsurance Company’s Annual Report 2019.
No claims equalisation provision is currently established for aviation, as the conditions for setting aside a provision in this class of business are not met.
The current level of the claims equalisation provision is 100% of the legally stipulated maximum amount allowed in the third-party liability and motor classes of business, and more than 50% in fire, credit, engineering, marine and personal accident business.
Munich Reinsurance Company has submitted the Statement of Corporate Governance in accordance with Section 289f of the Commercial Code (HGB), and the Group Statement of Corporate Governance in accordance with Section 315d of the Commercial Code. The Statements have been combined and are in the section on corporate governance on page 16. Pursuant to Section 317(2) sentence 6 of the Commercial Code, the audit of statements by the auditors is limited to whether or not this has been done. This Statement includes corporate governance reporting within the meaning of the German Corporate Governance Code.
The principles regarding the structure and design of the compensation system of Munich Reinsurance Company correspond to those of the Group. The remuneration report can be found on pages 36 ff.
Against this background, Munich Reinsurance Company should post gross premium of around €22bn in the 2020 financial year – assuming that exchange rates remain constant. We expect the combined ratio to be around 97% of net earned premium. An accurate forecast is not possible, partly due to the obvious fluctuations in the incidence of major losses. Assuming average claims experience, we project that the underwriting result before claims equalisation provision for the 2020 financial year will be slightly higher than in the reporting year.
Consolidated balance sheet 100 Consolidated income statement 102 Statement of recognised income and expense 103 Group statement of changes in equity 104 Consolidated cash flow statement 106
Notes to the consolidated financial statements 107 Application of International Financial Reporting Standards (IFRSs) 107 Declaration of Conformity with the German Corporate Governance Code in accordance with Section 161 of the German Stock Corporation Act (AktG) 107 Recognition and measurement 107 Consolidation 112
09 Deposits retained on assumed reinsurance 141 10 Other investments 141 11 Ceded share of technical provisions 142 12 Other receivables 142 13 Deferred acquisition costs 143 14 Deferred tax 143 15 Other assets 145 16 Assets held for sale 146
Notes to the consolidated balance sheet – Equity and liabilities 147 17 Equity 147 18 Hierarchy for the fair value measurement of liabilities 148 19 Subordinated liabilities 150 20 Unearned premiums 150 21 Provision for future policy benefits 151 22 Provision for outstanding claims 151 23 Other technical provisions 154 24 Gross technical provisions for unit-linked life insurance 154 25 Other provisions 155 26 Bonds and notes issued 159 27 Deposits retained on ceded business 159 28 Other liabilities 159 29 Liabilities from financing activities 159
Notes to the consolidated income statement 161 30 Premiums 161 31 Income from technical interest 161 32 Expenses for claims and benefits 162 33 Operating expenses 162 34 Investment result 163 35 Insurance-related investment result 163 36 Other operating result 163 37 Other non-operating result, currency result and net finance costs 164 38 Taxes on income 164
Disclosures on risks from insurance contracts and financial instruments 165 39 Disclosures on risks from life and health insurance business 165 40 Disclosures on risks from property-casualty insurance business 167
List of shareholdings as at 31 December 2019 pursuant to Section 313(2) of the German Commercial Code (HGB)
Associates and joint ventures accounted for using the equity method 2,625 2,296 328 14.3 III. Loans (6) 52,507 54,845 –2,338 –4.3 IV. Other securities 1. Available for sale (7) 151,558 139,272 12,285 8.8 2. At fair value through profit or loss (8) 2,781 2,616 165 6.3 154,338 141,888 12,450 8.8 V. Deposits retained on assumed reinsurance (9) 7,938 7,241 698 9.6 VI. Other investments (10) 5,144 4,518 626 13.9 228,764 216,852 11,912 5.5 C. Insurance-related investments (8) 9,163 8,424 738 8.8 D. Ceded share of technical provisions (11) 4,937 4,263 674 15.8 E. Receivables I. Current tax receivables 699 604 95 15.8 II. Other receivables (12) 21,539 17,239 4,301 24.9 22,238 17,842 4,396 24.6 F. Cash at banks, cheques and cash in hand 4,994 4,986 8 0.2 G. Deferred acquisition costs (13) Gross 9,664 9,466 198 2.1 Ceded share –393 –254 –139 –54.7 Net 9,272 9,212 59 0.6 H. Deferred tax assets (14) 316 545 –229 –42.0 I. Other assets (15) 3,289 2,950 339 11.5 J. Assets held for sale (16) 400 1,029 –628 –61.1 Total assets 287,553 270,168 17,386 6.4 1 You will find this information as a downloadable Excel file in the financial supplement under www.munichre.com/results-reports.
Company equity holders 2,724 2,310 415 18.0 V. Non-controlling interests 117 131 –14 –11.0 30,576 26,500 4,076 15.4 B. Subordinated liabilities (19) 3,839 3,689 150 4.1 C. Gross technical provisions I. Unearned premiums (20) 10,518 9,790 728 7.4 II. Provision for future policy benefits (21) 112,302 111,147 1,155 1.0 III. Provision for outstanding claims (22) 70,875 66,356 4,519 6.8 IV. Other technical provisions (23) 21,011 17,314 3,697 21.4 214,706 204,607 10,099 4.9 D. Gross technical provisions for unit-linked life insurance (24) 8,172 7,925 247 3.1 E. Other provisions (25) 5,291 4,383 908 20.7 F. Liabilities I. Bonds and notes issued (26) 297 292 5 1.9 II. Deposits retained on ceded business (27) 1,028 506 523 103.4 III. Current tax liabilities 1,913 1,929 –15 –0.8 IV. Other liabilities (28) 19,643 18,147 1,497 8.2 22,882 20,872 2,010 9.6 G. Deferred tax liabilities (14) 1,908 1,368 540 39.4 H. Liabilities related to assets held for sale (16) 179 823 –644 –78.2 Total equity and liabilities 287,553 270,168 17,386 6.4
Notes 2019 Prev. year Change €m €m €m €m €m % Gross premiums written 51,457 49,064 2,393 4.9 1. Earned premiums (30) Gross 50,873 48,019 2,854 5.9 Ceded share –2,594 –2,284 –309 –13.5 Net 48,280 45,735 2,545 5.6 2. Income from technical interest (31) 6,729 4,667 2,062 44.2 3. Expenses for claims and benefits (32) Gross –41,058 –36,366 –4,692 –12.9 Ceded share 1,373 1,250 123 9.9 Net –39,685 –35,116 –4,569 –13.0 4. Operating expenses (33) Gross –13,809 –13,105 –704 –5.4 Ceded share 560 518 42 8.0 Net –13,249 –12,587 –663 –5.3 5. Technical result (1–4) 2,074 2,699 –624 –23.1
Income from associates and joint ventures accounted for using the equity method 207 187 20 10.8 7. Insurance-related investment result (35) 1,176 –685 1,861 – 8. Other operating income (36) 1,093 827 266 32.1 9. Other operating expenses (36) –1,347 –976 –372 –38.1 10. Deduction of income from technical interest –6,729 –4,667 –2,062 –44.2 11. Non-technical result (6–10) 1,930 1,027 903 88.0 13. Other non-operating result (37) –665 –639 –26 –4.0 14. Currency result (37) 73 –39 112 – 15. Net finance costs (37) –222 –196 –26 –13.4 16. Taxes on income (38) –483 –576 93 16.1 17. Consolidated result 2,707 2,275 432 19.0 Thereof: Attributable to Munich Reinsurance Company equity holders 2,724 2,310 415 18.0 Attributable to non-controlling interests (17) –17 –34 17 50.8 1 Previous year’s figures adjusted owing to IAS 1 and IAS 8; see “Changes in accounting policies and other adjustments”. 2 You will find this information as a downloadable Excel file in the financial supplement under www.munichre.com/results-reports.
