Earnings per share € Dividend per share € Amount distributed €m Share price at 31 December € Munich Re’s market capitalisation at 31 December4� €bn
Gross premiums written €bn Operating result €m Taxes on income €m Consolidated result €m Attributable to minority interests €m Investments €bn Return on equity % Equity €bn Valuation reserves not recognised in balance sheet2� €bn Net technical provisions €bn Staff at 31 December
Our operations encompass all aspects of risk assumption in primary insurance and reinsurance. We are one of the world’s leading reinsurers, and one of the leading primary insurers in Germany.
// Reinsurance: We have been in the business of insuring insurers since 1880. // Primary insurance: Our primary insurers offer security mainly for private clients and for small and medium-sized businesses. // Our subsidiary MEAG manages our assets and offers investment products for private clients and institutional investors.
Munich Re of Canada Munich Re of Africa/ Munich Mauritius Reinsurance Company
The next quarterly report will be published on 7 May 2010.
2:0 Taking opportunities // With the acquisition of the Hartford Steam Boiler Group, one of the world’s leading specialists for engineering risks, Munich Re resolutely expands its business in know-how-intensive and profitable niche segments.
A good reason for taking a closer look at the venue. And the starting point for a trip around the world, which is also a journey through the world of Munich Re.
In this brochure, we would like to show you how and where our Group is actively involved worldwide: with innovative solutions, even for complex risks (page 4); with competent, reliable support for our clients in primary insurance (page 8); with customised insurance for every situation (page 12); with new offers for the international healthcare market (page 18); and with dependable asset management (page 24).
For many people around the world, football is the most exciting spectacle there is. But for the organisers of a World Cup, it is a huge challenge – one that can only be met with the help of strong partners. Munich Re is the first choice when it comes to covering the risks involved.
2010 sees South Africa become the first African country to host the world’s biggest sporting event after the Olympic Games. The motto of this World cup is “Ke Nako. celebrate Africa’s Humanity”.
However, the higher the expectations, the greater the challenges. Staging the World cup finals is an enormous undertaking for both hosts and organisers. And the risks involved are clearly enormous as well. The financial consequences of the event being cancelled, abandoned mid-way through or simply postponed due to a natural catastrophe or a terrorist attack are simply too great for the organisers to shoulder on their own. That is why a strong partner is needed to help carry this risk.
Take broadcasting rights, for example: the period between the opening ceremony on 11 June 2010 to the presentation of the trophy a month later will see almost 100 hours of live football broadcast by TV stations around the world. Four years ago, the licensor of the broadcasting rights, the sports and media agency Infront AG, concluded contracts with broadcasters from 205 countries. As the official organiser of the World cup, the world football association FIFA earned, according to its own figures, a total of €2.2bn from the broadcasting rights at the 2002 and 2006 World cups. However, for FIFA to earn this money, the finals have to go ahead on schedule and without a hitch. If they do not, compensation claims are likely to follow.
Then there are the sponsors. Much of the financing for the World cup in Germany came from sponsorship money, with the 15 main international sponsors providing around €600m – three times more than the amount generated by ticket sales. In South Africa, there will be twelve main sponsors and six national sponsors, which help to finance the running of the
under the leadership of Junior Ngulube, and a staff complement in excess of 200, Munich Re’s clients across this area of operation are offered a broad range of services and products – from customised risk transfer solutions to professional loss assessments, new business support and client training, technical publications and market analysis. The recipe for success? “A mixture of African passion and German heart”, says MRoA cEO Ngulube.
The only way you can tackle this problem is with experience and tailor-made insurance solutions. Munich Re has long been a leader when it comes to insuring major events. The information that the Group has been able to assemble from similar events in the past is invaluable in making a realistic and fair calculation of the risks.
If event cancellation insurance is to be taken out for major international sporting highlights such as the FIFA World Cup, the Olympic Games or Formula 1 Grand Prix racing, one important aspect always has to be considered: natural hazards.
Natural hazards can inflict such damage on infrastructure that an event may have to be postponed or even cancelled, resulting in substantial costs. Take Japan, for example, which hosted the 2002 World cup together with South Korea. It is located in one of the most seismically active earthquake zones on earth. If a stadium had been damaged by a quake, it would have been necessary to relocate matches to other venues in Japan or even to South Korea. Also in china, which played host to the 2008 Summer Olympics, natural hazards can be extreme when they do occur: major flooding or a severe typhoon could easily have ruined the Games. On the other hand, events such as skiing are dependent on the right weather conditions – a lack of snow could lead to the event being called off.
Munich Re has been examining natural hazards systematically since 1974. With more than 26,000 records, Munich Re’s own NatcatSERVIcE is the world’s largest database of natural catastrophe losses. Between 700 and 900 new events are recorded and analysed every year in terms of their extent and intensity. These data support both risk assessment and our self-developed MRHazard modelling software, currently comprising 30 country models for earthquake, nine for windstorm (tropical and extratropical), five for flood, and one for storm surge. The models, which are continually being refined, are used as the basis for quotations, pricing, contract design and risk prevention. A comprehensive analysis of natural hazards exposure is indispensable for major risks such as international sporting events. Only after a detailed review of all the factors can the risks accompanying such wide-ranging covers be optimally managed. //
First published in 1978, the World Map of Natural Hazards, together with our NatcatSERVIcE, encapsulates Munich Re’s geo knowledge.
It documents the impact of climate change – for example cyclone, precipi- tation or drought risks – as well as the threats posed by volcanoes and earthquakes.
Torsten Jeworrek Member of Munich Re’s Board of Management chairman of the Reinsurance committee
... which everyone understands and accepts. Two teams of eleven players compete to get the ball into each other’s goal, with only the goalkeepers allowed to use their hands. This is what makes the game so successful the world over.
The crucial thing is that we do not do this arbitrarily but in a structured way that clients understand. In future, we will therefore be gearing our underwriting policy even more strongly to clear, transparent rules which we discuss openly with our clients. Dependability, reliability and fairness are our foremost maxims. We want clients to know where they stand with us. And we intend to play by these rules in difficult times as well. We proved this in the past financial year – in an environment that could hardly be more difficult – and we promise to do so in future as well.
What will help here is the new European insurance supervisory regime Solvency II, which is due to come into force in 2012. Even if many details still need to be clarified, I am sure of one thing: we can expect a harmonised supervisory system of the highest level that is consistently risk-based and geared to economic principles. To ensure that Solvency II is a success, we need appropriate capital requirements for the insurance industry which, while providing for a high degree of security, also leave room for entrepreneurial risk. Further important factors are realistic demands on internal risk models, reporting obligations that concentrate on the essentials, and a level playing field for all financial services providers in the competition for capital. Incidentally, reinsurers like Munich Re which have a good rating will benefit especially from Solvency II, since the high degree of solidity and broad diversification we provide will have a direct impact on clients’ balance sheets and reduce their capital requirements. The coming months will show whether supervisors and the industry can agree on an appropriate regime. I am confident they will, because ultimately the two sides have a common objective: a functioning insurance market with strong com panies that are able to fulfil their important economic role. //
In fact, ERV offers its clients a whole range of invaluable services in addition to their insurance cover. “What happens, for instance, if a client falls ill just before a trip?“ asks Jürgen Reiss. The terms and conditions of insurance stipulate that a trip has to be cancelled immediately if it looks as if the insured will not be fit to travel. But what seems perfectly clear in theory is often a huge dilemma in practice. How serious is the illness really? What if the client gets better before departure? To cancel or not to cancel – that is the difficult question the clients are usually left to answer on their own, at the risk of having to shoulder high cancellation fees.
Having the right travel protection is indispensable during the holidays, too. If, for instance, an accident happens on vacation, it is a relief to know that it is possible to get competent help easily thanks to travel health insurance that provides assistance in a medical emergency. Jürgen Reiss: “A customer of mine, a 26-year-old who had just finished his studies, decided to go on a roundtrip to Australia before starting work. During the very first stage of the trip – a three-day diving excursion to the Great Barrier Reef – a mishap occurred: he slipped on the deck of the ship and broke his leg. After receiving primary medical care, he was taken to the nearest hospital, where he immediately contacted the emergency call centre, which put him in touch with a German-speaking doctor. Since the fracture turned out to be complicated, the emergency call centre’s team organised the patient’s transfer to Sydney, where surgery was carried out. One week later, the patient was able to fly home with his leg in plaster. The cost of medical treatment, the stay in hospital, the transfers and, finally, the regular flight requiring additional seats for supporting the elevated fractured leg totalled some €14,000. If it hadn’t been for the insurer who covered the costs, the young man would have started his career heavily in debt.”
+ More than 100 years of experience as a travel insurance specialist + Partner to some 13,000 travel agencies and a further 17,000 agents in
+ Some 20 years of expertise in medical and technical assistance + Over ten years of experience in telemedical health services + Partner to over 70 major clients representing some 60 million consumers + 12,000 medical emergencies abroad and 150,000 enquiries for technical assistance handled per year + One million incoming calls per annum + 80% of all calls taken within 20 seconds + A current 25,000 chronically ill patients looked after in health programmes + 110,00 telephone enquiries per year as part of demand management
Security far from home: ERV and almeda provide all-round services for travellers.
24/7 – Around the world almeda provides clients with the security of being able to access a competent contact person at any hour of the day or night in every corner of the world via the travel insurer’s emergency line. ERGO’s quality provider for integrated services in the area of assistance and health off ers these and other services on behalf of aff iliated companies in the group as well as for companies outside the group or within the Munich Health fi eld of business. Its doctors contact the attending physicians directly in such diff icult cases, discuss the medical necessity and urgency of an operation and check the clinic’s professional skills. In parallel, the Munich emergency communications centre instructs local correspondents to clarify important questions. Which hospital is the most suitable? How is admission to hospital best organised? What is the fastest way of providing the hospital with the guarantee that costs will be reimbursed? In addition, the helpers organise the patient’s repatriation after hospitalisation. Patients are thus given the best possible all-round care and can focus entirely on their recovery. //
Annuity insurance, however, is but one variant of life insurance that protects against biometric risks, i.e. hazards affecting one’s life or livelihood. Life insurance can be used not only for maintaining one’s standard of living in old age but also for providing for one’s family or financing real estate. Each person can choose from a range of products that best suit his or her personal needs, from endowment insurance as a means of providing for dependants or for one’s own old age to disability insurance and educational endowment insurance for one’s offspring. After all, different lifestyles require suitably tailored provision models. When it comes to deciding which offer is the right one, ERGO’s advisors make excellent coaches, whether it is helping to pick completely safe choices or investments involving higher risk but better earnings prospects.
Endowment and annuity insurance covers are also available as unit-linked products. They are geared to investors who bank on profits from equities, real estate and bonds. In the case of this variant, the savings component of the insurance premium is invested in one or more investment funds in whose performance the client participates directly. //
It is 1965 and André-François Raffray, a French attorney, has just made the deal of his life – or so he thinks, when his 90-year-old client Jeanne Calment signs over her apartment to him. In return, he agrees to transfer an annuity equivalent to some €380 per month to her – for the rest of her life. What sounds like a good deal in fact turns out to be a disaster, for Jeanne Calment dies in 1997, aged 122, having entered the Guinness Book of World Records as the oldest person ever to have lived. She even outlives her attorney, whose total transfers to her amounted to three times the actual value of the apartment.
of the single premium. On top of this, the customer shares in the performance of efficiently managed funds“, explained Dr. Johannes Lörper, responsible for private pension products on the Board of Management of ERGO’s life insurers. Opportunities for returns on the capital market can also be exploited using a specially designed investment concept. “For ERGO, the new unit-linked annuity insurance is a key component of our product portfolio, since it allows clients to benefit rapidly from rising interest rates and share prices.”
Dr. Strassl, with its international healthcare business, Munich Re last year established a third pillar. Why?
Munich Re has identified the international healthcare market as a market of the future in terms of profitable growth. There are numerous reasons for this. One of the most important is ongoing medical progress that enables more and more diseases to be successfully diagnosed and treated. Just think of the demographics of industrialised countries. People are living longer on average. Often this longevity is accom panied by chronic illnesses, so that the demand for medical services is constantly growing.
What is the position in emerging countries like India or China?
Absolutely. If you analyse global healthcare systems, you will discover that in all countries in which private health insurance plays an important part, it is the province of specialists. Look at Britain or the uSA, look at Switzerland or Germany. As soon as a health insurance market has reached a certain stage of maturity, it is dominated by specialists. In the long run, specialisation and focus are the only way of being successful in this business, either as an insurer or as a reinsurer. All the rest will fail.
“In the long run, specialisation and focus are the only way of being successful in the health insurance market.”
Take the province Denia on the Spanish costa Blanca, where we took over responsibility for providing healthcare for the local population a year ago from the regional administration. There we operate and finance a new hospital for the public sector and at the same time make sure that the costs of healthcare in the region are affordable. This means that we cover the whole value chain in the healthcare sector, from insurance to healthcare provision. For such solutions, it is naturally not enough just to be a good health insurer; you also need medical competence and must know how to run a hospital.
Since last spring, you have been operating under a new brand, Munich Health. What are the distinctive features of this brand?
First and foremost, the new brand stands for our Group’s commitment to health business. We see ourselves as partners to our clients – competent, innovative and dependable.
Munich Health is operating in a market that is not only growing rapidly but is also facing enormous challenges. Medical progress is making it possible to combat diseases ever more quickly and efficiently. Last year, for instance, it took only a few months after the discovery of the H1N1 virus for a vaccine to be available worldwide. That would have been inconceivable just a short time ago. But people’s expectations of receiving the best possible healthcare are also increasing. After all, health is the most important thing in life. But the related costs are spiralling out of control. Many state healthcare systems are coming up against the limits of what they can finance.
Yes, but it also has to remain affordable so that everyone can insure themselves and receive the best possible care. To achieve this, our clients need a strong partner at their side whom they can rely on and who has the experience and know-how to identify their needs, develop suitable solutions and explore new avenues. As part of Munich Re, this is our mission – and our duty!
The uSA is also the biggest and most important market for Munich Health, not least because – unlike in most countries – the majority of the population is privately insured and there is state cover only for pensioners and people on welfare. Although the uSA is a rich country and spends some 17% of its GDP on healthcare, a large proportion of the population, some 50 million Americans, do not have adequate health cover. Many people there do not earn enough to afford health insurance. On the other hand, they are not so poor that they are on welfare and receive state cover. But this situation is now to be resolved by an extensive reform of the uS health insurance system. We are well represented in the uSA by our reinsurance unit at Munich Re America and by our primary insurance subsidiary Sterling Life. We are keeping a very close eye on such changes in the political environment – they are part of our business. It is important to identify them in good time and to adjust our business policy accordingly. As such reforms often involve privatisation and liberalisation of the private health insurance market, they frequently give rise to new business opportunities that we can exploit.
Munich Health is a very young enterprise and still at the development stage in many areas. What are your key objectives for the coming year?
2010 will be a crucial year for us in several respects. Top of the list for me is our Go client initiative: we want to take advantage of the opportunities offered by our new set-up and go to our clients with a significantly broadened and strengthened value proposition. We want to understand more clearly than in the past how we can help them make access to first-rate medical care affordable. Our experience so far in meetings with clients shows that we are
Europe Middle East Africa Abu Dhabi Amman Athens Bahrain Brussels Denia Spain Dubai Istanbul Jeddah London Luxembourg Madrid Milan Munich Oslo
They will certainly be keeping a close eye on your performance, especially at the beginning. What exactly can investors expect from you?
“We are fi lled with a pioneering spirit. We have set ourselves very ambitious goals, individually as well as collectively.” Munich Health in fi gures >€2,300bn Total volume of international health market
In the past, many investment companies tried to spread the credit default risk on as many shoulders as possible, continually changing the way in which their credit portfolios were combined and sold. At the height of the financial crisis, this practice resulted in many banks hardly knowing what risks were in their portfolios anymore. “As long as the market continues to deal with the usual risk categories, there is no problem with this securitisation practice“, explains Schenk. The situation becomes critical when a structural change causes the safety systems in place to fail. “When that happens, it is extremely important to know what situation you’re in”, says Schenk.
MEAG does. When times are normal, close cooperation between portfolio management and investment controlling ensures that only sufficiently crisis-resistant secur ities are purchased for the portfolio. And thanks to the company’s sophisticated reporting system, it takes the analysts only a few hours – even in the most complex cases – to tell exactly whether and, if so, what products in the portfolio are affected by upheavals. “In times of crisis this is more than half the battle, because it allows you to take systematic action”, says Schenk.
Collapse on the Hudson The uS commercial lender cIT Group files for creditor protection
Calm on the Isar MEAG is safe – thanks to its crisis-resistant portfolio and excellent risk management.
formidable – an eight-figure euro amount, but it paid off in the crisis. The database is internally referred to as STAR, which stands for Standardised Asset Management Reporting. “We are one of the few companies that not only keep a close eye on their portfolios but also really have control over them”, summarises Schenk. “Investments whose risks we cannot resolve do not make it into our books.” That is one of the reasons why Munich Re survived the crisis more or less unscathed. Although over 100 banks were forced into liquidation in the uSA last year alone, MEAG did not suffer a single direct default. MEAG’s credit analysts and portfolio managers in Munich and New York systematically and regularly review the portfolio. In the case of cIT, they suspected early on that something was wrong. In spring 2007, long before the rating agencies drew attention to the danger by downgrading the bank’s credit rating, MEAG began to quickly reduce its cIT holdings originally totalling almost €140m. The Munich team’s excellent risk management did not go unnoticed elsewhere either. In 2009, risk expert Simcorp Strategy Lab gave MEAG the Risk Management
01 // Abidjan, Ivory Coast: Street tournament in the Koumassi quarter Picture taken in 2009 Source: Stefan Meisel 02 // Cape Town, South Africa: Green Point Stadium during the construction phase Picture taken in 2009 Source: Thomas Schüer 03 // Beijing, China: Footballing kids in a suburb Picture taken in 2009 Source: Zhang Peng 4 04 // Sheffield, England: Enthusiastic fan at a home game in Hillsborough Stadium Picture taken in 2006 Source: christopher Furlong 05 // Doha, Qatar: Fans cheering their national team in Group 1 qualifier for FIFA World Cup Picture taken in 2008 Source: Karim Jaafar/AFP/Getty Images 06 // Sukhothai, Thailand: Budding young footballer Picture taken in 2009 Source: Michael Riehle/laif.
Printed by druckerei fritz Kriechbaumer Wettersteinstrasse 12 82024 taufkirchen/München germany the official german orginal of this report is also available from the company. in addition, you can find our annual report and interim reports, along with further information about Munich Re, on the internet at www.munichre.com.
Service for media Journalists may address their queries to our Media Relations department: Johanna Weber e-mail: presse@munichre.com greenhouse gas emissions from paper production for this annual report are offset through Munich Re’s carbon-neutral strategy.
our integrated business model of insurance and reinsurance enables us to devise and successfully market customised solutions for our clients.
317geneRal infoRMation iMpoRtant addResses dKV deutsche Krankenversicherung ag aachener strasse 300 50933 Köln e-mail: service@dkv.com www.dkv.com europäische Reiseversicherung ag Rosenheimer strasse 116 81669 München e-mail: info@erv.de www.erv.de hamburg-Mannheimer Versicherungen Überseering 45 22297 hamburg e-mail: ksc@hamburg-mannheimer.de www.hamburg-mannheimer.de eRgo direkt nürnberger strasse 91–95 90758 fürth e-mail: info@ergo.direkt.de www.ergodirekt.de
Victoria Versicherungen Victoriaplatz 1 und 2 40198 düsseldorf e-mail: service@victoria.de www.victoria.de
Austria eRgo austria international ag schottengasse 10 1010 Wien e-mail: info@ergo-austria.at www.ergo-austria.at
Belgium eRgo life n.V. Boulevard Bischoffsheimlaan 1–8 1000 Bruxelles e-mail: info@ergolife.be www.ergolife.be
To our shareholders 001 letter to shareholders 003 the Board of Management 006 notable events in 2009 008 Munich Re shares 01 0
Consolidated financial statements 179 consolidated balance sheet 182 consolidated income statement 184 statement of recognised income and expense 185 changes in group equity 186 consolidated cash flow statement 188 notes to the consolidated financial statements 189
General information 305 glossary 306 index of key terms 314 important addresses 316 imprint 318 locations Multi-year and quarterly overview important dates
To our shareholders letter to shareholders 003 The Board of Management 006 notable events in 2009 008 Munich Re shares 010 even in the professional game, football pitches are not uniform in size. lengths vary between 90 and 120 metres, and widths between 45 and 90 metres. But the measurements of individual areas of the pitch and the size of the goals are clearly specified.
Dr. Nikolaus von Bomhard chairman of Munich Reinsurance company’s Board of Management
a year ago, i informed you that in 2009 we would again be aiming for a result that underlined Munich Re’s leading status in our industry. in this we have succeeded. With a profit of €2.56bn, we have even slightly surpassed expectations. We have achieved our ambitious target of a 15% return on risk-adjusted capital (RORac), posting a figure of 15.1%. in addition, we were able to strengthen our capital base last year, despite paying an attractive dividend for 2008 and buying back more shares.
So against the background of the difficult market environment, i am very satisfied. We want you to share in this success, which is why we will be proposing payment of an increased dividend of €5.75, up from €5.50, at the annual general Meeting. With this payout, we want to make clear our conviction that our business model can deliver sustained earnings even in economically difficult times. and we want to thank our shareholders for the confidence they have shown in us.
in the past year, financial solidity and reliability were sought after more than ever. This was true in insurance business with end-customers and even more so in reinsurance. Many primary insurers – our clients in reinsurance – found their capital base temporarily weakened by the financial crisis. They were faced with the need to raise fresh capital if they wanted to keep writing the same amount of business. Together with our clients, we therefore devised risk transfer solutions that in many cases rendered cap ital increases unnecessary. This applied particularly in life reinsurance and the inter national health market. in return, we received attractive business – some guaranteed for a period of several years.
in the business fi eld of primary insurance, eRgO successfully turned its results around, more than doubling its profi t in 2009 compared with the previous year. The combined ratio in property-casualty business once again remained well within the long-term target of 95%. another pleasing aspect is that the eff iciency programmes which have made considerable demands on eRgO employees in recent years are beginning to bear fruit. The eff ort has been worth it.
eRgO was also able to increase its premium income, mainly thanks to marked growth in its international business. in Turkey and eastern europe, we have achieved satisfying development through organic growth. But acquisitions like Bank austria creditanstalt Versicherung also played their part. Despite the curbing eff ects of changes in exchange rates, our international primary insurance business now contributes more than one-fi fth of eRgO’s premium income. and eRgO has become a leading provider in yet more markets. in germany, on the other hand, the picture was mixed: while we were able to grow in property-casualty business, development in life insurance was below expectations. eRgO’s new brand presence will help us here.
From left to right Jörg Schneider group Reporting/group controlling/corporate Finance Mergers & acquisitions/ integrated Risk Management/group legal, compliance/group Taxation/ investor and Rating agency Relations
Torsten Jeworrek chairman of the Reinsurance committee Reinsurance Development/corporate underwriting/accounting, controlling and central Reserving for Reinsurance/information Technology/global Business architecture/ geo Risks Research/corporate climate centre
// EU GreenBuilding Award for MEAG buildings in 2009, three new Meag buildings were placed on the list of official partners of the eu greenBuilding programme: the cologne Oval Offices, the Westgate in cologne and Munich’s Sonnencarree. The greenBuilding certification confirms that a building undercuts the 2007 german energy Saving Ordinance limit by more than 25% and is awarded to the owners of commercial buildings whose energy-saving designs promote sustainable construction.
notable events in 2009 01–03/09 04–06/09 // International HealthCare becomes Munich Health in May, Munich Re’s international healthcare business began operating under its own brand, Munich health. The new business field brings together global know-how in the insurance and reinsurance of healthcare outside germany. Munich health employs over 5,000 experts at 26 locations.
Together with industrial insurance broker Marsh and photovoltaic producer Signet Solar, Munich Re launched a new insurance solution to cover the risk of a performance deterioration in photovoltaic modules. This solution covers the warranty given for Signet Solar modules over a period of 25 years and guarantees performance of at least 90% in the first ten years and no less than 80% in the remaining 15.
// Desertec initiative at the instigation of Munich Re, twelve leading companies signed a memorandum of understanding in July, establishing the Desertec industrial initiative planning entity (Dii). The Dii commenced its work in October. it is to develop the parameters for investments needed to exploit the energy potential of deserts and make this usable for other regions of the world. its long-term goal is to cover a significant share of the energy needs of europe, the Middle east and north africa on the basis of solar and wind power generated in the desert.
Munich Re introduced its new brand to the public at the reinsurers ’ industry meeting in Monte carlo. This is combined with a sharpened value proposition in reinsurance, whose cornerstones are financial solidity coupled with forward-looking expertise. Munich Re aims to place much more emphasis on leveraging its extensive risk knowledge to develop individual solutions for its clients in response to complex issues.
Munich Re purchased a further stake of nearly 5% in the eRgO insurance group from Bayerische hypo- and Vereinsbank via an investment company. For the remaining 237,000 shares, i.e. 0.31% of the equity, a squeeze-out resolution is to be adopted at eRgO’s next annual general Meeting on 12 May 2010.
// Natural catastrophe figures in 2009, natural catastrophes caused far fewer losses than in the previous year, owing to the low incidence of major events and the benign north atlantic hurricane season. Of the economic losses totalling uS$ 50bn, insurers had to pay uS$ 22bn. Winter Storm Klaus ranked as the costliest single event, with insured losses amounting to around uS$ 3bn. The trend towards an increase in weather-related catastrophes nevertheless remains unbroken: the number of destructive events – 850 in all – was above the long-term average.
Thanks to their defensive risk profile, the volatility of our shares remained low, and they repeatedly showed their strength in phases where the markets became more conscious of the crisis again. Munich Re underlined its clear commitment to creating value for shareholders by resuming its temporarily suspended share buy-back programme in October, which gave our share price additional stability.
all in all, Munich Re shares demonstrated the attractiveness of the stock’s clear investment profile in the environment of the international crisis. Their long-term performance is also convincing: over the last three-year and five-year periods, their performance (including dividend payments) has bettered both the DaX and the euRO STOXX insurance indices.
Munich Re pursues a flexible dividend policy, with the payout essentially based on the result for the year and our capital requirements. Taking this into account, we generally aim to pay out at least 25% of the annual result to our shareholders. Despite the lower result in a difficult business environment in 2008 due to the financial crisis, we kept the dividend at the previous year’s level of €5.50 per share.
For the financial year 2009, the Board of Management and the Supervisory Board intend to propose to the annual general Meeting on 28 april 2010 that the dividend be increased by €0.25 compared with last year to €5.75. altogether, this would mean a total payout to shareholders of nearly €1.1bn, after €1.073bn in the previous year. The dividend will be paid on 29 april 2010, the day after the annual general Meeting.
We essentially adhered to our share buy-back programme, but decided in spring to suspend the buy-backs, owing to the uncertain economic situation. at the beginning of October, in an improved environment, we resumed the programme and have since bought back shares with a volume of around €648m (status as at 28 February 2010). altogether, as announced, we intend to repurchase shares with a volume of up to €1bn by the annual general Meeting on 28 april 2010.
Jan. Feb. Mar. apr. May Jun. Jul. aug. Sep. Oct. nov. Dec.
Munich Re shares DaX 30 Morgan-Stanley insurance index (MSci) in € Source: Datastream
in the year under review, the average daily turnover of Munich Re shares amounted to €121m, putting us in 11th place among the daX stocks at year-end 2009. in terms of market capitalisation, we also ranked 11th with around €21.5bn.
Key figures for our shares 2009 2008 share capital €m 587.7 587.7 number of shares at 31 december m 197.4 206.4
Our largest shareholder at the end of 2009, with around 4.6%, was uS asset management firm BlackRock inc., new York. By acquiring Barclays global investors (Bgi), the asset management subsidiary of Barclays Bank uK, BlackRock became the world’s largest asset manager and a new major shareholder of many german companies. With the addition of the Munich Re shares held by Bgi, BlackRock’s stake in our company at the beginning of December exceeded the threshold notifiable under the german Securities Trading act. Since February 2010, Warren e. Buffett has held a stake of over 5% in Munich Reinsurance company via various companies in his group. he also holds financial instruments that give him the right to subscribe for a further 3,840,000 Munich Re shares (1.95% of the share capital). The exercise date for the financial instruments is 11 March 2010. allianceBernstein l.p., our largest shareholder at the beginning of 2009, has reduced its stake from over 5% to below 3% in the current year.
given their importance, Munich Re shares are represented in major national and international share price indices like the DaX and the euRO STOXX 50. in the sector indices for insurance companies, our shares have traditionally had a high weighting. in the euRO STOXX insurance, this stood at 12.1% at the end of the year.
Since 2001, our shares have also been included in the Dow Jones Sustainability and the FTSe4good index families. These sustainability indices only accept companies that fulfil exacting ecological and social standards and are among the best in their sector. here Munich Re plays a pioneering role with its corporate responsibility, and enjoys an excellent reputation among socially responsible investors (SRis), who hold some 2% of our stock.
Regional distribution1 21.7% north america 1 percentage of share capital at 31 December 2009. Source: Munich Re share register 29.0% germany 30.1% Rest of europe 2.4% Other countries
But our activities are not only geared to institutional investors: private investors can contact Munich Re directly at any time as well. We have done well in insurance-sector rankings for the quality of companies’ investor relations, achieving recognition in particular for the consistency and transparency of our reporting and the quality of our roadshows. all the presentations we use in our meetings with investors are published concurrently on the internet, and we are glad to send these to interested shareholders on request. Many of our events are transmitted live via webstreaming. enquiries reaching us via our shareholder hotline or by e-mail are answered promptly by our team.
DJ euRO STOXX 50 1.3 DJ euRO STOXX insurance 12.1 MSci euRO 1.1 FTSe euROTOp 100 0.6 DJ Sustainability World 0.4
The high degree of confidence in our group’s financial strength is reflected in trading with credit default swaps (cDSs). These tools enable investors on the capital market to hedge against the risk of an issuer’s default. The lower the cDS spread, the higher the assessment of the issuer’s security. Munich Re continues to be among the firms with very low cDS spreads at both national and international level. in the course of 2009, the spread – and thus the implicit credit risk – was even lower than that of some western european states and the uSa.
a complete list of the outstanding bonds can be found on pages 244 and 257 an overview of the current ratings is included in the management report/financial position on page 130
hence in 2009 we benefited from the fact that we have been consistently pursuing our objectives for years and have resolutely implemented our strategy, refusing to be thrown off course by what we regard as short-lived trends – a stance we will continue to adopt in future. We were well prepared for the challenges ensuing from the crisis and therefore had enough headroom even in a difficult period. We took advantage of this situation and launched a series of important initiatives in the past year. now we have to implement these initiatives and bring them to fruition.
// primary insurance is to become more competitive through our new eRgO brand presence in germany.
// in reinsurance, we have sharpened our value proposition with a new Munich Re brand.
in order to further simplify our shareholding structures and facilitate cooperation within the group, we also decided last year to acquire additional shares in eRgO. By purchasing nearly 5% more of its shares, we have clearly exceeded the threshold of 95% and have initiated a squeeze-out, in accordance with Section 327a of the german Stock companies act. We will also save costs through the subsequent delisting of eRgO’s shares.
Munich health unites the global expertise of more than 5,000 staff from a whole range of specialist risk carriers and service providers in the health sector. With these units and our external partners, we can cover large sections of the value chain in healthcare and offer our clients unique solutions tailored to their needs. We deploy our resources where, with our global experience, we can achieve the greatest added value for clients. The focus, however, will naturally continue to be on risk-carrying. When market conditions change, Munich health can react flexibly. This is currently happening in important markets for us, like the uSa and india. Following acquisitions in recent years, we are now looking to consolidate what we have achieved and grow organically. Just as in the other fields of business, profitability has priority.
last year, we adjusted our brand in reinsurance to take account of today’s market environment and our even more international role. The german brand name “Münchener Rück” has been dropped in favour of “Munich Re”. The next step will be to unify our market presence. By the end of the year, all our subsidiaries and branches that conduct reinsurance business will bear the Munich Re brand. also, the specialised providers and primary insurers that we manage from within the business field of reinsurance will in future operate for the most part under the Munich Re brand, supplemented by the descriptor “Risk Solutions”.
With the introduction of the new brand, we have sharpened our value proposition: we will make our clients more successful by devising tailor-made solutions with them. We anticipate developments and make future risks controllable. To this end, we are constantly expanding our risk competence, also via strategic partnerships, and are one step ahead of the competition. in this way, we will consolidate and extend our market leadership.
One topic that will concern us and our industry intensively in future is climate change. it is already the case that every year losses running into several billion uS dollars are attributable to climate change worldwide. Such losses will continue to increase, and it is high time that decisive measures are taken to counter this development. We are convinced that doing nothing will cost substantially more in the long run than taking action to curb global warming today. But we do not see our role by any means as just being a warning voice: we are actively devising solutions to counter climate change. The creation of the Desertec industrial initiative is a good example. Desertec’s aim is to generate solar power on an industrial scale in the deserts of north africa. Munich Re has played a major part in driving the initiative forward, thus sending out a message far beyond the borders of germany. if the project is realised, it will be a significant step towards carbon-free energy production. Our involvement in Desertec is, of course, also an investment in the future of our own business: new technologies for renewable energy will require new risk transfer solutions. We have already established ourselves successfully as a pioneer in this market.