Statement of recognised income and expense for the 2019 financial year €m 2019 Prev. year Consolidated result 2,707 2,275 Currency translation Gains (losses) recognised in equity 422 345 Recognised in the consolidated income statement 0 0 Unrealised gains and losses on investments Gains (losses) recognised in equity 4,514 –1,602 Recognised in the consolidated income statement –853 –527 Change resulting from equity method measurement Gains (losses) recognised in equity –15 47 Recognised in the consolidated income statement 0 0 Change resulting from cash flow hedges Gains (losses) recognised in equity 1 0 Recognised in the consolidated income statement 0 0 Other changes 4 –1 I. Items where income and expenses recognised directly in equity are reallocated into the consolidated income statement 4,073 –1,738 Remeasurements of defined benefit plans –411 78 Other changes 0 0 II. Items where income and expenses recognised directly in equity are not reallocated to the consolidated income statement
Group statement of changes in equity for the 2019 financial year
Balance at 31.12.2017 573 6,845 Allocation to retained earnings 0 0 Consolidated result 0 0 Income and expense recognised directly in equity 0 0
Currency translation 0 0 Unrealised gains and losses on investments 0 0 Change resulting from equity method measurement 0 0 Change resulting from cash flow hedges 0 0 Remeasurements of defined benefit plans 0 0 Other changes 0 0
Total recognised income and expense 0 0 Change in shareholdings in subsidiaries 0 0 Change in consolidated group 0 0 Dividend 0 0 Purchase of own shares –17 0 Retirement of own shares 21 0 Balance at 31.12.2019 576 6,845
Consolidated cash flow statement for the 2019 financial year1 €m 2019 Prev. year Consolidated result 2,707 2,275
Net change in technical provisions 11,816 4,449 Change in deferred acquisition costs –150 118 Change in deposits retained 96 –1,450 Change in other receivables and liabilities –2,798 –1,854 Gains and losses on the disposal of investments and insurance-related investments –1,715 –1,672 Change in securities at fair value through profit or loss –889 –534 Change in other balance sheet items 1,277 –119 Other non-cash income and expenses –850 1,785
I. Cash flows from operating activities 9,493 2,998 Change from losing control of consolidated subsidiaries –59 72 Change from obtaining control of consolidated subsidiaries –1 –889 Change from the acquisition, sale and maturity of investments –6,564 160 Change from the acquisition, sale and maturity of insurance-related investments 377 465 Other –673 97
III. Cash flows from financing activities –2,496 –1,338 Cash flows for the financial year (I + II + III)2 78 1,565
Effect of exchange-rate changes on cash and cash equivalents –57 –40 Cash at the beginning of the financial year 4,986 3,625 Cash at the end of the financial year 5,006 5,150
In November 2019, the Board of Management and Supervisory Board of Munich Reinsurance Company published an updated Declaration of Conformity with the German Corporate Governance Code in accordance with Section 161 of the German Stock Corporation Act (AktG), and made this Declaration permanently available to shareholders on the internet at www.munichre.com/cg-en.
Discretionary judgements and estimates are of significance for the following in particular and are described in more detail in the respective explanatory Notes: − Consolidated group − Goodwill and other intangible assets − Fair values and impairments of financial instruments − Deferred acquisition costs − Technical provisions − Provisions for post-employment benefits − Deferred tax − Contingent liabilities
In the 2019 financial year, the following amended IFRSs had to be applied for the first time, after having been adopted into European law.
− IFRS 16 (01/2016), Leases − Amendments to IAS 28 (rev. 10/2017), Long-term
Interests in Associates and Joint Ventures − Annual Improvements to IFRS Standards 2015–2017
Upon first-time application of IFRS 16, we measure the right of use for the asset at the amount of the lease liability.
In applying IFRS 16 for the first time, Munich Re has made use of the transitional provisions and recognised leases with a remaining term of less than 12 months as at 1 January 2019 as short-term leases.
The reconciliation of off-balance-sheet lease obligations as at 31 December 2018 to the lease obligations recognised in the balance sheet as at 1 January 2019 is as follows: Reconciliation €m Future minimum lease payments under operating leases at 31.12.2018 438 Discounting –49 Practical expedients for short-term leases, low-value assets and service components –5 New leases commencing after 1.1.2019 –16 Changes in renewal/termination options 18 Changes in consolidated group –38 Other –7 Lease liabilities 1.1.2019 341
Since the 2018 financial year and until Munich Re applies IFRS 9 Financial Instruments, an amendment to IFRS 4 Insurance Contracts currently in force requires us to provide information in such a way that makes it possible to compare our presentation of investments and other financial instruments with those of companies that already apply IFRS 9.
This required evidence on the basis of the financial statements as at 31 December 2015 that most of the Group’s activity is in insurance. Insurance business is considered “predominant” if at the time of measurement more than 90% of total liabilities were related to insurance business. Besides liabilities that fall within the scope of IFRS 4, these also include liabilities from investment contracts measured at fair value and other liabilities resulting from insurance business. At Munich Re, liabilities related to insurance business accounted for a share of around 96.5% of total liabilities as at 31 December 2015. In the meantime, there have been no changes to our business activities that would necessitate a reassessment.
The measurement of our investments under IFRS 9 is partly geared to their contractual cash flows. If these only comprise the payment of principal and interest on the amount outstanding, measurement is based either on
Munich Re Group Annual Report 2019 amortised cost or – without impact on profit or loss – on the fair value, depending on the business model. This does not apply in particular to equities and derivatives, or to complex structured products. These are measured at fair value through profit or loss. The measurement of our investments under IFRS 9 will thus differ from our current measurement. The objective of the following table is therefore to achieve comparability in terms of the measurement of our investments with those undertakings that already apply IFRS 9.
Cash flow requirement met1 Cash flow requirement not met2 €m 31.12.2019 Prev. Year Change 31.12.2019 Prev. Year Change Loans
Other securities at fair value through profit or loss Held for trading 16 15 0 2,220 2,191 29 Securities designated as at fair value through profit and loss 42 50 –8 504 360 144
Insurance-related investments Investments for unit-linked life insurance contracts 0 0 0 7,726 7,533 192 Other insurance-related investments 201 7 193 1,237 833 405 1 Excluding investments measured at fair value through profit or loss in accordance with IFRS 9, irrespective of whether they meet the cash-flow requirements. 2 Including investments measured at fair value through profit or loss in accordance with IFRS 9, irrespective of whether they meet the cash-flow requirements.
Effective from the first quarter of 2019, we have adjusted the breakdown of the consolidated income statement and the segment income statement, including the figures
Change due to adjustments in 2018 2018 €m 2. Income from technical interest 4,747 –80 4,667 5. Technical result 2,779 –80 2,699 10. Deduction of income from technical interest –4,747 80 –4,667 11. Non-technical result 946 80 1,027
The provisions of IFRS 9 are associated with extensive additional disclosures required in the appendices that were adopted in IFRS 7, Financial Instruments: Disclosures. The provisions are mandatory for financial years beginning on or after 1 January 2018. As an insurance company, we are making use of the option to postpone the first-time application of IFRS 9 until 1 January 2021 at the earliest, see section “Changes in accounting policies and other adjustments”.
Another new feature is the clearly stipulated differentiation in the income statement between the technical result – which is precisely defined in IFRS 17 and comprises insurance revenue and insurance service expenses – and insurance finance income or expenses. Insurance revenue is defined in order to allow for comparability with the revenues of other industries. In particular, neither savings premiums (“deposit components”) nor certain cedant commissions may now be recognised as revenue components. The new definition will thus require a fundamental rethink of the way we disclose revenue, which currently includes all premium components. If our volume of business remains the same, we thus anticipate appreciable shrinkage in reportable revenues for reinsurance without this affecting the underwriting result.
The new rules require detailed reconciliations to be disclosed for changes to individual measurement components and provision types. Notes about the risks from insurance contracts remain largely unchanged.
IFRS 17 will involve fundamental changes to the accounting for insurance and reinsurance contracts and related processes. As the required changes will involve a considerable amount of work, we started to analyse them in great detail at an early stage. An implementation project was set up shortly after the publication of the new requirements in which all important areas of our reinsurance and primary insurance group are being involved. Through profound and interdisciplinary cooperation across all units, we continuously ensure that all special aspects of our individual insurance lines of business are considered and implemented in our central IT solution.
Application of IFRS 17 in the version of May 2017 would be mandatory for financial years beginning on or after 1 January 2021. Due to the high complexity of the rules and the substantial work required for their implementation, discussions are currently under way about deferring this effective date. In May 2019, the IASB published a draft for an amendment to IFRS 17, which could be commented on with a shortened deadline until September 2019. This draft proposes to postpone the mandatory initial application of the standard by one year to 1 January 2022. At the same time, insurance companies qualifying for deferral of IFRS 9 would be allowed an additional year of deferral to 2022 for the first-time application of IFRS 9. In addition, the draft already contains proposals for initial substantive amendments to IFRS 17. Discussions on these amendments are currently still ongoing.
Various preparers are calling for mandatory first-time application of these two standards to be postponed even further than the IASB draft envisages. The final publication of the amendment standard is not expected before mid-2020.
IFRS 9 was adopted into European law in November 2016. The endorsement of IFRS 17 is still outstanding.
The IASB also published amendments to the following standards, which have been adopted into European law – with the exception of the amendment to IFRS 3 and IAS 1: − Amendments to the references to the framework in other IFRSs (03/2018)
− Amendments to IFRS 9, IAS 39 and IFRS 7 with regard to the effects of the IBOR reform (Phase 1) (09/2019)
The amendments will become mandatory in 2020/2022, but have little or no material effects on Munich Re.
Cash flows and net assets from obtaining and losing control of consolidated subsidiaries or other operations are shown in the following tables: Cash flows arising from obtaining control €m 2019 Prev. year Total consideration for obtaining control –5 –905 Non-cash consideration for obtaining control 0 0 Cash consideration for obtaining control –5 –905 Cash over which control was obtained 4 16 Total –1 –889
Net assets acquired €m 31.12.2019 Prev. year Goodwill/gain from bargain purchase 1 244 Other intangible assets 0 87 Investments 1 603 Cash 4 16 Other assets 0 44 Technical provisions (net) –1 0 Other liabilities 0 –86 Total 5 909
Net assets disposed of €m 31.12.2019 Prev. year Goodwill 0 0 Other intangible assets –5 –5 Investments –415 –130 Cash –157 –77 Other assets –208 –269 Technical provisions (net) 557 145 Other liabilities 81 228 Total –147 –109
Entities and special funds are considered associates if we are able to significantly influence their financial and operating policies. We regularly operate on this assumption if we hold between 20% and 50% of the voting power or similar rights, unless the financial and operating policies of the entity or special fund are largely pre-determined.