FOUR BASIC RULES of good corporate governance responsible corporate management transparent corporate communications efficient practices on our Boards promotion of shareholders’ interests
Corporate governance report of the Supervisory Board 023 corporate governance statement 028 the early rules of football drawn up in england in 1863 already included an offside rule, designed to prevent players positioning themselves behind the opposing defence and waiting for the ball to be passed upfield to them just in front of goal. the offside rule is regarded as the most complex in football, and its application requires fine judgement from referees and their assistants.
the Board of Management informed us directly about all decisions of fundamental significance and briefed us regularly, both orally and in writing, about all important transactions. at the scheduled meetings, the Board of Management kept the Super­ visory Board up to date on strategic developments, corporate planning, comparisons with competitors, and business performance. the Board of Management satisfied its reporting obligations towards the Supervisory Board in all respects. We discussed its reports in detail at our meetings and submitted suggestions and proposals for improve­ ment. overall, as in previous years, the Board of Management was commendably open in its collaboration with the Supervisory Board and was always prepared to engage in a constructive exchange of ideas. the shareholder and employee representatives had the opportunity prior to the Supervisory Board meetings to raise important topics separately with the chairman of the Board of Management.
as chairman of the Supervisory Board, i was in regular contact with the chairman of the Board of Management, particularly in connection with key issues of strategy, corporate risk management and current business performance. in addition, the chairman of the Board of Management informed me of significant events and develop­ ments in the group where necessary. dr. albrecht Schmidt, chairman of the audit committee until 22 april 2009, and his successor, prof. dr. henning Kagermann, remained in close contact with dr. Jörg Schneider, member of the Board of Manage­ ment, whose responsibilities include group reporting.
Focal points of the meetings of the full Supervisory Board in 2009, the Supervisory Board held six meetings and one discussion on strategic topics. a representative of the german federal financial Supervisory authority (Bafin) took part as a guest at one of the meetings.
24 corporate governance report of the SuperviSory Board at our first meeting in 2009, we concerned ourselves with the company and group financial statements for the 2008 financial year and prepared the motions for reso­ lution by the 2009 annual general Meeting. We also took reports on compliance and anti­fraud management. at the other meetings held in the financial year, we considered the quarterly reports and annual result expected for 2009. in autumn, we had an in­depth discussion on the group planning for 2010 and 2011.
other focal points of our consultations in the second half of the year were the changes to the german corporate governance code and, above all, the german act on the appropriateness of Management Board remuneration. We decided on amendments to the rules of procedure for the Supervisory Board and on the introduction of rules of procedure for the audit committee. at an extraordinary meeting, we also concerned ourselves extensively with proposals for the early adaptation of the remu neration system for the Board of Management to the provisions of the act on the appropriate­ ness of Management Board remuneration. in a further plenary session, we adopted the revised remuneration system applicable since 1 January 2010, which is geared even more strongly to sustainable corporate development. We also adopted resolutions regarding the amount of remuneration for the Board of Management with effect from 1 January 2010 and the assessment bases for variable remuneration in 2010. More details can be obtained from the remuneration report on page 36 of the annual report.
Work of the committees the Supervisory Board elections in 2009 also resulted in changes in the composition of the Supervisory Board committees (personnel committee, audit committee, Standing committee, nomination committee and conference committee) in the year under review. an overview is presented on page 74. the committee chairmen submitted full reports on the topics dealt with by the committees at all meetings of the full Super­ visory Board.
25corporate governance report of the SuperviSory Board the Standing committee met three times in the year under review. it prepared the meetings of the Supervisory Board and dealt with corporate governance issues. it also received regular reports on the share register.
the newly elected audit committee examined the work and fundamental monitoring processes it is responsible for performing. as a result, it submitted to the full Super­ visory Board a proposal to issue audit committee rules of procedure. the committee reviewed and monitored the auditor’s independence. in this context, the audit commit­ tee also took delivery of reports from the auditor on its auditing and non­audit­related services. it also commissioned the audit for the financial year 2009 and decided on the focal points of the audit – taking into account the new minimum risk management requirements for insurance companies – and the auditor’s fees. furthermore, it com­ missioned the external auditor with a review of the half­year financial report 2009. the audit committee also scrutinised the 2009 quarterly reports and the 2009 half­year financial report, which it discussed at length in the presence of the auditor.
naturally, the audit committee was concerned with the impact of the financial crisis on Munich re in the financial year ended. it therefore paid particular attention to the group’s asset management. likewise, it monitored and debated the group’s risk situation. finally, the audit committee discussed risk management and risk strategy developments with the chief risk officer. at the committee’s request, the chief risk officer will, in future, submit the risk report on a quarterly basis and provide answers to questions as required, but at least twice a year. the audit committee received separate reports on the development of embedded values in life reinsurance business and in life and health primary insurance business.
the annual general Meeting elected prof. dr. peter gruss, peter löscher, anton van Rossum and dr. thomas Wellauer as new members of the supervisory board. on the basis of the co­determination agreement concluded as part of the merger between MR italia and Munich Reinsurance company, the following employee representatives were newly appointed to the supervisory board: dina bösch, hans peter claußen, frank fassin, christian fuhrmann, silvia Müller, Marco nörenberg, Reinhard pasch, andrés Ruiz feger and Richard sommer.
KpMg bayerische treuhandgesellschaft aktiengesellschaft Wirtschaftsprüfungsgesell­ schaft steuerberatungsgesellschaft duly audited the following documents and gave them an unqualified auditor’s opinion: the financial statements and management report of Munich Reinsurance company and the group financial statements and management report as at 31 december 2009. the respective reports and the board of Management’s proposal for appropriation of the net retained profits were submitted directly to the members of the supervisory board. at its meeting on 1 february 2010, the audit commit­ tee had the opportunity to confer in detail about the preliminary year­end figures as at 31 december 2009. on 8 March 2010, they prepared the supervisory board’s resolution on the adoption of the company financial statements and the approval of the group financial statements. in this context, the audit committee examined the company and group financial statements, the management reports and the board of Management’s proposal for appropriation of the net retained profits. it discussed these at length with the auditor present at the meeting and also gave detailed consideration to the auditor’s reports. the chairman of the audit committee briefed the full supervisory board about the outcome of its consultations at the balance sheet meeting on 9 March 2010.
27corporate governance report of the SuperviSory Board the Supervisory Board also checked the Munich reinsurance company and group fi nancial statements and management report and the proposal of the Board of Manage­ ment for appropriation of the net retained profi ts. after conducting its own concluding examination and having heard the auditor’s report, the Supervisory Board had no objec­ tions and agreed to the outcome of the external audit. it approved the company fi nancial statements and group fi nancial statements on 9 March 2010. the fi nancial statements were thus adopted. having carefully weighed all the relevant aspects, the Supervisory Board also agreed with the Board of Management’s proposal for appropriation of the net retained profi ts.
Words of thanks to the Board of Management and employees in an environment that remained diff icult, the Board of Management and employees showed both great dedication and prudence. this was a key factor in achieving another successful overall result in the fi nancial year 2009, for which the Supervisory Board wishes to thank them most sincerely.
1. Declaration of the Board of Management and Supervisory Board of Munich Reinsurance Company in accordance with Section 161 of the German Stock Companies Act, dated November 2009
Munich reinsurance company also complies with all the proposals of the german corporate governance code.
29corporate governance corporate governance StateMent 2. Corporate governance report it is our conviction that good corporate governance creates lasting value. We therefore apply the highest standards to our operations and activities, complying with all the recommendations and proposals of the german corporate governance code.
continually improving our good corporate governance is an important principle underlying our business activities.
as a result of its international organisation, Munich re has to consider corporate governance rules in different national legal systems. clearly, we observe not only the respective national standards but also internationally recognised best practices. in germany, where Munich reinsurance company has its headquarters, corporate governance rules are laid down above all in the german Stock companies act and the german corporate governance code. also applicable to Munich reinsurance company is the german act on the co­determination of employees in cross­Border Mergers (Mgvg) and a co­determination agreement concluded in december 2008 on the basis of the Mgvg; these provisions supersede those of the german co­determin­ ation act. the co­determination agreement is published on our website.
Munich reinsurance company is a joint­stock company (“aktiengesellschaft”) within the meaning of the german Stock companies act. it has three governing bodies: the Board of Management, the Supervisory Board and the annual general Meeting. their functions and powers derive from the relevant legal provisions, the co­determination agreement and the articles of association, which are published on our website.
31corporate governance corporate governance StateMent the Group Committee comprises the chairman of the Board of Management and at least one other member of the Board of Management. as in the past financial year, its current members are nikolaus von Bomhard, Jörg Schneider and the chief risk officer of Munich reinsurance company, Joachim oechslin. the chairman of the Board of Management is also chairman of the group committee. the group committee decides on all fundamental matters relating to its members’ divisions unless the full Board of Management is mandatorily responsible. in addition, it prepares decisions that have to be taken by the full Board.
the committee meetings are held as needed, and usually take place every two weeks.
the Board of Management and Supervisory Board cooperate closely to the benefit of the company. the Board of Management coordinates the company’s strategic approach with the Supervisory Board and discusses the current state of strategy implementation with it at regular intervals. it reports regularly to the Supervisory Board about all questions relevant to the company. the Supervisory Board has defined the Board of Management’s information and reporting requirements in detail. Specific types of transaction such as investments and divestments of substantial size and individual capital measures (e.g. according to article 4 of the articles of association) generally require the Supervisory Board’s consent. Beyond this, the Board of Manage­ ment reports to the audit committee on specific topics falling within the latter’s scope of responsibility. the chairman of the Board of Management keeps the Supervisory Board informed about all significant business transactions.
the Supervisory Board has established its own rules of procedure, specifying responsi­ bilities, work processes and required majorities. in July 2009, it also adopted separate rules of procedure for the audit committee. as provided for in the german co­deter­ mination act and included in the provisions of article 12 of the articles of association, the chairman of the Supervisory Board and his first deputy must be elected by a majority of two­thirds of its constituent members. if a second vote is needed, the shareholder representatives elect the chairman of the Supervisory Board, and the employee representatives his first deputy, by a majority of the votes cast in each case.
the Supervisory Board is quorate if all its members have been invited to the meeting or called upon to vote and if ten members including the chairman or alternatively 15 members participate in the vote. Members of the Supervisory Board unable to attend in person may vote in writing. in addition, votes may be taken between meetings in writing, by phone or in similar form if the chairman of the Supervisory Board so determines. Subject to the same precondition, whole meetings may be conducted by means of telecommunications (e.g. as a videoconference), or individual members may take part in this fashion.
the Personnel Committee prepares the appointment of members of the Board of Management and, together with the Board of Management, concerns itself with long­term succession planning. it also prepares the Supervisory Board’s resolution on the remuneration system for the Board of Management, including the total remuner­ ation of the individual members of the Board of Management. its responsibility for fixing the Board of Management remuneration has ceased, owing to changes in the relevant legal provisions. the personnel committee also represents the company vis­ à­vis the members of the Board of Management and is responsible for other personnel matters involving members of that Board unless these are issues that have to be dealt with by the full Supervisory Board. it approves certain legal transactions between the company or affiliated companies and members of the Board of Management or parties related to them. it also decides on secondary occupations that members of the Board of Management may pursue and seats they hold on the boards of other companies.
Members of the personnel committee during the whole of 2009 were dr. hans­Jürgen Schinzler (chairman), herbert Bach and dr. Bernd pischetsrieder, and this continues to be its current composition.
the Audit Committee prepares Supervisory Board resolutions on the adoption of the annual company financial statements and approval of the group financial statements, reviews the financial reporting, discusses the quarterly reports, and takes delivery of the audit reports and other reports and statements by the external auditor. the com­ mittee monitors the accounting process, including the effectiveness of the company’s internal control system, the compliance system, the risk management system and internal audit system. furthermore, it initiates the decision on the appointment of the external auditor and monitors the latter’s independence and quality. it appoints the external auditor for the company and group financial statements, determines focal points of the audits and agrees on the auditor’s fee for the annual audit; the same applies to the review of the half­year financial report. the requisite statements are given by the chairman of the audit committee on the basis of these resolutions. in addition, together with the Board of Management, it prepares the annual discussion of the risk strategy held before the Supervisory Board and discusses any changes or deviations from the risk strategy with the Board of Management during the year.
Members of the conference committee are dr. hans­Jürgen Schinzler (chairman), herbert Bach, hans peter claußen and dr. Bernd pischetsrieder. up to the end of 2009 annual general Meeting, the members of the committee were as follows: dr. hans­ Jürgen Schinzler (chairman), herbert Bach, dr. Bernd pischetsrieder and Judy võ.
More details of the work of the Supervisory Board committees in the financial year ended can be found in the report of the Supervisory Board to the annual general Meeting, which is printed on page 23 ff.
More details can be obtained from the remuneration report on page 46 ff.
Basic remuneration, remuneration in kind/ fringe benefits (company car, healthcare, security measures, insurance)
25% function responsibility length of service on Board fixed contractual stipulations Monthly
Annual bonus 35% consolidated result company result divisional result individual objectives 0–150% (fully achieved= 100%)
b) Defined contribution plan (Board members appointed before 2009 who had not reached the age of 55 in 2008 and Board members appointed with effect from 2009)
Basic remuneration fixed pension contribution > retirement > insured event > premature termination or non­extension of employment contract under certain circum­ stances
Remuneration in kind/fringe benefits remuneration in kind and fringe benefits are granted according to function, and are commensurate with market conditions (daX 30 companies). income tax on the benefits in question is paid individually for each member of the Board of Management, with the company bearing the amount due.
38 corporate governance corporate governance StateMent variable components the variable components comprise the annual bonus and the share­price­based remuneration components “Mid­term incentive plan” and “long­ term incentive plan”.
Annual bonus this compensation component is based on different categories of objectives. the targets and scaling for group, company and divisional objectives are geared to particular indicators; individual objectives form the basis for the achievement of personal targets. the key indicator used for the group objective is rorac (return on risk­adjusted capital), which comprises key figures from external accounting and from other important portfolio and performance data. information on the definition of rorac is provided on page 68. We use the performance measures embodied in value­based management for the company objective and the divisional objectives.
the tSr represents the total return on shares, comprising both the rise in the share price and the dividends paid over a period of three years. further information on the Mid­term incentive plan can be found on page 292 f. in the notes to the financial statements.
Weighting of remuneration components in the case of 100% achievement of objectives (annual bonus) and based on the imputed value of the share­price­linked compensa­ tion (Mid­term incentive plan and long­term incentive plan) at the granting date, the weightings of the individual components in terms of total remuneration for 2009 were as follows: basic remuneration approximately 25%, annual bonus approximately 35%, Mid­term incentive plan around 20%, and long­term incentive plan around 20%. annual bonus, Mid­term incentive plan and long­term incentive plan together formed a well­balanced and economic, i.e. strongly risk­based, incentive system, designed to ensure that the targets set for the members of the Board of Management do not have undesirable effects. no guaranteed variable salary components are granted.
all in all, the remuneration system for the Board of Management was in conformity with the recommendations of the german corporate governance code for 2009.
up until 2009, the level of total remuneration was set and regularly reviewed by the Supervisory Board’s personnel committee, also taking into consideration data from peer­group companies. criteria for the appropriateness of compensation were in particular the respective Board member’s duties, the Board member’s personal performance, the performance of the Board as a whole, and the financial situation, performance and future prospects of Munich re. new Board members are generally placed at a level which allows sufficient potential for development in the first three years.
Benefit amount: // for a period of six months, previous monthly basic remuneration (only for Board members appointed prior to 2006) // under the defined contribution plan for new members as from 2009: annuity based on the policy reserve built up under the external insurance or payment of the policy reserve as a lump sum
// for Board members transferred from the old system to the new: vested pension from the defined benefit plan up to 2008 and annuity or lump sum from the policy reserve under the defined contribution plan
// in the case of defined benefit plans: defined benefit of between 30% and 60% of annual basic remuneration
Reduced occupational pension on early retirement Board members are entitled to an occupational pension if the contract of employment is terminated as a result of non­extension or revocation of the Board member’s appoint­ ment without the Board member having given cause for this through a gross violation of his duties or at his own request; the precondition is that the Board member has already passed the age of 50, has been in the employment of the company for more than ten years when the contract terminates, and has had his appointment to the Board of Management extended at least once.
// for Board members transferred from the old system to the new: entitlement of between 30% and 60% of annual 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. the policy reserve available at the date the pension benefit is claimed can be paid out as an annuity or as a lump sum
// in the case of defined benefit plans: defined benefit of between 30% and 60% of the annual basic remuneration, reduced by 2% for each year or part thereof short of the Board member’s 65th birthday
Vested benefits for occupational pension, disability pension and surviving dependants vested benefits are paid upon the Board member reaching the age of 60, in the case of incapacity to work, or in the event of the Board member’s death a) Vested benefits under the German Employers’ Retirement Benefits Act
// for Board members transferred from the old system to the new: the entitle­ ment under the vested pension is a proportion of the vested pension based on the ratio of actual service with the company to the period the Board member would have worked for the company altogether up to the fixed retirement age (Section 2 para. 1 of the german employers’ retirement Benefits act). the entitlement from the incremental pension comprises the pension benefits fully financed under the insurance contract up to the occurrence of the insured event based on the pension contributions made up to the date of leaving the company (Section 2 para. 5a of the german employers’ retirement Benefits act). this entitlement is paid out as an annuity or a lump sum.