Investment funds As part of its investment activities Munich Re invests in investment funds on its own behalf, and on behalf of policyholders under unit-linked life insurance. Investment funds are mainly financed by issuing redeemable shares or units. Some of the investment funds are managed by MEAG MUNICH ERGO AssetManagement GmbH, others by fund managers outside the Group. We also report under investment funds all investments in infrastructure, forestry, private equity and other investments.
The maximum exposure to loss relates to the loss of future management fees. Fund management activities generated income of €43m (42m) in the financial year. The value of fund assets under management provides information about the size of the unconsolidated structured entities. As at 31 December 2019, the managed fund assets amounted to €4,622m (3,815m), and Munich Re itself also holds a small interest in these funds.
Securiti- sation vehicles – Underwriting risks Total €m Prev. year Prev. year Prev. year Prev. year Prev. year Loans 7 0 0 0 7 Other securities 0
Available for sale 4,391 0 2,776 661 7,828 At fair value through profit or loss 0 0 0 0 0
Deposits retained on assumed reinsurance 0 0 0 390 390 Investments for unit-linked life insurance contracts 0 8,141 0 0 8,141 Ceded share of technical provisions 0 0 0 61 61 Assets held for sale 118 149 4 0 271 Total assets 4,517 8,290 2,780 1,112 16,699 Technical provisions 0 0 0 0 0 Other liabilities 0 0 0 5 5 Total equity and liabilities 0 0 0 5 5 Size of structured entity 4,517 8,290 75,517 9,257 94,581
For impairment testing, the goodwill is allocated to the cash-generating units that derive benefit from the synergies of the business combinations. At the same time, the unit to which the goodwill is allocated represents the lowest level at which goodwill is monitored for internal management purposes. Goodwill is allocated in reinsurance to divisions, and in primary insurance to the ERGO segment Propertycasualty Germany, and to legal entities. We regard amounts of 10% or more of total Group goodwill as significant.
Software assets are carried at cost and are amortised on a straight-line basis over a useful life of three to five years. The depreciations and amortisations are distributed in the consolidated income statement between investment expenses, expenses for claims and benefits, and operating expenses. If it is not possible to allocate impairments to the functional areas, they are shown under “other non-operating result”. Impairments or impairment losses reversed are recognised if required.
Securities at fair value through profit or loss comprise securities held for trading and securities classified as at fair value through profit or loss. Securities held for trading mainly include all derivative financial instruments with positive fair values which we have acquired to manage and hedge risks but which do not meet the requirements of IAS 39 for hedge accounting. Securities designated as at fair value through profit or loss comprise structured securities and securities designated as at fair value in order to avoid accounting mismatches. In addition, loan portfolios are managed based on the fair value of the entire portfolio, which is why it was also designated as at fair value through profit or loss.
Other investments include deposits with banks and investments in renewable energies, physical gold and forestry. With the exception of forestry investments, these are measured at amortised cost. We apply the effective interest method for deposits with banks. Investments in renewable energies are amortised on a straight-line basis over a useful life of 20–30 years, but mostly over 20 years. If required, impairment losses or impairment losses reversed follow the annual impairment test. If the recoverable amount of physical gold is lower than the carrying amount, a write-down for impairment is carried out. If higher, the impairment is reversed, with impact on the income statement. The resultant carrying amount may not exceed the acquisition cost.
Determining fair values IFRS 13, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. All investments and other assets and liabilities that are recognised at fair value, and such investments and other items for which a fair value is disclosed solely in the Notes, are allocated to one of the fair value hierarchy levels of IFRS 13, which provides for three levels.
Information on the valuation models and processes can be found in the Notes to the consolidated balance sheet – Assets (4) Hierarchy for the fair value measurement of assets. An internal process ensures that the measurement basis at every reporting date results in the correct allocation to the individual levels of the fair value hierarchy according to IFRS 13.
Assets allocated to Level 2 are valued using models based on observable market data. If the financial instrument concerned has a fixed contract period, the inputs used for valuation must be observable for the whole of this period. Moreover, we have allocated to this level such assets for which prices are provided by price quoters but for which there is no proof that these were based on actual market transactions. The financial instruments we have allocated to this level mainly comprise bearer bonds and bond funds, borrowers’ note loans, covered bonds, subordinated securities, specified credit structures, derivatives not traded on the stock market, and physical gas.
IAS 39.59 contains a list providing objective evidence of impairment of financial assets. In addition, IAS 39.61 states that, for equity investments, a significant or prolonged decline in the fair value of the investment below its acquisition cost is objective evidence of impairment. These rules are given more concrete form by means of internal guidelines. For equities quoted on the stock exchange, we assume a significant decline in fair value if the market price at the review date is at least 20% below the average purchase price or has been lower than this amount for at least six months. In the case of fixed-interest securities and loans, the main basis for establishing impairment is an indication of substantial financial difficulty on the part of the issuer, the current market situation or media reports on the issuer.
We determine acquisition cost on the basis of the average purchase price. In the case of an impairment, a write- down is made to the fair value at the balance sheet date and recognised in profit or loss.
Deferred acquisition costs comprise commissions and other variable costs directly connected with acquisition or renewal of insurance contracts. In accordance with IFRS 4, we do not use shadow accounting for deferred acquisition costs in life primary insurance. In life business and longterm health primary insurance, deferred acquisition costs are recognised and amortised over the duration of the contracts. In determining the amount of amortisation, we take into account an actuarial interest rate and changes resulting from the disposal or withdrawal of contracts from the portfolio. In property-casualty business, short-term health primary insurance and health reinsurance, the deferred acquisition costs are normally amortised on a straight-line basis over the average term of the policies, from one to five years.
Other assets are generally recognised at amortised cost. Amortisations or depreciations mainly occur on a straightline basis; the average useful life is 56 years. Where required, impairment losses are recognised or reversed for the Group’s owner-occupied property, plant and equipment. These impairment losses and impairment losses reversed are distributed between the functional areas.
Right-of-use assets under leases are comprised of lease liabilities, lease payments made at the time or before the asset is made available for use, initial direct costs, and restoration obligations. Right-of-use assets are amortised on a straight-line basis over the term of the lease. Several lease contracts, especially property leases, include renewal and termination options. In determining the lease term, the exercise or non-exercise of such options is only taken into account if it is reasonably certain.
In reinsurance, measurement is carried out partly individually for each risk and partly collectively for reinsured portfolios, using biometric actuarial assumptions based on the tables of the national actuarial associations. These are adjusted for the respective reinsured portfolio, in line with the probabilities observed for the occurrence of an insured event. Discount rates are chosen that reflect the best estimate of expected investment income, less a safety margin. For the major part of the portfolio, these assumptions are fixed at the beginning of the contract and not changed over its duration.
The provision for outstanding claims is for payment obligations arising from insurance contracts in primary insurance and reinsurance where the size of the claim or the timing of the payment is still uncertain. Part of the provision is for known claims for which individually calculated provisions are posted. Another part is for expenses for claims whose occurrence is not yet known. There are also provisions for claims that are known, but whose extent has turned out to be greater than originally foreseen. All these provisions include expenses for internal and external loss adjustments. The provision for outstanding claims is based on estimates: the actual payments may be higher or lower. The amounts posted are the realistically estimated future amounts to be paid; they are calculated on the basis of past experience and assumptions about future developments (e.g. social, economic or technological factors). The insurance claims payments also include estimated adjustments to accounts payable recognised in the previous year with a corresponding impact on the provision; these adjustments are the result of an altered assessment of payment behaviour. Future payment obligations are generally not discounted; exceptions are some provisions for occupational disability pensions and annuities in workers’ compensation and other lines of property-casualty business. For determining the provision for outstanding claims, Munich Re uses a range of actuarial projection methods. Where ranges have been calculated, a realistic estimated value for the ultimate loss is determined within these. In applying the statistical methods, we regard large exposures separately.
Other technical provisions mainly include the provision for premium refunds in primary insurance and the provision for profit commission in reinsurance. The former is posted in life and health primary insurance for obligations involving policyholder bonuses and rebates that have not yet been irrevocably allocated to individual contracts at the balance sheet date. These provisions are posted on the basis of national regulations only for German primary insurance business; a retrospective approach is usually taken based on supervisory or individual contractual rules.
Besides this, there are provisions for deferred premium refunds, which are posted for the amounts apportionable to policyholders from the measurement differences between IFRS and local GAAP on the basis of the expected future participation quotas. For unrealised gains and losses on investments available for sale, which are recognised directly in equity (see Assets – B Investments – Fixedinterest or non-fixed-interest securities available for sale), the resultant provision for deferred premium refunds is also posted without impact on profit or loss; otherwise, changes in this provision are recognised in the income statement.
The item also includes miscellaneous provisions, which we establish in the amount of the probable requirement. Such amounts are not discounted if the interest-rate effect is insignificant.
Lease liabilities are included in “other liabilities”. The lease liability represents the present value of the payment obligations entered into and includes the following lease payments: Fixed payments less any leasing incentives to be provided by the lessor; variable payments linked to an index or interest rate; expected residual value payments from residual value guarantees; the exercise price of a call option if its exercise was deemed to be reasonably certain; and penalties for termination of the lease, if its term takes use of a termination option into account. Lease payments are discounted at the interest rate on which the lease is based, if this can be determined. Otherwise, discounting is carried out using the incremental borrowing rate.
Balance sheet Income statement Income statement One foreign currency unit is equivalent to € 31.12.2019 Prev. year Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 Australian dollar 0.6262 0.6158 0.6174 0.6167 0.6230 0.6273 0.6284 0.6289 0.6349 0.6396 Canadian dollar 0.6870 0.6405 0.6843 0.6810 0.6652 0.6621 0.6633 0.6576 0.6499 0.6434 Pound sterling 1.1801 1.1141 1.1623 1.1086 1.1440 1.1464 1.1272 1.1206 1.1416 1.1323 Polish zloty 0.2352 0.2329 0.2334 0.2315 0.2336 0.2325 0.2327 0.2324 0.2346 0.2393 Swiss franc 0.9200 0.8874 0.9126 0.9122 0.8874 0.8835 0.8801 0.8735 0.8517 0.8580 US dollar 0.8909 0.8748 0.9032 0.8993 0.8899 0.8806 0.8763 0.8596 0.8389 0.8139 Yen 0.0082 0.0080 0.0083 0.0084 0.0081 0.0080 0.0078 0.0077 0.0077 0.0075 Yuan renminbi 0.1279 0.1274 0.1282 0.1282 0.1304 0.1305 0.1267 0.1264 0.1316 0.1280
− ERGO Life and Health Germany (German life and health primary insurance business, global travel insurance business and Digital Ventures business.
As of 1 January 2019, ERGO’s German direct business operations were renamed Digital Ventures.
At the beginning of the first quarter 2019, the method used in managing investments in reinsurance – and consequently the allocation to the life and health and property-casualty segments of the reinsurance group – was refined in order to take more detailed account of material facts and circumstances. The previous year’s figures have not been adjusted as the changes were not significant.
The IFRS result contributions are the basis of planning and strategy in all segments, hence the IFRS segment result is the uniform assessment basis for internal control.
Income and expenses from intra-Group loans are shown unconsolidated under “Other non-operating result” for the segments concerned. These are otherwise shown after elimination of intra-Group transactions and shareholdings.
Life and health Property-casualty €m 31.12.2019 Prev. year 31.12.2019 Prev. year A. Subordinated liabilities 956 977 2,871 2,700 B. Gross technical provisions I. Unearned premiums 337 309 7,583 6,985 II. Provision for future policy benefits 12,607 12,107 26 26 III. Provision for outstanding claims 9,563 9,034 50,696 46,919 IV. Other technical provisions 340 301 274 293 22,848 21,751 58,579 54,222 C. Gross technical provisions for unit-linked life insurance contracts 0 0 0 0 D. Other provisions 233 226 805 604 E. Liabilities related to assets held for sale 0 0 0 392 F. Other segment liabilities 10,522 8,938 8,049 7,189 Total segment liabilities 34,559 31,891 70,303 65,108 1 You will find this information as a downloadable Excel file in the financial supplement under www.munichre.com/results-reports.
Germany International 31.12.2019 Prev. year 31.12.2019 Prev. year 31.12.2019 Prev. year 31.12.2019 Prev. year 0 0 0 0 13 13 3,839 3,689 282 250 507 484 1,809 1,762 10,518 9,790 89,698 88,950 409 422 9,562 9,641 112,302 111,147 2,970 2,886 4,779 4,670 2,868 2,848 70,875 66,356 19,574 16,139 99 96 724 485 21,011 17,314 112,525 108,225 5,793 5,672 14,962 14,736 214,706 204,607 5,572 5,098 0 0 2,600 2,827 8,172 7,925 1,992 1,662 1,061 918 1,200 972 5,291 4,383 0 168 0 0 179 263 179 823 4,282 4,156 631 741 1,306 1,218 24,790 22,241 124,370 119,309 7,486 7,331 20,260 20,028 256,978 243,668 Equity 30,576 26,500 Total equity and liabilities 287,553 270,168
Life and heath Property-casualty €m 2019 Prev. year 2019 Prev. year Interest income 899 753 1,137 1,103 Interest expenses –31 –14 –29 –51 Depreciation and amortisation –58 –62 –118 –111 Other operating income 259 172 303 314 Other operating expenses –198 –114 –541 –444 Income from associates and joint ventures accounted for using the equity method 2 1 162 113
Fire brigade tax and other expenses 17 14 20 15 28 31 Expenses for premium refunds3 0 0 26 23 2 0 Other underwriting income –8 –6 –4 –3 –16 –25 Change in other technical provisions and other underwriting expenses3
Adjusted net expenses for claims and benefits –13,705 –12,132 –2,025 –2,033 –2,107 –2,047 Loss ratio % 66.6 65.2 60.3 62.5 63.7 62.2 Combined ratio % 101.0 99.4 92.3 96.0 94.3 94.6 1 Information on the combined ratio is provided in the management report under “Important tools of corporate management”. 2 Property-casualty business and short-term health business (excluding health insurance conducted like life insurance). 3 No adjustment for property-casualty reinsurance.
Non-current assets by country1 €m 31.12.2019 Prev. year Germany 7,322 7,166 USA 3,507 3,364 UK 554 573 France 429 377 Sweden 368 387 Spain 312 302 Poland 242 233 Malta 194 202 Italy 174 186 Austria 142 161 Belgium 131 132 Netherlands 94 115 Switzerland 93 91 Portugal 71 69 Finland 64 65 Canada 56 46 Denmark 54 24 Lithuania 53 54 Others 104 108 Total 13,963 13,655 1 The non-current assets mainly comprise intangible assets (especially goodwill) and our owner-occupied and investment property, as well as investments in renewable energy.
Germany 13,285 13,397 UK 5,193 5,276 Poland 1,593 1,542 Spain 1,473 1,276 Belgium 904 895 Others 5,189 4,923 14,482 13,216 Asia and Australasia
South Africa 694 655 United Arab Emirates 379 428 Others 751 680 1 The premiums are generally allocated according to the location of the risks insured.
Key assumptions regarding the planning calculation (at the time of planning)
In the detailed planning phase (three years) we expected increasing premium income and a slight improvement in the combined ratio if major losses remained stable.
The calculation of these values in use is based on distributable target results derived from the current market environment and the latest corporate planning approved by management. Prepared in an interactive process involving the operational units, the responsible controlling units and the Board of Management, the corporate plans are reviewed and updated at least every quarter. The aforementioned key assumptions regarding premium income development and combined ratios derive from the aggregation of the company plans of the individual companies of a cashgenerating unit. The key assumptions regarding developments in the equity market and interest-rate level are defined on the basis of the current market environment.
Internally developed Other €m 2019 Prev. year 2019 Prev. year 2019 Prev. year Gross carrying amount at 31 Dec. previous year 1,299 1,304 462 413 1,343 1,244 Accumulated amortisation and impairment losses at 31 Dec. previous year
Carrying amount at 31 Dec. previous year 373 433 44 30 317 272 Currency translation differences 15 –6 0 –1 2 1 Additions
Carrying amount at 31 Dec. financial year 346 373 24 44 471 317 Accumulated amortisation and impairment losses at 31 Dec. financial year
Acquired licences/ patents €m 2019 Prev. year 2019 Prev. year 2019 Prev. year Gross carrying amount at 31 Dec. previous year 223 222 661 679 330 295 Accumulated amortisation and impairment losses at 31 Dec. previous year
Carrying amount at 31 Dec. previous year 29 29 143 111 240 211 Currency translation differences 1 1 2 4 5 0 Additions 4
Carrying amount at 31 Dec. financial year 29 29 118 143 232 240 Accumulated amortisation and impairment losses at 31 Dec. financial year
Gross carrying amount at 31 Dec. financial year 214 223 727 661 338 330
→ Miscellaneous Total €m 2019 Prev. year 2019 Prev. year Gross carrying amount at 31 Dec. previous year 34 85 4,352 4,243 Accumulated amortisation and impairment losses at 31 Dec. previous year
Disposals Loss of control 0 0 0 –5 Other 0 0 –14 –8
Gross carrying amount at 31 Dec. financial year 36 34 4,674 4,352
Munich Re Group Annual Report 2019 3 Land and buildings, including buildings on third-party land
Development of investments in land and buildings, including buildings on third-party land €m 2019 Prev. year Gross carrying amount at 31 Dec. previous year
Property pledged as security and other restrictions on title amount to €1,133m (1,000m). Contractual commitments to acquire property amount to €799m (78m). This figure also includes the commitment to acquire the 330 Madison Avenue building in New York City.