// in the case of defined benefit plans: the defined benefit is between 30% and 60% of the annual remuneration. the vested benefits are a proportion of the occupational pension, based on the ratio of actual service with the company to the period the Board member would have worked for the company altogether until his 60th birthday (Section 2 para. 1 of the german employers’ retirement Benefits act)
tional pension // orphan’s pension amounting to 20% of the defined benefit or insured occupational pension per orphan // doubling of the orphan’s pension if no widow(er)’s pension is payable // Widow(er)’s and orphan’s pensions together may not exceed the occupational pension the entitlement to provision for surviving dependants ceases if the widow(er) of a Board member appointed as from 2006 remarries. the entitlement for orphans ceases on their reaching the age of 20. for orphans who are in full­time education or vocational training, doing military or civilian service, or unable to support themselves owing to a physical or mental disability, the entitlement is extended until they reach the age of 27.
in the case of Board members appointed before 2009, occupational pensions and pensions for surviving dependants are reviewed for adjustment if salaries payable under pay­scale agreements in the insurance industry have increased by more than 12% (based on the average final salary of all pay­scale categories) since the pensions were last fixed or more than three years have passed since that date. the adjustment made will at least be in line with the increase in the cost of living in the meantime according to the consumer price index for germany. this arrangement also applies to Board members newly appointed as from 2009 who received a pension commitment from the company for the first time before 1 January 1999. for Board members appointed as from 2009 who did not receive a pension commitment from the company before 1 January 1999, occupational pension and benefits for surviving dependents are adjusted by 1% annually from the date when the pension or benefit starts being drawn, in accordance with Section 16 para. 3 item 1 of the german employers’ retirement Benefits act. vested benefits are not adjusted.
44 corporate governance corporate governance StateMent the Mid­term incentive plan 2009–2011 and long­term incentive plans are accounted for at fair value at the granting date. information on fair values is provided in the notes to the consolidated financial statements on page 288 ff. Whether the variable compo­ nent amounts will actually be paid out to the Board members and, if so, how high the sums will be, is not yet certain and will depend on the degree to which individual objectives are achieved, on share­price development and on fulfilment of the exercise conditions of the long­term incentive plans. Munich re shares have been acquired to cover future obligations arising from the long­term incentive plans as from 2003, so that the expenses resulting from a growth in value of the stock appreciation rights are neutralised by an increase in the value of the share portfolio.
1 at the balance sheet date, no Board resolution had yet been passed on the amounts to be paid for 2009. the amount shown for the annual bonus is based on estimates and the corresponding provisions posted. for the 2008 annual bonus, a total of €295,772 more was paid out than had been reserved. the provisions for the 2009 annual bonus have been increased by this amount.
2 performance share units were granted for the first time for the financial year under the Mid­term incentive plan 2009–2011. for 2008: amount paid out for the medium­term bonus 2006–2008. compared with the amounts shown in the previous year, there is a difference of –€253,800 resulting from the deviation between the provisions of €7,860,000 posted and the actual amount of €7,606,200 paid out.
5 remuneration in kind/fringe benefits including anniversary payment. 6 Member of the Board of Management since 1 January 2009. 7 remuneration in kind/fringe benefits including one­off expenses on appointment to the Board of Management (e.g. maintaining two households, move).
Remuneration of individual Board members as per DRS 17 (in accordance with Section 285 sentence 1 item 9a sentences 5–9 of the german commercial code and Section 314 para. 1 item 6a sentences 5–9 of the german commercial code) name financial Basic remuneration annual value of value of total number of number year remuner­ in kind/fringe bonus1 performance stock performance of stock ation benefits share units appreciation share units appre­ granted2, 3 rights ciation granted4 rights
45corporate governance corporate governance StateMent the presentation of remuneration after allocation to appropriate periods shows the economic apportionment of the amounts between the individual financial years, which is particularly relevant for the medium­term bonus 2006–2008. in this view, the total remuneration shows an increase of €6.5m compared with the previous year. the main reason for this is that, based on the results, the achievement of objectives for the medium­term bonus 2006–2008 was 0% for 2008. after allocation to appropriate periods, total remuneration for the year under review amounts to €17.5m (11.0m).
Remuneration of the individual Board members after allocation of component amounts to the financial years for which they were actually payable name financial Basic remuneration annual value of value of total number of number year remuner­ in kind/fringe bonus1 performance stock performance of stock ation benefits share units appreciation share units appre­ granted2, 3 rights ciation granted4 rights
1 value of vested pension at 31 december 2008. 2 no transfer to defined contribution system, as Board member had already reached 55 at the conversion date. 3 Member of the Board of Management since 1 January 2009.
Pension entitlements name financial defined benefit1 personnel pension entitlement personnel year expenses for contribution under defined expenses for provisions rate contribution plan provisions for defined as at for defined benefits 31 december contribution plan 2008 – – – – –
Structure of the remuneration system for the Board of Management component Share1 assessment basis/
– pensionable basic remuneration (= 25% of target overall direct remuneration), number of years on the Board fixed > retirement > insured event > premature termination or non­extension of employment con­ tract under certain circumstances
b) Defined contribution plan (Board members appointed before 2009 who had not reached the age of 55 in 2008 and Board members appointed since 2009)
48 corporate governance corporate governance StateMent the new structure comprises only two remuneration components: basic and variable remuneration. the variable remuneration component contains both annual and three­year objectives, thus replacing the annual bonus and Mid­term incentive plan. the long­term incentive plan has been done away with. the share­price­based component has been retained in the form of the Board members’ obligation to invest in Munich re shares that they must hold for at least a four­ or two­year period. overall, the new remuneration system focuses more strongly than before on long­term targets and thus creates an even greater incentive for sustainable corporate development.
Variable remuneration the variable remuneration component is geared to the overall performance of the group and of defined organisational units and to the personal performance of the individual members of the Board of Management. it is measured on the basis of annual and multi­year performance, for which new objectives will be set every year. payouts are made at the end of the one­ and three­year periods under consideration. With a view to sustainability, the members of the Board of Management will be obliged to invest part of the variable remuneration paid out in Munich reinsurance company shares.
Annual performance annual performance targets for the variable remuneration component are set on the basis of divisional and individual objectives as well as the company and the group objective. 30% of the target amount for variable remuneration can be earned in the event of full achievement (= 100%) of the objectives. the targets and scaling for group, company and divisional objectives are geared to particular indicators; individual objectives form the basis for the achievement of personal targets. the key indicator used for the group objective is rorac (return on risk­adjusted capital), which com­ prises key figures from external accounting and from other important portfolio and performance data. information on the definition of rorac is provided on page 68. the performance measures embodied in value­based management are used for the company objective and the divisional objectives. the objectives are weighted indi­ vidually according to the responsibilities of the individual members of the Board of Management.
the variable remuneration for multi­year performance is reviewed and decided on by the full Supervisory Board and then calculated and paid out in the year after the three­year period under consideration. payment is effected on condition that 25% of the net amount paid out is invested in Munich reinsurance company shares that must be held for at least a two­year period.
Pensions owing to the increase from 25% to 30% in the share of basic remuneration in overall remuneration, there has been a change in the assessment basis for the Board mem­ bers’ pensions. an unintended rise in the pension would otherwise have been the consequence. from 1 January 2010 onwards, the defined benefits are fixed on the basis of “pensionable basic remuneration”, which corresponds to 25% of the target overall direct remuneration (= basic remuneration + variable remuneration on the basis of 100% achievement of objectives). in the case of the defined contribution plan, the rate is fixed on the basis of the target overall direct remuneration.
an initial provisional examination has shown that the remuneration system for the Board of Management as decided on with effect from 1 January 2010 is in compliance with the requirements of the Bafin circular.
the performance-related bonus is based on quantitative and qualitative objectives. We use indicators from strategic planning for the quantitative objectives, while personal objectives are agreed on for the qualitative portion.
the key indicator used for the Company result bonus is rorac (return on risk­ adjusted capital), which comprises key figures from external accounting and from other important portfolio and performance data. the targets correspond to the group objective for the annual bonus for members of the Board of Management. information on the definition of rorac is provided on page 68. the company result bonus basic­ ally takes the form of a “bonus pool” model. depending on corporate performance, an available aggregate amount is calculated that can be distributed between all staff as a bonus. the higher the management level, the higher the target range under the company result bonus. the way this bonus works ensures that the performance of Munich re as a whole is systematically reflected in the remuneration of all staff and that the bonus amount bears a reasonable relationship to overall corporate performance.
furthermore, in accordance with the german corporate governance code, a remu­ neration component of €10,000 based on long­term corporate performance has been introduced. this will be paid out if earnings per share in the remuneration year exceed earnings per share in the third financial year preceding the remuneration year by at least 30%. no long­term remuneration component is payable for the remuneration year 2009.
51coRpoRate goveRnance coRpoRate goveRnance stateMent 1 plus turnover tax in each case, in accordance with article 15 para. 6 of the articles of association. 2 in the case of members of the audit committee and/or nomination committee, the amount includes attendance fees in accordance with article 15 para. 4 of the articles of association
Remuneration of Supervisory Board members in the financial year 2009 in accordance with Article 15 of the Articles of Association1
Herbert Bach, until 22.4.2009 Deputy Chairman Hans Peter Claußen, Deputy Chairman (from 22.4.2009) Hans-Georg Appel (until 22.4.2009)
Remuneration of Supervisory Board members in the financial year 2009 in accordance with Article 15 of the Articles of Association1 fixed result­ total remuneration related remuneration name financial year annual for committee annual work2 € Ingrid Müller (until 22.4.2009)
Football is a classic team sport, with two sets of eleven players competing to win the game over 90 minutes. Success depends on individual effort, quick reactions, ball skills and – above all – teamwork.
Munich Re 56 Structure 56 important tools of corporate management 63 excellence in underwriting – Binding standards for underwriting and pricing 70 governing bodies of the Munich Re group 71 other seats held by Board members 75
Financial position 120 analysis of our capital structure 120 asset-liability management 121 capital management 121 group equity 123 information in accordance with Section 315 para. 4 of the german commercial code and explanatory report of the Board of Management 124 Strategic debt 128 group solvency 129 Rating 130 analysis of the consolidated cash flow statement 132
Munich Re gRoup annual RepoRt 2009 in order to make the spectrum of our global business model clearer, all our reinsurance units throughout the world appear under the uniform brand of Munich Re. as of September 2009, this also applies to the german-speaking market. We use the reinsurance brand for the group as well, and thus refer to the Munich Re group as Munich Re. When we report on Münchener Rückversicherungs-gesellschaft aktiengesellschaft in München, we refer to Munich Reinsurance company. primary insurance business is combined in the eRgo insurance group (eRgo).
our international life and health reinsurance business is written in the life Division and Munich health respectively. their organisational structures reflect those of many of our clients, which conduct these two classes of business separately from property-casualty insurance, often through independent entities. 2009 is the last year in which we have booked health reinsurance, which is part of Munich health, in the life and health reinsurance segment. as mentioned earlier, Munich health will be shown as a separate segment beginning with the first quarter of 2010.
Life american Modern life insurance company, amelia, ohio lifeplans inc., Waltham, Massachusetts Munich american Reassurance company, atlanta, georgia Munich Reinsurance company canadian life Branch, toronto Munich Reinsurance company life Reinsurance eastern europe/ central asia, Moscow Munich Reinsurance company of australasia limited – new Zealand Branch, auckland Munich Reinsurance company of australasia ltd, Sydney Munich Reinsurance company uK life Branch, london Munichre life Services limited, london Southern pioneer life insurance company, Jonesboro, arkansas
DaMan – national health insurance company, abu Dhabi DKV globality S.a., luxembourg DKV Salute S.p.a., Milan Mednet holding gmbh, Munich Munich health holding ag, Munich
in international business, the group operates under the eRgo brand name in many markets and will continue to do so even more consistently in future. in addition to its home market of germany and many european markets, eRgo is also represented in india, South Korea and china. eRgo’s main companies outside germany are eRgo italia, the polish property-casualty insurer eRgo hestia and the turkish eRgoİSVİÇRe. Beyond this, we are seeking to tap further into selected primary insurance markets in asia.
new brand strategy to strengthen franchise and pool resources as from 2010
Life hamburg-Mannheimer pensionskasse ag, hamburg hamburg-Mannheimer Versicherungs-aktiengesellschaft, hamburg KarstadtQuelle lebensversicherung ag, Fürth3
Victoria lebensversicherung ag, Düsseldorf Bank austria creditanstalt Versicherung ag, Vienna eRgo life n.V., Brussels eRgo previdenza S.p.a., Milan Sopockie towarzystwo ubezpieczen na Zycie ergo hestia Spolka akcyjna, Sopot VictoRia-VolKSBanKen Versicherungsaktiengesellschaft, Vienna
Health DKV Deutsche Krankenversicherung ag, cologne euRopÄiSche Reiseversicherung ag, Munich KarstadtQuelle Krankenversicherung ag, Fürth3
DKV Seguros y Reaseguros, Sociedad anónima española, Saragossa4 europæiske Rejseforsikring a/S, copenhagen
Victoria Versicherung ag, Düsseldorf D. a. S. Österreichische allgemeine Rechtsschutz-Versicherungsaktiengesellschaft, Vienna D. a. S. Société anonyme belge d’assurances de protection Juridique, Brussels eRgo assicurazioni S.p.a., Milan eRgo Daum Direct auto insurance co. ltd., Seoul eRgoİSVİÇRe SigoRta a.Ş., istanbul Mtu Moje towarzystwo ubezpieczeniowe S. a., Sopot Sopockie towarzystwo ubezpieczen ergo hestia Spolka akcyjna, Sopot VictoRia general insurance company S.a., athens VictoRia-Seguros S.a., lisbon 1 the complete list of shareholdings is available on our website. 2 only subsidiaries with a premium volume of more than €50m are listed by name. 3 new company names: eRgo Direkt lebensversicherung ag, Fürth; eRgo Direkt Krankenversicherung ag,
Munich Health the global health market is one of the fastest-growing sectors of the economy. this applies to healthcare and insurance alike. in order to maximise the opportunities involved, Munich Re combined its health reinsurance worldwide and health primary insurance outside germany in a separate organisation that covers the whole healthcare -sector value chain. Since May 2009, the new business unit has been operating internationally under the Munich health brand.
the Munich health business field has over 5,000 staff at 26 locations throughout the world, servicing clients in over 40 countries. to best meet the often highly diversified needs of clients on a local level, Munich health has established a decentralised organisation, which is managed from four regional business hubs in princeton, abu Dhabi, Singapore and Munich.
Meag Munich eRgo assetManagement gmbh (Meag) combines the investment activities of Munich Re and eRgo. Virtually the entire asset management of the group is concentrated here. its subsidiary Meag Munich eRgo Kapitalanlagegesellschaft mbh is one of the major investment fund companies in germany. it also offers its comprehensive know-how to external institutional investors and private clients, whose assets under management total around €8bn.
Meag operates internationally, with offices in new York and hong Kong. Since July 2006, it has held a 19% stake in picc asset Management company ltd. (paMc), Shanghai, the asset management subsidiary of the people’s insurance company of china (picc).
Munich Re’s objective is to analyse risks from every conceivable angle and to assess and diversify them, thereby creating lasting value for its shareholders, clients and staff. a guiding principle of our entrepreneurial thinking and activity is to increase Munich Re’s share price on a sustained basis. this is also the aim of our active capital management – be it through the payment of dividends or the repurchasing of shares – if added value cannot be created for our shareholders through other measures. the main features of our shareholder value approach in practice are the consistent application of value-based management systems, which we constantly refine, within the group.
Our value-based management system takes into account the individual characteristics of the business segments property-casualty insurance and reinsurance, and health reinsurance, are lines of business that are mainly of a short-term nature. For these, we employ the following simple formula for measuring the value added annually by our insurance business and for managing and monitoring our business activities: adjusted result cost of equity Value added– =
market consistent embedded Value (mceV) comprises a company’s equity and the value of in-force covered business. the latter is the present value of future profits (where profits are post-taxation shareholder cash flows from the in-force covered business and the assets backing the associated liabilities) calculated using financial and actuarial methods, taking into consideration the time value of the financial options and guarantees and the explicitly determined costs of capital.
the development of the insurance portfolio is modelled by applying the current expectations for biometrics, lapses and costs. in primary insurance, the participation of policyholders in surplus is modelled according to the current planning and in line with the statutory regulations, and thus taken into account in the valuation. For the individual companies, the tax rates and calculations used are based on national regulations; in addition, tax loss carry-forwards are included in the calculation. Withholding taxes on dividends of group companies are disregarded. the cost of capital includes not only the taxes and costs of investment management but also the not explicitly modelled risks of the business and, for health primary insurance, the participation of policyholders in surplus.
1 previous year’s figures adjusted pursuant to iFRS 3.62 (see “consolidation”) and to iFRS 8 and iaS 8 (see “changes in accounting policies”).
Reinsurance primary insurance 1 property-casualty business; primary insurance includes legal expenses insurance.
Munich Re gRoup annual RepoRt 2009 in the property-casualty reinsurance segment, there were net expenses for claims and benefits of €9,267m (9,362m) and net operating expenses of €4,171m (4,003m) in 2009, compared with net earned premiums of €14,096m (13,448m). the combined ratio thus amounts to 95.3% (99.4%) – a clear improvement partly attributable to the low major-loss burden from natural catastrophes totalling €196.1m, or 1.4% of net earned premiums. our cycle management and underwriting discipline continue to form the basis of this success.
in 2009, paid claims and the change in claims provisions in the property-casualty primary insurance segment (including legal expenses insurance) totalled €2,763m (2,625m) and net operating expenses €1,511m (1,463m), compared with net earned premiums of €4,591m (4,497m). our combined ratio in primary insurance thus amounts to 93.1% (90.9%).
// another important distinguishing feature relates to the time-lag between premiums being received and claims being paid. the longer these periods are, the longer the premiums received can be invested in the capital markets. high combined ratios in classes of business in which claims settlement takes a long time (e.g. casualty) therefore generally entail higher returns from investments with which the loss reserves are covered. these returns are not reflected in the combined ratio.
therefore, while we aim to keep our combined ratio as low as possible, it is not our only target.
We are adhering to our long-term objective of a 15% return on our risk-based capital (RoRac) after tax across the cycle, although it will be much more difficult to achieve in an environment in which interest rates are low. this target underlines our fundamental commitment to a long-term increase in our corporate value. We are aiming for a consolidated result of over €2bn for 2010.
RORAC = net income – interest rate x (1 – tax rate) x additional available economic equity risk-based capital
Munich Re gRoup annual RepoRt 2009 primary insurance, we expect a combined ratio of under 95%.
Embedded value as an additional performance indicator in life primary insurance and reinsurance and in german health primary insurance, MceV is one of the foundations of our value-based management.
the life and health primary insurance business, managed and measured on an embedded -value basis, will contribute to the iFRS consolidated profit and thus to reaching the RoRac target, even though iFRS consolidated results are based on the individual financial-year perspective.
We are convinced that we are on the right track with RoRac as our primary key performance target. Whether and to what extent it is attainable depends in equal measure on the economic parameters and on the random occurrence of major losses. Despite the particular uncertainties of the environment, we will do our utmost to efficiently manage the consequences of the economic crisis.
Excellence in underwriting – Binding standards for underwriting and pricing our value proposition requires that we continually expand our knowledge. it also requires high quality standards for underwriting, pricing, accumulation control and claims management. only in this way can we be the first port of call for our clients when it comes to addressing risk matters and occupying new and profitable business sectors in future. For this reason, corporate underwriting is developing ways of expanding our knowledge of non-life reinsurance business and drafting guidelines and best-practice principles for our reinsurance underwriting. Regular reviews ensure that the quality of our reinsurance business is consistently high and that we respond swiftly to changes and new developments. in close cooperation with the operative units, corporate underwriting generates needs-oriented products and services for our reinsurance clients. For the life and health reinsurance segment, this task is assumed by specialists in the life Division and in Munich health who, with the help of underwriting guidelines and reviews, also see to it that the business written always meets our high standards.
Dr. rer. pol. Ludger Arnoldussen germany, asia pacific and africa Services
Dr. rer. nat. Torsten Jeworrek (chairman of the Reinsurance committee) Reinsurance Development corporate underwriting accounting, controlling and central Reserving for Reinsurance information technology global Business architecture geo Risks Research/corporate climate centre
Deputy chairman Hans Peter Claußen Member since 22 april 2009 employee of D.a.S. allgemeine Rechtsschutz-Versicherungs-ag
Hans-Georg Appel Member until 22 april 2009 employee of Munich Reinsurance company
Frank Fassin Member since 22 april 2009 Regional Section head Financial Services, ver.di north Rhine-Westphalia
Christian Fuhrmann Member since 22 april 2009 head of Divisional unit, Munich Reinsurance company
Prof. Dr. rer. nat. Peter Gruss Member since 22 april 2009 president of the Max planck Society for the advancement of Science
Ulrich Hartmann Member until 22 april 2009 chairman of the Supervisory Board of e.on ag
Dr. rer. nat. Rainer Janßen Member until 22 april 2009 employee of Munich Reinsurance company
Prof. Dr. rer. nat. Dr.-Ing. E. h. Henning Kagermann Member since 22 July 1999, last re-elected on 22 april 2009 Management consultant, former chairman of the executive Board and chief executive officer of Sap ag
Peter Löscher Member since 22 april 2009 chairman of the Board of Management of Siemens ag
Prof. Dr. rer. nat. Drs. h. c. mult. Hubert Markl Member until 22 april 2009 Former president of the Max planck Society
Prof. Karel Van Miert (died on 23 June 2009) Member from 17 July 2002, last re-elected on 22 april 2009 professor at the university of nyenrode
Ingrid Müller Member until 22 april 2009 employee of Munich Reinsurance company
Marco Nörenberg Member since 22 april 2009 employee of hamburg-Mannheimer Versicherungs-ag
Dr. e. h. Dipl.-Ing. Bernd Pischetsrieder Member since 17 april 2002, last re-elected on 22 april 2009 consultant to the Board of Management of Volkswagen ag
Andrés Ruiz Feger Member since 22 april 2009 employee of Munich Reinsurance company
Dr. rer. nat. Jürgen Schimetschek Member until 22 april 2009 employee of Munich Reinsurance company
Dr. phil. Ron Sommer Member since 5 november 1998, last re-elected on 22 april 2009 Member of the Board of Management of JFSc Sistema, Moscow
Judy Võ Member until 22 april 2009 employee of Munich Reinsurance company
Dr. Ing. Thomas Wellauer Member since 22 april 2009 Member of the executive committee of novartis international ag (until 31 January 2010)
personnel committee Dr. Hans-Jürgen Schinzler (chairman) Herbert Bach Dr. Bernd Pischetsrieder audit committee Prof. Dr. Henning Kagermann (chairman since 22 april 2009) Dr. Albrecht Schmidt (chairman until 22 april 2009) Hans-Georg Appel (until 22 april 2009) Christian Fuhrmann (since 22 april 2009) Marco Nörenberg (since 22 april 2009) Anton van Rossum (since 22 april 2009) Dr. Hans-Jürgen Schinzler Wolfgang Stögbauer (until 22 april 2009)
nomination committee Dr. Hans-Jürgen Schinzler (chairman) Prof. Dr. Henning Kagermann (since 22 april 2009) Dr. Bernd Pischetsrieder Dr. Albrecht Schmidt (until 22 april 2009)
Board of Management1 Seats held on supervisory boards of other german companies
Dr. rer. pol. Ludger Arnoldussen – – Dr. rer. pol. Thomas Blunck Münchener & Magdeburger agrarversicherung ag global aerospace underwriting Managers ltd. (gauM), london new Reinsurance company, geneva2 (chairman)
Georg Daschner – – Dr. rer. nat. Torsten Jeworrek – – Dr. rer. pol. Peter Röder eXtReMuS Versicherungs-ag Munich Re america corp.,
Supervisory Board3 Seats held on supervisory boards of Membership of comparable other german companies bodies of german and foreign business enterprises Dr. Hans-Jürgen Schinzler MetRo ag unicredit S.p.a., genoa chairman Hans Peter Claußen D.a.S. allgemeine Rechtsschutz- – Deputy chairman Versicherungs-ag4
Hans-Georg Appel (until 22 april 2009) – – Herbert Bach – – Dina Bösch (since 22 april 2009) – – Holger Emmert (until 22 april 2009) – – Frank Fassin (since 22 april 2009) provinzial nordWest holding ag – Victoria Versicherung ag4 eRgo Versicherungsgruppe ag4
Christian Fuhrmann (since 22 april 2009) – Munich Re holding company (uK) ltd.4
Prof. Dr. rer. nat. Dr.-Ing. E. h. Henning Kagermann Deutsche Bank ag nokia corporation, Finland Deutsche post ag Wipro ltd., india Peter Löscher (since 22 april 2009) – – Prof. Dr. rer. nat. Drs. h. c. mult. Hubert Markl Bayerische Motoren-Werke ag – (until 22 april 2009) (until 14 May 2009) Wolfgang Mayrhuber Bayerische Motoren-Werke ag heico corporation, Miami Fraport ag aua austrian airlines4 lufthansa-technik ag4 Brussels airlines4
Kerstin Michl (until 22 april 2009) – – Prof. Karel Van Miert (†) (until 23 June 2009) RWe ag agfa-gevaert nV, Mortsel anglo american plc, london De persgroep, asse Royal philips electronics nV, amsterdam Sibelco nV, antwerp Solvay S.a., Brussels Vivendi universal S.a., paris 3 Status: 31 December 2009 (in the case of members who have left the Supervisory Board, the information shows the status at the date of their departure). 4 own group company within the meaning of Section 18 of the german Stock companies act.
Supervisory Board3 Seats held on supervisory boards Membership of comparable bodies of other german companies of german and foreign business enterprises Ingrid Müller (until 22 april 2009) – – Silvia Müller (since 22 april 2009) Deutsche Krankenversicherung ag4 – eRgo Versicherungsgruppe ag4
Marco Nörenberg (since 22 april 2009) hamburg-Mannheimer – Versicherungs-ag4 eRgo Versicherungsgruppe ag4
Reinhard Pasch (since 22 april 2009) – – Prof. Dr. jur. Dr.-Ing. E. h. Heinrich v. Pierer hochtief ag Koç holding a.S., istanbul (until 22 april 2009) Dr. e. h. Dipl.-Ing. Bernd Pischetsrieder MetRo ag tetra-laval group, pully Anton van Rossum (since 22 april 2009) – credit Suisse groupe, Zurich Solvay S.a., Brussels Royal Vopak nV, Rotterdam (chairman) Rodamco europe nV, amsterdam Andrés Ruiz Feger (since 22 april 2009) – – Dr. rer. nat. Jürgen Schimetschek (until 22 april 2009) – – Dr. jur. Dr. h. c. Albrecht Schmidt (until 22 april 2009) – thyssen’sche handelsgesellschaft m. b. h., Mülheim/Ruhr Richard Sommer (since 22 april 2009) eRgo Versicherungsgruppe ag4 hamburg-Mannheimer Versicherungs-ag4 Dr. phil. Ron Sommer – MtS oJSc, Russia JSFc Sistema, Russia tata consultancy Services ltd., india Sistema Shyam teleservices ltd., india Wolfgang Stögbauer (until 22 april 2009) – – Josef Süßl (until 22 april 2009) – – Judy Võ (until 22 april 2009) – – Dr. Ing. Thomas Wellauer (since 22 april 2009) – –
3 Status: 31 December 2009 (in the case of members who have left the Supervisory Board, the information shows the status at the date of their departure). 4 own group company within the meaning of Section 18 of the german Stock companies act.
// constantly changing, more complex parameters demanding flexibility and tailored solutions
// economic crisis apparent in all markets, but initial recovery apparent // profit-oriented underwriting still essential // Solvency ii on the way – Supervisory architecture in flux
Many countries are realigning their social security systems to these demographic requirements, but are doing so half-heartedly and inconsistently. in some cases, this is leading to an uncertain legal and political climate, with which insurers will have to cope for the time being. particularly in highly-developed countries, insurers are having to adjust to the growing target group of older people with their special needs. Speed and flexibility in the design and maintenance of products thus remain important competitive factors.
the regulatory environment for insurance companies is also set to change substantially. as a consequence of the financial market crisis, supervisory authorities in europe and around the world are having to reposition themselves. What is more, new rules for state supervision in europe (Solvency ii) and new accounting standards have implications for insurers’ capital requirements and external reporting.
given the developments described, both the demand for insurance cover and its supply are changing. a group like Munich Re, among the leaders in integrated risk management, can take advantage of the changing industry dynamics and exploit the business opportunities they present in insurance and reinsurance alike.
Economic parameters as anticipated, the macroeconomic parameters in 2009 were shaped by the crisis on the international financial markets and a global recession, which also affected the insurance industry. From the middle of the year, however, the first signs of an economic recovery became apparent – isolated at first, strengthening later. prices on the international stock markets rose significantly as of March, and marked price gains were recorded by year-end. oil prices recovered noticeably over the course of the year.
Economy the world economy entered a severe recession in 2009, with china and india remaining the only notable growth drivers. other key emerging markets, Japan, europe and the uSa suffered from a shrinking economic output. the slump in global demand led to relatively low inflationary pressure – some industrialised countries even saw price falls. to support the economy, public-spending programmes of historical proportions were launched worldwide, accompanied in some cases by unconventional monetarypolicy measures on the part of central banks.
the USA, the world’s largest insurance market, recorded a distinct decline in economic output overall in 2009, although the economy did recover in the third and fourth quarters. the unemployment rate rose to a historic peak over the year and averaged 10.0% in the fourth quarter when seasonally adjusted. alongside state measures to prop up the economy, it was also underpinned by relatively robust exports. Year on year, real gDp sank by 2.4%. consumer prices fell by 0.4%.
in Germany, the economy shrank noticeably in 2009 – by 5.0% in real terms – and thus fared somewhat worse than the eurozone average. the unemployment rate rose to 8.6% in the first quarter but, partly due to extensive labour-market policy measures, fell to 7.8% in December. private consumption, also supported by state transfer payments, had a stabilising effect on the economy. Due largely to the recovery of the global economy, a slight economic upturn was apparent from the second quarter onwards. consumer prices rose by only 0.4%.
the chiefly export-oriented economies of asia, eastern europe and latin america suffered from the sagging global demand in 2009. China (+8.7%) and India (+7.2%) posted strong economic growth despite considerably restrained momentum. Russia experienced a drastic slump in economic output, owing particularly to much lower raw materials exports. By contrast, the Brazilian economy shrank only slightly, bolstered by relatively robust domestic demand.
the yield on ten-year german government bonds rose from 2.9% to 3.4% in the course of 2009, and ten-year uS government bonds also showed a yield increase of 1.5 percentage points from 2.3% to 3.8%.
Jan. Feb. Mar. apr. May Jun. Jul. aug. Sep. oct. nov. Dec.1,20
the capital base of insurers and reinsurers has recovered comparatively quickly from the consequences of the international financial crisis. large natural catastrophe losses were only recorded in isolated cases. accordingly, market conditions for reinsurers generally improved less than initially anticipated overall. in the renewals of reinsurance treaties at 1 January 2010, there were therefore marginal price reductions on average.
premium development in the insurance industry, particularly in property-casualty insurance, is strongly influenced by the overall economic situation, and further by the effects of the insurance market cycle. apart from macroeconomic factors , changes in the legal and tax environment play a key role in the market dynamics of life and health insurance.
Regulatory changes national and international efforts continue on the political front to avoid a repeat of the financial crisis by monitoring those markets and their institutions more effectively.
the new insurance supervision system, Solvency II, has been under discussion for some time now. after exhaustive consultations by the bodies responsible, the european framework directive, which is to be implemented at the latest by the end of october 2012, was formally adopted by the council of the european union on 10 november 2009. the future requirements for risk-adequate financial resources have thus been set, along with those for adequate qualitative risk management and for reporting duties towards supervisory authorities and the public. the associated implementing measures are currently in preparation.
in January 2009, the german Federal Financial Supervisory authority (BaFin) published MaRisk (VA), a circular on the minimum supervisory requirements for the risk management of insurance undertakings. the circular anticipates certain Solvency ii requirements and is likewise principles-based. this means that within the bounds of the binding minimum requirements, insurers can determine the concrete design of their risk management themselves. in doing so, the insurers consider company-specific risks, the type and scope of their operations, and their business model. the minimum requirements include setting up an internal control and management system (icS) that provides for adequate risk identification, analysis, assessment, control and monitoring. More information on Munich Re’s risk management and icS can be found in the risk report on page 145 ff.
States throughout the world have made insurance supervision regulations more stringent. in germany, the Act for Strengthening of the Financial Markets and Insurance Supervision of 1 august 2009 further extended BaFin’s powers of intervention and the insurance companies’ reporting obligations. if a company experiences a financial crisis, BaFin can now prevent or limit payments to its group affiliates, for example. in addition, the number of former management board members on an insurance company’s supervisory board was limited to two, although BaFin can approve more within a group. the act lays down requirements for members of supervisory boards with regard to their reliability and professional expertise, and limits the number of memberships of supervisory boards at regulated entities. Furthermore, significant risk concentrations at group level must also be reported to BaFin on a quarterly basis.
at a european level, the european commission presented proposals for a reorganisation of supervisory architecture. its objectives include early identification of systemic risks, more effective cooperation between supervisory authorities in emergencies, and thus the strengthening of financial supervision. the new European Systemic Risk Board will have the function of recognising and providing due warning of risks at a macroeconomic level for the financial system as a whole. Moreover, a european System of Financial Supervisors is to be created, comprising the national supervisory authorities as well as three new european supervisory authorities for the areas of banking, securities trading and insurance.