Interest-rate currency swaps Theoretical price Swap curve Currency spot rates Money-market interest-rate curve
Bond forwards (forward transactions) Theoretical price Listing of underlying Swap curve
Catastrophe swaps Theoretical price Fair values of cat bonds Interest-rate curve
Credit default swaps Theoretical price Credit spreads Recovery rates Interest-rate curve
Commodity options Theoretical price Listing of underlying Effective volatilities Money-market interest rate
CMS floaters Theoretical price Money-market/swap interest-rate curve Issuer-specific spreads Volatility matrix
CMS floaters with variable cap Theoretical price OIS/swap interest-rate curve Issuer-specific spreads Volatility skew
Inverse CMS floaters Theoretical price OIS/swap interest-rate curve Issuer-specific spreads Volatility skew
Convergence bonds Theoretical price Money-market/swap interest-rate curves Issuer-specific spreads Volatility matrix Correlation matrix
Multi-tranches Theoretical price At-the-money volatility matrix and skew Swap curve Money-market interest-rate curve Sector-, rating- or issuer-specific yield curve
FIS loans against borrower’s note Theoretical price At-the-money volatility matrix and skew Swap curve Money-market interest-rate curve Sector-, rating- or issuer-specific yield curve
Funds Pricing method Parameters Pricing model Real estate funds Alternative investment funds (e.g. private equity, infrastructure forestry)
The other investments allocated to Level 3 are mainly external fund units (in particular, private equity, real estate and funds that invest in a variety of assets that are subject to theoretical valuation). Since market quotes are not available for these on a regular basis, net asset values (NAVs) are provided by the asset managers. We thus do not perform our own valuations using inputs that are not based on observable market data. We regularly subject the valuations supplied to plausibility tests on the basis of comparable investments.
At 31 December 2019, around 12% (11%) of the investments measured at fair value were allocated to Level 1 of the fair value hierarchy, 84% (85%) to Level 2 and 4% (5%) to Level 3, as shown in the table below.
The second table below presents the reconciliation from the opening balances to the closing balances for investments allocated to Level 3.
Allocation of investments (including insurance-related investments) to levels of the fair value hierarchy €m Level 1 Level 2 Level 3 Total Investments measured at fair value Investments in affiliated companies measured at fair value 0 0 194 194 Investments in associates and joint ventures measured at fair value 0 0 29 29 Other securities available for sale
Other investments 0 10 302 313 Insurance-related investments 5,250 3,257 455 8,962 Total 19,393 137,933 6,537 163,863 Investments not measured at fair value Loans 0 62,161 2,684 64,844 Total 0 62,161 2,684 64,844
→ Prev. year €m Level 1 Level 2 Level 3 Total Investments measured at fair value Investments in affiliated companies measured at fair value 0 0 177 177 Investments in associates and joint ventures measured at fair value 0 0 36 36 Other securities available for sale
Other investments 0 10 255 265 Insurance-related investments 4,914 3,270 233 8,417 Total 16,125 127,429 7,249 150,803 Investments not measured at fair value Loans 0 62,632 1,663 64,295 Total 0 62,632 1,663 64,295 1 Including hedging derivatives of €27m (20m) accounted for under “Other assets”.
Fixed-interest Non-fixed-interest €m 2019 Prev. year 2019 Prev. year Carrying amount at 31 Dec. previous year 3,137 2,675 3,410 2,860 Gains and losses 225 –50 –18 118
Acquisitions 1,192 1,457 1,200 811 Disposals –510 –944 –470 –383 Transfer to Level 3 0 0 0 3 Transfer out of Level 3 –2,602 0 –8 0 Changes in the fair value of derivatives 0 0 0 0 Carrying amount at 31 Dec. financial year 1,443 3,137 4,114 3,410 Gains (losses) recognised in the income statement that are attributable to investments shown at the end of the financial year 84 –14 –31 –15
Other investments €m 2019 Prev. year 2019 Prev. year 2019 Prev. year Carrying amount at 31 Dec. previous year 0 0 1 2 255 36 Gains and losses 0 0 0 0 53 –15
Gains (losses) recognised in the income statement 0 0 0 0 49 –15 Gains (losses) recognised in equity 0 0 0 0 4 0
Acquisitions 0 3 0 0 23 234 Disposals –1 0 –1 –1 –29 0 Transfer to Level 3 0 0 0 0 0 0 Transfer out of Level 3 0 –2 0 0 0 0 Changes in the fair value of derivatives 0 0 0 0 0 0 Carrying amount at 31 Dec. financial year 0 0 0 1 302 255 Gains (losses) recognised in the income statement that are attributable to investments shown at the end of the financial year 0 0 0 0 49 –15
Insurance-related investments Total €m 2019 Prev. year 2019 Prev. year Carrying amount at 31 Dec. previous year 233 304 7,249 6,082 Gains and losses 83 43 336 81
Gains (losses) recognised in the income statement 77 33 169 7 Gains (losses) recognised in equity 6 10 167 74
Acquisitions 198 14 2,666 2,571 Disposals –65 –129 –1,097 –1,488 Transfer to Level 3 0 2 4 7 Transfer out of Level 3 0 0 –2,626 –2 Changes in the fair value of derivatives 6 –1 6 –1 Carrying amount at 31 Dec. financial year 455 233 6,537 7,249 Gains (losses) recognised in the income statement that are attributable to investments shown at the end of the financial year 75 –50 162 –118
Reversed impairment losses with respect to associates and joint ventures amounted to €46m (36m). They are distributed between the following segments: €45m (35m) is apportionable to property-casualty reinsurance, €1m (0m) to life and health reinsurance, and €0m (1m) to ERGO International.
Impairments with respect to these companies amounted to €1m (62m), and are almost entirely attributable to property-casualty reinsurance.
Aggregated financial information on investments in associates and joint ventures accounted for using the equity method €m 31.12.2019 Prev. year Overall result for the year after tax from continued operations
Rating of “other loans” on the basis of amortised cost €m 31.12.2019 Prev. year AAA 26,834 28,001 AA 13,259 13,947 A 1,902 3,026 BBB or lower 2,743 2,309 No rating 756 997 Total 45,495 48,280
The rating categories are based on those of the leading international rating agencies. Virtually no credit risk exists in respect of the mortgage loans or the loans and advance payments on insurance policies.
Rating of fixed-interest securities according to fair values €m 31.12.2019 Prev. year AAA 39,637 37,296 AA 41,733 40,181 A 22,597 20,562 BBB 21,879 19,775 Lower 5,693 5,557 No rating 581 726 Total 132,120 124,095
Carrying amounts Unrealised gains/losses Amortised cost €m 31.12.2019 Prev. year 31.12.2019 Prev. year 31.12.2019 Prev. year Fixed-interest securities Government bonds
Germany 6,620 6,524 1,081 806 5,539 5,718 Rest of EU 30,013 28,564 3,469 1,727 26,544 26,837 USA 17,524 14,975 910 212 16,614 14,762 Other 21,366 17,835 1,170 454 20,196 17,381
Equity funds 453 530 51 –13 402 543 Bond funds 1,818 1,463 55 37 1,763 1,425 Real estate funds 328 321 62 50 266 270
Munich Re Group Annual Report 2019 8 Other securities at fair value through profit or loss and insurance-related investments
The securities held for trading are made up of fixedinterest securities totalling €16m (15m), non-fixed-interest securities totalling €121m (113m) and derivatives held for trading amounting to €2,099m (2,078m). The securities designated as at fair value through profit or loss comprise €351m (217m) assignable to fixed-interest securities and loans and €194m (193m) to non-fixed interest securities. Some €43m (2m) of the instruments at fair value through profit or loss is due within one year.
As at 31 December 2019, Munich Re held collateral for derivatives in the form of cash collateral and securities with a rating of at least AA. The fair value of the securities amounts to €46m (29m) and the cash collateral approximately €563m (530m). The collateral received is subject to a title transfer collateral arrangement, but is not re-sold or pledged.
Disclosure of derivatives by balance sheet item €m 31.12.2019 Prev. year
Investments, other securities, designated as at fair value through profit or loss 2,099 2,078
Cash flow hedges play a role in countering fluctuations that may be caused, for example, by variable interest payments. Munich Re uses cash flow hedges chiefly to hedge against interest-rate risks, with interest-rate swaps being the main instruments employed. Changes in the fair value of the hedging instrument are recognised directly in equity for this purpose. Only when the actual cash inflow or outflow takes place – as a result of the hedged circumstance – is the relevant equity item reversed with recognition in profit or loss. The change in fair value assignable to the ineffective portion of the hedging was negligible at the reporting date. At the balance sheet date, there is an equity item of €17m (16m) from cash flow hedges. The net fair value of the derivatives falling into this category amounted to €27m (18m) at the balance sheet date.
Periods to maturity and amount of the hedged cash flows at the balance sheet date €m < 1 year 1–2 years 2–3 years 3–4 years 4–5 years > 5 years 31.12.2019 Prev. year Notional amounts of hedged transactions 9 Deposits retained on assumed reinsurance
The investments in renewable energies include items pledged as security, and other restrictions on title, amounting to €157m (173m).
The miscellaneous receivables contain cash collateral of €679m (656m), mainly for derivative transactions.