// Return on risk-adjusted capital (RORAC) of 15.1% after tax // Proposed dividend increase to €5.75 (5.50) per share
As of the financial year 2009, in accordance with IFRS 8, we are gearing the breakdown of our segment reporting more closely to our internal reporting and management structure. With effect from 2009, we are therefore showing the business of the Watkins Syndicate in the property-casualty reinsurance rather than primary insurance segment. Furthermore, we now show life and health primary insurance as individual segments, owing to their significant volume and separate management. Finally, following their transfer to ERGO, ERV and almeda (formerly Mercur) are now part of the health rather than the property-casualty primary insurance segment. We have adjusted the figures for financial year 2008 accordingly.
We want our shareholders to benefit from the Group’s performance: the board of Management and the Supervisory board will therefore propose at the Annual General Meeting payment of a dividend of €5.75 (5.50) per dividend-bearing share. We are thus maintaining our profit distribution at a high level and will distribute a total of €1.1bn to our shareholders, the same amount as in the previous year.
In 2009, we acquired 3.8 million shares worth €406m – 0.6 million shares or a volume of €56m under the 2008/2009 share buy-back programme concluded by the Annual General Meeting on 22 April 2009, and 3.2 million shares or a total of €350m under the 2009/2010 programme. Since the beginning of the share buy-backs in november 2006, we have been able to return a total of around €7.5bn to our shareholders including dividend payouts.
For the reporting on individual fields of business, the following principle applies: volumes and results that derive from business within a segment are eliminated, whereas figures that derive from business with companies from other segments (e.g. intra-Group reinsurance cessions from primary insurers to reinsurers) are included.
Adjusted to eliminate an intra-Group dividend payment from ERGO to Munich Reinsurance Company in 2008, the 2009 result for reinsurance climbed by 75.8% year on year. The improvement is mainly attributable to the below-average burden from major losses and an increased investment result. The financial crisis triggered a rise in man-made losses. Our operating result for reinsurance, which includes the investment result, was up 8.9% to €4.2bn (3.8bn). The Market Consistent Embedded Value (MCEV) of life reinsurance business grew to €6.8bn (6.1bn)1.
The investment result for 2009 was up significantly by 33.2% to €7,883m compared with the previous year. It was favourably influenced by a reduction of €4.5bn in the negative balance from write-ups and write-downs in our equity portfolio and a €750m increase in gains on the disposal of equities. The balance from write-ups and writedowns on derivative financial instruments totalled –€413m (2,842m). We posted a moderate increase of €436m to €6,445m in regular investment income from loans and fixed-interest securities, while dividend income from our portfolio of equities and regular income from associates declined to €224m (963m) as a result of significant cutbacks in our equity portfolio. Our return on investment (based on the average investment portfolio at market values) was 4.3% (3.4%).
At €1,264m, tax expenses were lower than in the previous year (€1,372m), representing 33.0% (46.5%) of the pre-tax profit. This decrease was particularly attributable to the recovery in the capital markets: in 2009, we realised tax-free gains on the disposal of equities, while our non-deductible losses on the disposal of shares were much lower than in the previous year.
In property-casualty reinsurance, premium volume climbed to €15.1bn (14.7bn). Adjusted to eliminate currency translation effects, it rose by 1.8%. Cycle management, underwriting discipline, client focus and leading know-how remain the foundations of our good results. We continue to apply risk-adequate prices, terms and conditions and consistently refrain from participating in business that does not meet our stringent profitability requirements, while aiming to expand specialty segments with strong margins. The 2009 renewal negotiations were satisfying. On balance, stable or increased prices were achieved and attractive new business generated. In particular the price level for offshore energy business showed a marked improvement. We also wrote treaties with uS hurricane exposure at considerably better rates and expanded our agricultural business. The hSb Group contributed €458m to premium income.
In primary insurance, we posted overall premium income1 of €19.1bn (18.1bn) in the financial year 2009, a rise of 5.3%. Growth in international business was driven by changes in the consolidated group: bank Austria Creditanstalt Versicherung (bACAV) had not yet been fully consolidated in the same period of the previous year, and ERGO Daum Direct Auto Insurance Co. (ERGO Daum Direct), Seoul, was not included until the second quarter of 2008.
Our life insurers posted growth in total premium volume of 9.9% to €7.9bn (7.2bn). International business showed a particularly steep rise of 19.2%, partly attributable to our acquisition of the majority shareholding in bACAV in the financial year 2008. Single-premium business also had a favourable effect. The success of new regularpremium business in the previous year was not repeated, 2008 having benefited from the last subsidisation stage for Riester policies.
In the property-casualty segment, premium rose by 1.0% to €5.2bn (5.1bn). Premium volume declined in the highly competitive class of motor business.
In 2008, Munich Re brought together its health reinsurance worldwide and health primary insurance outside Germany in a separate business field, operating internationally since May 2009 under the Munich health brand. In the past financial year, this field of business generated premium income of €4.0bn. From the financial year 2010 onwards, we will report Munich health as a separate segment under IFRS.
The consolidated financial statements are affected by changes in exchange rates. The translation of our independent foreign subsidiaries’ financial statements into the Group presentation currency – the euro – is reflected in our reserve for currency translation adjustments, thus influencing the amount of Group equity. Translation of our foreign subsidiaries’ financial statements has no impact on profit or loss. Generally speaking, rising exchange rates for foreign currencies increase Group equity, whilst falling exchange rates reduce it.
In contrast to this, currency translation differences are largely recognised in profit or loss in our subsidiaries’ individual financial statements. This involves the translation of foreign currency items into the respective functional currency, i.e. the currency in which the individual financial statement is prepared. Overcoverage1 in a particular foreign 1 The term overcoverage denotes a situation in which the assets in a foreign currency exceed the liabilities in that currency.
On 27 February 2010, a severe earthquake with an intensity of 8.8 occurred off the coast of Chile. On the same weekend, Winter Storm Xynthia swept over western and central Europe. Munich Re has exposures in the regions affected.
1 Excluding health business conducted like life insurance. 2 2005–2007 adjusted owing to change in methodology. 3 not available for the financial years 2005–2007, since IFRS 8 was applied for the first time in the financial year 2009.
Gross premiums written life and health €m Property-casualty €m Loss ratio health1 % Property-casualty % Thereof natural catastrophes2 Percentage points Expense ratio health1 % Property-casualty % Combined ratio health1 % Property-casualty % Operating result3 life and health €m Property-casualty €m Consolidated result life and health €m Property-casualty €m
Our investment result profited from the positive performance of the capital markets and improved in 2009, after being strongly impacted in the previous year by the collapse in share prices on the world’s stock markets and the associated substantial write-downs in our equities portfolio.
The reinsurance segments life and health and property-casualty contributed €0.7bn (0.7bn) and €1.8bn (1.7bn) respectively to the consolidated result. The overall result for reinsurance was thus 6.5% higher than in the previous year, even though the figure for 2008 included an intra-Group dividend payment of €947m from ERGO to Munich Reinsurance Company. The improvement is mainly due to the below-average burden from natural catastrophes and a better investment result, after adjusting the previous year’s figure for the ERGO dividend in 2008. The investment result in reinsurance totalled €3.9bn (4.1bn) in 2009 compared with €3.2bn after elimination of the ERGO dividend in 2008. Our operating result for reinsurance, which includes the investment result, rose by 8.9% to €4.2bn (3.8bn). The technical result amounted to €1.9bn (1.6bn).
We continued to adhere strictly to our underwriting policy of risk-adequate prices, terms and conditions. After the decline in prices for reinsurance protection in the last few years, we were able to achieve better price levels in many areas in 2009 and to generate attractive new business. In addition, we posted a marked rise in premium as a result of the large-volume transactions in life and health reinsurance and the acquisition of the hSb Group.
1 Only for health reinsurance, with the exception of health business conducted like life reinsurance.
// Appreciable premium growth of 36.6% compared with the previous year // Good result of €728m
At €9.7bn (7.1bn), the gross premiums written in the life and health reinsurance segment were distinctly higher than in the previous year. This is primarily due to a number of large-volume transactions providing clients with a capital substitute in the financial crisis. Adjusted to eliminate the effects of changes in exchange rates, growth in premium income amounted to 36.4%.
The operating result of €1,175m (930m) and the consolidated result of €728m (705m) both improved considerably against the previous year. In particular the investment result was up noticeably from 2008, when it was badly affected by the financial crisis.
With a gross volume of €6,796m, premium income in life reinsurance grew by 28.6% compared with the previous year. The growth was primarily driven by a number of major transactions we were able to realise with clients in north America, Asia and Continental Europe thanks to our financial solidity and acknowledged risk expertise – life reinsurance serving them as a capital substitute. On the other hand, the consequences of the global recession had a negative impact on individual areas of our clients’ business.
With a gross premium volume of €0.8bn (0.9bn), our branch in the United Kingdom kept its premium income in original currency stable compared with the previous year, despite the difficult economic situation. Downward pressure on the prices of pure mortality covers persisted, but we succeeded in securing our strong market position and focused on expanding our client relationships. We also created the infrastructure necessary to provide innovative solutions in group business from 2010 onwards. In the field of longevity products, we conducted a comprehensive analysis of the market last year and laid the foundations for also writing this business selectively and profitably in future.
More than 5,000 staff at 26 locations worldwide are now working even more closely together to offer their clients and partners all over the world top products and solutions. To best meet the often highly diversified needs of clients on a local level, Munich health has established a decentralised organisation managed from four regional business hubs in Princeton, Abu Dhabi, Singapore and Munich. We are thus in a position to closely support and service our over seven million primary insurance and 400 plus reinsurance clients.
besides risk expertise in the international health market, Munich health has a broad spectrum of service providers and risk carriers. These extend from pure reinsurers and traditional primary insurers to full-range providers of integrated insurance and healthcare services.
In the Gulf region, we managed to maintain premium income levels, despite the general recession, thanks to our business model combining reinsurance and risk management through our managed care service organisation Mednet. Similarly, our partnership with DAMAn national health Insurance (DAMAn), Abu Dhabi, the first specialised health insurer in the united Arab Emirates, is continuing to exceed expectations. In 2009, the company had more than 1.8 million policyholders. The company’s premium volume grew to around €309m (256m), with reinsurance premium revenue totalling €125m (75m). besides reinsurance, we provide DAMAn with comprehensive services under a management agreement and hold a 20% share in the company’s capital. Given the successful and profitable business development, our strategic alliance and partnership with DAMAn has been extended. The Gulf region – with its economic and population growth, the rise in chronic diseases and an increasing privatisation trend in the health sector – promises high growth in the medium to long term. Our premium income in the Gulf states climbed to €192m (143m) in 2009, currently representing 6.5% of the total premium in health business.
Other markets, in particular the united Kingdom, Italy, the netherlands, China and other countries in Asia and on the Pacific Rim, form part of the reinsurance segment’s overall portfolio. Our broad regional spread and the ability of the new Munich health field of business to operate with different business models, depending on the market situation, enables us to limit the political and economic risks of our business.
In 2009, we achieved an operating result of €2,989m (2,892m) and a consolidated result of €1,827m (1,695m), mainly owing to our good technical result. Expenditure for taxes on income for the financial year 2009 amounted to €857m. Although we recorded a considerable rise in major man-made losses, the combined ratio improved to 95.3% (99.4%) owing to significantly lower natural catastrophe losses.
The combined ratios recorded by all divisions, with the exception of Special and Financial Risks, were below the previous year’s level. 0.4 (1.1) percentage points of the combined ratio were ascribable to retrocession cover for the whole reinsurance segment – business which is fully accounted for in the Special and Financial Risks Division.
Combined ratio by property-casualty division 2009 2008 2007 2006 2005 % Germany, Asia Pacific and Africa Europe and latin America Global Clients and north America Special and Financial Risks
We registered a decline in the combined ratio of 12.6 percentage points to 88.8% in the Global Clients and north America Division. The previous year had been more heavily burdened by natural catastrophes (hurricanes and tornadoes in north America, Windstorm Emma in Europe), whereas in 2009 we were largely spared major natural catastrophe losses in north America. Global Clients and north America also benefited from reductions in reserves.
The development of the euro against other currencies favourably impacted our premium income with €79m compared with the previous year.
The current political and regulatory developments in India continue to give cause for hope that the market will be opened to international reinsurers. Munich Re remains committed to the strategy of setting up a life and non-life reinsurance branch in India, and is in a close dialogue with the relevant institutions in this connection.
In order to simplify organisational structures within Munich Re, we merged Münchener Rück Italia into Munich Reinsurance Company in January 2009. Guided by our strict profitability criteria, we withdrew from accident and engineering business, but still managed to increase our premium volume in Italy by 1.4% to €393m (388m). The rise in the combined ratio is attributable to the earthquake in l’Aquila, which required claims expenditure of €23m. nevertheless, we are endeavouring to generate further profitable business in niche markets (e.g. art, marine and special engineering products).
In Spain, we managed to maintain our leading market position and to keep premium income constant at €448m (448m), despite the difficult market environment brought about by the economic crisis. Windstorm Klaus burdened the result, however, masking the improvements in portfolio quality.
Münchener Rück do Brasil 2009 Prev. year Gross premiums written R$ m life and health R$ m Property-casualty R$ m Net earned premiums R$ m life and health R$ m Property-casualty R$ m Loss ratio property-casualty % Expense ratio property-casualty % Combined ratio property-casualty % Result for the year R$ m Investments R$ m
The new strategic approach we launched for US business two years ago is being pursued systematically and beginning to show the anticipated success. It focuses on a client-centric approach and the development of even closer partnerships with leading broker firms. Munich Re America remained committed to its consistently profit-oriented pricing and underwriting discipline. The combined ratio improved significantly to 93.7% (135.7%), thanks to our policy of underwriting only profitable business, the low burden from natural catastrophes, and a decrease in internal management expenses due to a broad-based cost-reduction programme.
Munich Re America 2009 Prev. year Gross premiums written US$ m life and health uS$ m Property-casualty uS$ m Net earned premiums US$ m life and health uS$ m Property-casualty uS$ m Loss ratio property-casualty % Expense ratio property-casualty % Combined ratio property-casualty % Result for the year US$ m Investments US$ m
We continued to extend our leading position in agricultural reinsurance, where the business we wrote mainly comprised state-supported crop insurance programmes, with a large portion stemming from the uSA. In close consultation with selected cedants, we are applying our vast experience and expertise in this business to other regions with a high potential for profitable growth. As in the previous year, premium volume and the result in agricultural insurance were satisfying in 2009.
The market for aviation and space risks was impacted by major losses in the year under review. The space business market remained characterised by overcapacity, in spite of several satellite losses. Our position as market leader and the conclusion of long-term treaties, however, enabled us to largely avoid the considerable pressure on rates. In aviation business, on the other hand, the increase in rates for airlines and non-proportional covers that started at the end of 2008 was maintained. This trend became even more pronounced following the accidents involving Colgan Air and Air France in 2009. In the general aviation segment, however, rates saw ongoing pressure. having reduced our market share in previous years through stringent cycle management, we were able to grow aviation business profitably in 2009. Premium volume in aviation and space business correspondingly grew to €607m (535m). We again posted a gratifying technical result of €78m (41m).
In our financial risks segment, credit and bonding reinsurance is one of our core businesses, where we reinsure default risks related to the sale of goods and services worldwide or accepted via bonds. It is a segment closely linked to macroeconomic trends. Due to the recession, the number of insolvencies continued to rise markedly worldwide in 2009. Together with our clients, we therefore implemented measures for limiting the risks in our portfolios early on and introduced significant improvements in prices, terms and conditions. nevertheless, we were obliged to abandon unprofitable business, with our premium volume in this market environment dropping to €632m (825m). We recorded a technical result of –€492m (12m) in credit and surety, mainly owing to claims payments in connection with the crisis-related insolvencies of several Korean shipyards. no further burdens are expected from this specific complex of losses. For 2010, we are proceeding on the assumption that, despite a rising number of insolvencies in credit business, there will be a slight recovery, thanks to extensive remedial measures in the underlying business.
1 Primary insurance premium income comprises the following: in the life primary segment, it includes not only gross premiums written but also savings premiums for unit-linked life insurance and capitalisation products in accordance with the statutory accounting guidelines applicable in the insurer’s home country. In the property-casualty and health primary insurance segments, it comprises the gross premiums written.
2 Including legal expenses insurance. 3 not available for the financial years 2005–2007, since IFRS 8 was applied for the first time in the financial year 2009.