Development of gross deferred acquisition costs €m 31.12.2019 Prev. year Status at 31 Dec. previous year 9,466 9,563 Currency translation differences 132 –38 Change in consolidated group/Other –11 –133 New deferred acquisition costs 4,047 3,147 Changes
Total before netting 8,264 9,856 7,197 8,020 Netting amount –7,948 –7,948 –6,652 –6,652 Total 316 1,908 545 1,368
Expiring in up to three years 11 19 30 30 35 65 Expiring in over three years and up to ten years 176 139 315 205 164 369 Expiring in over ten years 186 6 192 295 4 299 Not expiring 871 2,347 3,218 663 2,204 2,867 1,244 2,511 3,755 1,193 2,407 3,600 Trade tax loss carry-forwards
Expiring in up to three years 0 11 11 5 8 13 Expiring in over three years and up to ten years 0 102 102 49 66 115 Expiring in over ten years 0 0 0 0 0 0 Not expiring 0 0 0 0 0 0
Disposals Loss of control 0 0 0 0 Other –18 –9 –3 –31
Reclassification 5 0 0 4 Carrying amount at 31 Dec. financial year 2,127 234 0 2,361 Accumulated amortisation and impairment losses at 31 Dec. financial year –1,234 –778 –13 –2,025 Gross carrying amount at 31 Dec. financial year 3,361 1,012 13 4,386
Depreciation –64 –83 –4 –151 Impairment losses –1 0 0 –1
The fair value of the land and buildings amounts to €3,495m (3,222m). This is allocated to Level 3 of the fair value hierarchy; see Assets – B Investments – Determining fair values. The methodology for determining the fair values is described in the Notes to the consolidated balance sheet – Assets (3) Land and buildings, including buildings on third-party land.
As at the balance sheet date, four ERGO insurance companies operating in eastern Europe were classified as held for sale. First-time classification took place in Q4 2018. The sales are expected to close in the first half of 2020.
In addition, the at-equity shareholding in Apollo Munich Health Insurance Co. Ltd., Hyderabad, was classified as an asset held for sale.
Number of shares 2019 Prev. year Status at 31 Dec. previous year 145,797,378 151,259,431 Reductions
On 31 December 2019, a total of 2,857,263 Munich Reinsurance Company shares with a calculated nominal value of around €11.6m were held by Group companies. This represents around 2.0% of the share capital.
In the financial year, Munich Re bought back 4,336,780 shares. This includes the 2018/2019 share buy-back programme completed on 9 April 2019, and the 2019/2020 programme approved by the Board of Management of Munich Reinsurance Company on 19 March 2019, which provides for the acquisition of shares up to a value of €1bn before the 2020 Annual General Meeting.
The acquisition costs of all Munich Re shares in the possession of Group companies at the end of the financial year totalled €660,137.565.26.
Tax effects in the income and expenses recognised directly in equity 2019 Prev. year €m Before tax Tax After tax Before tax Tax After tax Currency translation 422 0 422 345 0 345 Unrealised gains and losses on investments 4,686 –1,025 3,661 –2,563 434 –2,129 Change resulting from equity method measurement –16 0 –15 47 0 47 Change resulting from cash flow hedges 2 –1 1 0 0 0 Remeasurements of defined benefit plans –592 181 –411 107 –29 78 Other changes 4 0 4 –1 0 –1 Income and expenses recognised directly in equity 4,506 –845 3,661 –2,064 405 –1,659
The taxes of –€845m (405m) recognised directly in equity comprise an amount of –€854m (368m) for deferred tax assets, and current taxes on unrealised gains and losses of €9m (37m) on investments.
Derivatives 55 939 731 1,726 Total 55 939 731 1,726 Liabilities not measured at fair value Subordinated liabilities 4,288 59 2 4,348 Bonds and notes issued 384 0 0 384 Amounts due to banks 0 250 302 552 Other liabilities from financial transactions 0 29 16 45 Total 4,671 338 320 5,329
Other liabilities at fair value through profit or loss €m 31.12.2019 Prev. year Carrying amount at 31 Dec. previous year
Gains and losses 144 –59 Gains (losses) recognised in the income statement
Breakdown of subordinated liabilities €m A.M. Best Fitch Moody’s S&P 31.12.2019 Prev. year Munich Reinsurance Company, Munich, 3.25% until 2029, thereafter floating, €1,250m, Bonds 2018/2049
Munich Reinsurance Company, Munich, 6.25% until 2022, thereafter floating, €900m, Bonds 2012/2042
– – – – 6 6 ERGO Versicherung Aktiengesellschaft, Vienna, secondary market yield on federal government bonds (Austria) +70 BP, €7m, Registered bonds 1998/perpetual
Development of gross unearned premiums €m 31.12.2019 Prev. year Status at 31 Dec. previous year 9,790 8,857 Currency translation effects 195 96 Changes in consolidated group/Other –51 –208 Gross premiums written 51,457 49,064 Earned premiums –50,873 –48,019 Status at 31 Dec. financial year 10,518 9,790
Provision for future policy benefits €m 31.12.2019 Prev. year Gross 112,302 111,147 Ceded share –1,525 –823 Net 110,777 110,324
Term life insurance 3,153 3,000 Other life insurance 22,810 24,403 Annuity insurance 34,826 34,082 Disability insurance 1,300 1,417 Contracts with combination of more than one risk
Scheduled changes in the provision for future policy benefits contain the changes deriving from prospective calculation as a result of premium payments, claims and the unwinding of discount in the reporting period.
Provisions for annuity claims are calculated as the present value of the expected future payments. The discount rates used are presented in the disclosures on risks from insurance contracts under (39) Disclosures on risks from life and health insurance business and (40) Disclosures on risks from property-casualty insurance business.
% 31.12.2019 Prev. year 31.12.2019 Prev. year Up to one year 34.9 36.3 30.7 30.4 Over one year and up to five years 46.0 44.2 37.5 38.6 Over five years and up to ten years 11.9 11.4 15.7 15.7 Over ten years and up to fifteen years 3.3 3.7 5.7 5.5 Over fifteen years 3.9 4.4 10.4 9.8
Development of the claims reserve in the property-casualty segment1 2019 Prev. year €m
Balance at 31 Dec. previous year 53,937 –2,776 51,161 51,831 –2,757 49,074 Currency translation differences 1,045 –67 979 1,024 –81 943 Changes in consolidated group/Other –228 76 –152 –545 74 –471 Claims expenses
For the year under review 19,530 –718 18,812 18,443 –766 17,677 For previous years –1,780 144 –1,636 –2,252 133 –2,119
For the year under review –4,922 164 –4,758 –5,756 285 –5,471 For previous years –9,813 478 –9,335 –8,857 338 –8,519
The claims expenses for the financial year show payments made for the financial year and expenses for posting the claims reserve in that year. The provisions set up for claims from previous years are regularly updated using best estimates based on exposure and claims information and past claims experience. The respective change is shown under “claims expenses for previous years”. The gross provision for outstanding claims of the disposal group amounting to €0m (–301m) is recognised under “Changes in consolidated group/Other”.
€m Accident year Calendar year ≤ 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total 2009 12,131 2010 8,052 4,817 2011 4,863 3,210 5,750 2012 2,504 1,621 4,171 5,701 2013 1,554 705 2,013 2,949 5,594 2014 1,896 609 1,114 1,422 3,224 5,308 2015 1,439 384 555 462 1,244 2,860 4,990 2016 1,589 329 449 351 688 1,479 2,695 5,265 2017 479 130 119 193 463 674 1,343 2,603 4,936 2018 689 129 155 218 286 385 792 1,679 4,257 5,522 2019 773 67 98 138 170 242 415 829 1,949 4,659 4,793 14,133
6,168 3,254 Thereof resulting from other remeasurements (recognised in profit or loss)
2,915 –1,566 Change resulting from other remeasurements (recognised in profit or loss)
Development of gross provisions €m 2019 Prev. year Balance at 31 Dec. previous year 7,925 8,971 Changes in consolidated group/Other 5 –178 Savings premiums 510 465 Unrealised gains/losses on fund assets 1,044 –733 Withdrawal for expenses and risk –32 –33 Withdrawal for benefits –1,279 –567 Balance at 31 Dec. financial year 8,172 7,925
Breakdown of other provisions €m 31.12.2019 Prev. year Provisions for post-employment benefits
Expenses for defined contribution plans in the year under review totalled €68m (64m), with €111m (109m) for contributions to state plans.
The pension obligations of the ERGO Group account for €3,784m (3,018m) of the present value of obligations under defined pension plans and €501m (423m) of plan assets. The actuarial losses from changes in demographic assumptions amounting to €44m primarily arise from the changeover to updated biometric actuarial assumptions. The obligations include disability and old-age pensions, and pensions for surviving dependants. The amount of the pensions generally depends on salary and length of service. The commitments are generally funded through pension provisions. New members receive pension commitments in the form of defined contribution plans financed by means of intra-Group insurance contracts securing the obligations under pension schemes. There are also medical-care benefit obligations.
% 31.12.2019 Prev. year Active members 49 48 Deferred members 17 16 Pensioners 34 36 Total 100 100
In the eurozone, the actuarial interest rate was 0.75% (1.80%) as at 31 December 2019. The actuarial losses from changes in financial assumptions amounting to €1,098m (previous year: gains of €42m) primarily arise from the reduction in the actuarial interest rate.
Munich Re uses generally recognised biometric actuarial assumptions, adjusted as a rule to take account of company-specific circumstances. The average remaining life expectancy of a 65-year-old plan participant is 24.1 years for women, and 22.9 years for men.
% 31.12.2019 Prev. year Quoted market price in an active market
Cash or cash equivalents 0 0 Real estate 1 1 Fixed-interest securities 0 0 Non-fixed-interest securities 3 3
For the 2020 financial year, capital transfers of €85m (84m) to plan assets are expected.
Plan assets –3,746 –3,301 Assets from the defined benefit plan 412 365 Effect of asset ceiling 17 12 Other –2 –6 Net balance sheet liability 344 212
If the fair value of the plan assets exceeds the present value of the defined benefit obligations, an asset arises out of the defined benefit plan. As each plan is analysed individually, this may give rise to both a provision for post-employment benefits and an asset from the defined benefit plan.
Development of the provision for defined benefit plans €m 2019 Prev. year Balance at 31 Dec. previous year 2,992 2,982 Currency translation differences 8 13 Changes in consolidated group –1 –1 Expenses 200 201 Payments –80 –76 Payments from plan settlements 0 –4 Capital transfer to plan assets –67 –71 Transfer of assets 0 0 Transfer to other receivables 42 64 Actuarial gains/losses recognised in equity
The weighted average contractual period to maturity of our pension obligations is 20 (20) years.
An increase or decrease in the following essential actuarial assumptions has an impact on the present value of defined benefit obligations: Sensitivity analysis €m 31.12.2019 Prev. year Increase in actuarial discount rate by 50 BP
Increase in pension trends by 10 BP 72 60 Decrease in pension trends by 10 BP –70 –61 Increase in medical cost trend rate by 100 BP
Increase in mortality rate by 10% –217 –158 Decrease in mortality rate by 10% 233 170
The provisions for restructuring mainly concern €246m (295m) for the “ERGO Strategy Programme” and €107m (132m) for the comprehensive restructuring of the sales organisations of the ERGO Group. ERGO also posted further restructuring provisions of €4m (16m) for the “Continuous improvement of the competitive position” project plus €1m (7m) for the discontinuation of new business and the winding up of the sales organisation in Belgium. The provision for multi-year variable remuneration includes components for multi-year performance and for the medium-term incentive plans. The “Miscellaneous” provisions comprise a large number of different items. The provisions for restructuring, early-retirement benefits/semi- retirement, anniversary benefits, multi-year performance and medium-term incentive plans are mainly long term, whereas the provisions for earned commission, salary obligations, other remuneration for desk and field staff, and miscellaneous are essentially short term.
Amounts due to banks 557 674 Lease liabilities 374 0 Miscellaneous liabilities 11,430 9,972 Total 19,643 18,147
For more information on the interest paid for liabilities from leases in the 2019 financial year, please refer to Notes to the consolidated income statement (36) Other operating result. See (29) Liabilities from financing activities for information on cash outflows for leases in 2019.
The major portion of the liabilities up to one year involve interest-free items, where the carrying amounts and the undiscounted cash flows are identical. A total of €178m (334m) of the amounts owed to banks and €371m (920m) of the liabilities from derivatives are due within one year.
Currency changes 2 1 36 15 –3 0 0 0 35 16 Changes in the fair value
Premiums €m 2019 Prev. year Total gross premiums 52,687 49,973 Gross premiums written 51,457 49,064 Change in gross unearned premiums –584 –1,045 Gross earned premiums 50,873 48,019
Ceded premiums written –2,650 –2,357 Change in unearned premiums – Ceded share
Revenues for services within the meaning of IFRS 15, Revenue from Contracts with Customers, essentially derive from technical engineering and inspection services, assistance services, investment management services and services in connection with the provision of insurancerelated software. The income from these services is largely recognised for the period in question. The volume of this revenue under IFRS 15 is around 1% of gross premiums written.
In the ERGO International segment, the income from technical interest for life primary insurance companies corresponds to the risk-free interest on the provision for future policy benefits at the relevant national interest rate, the gains and losses from unit-linked life insurance, and profit sharing where there are types of contract providing for this. The income from technical interest for property-casualty primary insurance companies is calculated analogously to the procedure in the propertycasualty reinsurance segment.
Expenses for claims and benefits €m 2019 Prev. year Gross Claims and benefits paid –34,843 –33,679 Change in technical provisions
Provision for future policy benefits –774 211 Provision for outstanding claims –3,441 –1,933 Provision for premium refunds –1,876 –839
Other technical result –125 –125 Gross expenses for claims and benefits
Provision for future policy benefits 432 346 Provision for outstanding claims –99 45 Provision for premium refunds 0 3
Other technical result –19 6 Expenses for claims and benefits – Ceded share
Net Claims and benefits paid –33,785 –32,829 Change in technical provisions
Operating expenses €m 2019 Prev. year Gross Acquisition costs, profit commission and reinsurance commission paid
Investments in affiliated companies 10 –3 Investments in associates and joint ventures
The result for land and buildings includes rental income of €513m (489m). The expenses for the management of investments include running costs and expenses for repair and maintenance of property totalling €103m (92m). We earned interest income of €1,857m (1,889m) on loans. Other securities available for sale produced regular income of €3,696m (3,506m), while derivatives generated €146m (151m). Interest expenses on non-derivative investments amounted to €11m (8m), administrative expenses to €448m (392m), and other expenses to €126m (126m).
Investments in affiliated companies –3 –10 Investments in associates and joint ventures
Other operating income mainly comprises income of €684m (473m) from services rendered, interest income of €109m (30m), income of €84m (88m) from the release/reduction of miscellaneous provisions and provisions for bad and doubtful debts, and income of €34m (79m) from owneroccupied property, some of which is also leased out.
Other operating expenses include expenses of €672m (439m) for services rendered and interest charges of €142m (87m), thereof €7m from leases. In addition, they mainly include other write-downs of €108m (78m), as well as other tax of €138m (119m) and expenses of €15m (16m) for owneroccupied property, some of which is also leased out.
−3 −182 Deferred tax resulting from the occurrence or utilisation of loss carry-forwards 184 41 Valuation allowances for deferred taxes/loss carry-forwards
Reconciliation to effective tax expenses/income €m 2019 Prev. year Result before taxes on income (after “other tax”)
Group tax rate in % 33 33 Derived taxes on income −1,053 −941 Tax effect of: Tax rate differences 300 179 Tax-free income 258 23 Non-deductible expenses −181 −242 Valuation allowances for deferred taxes/loss carry-forwards
Munich Re’s reporting is based on various legal regulations governing risks it is exposed to as a result of its business operations: In the Notes to the financial statements, risks from insurance contracts must be reported in accordance with IFRS 4 and risks from financial instruments in accordance with IFRS 7. Further disclosures on risks are required in the management report under Section 315(2) no. 2 of the German Commercial Code (HGB) and German Accounting Standard no. 20 (DRS 20) for management reports.
€m 31.12.2019 Prev. year Without discount rate 3,907 3,967 Discount rate ≤ 2.0% 1,055 780 2.0% < discount rate ≤ 3.0% 2,587 252 3.0% < discount rate ≤ 4.0% 4,362 5,245 4.0% < discount rate ≤ 5.0% 3,138 4,391 5.0% < discount rate ≤ 6.0% 1,573 1,498 6.0% < discount rate ≤ 7.0% 97 97 7.0% < discount rate ≤ 8.0% 476 423 Discount rate > 8.0% 247 215 Covered by deposits retained on assumed reinsurance
Besides this, in German health primary insurance, discount rates of 2–3.5% are applied for calculating the provision for premium loadings and the provision for future premium reductions, which are both part of the provision for premium refunds and total €5,729m (5,255m). These discount rates can be altered in the event of a premium adjustment.
Expected future technical cash flow (gross)1 €m 31.12.2019 Prev. year Up to one year –2,597 –3,458 Over one year and up to five years –9,310 –9,651 Over five years and up to ten years –15,835 –16,146 Over ten years and up to 20 years –35,656 –38,305 Over 20 years –97,453 –101,376 1 Premiums less benefits guaranteed at the balance sheet date and costs (excluding unit-linked products).
Of particular importance for property-casualty insurance contracts is the estimation risk with regard to the amount of the expected claims expenditure for future claims from current insurance contracts (premium risk) and for claims already incurred (reserve risk). There is an interest-rate risk for parts of the portfolio. Besides this, the liquidity risk has to be taken into account.
Premium risk The degree of exposure to premium risks differs according to class of business and also between primary insurance and reinsurance. On the basis of the loss ratios and combined ratios of past years shown in the following table, conclusions can be drawn about the historical volatilities in the different classes of business and about possible interdependencies. The differences in volatility are due equally to fluctuations in claims expenditure and fluctuations in the respective market-price level for the covers granted.
Reinsurance Liability 64.8 71.3 84.8 73.2 71.0 Accident 68.0 10.4 58.0 74.2 83.3 Motor 67.6 71.4 77.0 72.3 69.3 Marine, aviation, space 80.7 40.8 50.3 56.7 46.7 Fire 73.6 69.9 109.5 59.7 42.2 Engineering 40.6 48.5 60.1 48.3 44.8 Credit and surety 20.7 46.0 59.7 71.1 65.7 Other classes of business 71.6 69.2 71.0 55.1 57.0
Primary insurance 58.6 58.7 59.8 59.7 63.6 Combined ratio in % Reinsurance
In the pricing of risks assumed in the accident, fire and marine lines of business, and also in sections of engineering reinsurance and in primary insurance, there is a high degree of sensitivity regarding the underlying assumptions about natural catastrophes. The following table therefore shows the combined ratios for propertycasualty reinsurance including and excluding natural catastrophe losses.
Excluding natural catastrophes 1 In 2012, our segment reporting was modified and no longer has a consolidation column. The figures for the previous year have been adjusted accordingly. Comparability with 2010 is thus limited.