Overall premium income1 €bn Gross premiums written life and health €m life €m health €m Property-casualty2 €m Loss ratio property-casualty2 % Expense ratio property-casualty2 % Combined ratio property-casualty2 % Operating result3 life €m health €m Property-casualty2 €m Consolidated result life and health €m life €m health €m Property-casualty2 €m new brand strategy to strengthen marketing
Investments improved significantly in the year under review, a fact reflected in an increased investment result. At the beginning of the year, however, we had to make high write-downs of the derivatives we use in life insurance to hedge against a prolonged low-interest-rate phase, because interest rates have risen and volatilities have fallen – a welcome development per se, which will improve our long-term economic results. In addition, it became more and more clear in the first quarter of 2009 that the financial crisis was spreading to the real economy, prompting us to critically review the business plans of our international companies and, in some cases, adjust them downwards. In the first quarter of 2009, we therefore made further write-downs of €57m for impairments of goodwill, in particular for bACAV. Compared with the previous year (€175m), however, these impairments were significantly lower.
The consolidated result in property-casualty insurance totalled €263m (152m). At 93.1%, the combined ratio was higher than for 2008 (90.9%) but was nevertheless still good. This was primarily due to German business, whose combined ratio remains less than 90%. International business, by contrast, mirrored the significant deterioration in the claims situation in ERGO’s core markets owing to the difficult economic situation, which increased the combined ratio to over 100%.
// Marked recovery on the financial markets over the course of the year // At 86.4%, proportion of investments in fixed-interest securities and loans remains a determining factor // Investment result of €7.9bn up significantly on previous year
In the following, we report on the performance of our Group’s own investments, which derive almost entirely from our core business fields of reinsurance and primary insurance. In addition, we provide information on third-party business, where we manage the assets of non-Group investors, both institutional and private.
Our investment strategy is committed to the principle of sustainability. We aim to invest at least 80% of the market value of our equities and interest-bearing securities in the paper of companies that are included in a sustainability index or satisfy generally recognised sustainability criteria. We use the services of oekom research, an independent sustainability rating agency to advise us in this area.
Our liquidity is ensured at all times by means of detailed, Group-wide liquidity planning. As a rule, Munich Re generates significant liquidity from its premium income, from regular investment income and from maturities. We also attach great importance to the credit rating and fungibility of our investments. Given the maturity structure of the outstanding bonds and the credit facilities employed (which are, in any case, relatively insignificant in scope), there are no refinancing requirements.
In the financial year 2009 we made net write-downs of €311m (4,876m) on our nonfixed -interest securities available for sale. The balance from write-ups and write-downs on derivative financial instruments burdened the investment result by –€413m (2,842m). As well as write-downs on swaptions, improvements in share prices led to our posting losses in value on derivative financial instruments employed to hedge our equity investments against falling prices. besides this, in the second half of the year, we hedged a portion of our corporate bonds against the risk of falling market values as a result of rising risk spreads. Owing to the slight decline in risk spreads in the second and third quarters, we recorded net impairments of around €36m on derivatives used to hedge against default risks (credit default swaps).
The extent of the improvements compared with the previous year are inadequately reflected, owing to the special features of IFRS accounting regulations. Whereas changes in the value of derivative financial instruments are generally recognised with impact on profit or loss, such treatment is not necessarily accorded to the related underlying business. Thus, recoveries in the value of equity instruments and changes in the value of our corporate bonds that we have hedged against the risk of rising risk spreads are only recognised in equity, with no effect on profit or loss, unless they classify as hedge accounting.
In the year under review, our net realised gains on disposal were down on the previous year at €1,612m (2,208m), although this was due to the fact that in 2008 we realised particularly high gains on the disposal of derivative financial instruments. In particular, the gains on non-fixed-interest securities available for sale and derivatives with non-fixed-interest underlying business were €1,015m lower than in the previous year, totalling €844m, with €429m of this reduction apportionable to the fourth quarter. however, in 2009 we also disposed of blocks of shares whose sale led to the release of high previously unrealised gains. Some of these blocks had already been hedged prior to the financial crisis. Capital gains totalling €107m were realised by reducing Munich Re’s stake in the Admiral Group from 15.1% to 10.2%. In the previous year, we had generated markedly higher gains on disposal as a result of a major hedging in conjunction with an ongoing reduction of our equity portfolio. We realised net gains of €779m (44m) on disposals in our portfolio of fixed-interest securities available for sale. In an environment of falling risk spreads and low risk-free interest rates, we generated considerable gains on pfandbriefs and government bonds in particular, as we restructured the portfolio. We used some of the proceeds to systematically build up our portfolio of corporate bonds.
Our investments in real estate are geared to generating an appropriate yield from regular income and growth in value, which requires continually monitoring existing properties and property funds with regard to their long-term profitability, and their location- and property-specific risks. We did not expand our portfolio in the period under review.
Investment mix1 Reinsurance Primary insurance Asset management Total €m life and health Property-casualty life health Property-casualty 31.12.2009 Prev. year 31.12.2009 Prev. year 31.12.2009 Prev. year 31.12.2009 Prev. year 31.12.2009 Prev. year 31.12.2009 Prev. year 31.12.2009 Prev. year land and buildings, including buildings on third-party land Investments in affiliated companies Investments in associates loans Other securities held to maturity Other securities available for sale Fixed-interest non-fixed-interest Other securities at fair value through profit or loss held for trading Fixed-interest non-fixed-interest Derivatives Designated as at fair value through profit or loss Fixed-interest non-fixed-interest Deposits retained on assumed reinsurance Other investments Investments for the benefit of life insurance policyholders who bear the investment risk Total
In 2009, our investments in loans grew markedly by €6.2bn or 15.3% to €46.6bn (40.4bn). Most of these were in pfandbriefs, in securities for which public institutions are liable, and in variable-rate bonds with a minimum coupon. In connection with life insurance contracts, the latter instruments help to achieve the contractually agreed, guaranteed rate of interest. A large proportion of these investments were consequently made by our life and health primary insurance companies. At the same time, the share of investments in fixed-interest securities available for sale in our total investment portfolio increased by €1.8bn to €109.6bn (107.8bn).
Our balanced investment policy is reflected in our portfolio of fixed-interest securities and loans, which includes short-term items at market value. A good 44% is in government bonds or similarly secure instruments for which public institutions are liable, an area in which we invested more strongly in the year under review; approximately 49% of this is apportionable to German and uS issuers. While our exposure towards Portuguese, Italian, Irish, Greek and Spanish issuers of such bonds and instruments amounts to around 16%, we have no such investments in Dubai. Additionally, around 28% of our investments are in securities and debt instruments with top-quality collateralisation, mainly German pfandbriefs. Over the course of the year, we cautiously expanded our portfolio of credit-exposed fixed-interest securities. Particularly in the first half-year, we took advantage of the extremely pronounced widening of risk spreads compared with government bonds to prudently improve our position and secure higher interest income. We built up our portfolio of corporate bonds selectively as the year progressed. As at the reporting date, these accounted for approximately 10% of our portfolio of interest-bearing investments. As stated, we have hedged a portion of these bonds against the risk of rising risk spreads and corresponding losses in market value. Moreover, in the second half of the year, we increased our portfolio of asset- and mortgage-backed securities by around €0.5bn. Taking into account disposals in the first half-year, however, we posted a marked overall decrease of €0.8bn to €5.3bn in credit structures. At year-end 2009, around 88% of our structured-products portfolio had an AAA rating.
Fixed-interest securities and loans, includig short-term items, on a market-value basis1
In order to cover our obligations from underwriting business with appropriate investments, we match the maturity structure of our fixed-interest investments with our liabilities. In view of the long time horizons in life and health insurance business, which forms the greater part of our primary insurance operations, long-term investments are predominant in that segment, whereas the maturities of interest-bearing securities in reinsurance vary more widely. For life primary insurance, the risk of contracts lapsing prematurely has to be taken into account as well as the usual long period for which provisions must be posted. The diverse maturity structure is also apparent in the duration (i.e. in the average capital commitment) of our bond portfolios, which was 5.9 years at the balance sheet date.
Maturities of fixed-interest securities and loans in reinsurance 38.9% 1–5 years
Maturities of fixed-interest securities and loans in primary insurance 25.0% 1–5 years
Market value development of key types of investment, their unrealised gains and losses and off-balance-sheet valuation reserves Capital market developments have a direct effect on our unrealised gains and losses and on our off-balance-sheet valuation reserves.
In 2009, we saw an overall rise in the level of risk-free interest rates. Risk spreads on fixed-interest securities, which were still relatively high initially, developed in the opposite direction, with some marked declines across all major asset classes by the end of 2009. Particularly our corporate bonds and pfandbriefs benefited from the falling risk spreads. That is why net unrealised gains on our fixed-interest securities available for sale also rose significantly by €1.9bn to €3.3bn over the year (see table on page 229).
There were comparable developments in our loans recognised at amortised cost, the valuation reserves of which increased by €0.7bn to €1.3bn.
Moderate interest-rate increases in the area of long-term investments enhance the return on our new, largely fixed-interest investments, which means that the current development with regard to especially low-risk securities benefits us in the long term. This applies especially to our life primary insurers, for whom it is particularly important to generate – at reasonable risk – regular income which comfortably exceeds the interest rates guaranteed to their clients.
Overall, our off-balance-sheet valuation reserves (excluding owner-occupied property) rose by €0.7bn to €2.9bn. Taking policyholders’ future bonuses, deferred taxes and minority interests into account, 34% of these valuation reserves are attributable to shareholders.
MEAG’s assets under management for institutional clients rose to €5.9bn (5.5bn). The result decreased to €19m (36m). The assets managed by PICC Asset Management Company ltd. (PAMC), Shanghai, 81% of which belongs to PICC People’s Insurance Company of China, and 19% to MEAG, reached €18.8bn (11.0bn).
121ManageMent RepoRt financial position the economic parameters having stabilised sufficiently in autumn 2009, we decided at the beginning of october to resume our share buy-backs after a seven-month interval. By the next annual general Meeting on 28 april 2010, we aim to buy back shares with a value of up to €1bn. By 28 february 2010, we had repurchased 6.0 million shares worth €648m. including the dividends for the financial years 2006–2008, this means we have paid out a total of €7.8bn to our shareholders since november 2006.
Asset-liability management the structure of our technical provisions and other liabilities is the basis for Munich Re’s investment strategy, the main focus of which is asset-liability management: our aim is to ensure that economic factors influence the value of our investments and that of our technical provisions and liabilities in the same way, thus cushioning the effect of capital market fluctuations. for this purpose, we mirror important features of the liabilities, such as maturity patterns, currency structures and inflation sensitivities, on the assets side of the balance sheet by acquiring investments with similar characteristics if possible. if, for instance, there is a strong rise in inflation, our nominal outflows as a result of claims payments increase significantly. this applies in particular to lines of business with long payout patterns, e.g. liability insurance, as inflation accumulates over a number of periods. to an increasing extent we are endeavouring in our asset-liability management to structure our investment portfolio in such a way that inflows from investments increase in line with rising inflation rates.
Capital management through active capital management, we ensure that Munich Re’s capital is maintained at an appropriate level. the group’s available financial resources must always be sufficient to cover the capital requirements determined both by our internal risk model and by the requirements of supervisory authorities and rating agencies. We aim to ensure that our financial strength is such that it enables us to take advantage of measured opportunities for growth, is not significantly affected by normal fluctuations in capital market conditions, and remains at a reasonable level even in the wake of major loss events or substantial falls in the stock markets. at the same time, we also define an appropriate level of group economic equity as one which does not exceed that required for our operations. such a needs-based, risk-commensurate capital level makes a decisive contribution to financial discipline in all our business processes.
We derive our economic equity from ifRs equity by means of various adjustments. these are described in the section on available financial resources on page 161 f. in the risk report.
We return surplus capital to equity holders through attractive dividends and share buybacks, within the scope permitted by Munich Reinsurance company’s revenue reserves as determined under german commercial law, and provided this does not impair our strategic flexibility or our overall capital strength. at the balance sheet date on 31 December 2009, our revenue reserves under german commercial law accounting amounted to €2,049m. through share buy-backs of up to €1bn by the 2010 annual general Meeting, we are consistently pursuing the share buy-back programme announced in 2007. By the end of December 2009, a total of 3.2 million Munich Re shares with a volume of €350m had been repurchased. in the interests of our shareholders, we will carefully weigh up the benefit of further buy-backs against the advantages of comfortable capitalisation, also with a view to opportunities for organic and possibly external growth. after completion of the 2009/2010 share buy-backs, the revenue reserves shown as at 31 December 2009, calculated in accordance with german commercial law, will decrease to €1,399m. in add ition, subject to the approval of the supervisory Board and the annual general Meeting, we intend to pay our shareholders a dividend of €5.75 per share for the financial year 2009 from Munich Reinsurance company’s net retained profits.
Group equity compared with the end of 2008, our equity increased by €1.2bn or 5.5% to €22.3bn in the year under review. the most important changes in equity were due to the following: // the consolidated profit attributable to Munich Reinsurance company equity holders rose by 62.1% to €2.5bn. the previous year’s profit of €1.6bn, net of the dividend payment for 2008 (€1,073m), was transferred to retained earnings.
Registered shares – unlike bearer shares – are issued in the name of their owner, whose name, address and date of birth are entered in the company’s register of shareholders together with the number of shares held. this allows Munich Re to communicate directly with the owners. With respect to the company, the only parties deemed shareholders in accordance with the german stock companies act (section 67) are those entered in the company’s register of shareholders. this is one of the preconditions for attendance and exercise of voting rights at the annual general Meeting. for our shareholders, having registered shares means, above all, that they are informed directly, quickly and comprehensively about our company and its current activities and that they are also personally invited to take part in our annual general Meeting.
Shareholdings exceeding 10% of the voting rights under the german securities trading act, any investor whose shareholding – through acquisition, disposal or other means – attains, exceeds or falls below specified percentages of the voting rights in our company must notify us and the german federal financial supervisory authority. the lowest threshold for this notification requirement is 3% of the voting rights. We have neither been notified nor do we know of any direct or indirect shareholdings in our company equal to or exceeding 10%.
the german stock companies act contains general provisions governing amendments to the articles of association (sections 124 para. 2 sentence 2, and 179–181 of the act). these state that only the annual general Meeting can make resolutions on changes to the articles of association. in order to be carried, a resolution must receive at least three-quarters of the votes cast by the share capital represented in the vote. the articles of association may stipulate a different capital majority (higher or lower) or other requirements, but the company’s articles of association do not provide for any such special features.
the annual general Meeting is entitled to transfer to the supervisory Board the authority to make amendments to the articles of association that affect only the wording (section 179 para. 1 sentence 2 of the german stock companies act). this is the case with Munich Reinsurance company and has been regulated in article 14 of the articles of association.
126 ManageMent RepoRt financial position the german stock companies act may at no time amount to more than 10% of the share capital. the shares may, in accordance with the provisions of the authorisation, be acquired in various ways: via the stock exchange, via a public purchase offer to all shareholders, via a solicitation to all shareholders to submit sales offers (request to sell) or via a public offer to all shareholders of the company to exchange Munich Re shares for shares in another listed company as defined in section 3 para. 2 of the german stock companies act. in so doing, it may buy back shares amounting to a maximum of 5% of the share capital using derivatives in the form of put options, call options or a combination of the two. the Board of Management is authorised to use shares thus acquired for all legally admissible purposes, in particular those specified in the authorisation, whilst excluding subscription rights. among other things, the Board of Management is empowered under section 71 para. 1 item 8 sentence 6 of the german stock companies act to retire the shares without requiring further approval from the annual general Meeting. the Board of Management availed itself of this authorisation by its resolution of 1 october 2009. By 31 December 2009, a total of 3.2 million shares had been purchased for an overall price of €350m. as part of the 2008/2009 share buy-back programme, 0.6 million own shares were acquired between January and March 2009 for an overall price of €56.5m. as announced in april 2009, these shares and the 7.1 million shares already repurchased in 2008, as well as 1.3 million shares acquired using put options, were retired in a simplified process.
// the annual general Meeting of 28 april 2005 authorised the Board of Management to issue, with the consent of the supervisory Board, convertible bonds or bonds with warrants on one or more occasions up to 27 april 2010 for a maximum nominal amount of €3bn with or without a limited maturity period. shareholders are generally entitled to a subscription right in respect of these bonds, but the Board of Management is authorised, with the consent of the supervisory Board, to exclude this subscription right in the cases specified in the authorisation. the holders of such bonds may be granted conversion or option rights in respect of new shares issued by the company up to a maximum amount of €100m of the share capital, in accordance with the respective bond or warrant conditions; as a precautionary measure, capital of €100m was conditionally authorised under article 4 para. 4 of the articles of association.
Compensation agreements concluded with members of the Board of Management or employees for the event of a takeover bid there are no compensation agreements with members of the Board of Management or employees for the event of a takeover bid.