Thereof losses from natural catastrophes –2,053 –1,256 –3,678 –929 –149 Thereof other accumulation losses –1,071 –896 –636 –613 –897
Provisions for asbestos and environmental claims 31.12.2019 Prev. year €m1 Gross Net Gross Net Asbestos 1,212 1,067 1,295 1,131 Environ- mental 1 The previous year’s figures have been adjusted to eliminate currency translation effects.
Reinsurance Primary insurance Total €m 31.12.2019 Prev. year 31.12.2019 Prev. year 31.12.2019 Prev. year Discount rate = 2.0% 62 64 432 385 494 448 2.0% < discount rate = 3.0% 176 167 381 292 557 459 3.0% < discount rate = 4.0% 52 70 369 388 421 458 4.0% < discount rate = 5.0% 799 897 0 0 799 897 Discount rate > 5.0% 0 0 0 0 0 0 Total 1,090 1,197 1,182 1,065 2,271 2,262
Munich Reinsurance Company has established a contractual trust agreement in the form of a two-way trust for its unfunded company pension obligations. The Munich Re pension scheme is considered a related party in accordance with IAS 24. Contributions to the pension scheme are recognised as expenses for defined contribution plans; see Notes to the consolidated balance sheet – Equity and liabilities (25) Other provisions.
For transactions of related parties with Munich Reinsurance Company shares, please refer to Notes to the consolidated balance sheet – Equity and liabilities (17) Equity.
The following personnel expenses are included in the operating expenses, in the expenses for claims and benefits (for claims adjustment) and in the investment result: Breakdown of personnel expenses €m 2019 Prev. year Wages and salaries –2,901 –2,832 Social security contributions and employee assistance
The basis for the full and partial allocation of the PSUs is the first plan year.
Plan 2019 Plan commencement 1.1.2016 1.1.2017 1.1.2018 1.1.2019 Plan end 31.12.2018 31.12.2019 31.12.2020 31.12.2021 Fair value 2019 for one right 0.00 € 709.70 € 739.75 € 770.66 € Number of rights (for 100% achievement of objectives) on 1 January 2016 0 0 0 0
Additions 32,525 0 0 0 Number of rights (for 100% achievement of objectives) on 31 December 2016 32,525 0 0 0 Number of rights (for 100% achievement of objectives) on 1 January 2017 32,525 0 0 0
There are no pension commitments for former members of the Supervisory Board or their surviving dependants.
The members of the Supervisory Board and Board of Management did not receive any cash advances or loans in the year under review. For their service as employees of the Group, Supervisory Board members received remuneration in the amount of €1.5m (1.3m). The Board members hold insurance policies with companies belonging to Munich Re, and have small MEAG fund holdings. There were no significant notifiable transactions between Board members and Munich Re.
For services rendered to the parent and consolidated subsidiaries by the Group auditor (KPMG Bayerische Treuhandgesellschaft AG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Munich, and its affiliated companies within the meaning of Section 271(2) of the German Commercial Code – HGB), the following fees have been recognised as an expense in the financial year: Breakdown of auditors’ fees €k 2019 Audit services –10,905 Other assurance and appraisal services –72 Tax consultancy services 0 Other services –5,234 Total –16,211
Of the auditors’ fees, €10,677k (9,459k) is attributable to KPMG Bayerische Treuhandgesellschaft AG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Munich. All other services were rendered mostly by their affiliated companies.
The auditors’ fees mainly relate to the audits of the consolidated financial statements and the annual financial statements of Munich Reinsurance Company, and to various audits of our subsidiaries’ annual financial statements, including statutory extensions of the audit assignment (in particular the audit of the solvency balance sheet). In addition, reviews of interim financial statements and project-related IT audits, and contractual reviews of the effectiveness of a service company’s controls, were carried out.
Munich Re enters into contingent liabilities in connection with its normal business operations. At the reporting date, the obligations from guarantees are insignificant. The obligations from legal disputes total €32m (31m). Moreover, there is a letter of support in the amount of €2m (3m) issued to a non-consolidated subsidiary. There are other contingent liabilities amounting to €32m (28m). Furthermore, there is a contingent liability of £26m (26m) from our investments in associates and joint ventures. These concerned a payment obligation in the event of an associate’s over-indebtedness.
Besides this, Munich Re has entered into various other financial obligations amounting to €765m (701m) for work and service contracts and €2,845m (2,629m) for investment obligations, of which €13m (13m) is from our investments in joint ventures. At the reporting date, there were loan commitments amounting to €1,720m (1,753m). These figures represent undiscounted nominal amounts. There are other financial commitments amounting to €9m (15m).
Our subsidiary Munich American Reassurance Company reported a negative earned surplus in its local financial statements as at 31 December 2019 (Statutory Accounting Principles). For this reason, the company can only pay dividends or transfer capital to the parent company with the approval of the competent US regulatory authority.
Short-term leases with a duration shorter than 12 months (and no option to buy), and lease agreements where the underlying asset is of low value, are not recognised in the financial statements. Instead they are recognised through profit or loss as an expense of €10m (0m).
Minimum lease payments up to one year 1 0 0 0 0 0 Minimum lease payments of over one year and up to five years
Munich Re Group Annual Report 2019 51 Events after the balance sheet date
Under the share buy-back programme decided on by Munich Reinsurance Company’s Board of Management in March 2019, we repurchased a further 0.7 million Munich Re shares with a volume of €187m from the balance sheet date to the end of February 2020.
The retrospective adjustment of the previous year’s figures did not result in a change to the earnings per share in the previous year (see Recognition and measurement – Changes in accounting policies and other adjustments).
ERGO Versicherung Aktiengesellschaft, Düsseldorf 100.0000 ERGO Versicherung Aktiengesellschaft, Vienna 100.0000 ERGO Vida Seguros y Reaseguros S.A., Saragossa 100.0000 ERGO Vorsorge Lebensversicherung AG, Düsseldorf 100.0000 ERV Evropská pojišt’ovna, a.s., Prague 90.0000 Euro-Center Holding SE, Prague 83.3332 Europaeiske Rejseforsikring A/S, Copenhagen 100.0000 Everything Legal Ltd., Bristol 100.0000 Fairance GmbH, Düsseldorf 100.0000 Faunus Silva LLC, Wilmington, Delaware 100.0000 Flexitel Telefonservice GmbH, Berlin 100.0000 Forst Ebnath AG, Ebnath 100.0000 FOTOUNO S.r.l., Brixen 100.0000 FOTOWATIO ITALIA GALATINA S.r.l., Brixen 100.0000 FREE MOUNTAIN SYSTEMS S.L., Barcelona 100.0000 FS Louisiana I LLC, Wilmington, Delaware 100.0000 FS Louisiana II LLC, Wilmington, Delaware 100.0000 FS San Augustine LLC, Wilmington, Delaware 100.0000 Fundo Invest Exclusivo referenciado di Munich Re Brasil, São Paulo4 98.2000 Gaucheret S.A., Brussels 100.0000 GF 65, Vienna4 100.0000 Global Standards LLC, Dover, Delaware 100.0000 Globality S.A., Munsbach 100.0000 Great Lakes Insurance SE, Munich 100.0000 Groves, John & Westrup Limited, Liverpool 100.0000 Habiriscos – Investimentos Imobiliarios e Turisticos, S.A., Lisbon 100.0000 Hartford Steam Boiler (M) SDN BHD, Kuala Lumpur 100.0000 Hartford Steam Boiler (Singapore) Pte. Ltd., Singapore 100.0000 Hartford Steam Boiler International GmbH, Rheine 100.0000 HMV GFKL Beteiligungs GmbH, Düsseldorf 100.0000 HSB Brasil Servicos de Engenharia e Inspecao Ltda, São Paulo 100.0000 HSB Engineering Finance Corporation, Dover, Delaware 100.0000 HSB Engineering Insurance Limited, London 100.0000 HSB Engineering Insurance Services Limited, London 100.0000 HSB Fund I LP, Dover, Delaware1 100.0000 HSB Group Inc., Dover, Delaware 100.0000 HSB International (India) Private Limited, Gujarat 100.0000 HSB Japan K.K., Minato-KU, Tokyo 100.0000 HSB Secure Services Inc., Hartford, Connecticut 100.0000 HSB Solomon Associates Canada Ltd., Saint John, New Brunswick 100.0000 HSB Solomon Associates LLC, Dover, Delaware 100.0000 HSB Specialty Insurance Company, Hartford, Connecticut 100.0000 HSB Technical Consulting & Service (Shanghai) Co. Ltd., Shanghai 100.0000 Ibero Property Portugal – Investimentos Imobiliarios S.A., Lisbon 100.0000 Ibero Property Trust S.A., Madrid 100.0000 IDEENKAPITAL Financial Engineering GmbH, Düsseldorf 100.0000 IDEENKAPITAL Financial Service GmbH i. L., Düsseldorf 100.0000 IDEENKAPITAL GmbH, Düsseldorf 100.0000 IDEENKAPITAL Media Finance GmbH, Düsseldorf 50.1000 IDEENKAPITAL Metropolen Europa GmbH & Co. KG, Düsseldorf 72.3477 iii, Munich4 100.0000 IK Einkauf Objekt Eins GmbH & Co. KG, Düsseldorf 100.0000 IK Einkauf Objektmanagement GmbH, Düsseldorf 100.0000