Munich Reinsurance company has three subordinated bonds outstanding. the subordinated bond with an original volume of €1.5bn issued by Munich Reinsurance company in June 2007 (€1,349m outstanding) is a perpetual bond, but callable by us from ten years after the date of issue. the terms of the Munich Reinsurance company subordinated bonds issued in 2003 are limited. these subordinated bonds with original nominal values of €3.0bn (€2.9bn outstanding) and £300m will mature in 2023 (euro subordinated bond) and 2028 (pound sterling subordinated bond) and are callable by us for the first time on 21 June 2013 and 21 June 2018 respectively.
in 2009, we reduced our strategic debt by buying back and retiring outstanding bonds with a nominal value of around €268m, of which subordinated bonds account for 94%. the bank borrowing of Munich Re america corporation was transferred to Munich Reinsurance company in January 2009.
as at 31 December 2009, our debt leverage was 19.2%, down 1.6 percentage points on the previous year. the interest expenses for strategic debt are shown separately in the consolidated income statement under “finance costs” and are explained in detail in the notes to the financial statements. at 14.9 (10.5), our interest cover – an indicator of our ability to service our strategic interest payments from the result before finance costs, tax and impairment losses of goodwill – was at a comfortable level for 2009.
Strategic debt 31.12.2009 prev. year €m subordinated bonds of Munich Reinsurance company, Munich senior notes of Munich Re america corporation, princeton¹ Bank borrowing of Munich Reinsurance company, Munich subordinated bonds of Bank austria creditanstalt Versicherung ag, Vienna subordinated bonds of hsB group inc., Delaware Bank borrowing of Munich Re america corporation, princeton subordinated bonds of the Midland company, cincinnati other Total
129ManageMent RepoRt financial position the subordinated bonds are recognised in part as own funds by the german federal financial supervisory authority (Bafin). When this is considered in calculating the strategic debt, the latter is reduced to €1,838m and the debt leverage amounts to only 7.6%.
Adjusted solvency 31.12.2009 prev. year eligible capital of the group €bn 21.2 19.9 adjusted solvency ratio % 268.5 263.9
the ratings for our subsidiaries on 28 february 2010 at a glance: Reinsurance group a. M. Best fitch Moody’s s&p american alternative insurance corporation a+ aa– american Modern insurance group a+ great lakes Reinsurance (uK) plc. a+ aa– Münchener Rück do Brasil Reseguradora s. a. a3 Munich american Reassurance company a+ aa– Munich Mauritius Reinsurance company ltd. a Munich Reinsurance america a+ aa– aa3 aa– Munich Reinsurance company of africa ltd. a Munich Reinsurance company of australasia ltd. aa– Munich Reinsurance company of canada a+ aa– Munich Re life e. e. c. a. a 2 Munich Re of Malta p. l. c. aa– new Reinsurance company a+ aa– the hartford steam Boiler group a+ aa– the princeton excess and surplus lines insurance company a+ aa– sterling life insurance company a– temple insurance company a+
Analysis of the consolidated cash fl ow statement our primary insurance and reinsurance operations have a signifi cant infl uence on Munich Re’s cash fl ow. We generally fi rst collect the premiums for the risks assumed and do not make payments until later, in the event of a loss. cash fl ow statements of insurance companies are therefore of limited relevance. the cash fl ow statement is adjusted to eliminate the eff ects of fl uctuations in exchange rates and changes in the entities consolidated.
in the consolidated cash fl ow statement, the consolidated profi t of €2,564m is used as the starting point for determining the cash infl ows from operating activities. the consolidated result is adjusted by €5,335m to take account of the higher technical provisions. in reinsurance, the provisions for future policy benefi ts rose, partly due to new business. there was also an increase in provisions for future policy benefi ts at Munich Re’s primary insurers, as they expanded their portfolios and wrote new business. the technical provisions for life primary insurance where the investment risk is borne by the policyholders (unit-linked life insurance) grew as a result of the pleasing development of the business in force. the net gains on the disposal of investments – which in adjusting the consolidated profi t have to be deducted from the cash fl ows – are essentially attributable to the disposal of securities available for sale. the negative balance from write-ups and write-downs (due especially to derivatives with which our life primary insurers protect themselves against reinvestment risks in low-interest-rate phases) has to be added to the consolidated result again.
the cash outfl ows for investment activities were determined by payments for the acquisition of investments. these exceeded the infl ows from the sale/maturity of investments by €3,806m. on 31 March 2009, through its subsidiary Munich-american holding corporation, Munich Re acquired 100% of the share capital of hsB group inc. for a total price of €570.5m. the purchase price has been reduced by the cash of €31.1m held. the acquisition added investments of €888.8m and technical provisions of €147.6m to Munich Re’s books. on 1 December 2009, we acquired 50% of the share capital of WfB stockholm Management aB (WfB) – formerly fastighets aB Bangardsposten – based in stockholm for a total of €67.3m. the purchase price has been reduced by the cash of €31.4m held. in addition, €14.3m of the purchase price had no impact on cash in 2009. as a consequence of the acquisition, investments of €187.3m were transferred to Munich Re’s group portfolio.
Consolidated cash fl ow statement 2009 prev. year €m cash fl ows from operating activities cash fl ows from investing activities cash fl ows from fi nancing activities Cash fl ows for the fi nancial year
By contrast, our primary insurers service some 40 million policyholders in over 30 countries in europe and asia. the products and services we offer therefore differ accordingly.
eRgo addresses clients via the full spectrum of distribution channels: through agents and brokers, direct selling or cooperation partners. an effective, cross-brand sales platform strengthens our competitive position. it simplifies and accelerates sales and administration processes and supports agents in servicing clients. its functionalities are being gradually expanded and extended to further user groups. since January 2009, a unified eRgo broker sales force has been providing the products of the different brands in a comprehensive and quickly available range from one source.
our field staff attach great importance to consultancy, customer care and service – and not only in their sales talks. after policies have been taken out, eRgo continues to convince clients through good service, such as swift and fair claims settlement. eRgo’s professional client management has been tested for client satisfaction and service by the german technical inspection agency tÜV and rated as “good”. the quality of its claims management is certified to Din en iso 9001, for which regular on-the-spot checks are made in addition to the extensive audit and claims controlling that is carried out.
Research and development thoroughly understanding risks – that is the basis of Munich Re’s business model. this requires, in particular, constantly analysing known risks for significant changes in their structure or occurrence probability and identifying new risks at an early stage.
Reinsurance structural or economic change processes, such as those resulting from climate change, new legislation, more complex supply chains or outsourcing, offer new business opportunities. our special enterprise Risks (seR) unit investigates alterations in the transfer needs of our clients and uses the findings to develop new products. a good example is an innovative insurance solution for covering the risk of a possible performance deterioration in photovoltaic modules. the new product offers module producers a greater degree of business certainty and allows the purchasers of photovoltaic modules, such as the operators of solar parks, to finance photovoltaic installations more easily and with increased flexibility.
unified broker sales force for eRgo’s different brand products since 2009
Primary insurance in primary insurance, the emphasis lies on analysing and forecasting demographic trends. after all, these trends constitute important parameters for calculating policy durations and thus for structuring products. Besides this, demographic change is affecting social security systems and consequently influencing our clients’ need for private provision.
africa, near and Middle east 3.1% (3.9%) asia and australasia 4.1% (4.9%)
Length of service at main Group Munich Reinsur- eRgo Meag companies in Germany ance company
Percentage of female staff in management and senior positions at main Group companies in Germany
Reinsurance in 2009, we transferred significant hR tools to units in our international organisation: our performance management system, our process for developing future candidates for top management, and our competence model, which translates our cultural guiding principles into concrete action requirements.
2009 also saw the extension of our employee survey on the leadership performance of our managers to the international organisation. By monitoring leadership throughout the group by means of surveys and establishing a consistent dialogue between managers and staff worldwide, we underscore our ambitious requirements for management performance at Munich Re.
139ManageMent RepoRt otheR success factoRs systematic succession planning remains a critical success factor. We invest consistently in training, programmes for students and trainees, and our business-specific training programme for engineers. in addition, as part of Munich Re’s repositioning, we have sharpened our employer value proposition. the main aspects of this are interdisciplinary competence, a wide range of jobs, personal development opportunities and a value-based corporate culture. With this clear profile, even greater focus on the relevant target groups and attractive graduate trainee programmes, we are positioned to compete globally for the best talent.
our medium- and long-term hR planning is conducted with the operational units and is an important basis for our hR work, which is closely geared to business requirements. our remuneration models and incentive systems are systematically linked to agreed objectives and based on financial results. company pensions are a central component of our human resources policy, as are the arrangements we offer to help staff combine career and family.
Primary insurance in 2008, we launched the project “continuous improvement of our competitive position ”, through which eRgo aims to save €180m in office and personnel expenses by 2010. the requisite agreements were concluded with the relevant co-determination bodies in 2009. in an immediate action programme, we also initiated and partially realised the personnel measures necessary to achieve the savings target. these can take a socially acceptable form, without forced redundancies.
We successfully implemented the initiative “eRgo – one entity”: on 1 october, all desk staff except those working in the sales offices of the brand companies were transferred to eRgo Versicherungsgruppe ag. in negotiations with the co-determination bodies and the german union ver.di, we also agreed on a staff council structure that meets the requirements of an integrated company and will be realised at the staff council elections scheduled for 2010.
We have set up a single company – Meag property Management gmbh – to manage our german real estate portfolio, which was previously divided between three regional companies. at the new company, based in Munich, we have centralised all non-tenantrelated services in order to exploit efficiency gains. tenant-related services continue to be provided by offices in Düsseldorf and hamburg as well. the preconditions for realising the new organisation were largely created through mutual agreements with staff.
Munich Re is convinced that long-term success is only possible if we take due account of economic, ecological and social requirements in our operations. this fundamental understanding is anchored in our mission statement and given concrete expression in our guiding principles for corporate responsibility. in this area, we concentrate in particular on // the development of new, needs-based products and solutions, // an investment policy based on sustainability criteria, // open dialogue with our stakeholders, and // active responsibility towards employees, society and the environment.
to make our understanding of corporate responsibility values more clearly visible inside and outside our group, Munich Re joined the united national global compact in august 2007. its ten principles offer us important action guidelines for anchoring corporate responsibility even more firmly in the processes relating to our core business.
a significant role in this connection is played by corporate governance. We fulfil all the recommendations of the german corporate governance code and comply with corpor ate governance rules in all the markets in which we operate.
our actions are also guided by our own codes of conduct, implemented by the reinsurance group in 2006, by Meag in 2007, and by eRgo in 2008. each code specifies our rules for legally impeccable conduct, based on ethical principles, and describes our understanding of the relevant values. they contain regulations that are binding on all employees, in particular for dealing with conflicts of interest.
the various indices we are listed in show that Munich Re is an attractive investment for investors who follow a socially responsible investment (sRi) approach. since 2001, for instance, our shares have featured in the Dow Jones sustainability index (the world’s leading sustainability index) and the ftse4good.
although as a service provider Munich Re places comparatively little burden on the environment, our business is inextricably linked with ecological issues such as climate change. the growing number and greater intensity of weather-related natural catastrophes mean a rising trend in loss amounts as well. a particular focus of our commitment is therefore on climate protection: we have long been contributing our specialist knowledge to numerous organisations and associations concerned with global warming. We have been analysing aspects of climate change for over 35 years, with a view to counteracting its impact. this knowledge is incorporated into our investment policy, risk management and product development in insurance and reinsurance.
as an internationally operating group, Munich Re also accepts its responsibility towards the communities in which we live and work. the focal points of our social commitment are the active promotion of science and the support of socially disadvantaged youngsters and people in need. in addition, we have established ourselves as a patron of the arts and culture. the foundations we have set up play an important part, and they contribute substantially to sustainable development throughout the world.
Reinsurance preserving our natural resources is a contribution to value-based management, as our economic success is inseparably linked with protecting people, the environment, and physical resources. our group-wide activities are focused on reducing greenhouse gas emissions. in 2007, we adopted a carbon-neutrality strategy for reinsurance, and we have already reached the first milestone: since 2009, business activities at our Munich location have been carbon-neutral. all our international reinsurance operations will follow suit by 2012. to achieve this, we are pursuing a fourfold strategy: Munich Re shares included in sustainability indices since 2001
selectively promoting scientific work and sponsoring cultural and social projects is a key part of our corporate responsibility. Munich Re supports a large number of scientific institutions globally. for example, since 2008 we have been collaborating with the london school of economics and political science (lse) to advance research into the economic consequences of climate change. and since its foundation in 1922, the Munich university society has been housed on Munich Re premises. in the field of culture, our sponsorships include the pan-european gustav Mahler Jugendorchester, which we have supported since 2002.
Munich Re Foundation under the motto “from Knowledge to action”, the Munich Re foundation has set itself the aim of helping people in risk situations and improving their lot, especially in developing countries. the foundation not only provides direct support but also devotes itself to promoting knowledge, heightening awareness and networking, which facilitates self-help.
The Schinzler Foundation the schinzler foundation is our platform for corporate volunteering. it supports staff worldwide in their voluntary work in various areas of society, to the benefit of numerous projects in germany, latin america, africa and asia.
consequently, eRgo’s help is geared mainly to those assuming responsibility for themselves and others, and on offering assistance to those suffering hardship. We focus above all on the areas of education and science, health, music and social projects.
Health a further aim of eRgo’s social commitment is to promote health and to increase fitness through sport.
the client call-centre of DKV seguros in spain is staffed solely by colleagues with a physical disability – a project supported by the company’s own foundation, fundación integral. inspired by this idea, eRgo hestia in poland has followed suit.
Asset management in 2009, Munich Reinsurance company and Meag set up the Rent project (Renew able energies and new technologies). its remit is to investigate the potential of strat egic investments in renewable energies and new technologies, e.g. in the areas of increasing efficiency and storing energy.
in June 2009, Meag added a new investment fund called Meag fairReturn to its product range – a mixed fund investing largely in europe and managed according to sustainability criteria.
When it comes to new construction projects and acquisitions, Meag attaches great importance to high ecological standards, a fact which has received due recognition. in 2009, for example, three construction projects in cologne and Munich were awarded the european commission’s greenBuilding eco label and included in its programme for energy-efficient and sustainable building design.
this guarantees that our risk management covers all units and the group’s total exposure. the resultant transparency enables the risks incurred to be actively controlled.
Risk topics for the group as a whole are dealt with by the group Risk committee, which comprises the members of the group committee plus other specialists from insurance and reinsurance. We adopt a similar approach at business-segment level. for reinsurance, a dedicated risk committee – the global underwriting and Risk committee (guRc) – has been formed from within the ranks of the Reinsurance committee. eRgo iRM supervises risk management at eRgo and is supported by decentralised risk management structures in all eRgo units. the eRgo Board of Management has established the eRgo Risk committee as a decision-making body.
from the first quarter of 2010, the new Munich health segment (Mh) will feature in Munich Re’s risk reporting. since early 2009, all of Mh’s strategic and risk issues have been addressed by the Munich health Board. a Munich health risk committee will also be set up in 2010 to deal with risk issues.
the risk limits are: // overall portfolio limits: based on Munich Re’s overall risk portfolio and designed to protect our capital and limit the likelihood of an economic loss for the year; // supplementary limits: to limit losses that can arise out of individual risk types or accumulations, such as natural hazards, terrorism and pandemics, and to limit market and credit risks that could endanger Munich Re’s survival. // other limits: designed to preserve Munich Re’s reputation and thus protect its future business potential. they encompass limits for individual risks that, though they would not necessarily threaten the company’s existence, could cause lasting damage to the confidence of clients, shareholders and staff.
the risk appetite laid down ensures that an appropriate balance is maintained between business opportunities and risks incurred. the terms of reference set out in the risk strategy have especially proved their worth in the financial crisis.
Risk identification is performed by means of appropriate systems and indicators (quantitative component) and a number of risk surveys, which are supplemented by expert opinions and assessments by selected managers (qualitative component). our ad-hoc reporting process provides for staff to report risks to central risk management (iRM) at any time.
We are constantly refining our risk measurement tools, which are tailored to the business or operational segment we are monitoring. in each case, the lead risk measure is an economic risk measure designed to best reflect the risk in our portfolio. We regularly compare the results of our risk model with both regulatory and rating-agency measures. these comparisons are made at a number of levels, including group, segment, legal entity and risk type. We regularly perform outside-in benchmarking of our riskmodel results and participate in industry surveys to constantly challenge and refine our risk measurement tools. We also continually compare our model with the current status of solvency ii and take part in the Quantitative impact studies. We explain the results of our internal risk model on page 155 ff.
Risk analysis and evaluation are carried out at the top-most level in iRM, in the form of a consolidated group view, taking into account limitations of capital fungibility. they are based on the analyses prepared in the central risk management units for reinsurance, eRgo and asset management. Besides this, iRM is responsible for checking and validating the analyses of downstream units, working closely with many units and experts within, and in some cases outside, the group. this provides us with a quantitative and qualitative assessment that considers possible interdependencies between risks.
constant refinement of our risk measurement tools uniform worldwide system for managing risks
148 ManageMent RepoRt RisK RepoRt using a holistic risk management approach, risks and the related controls across all risk dimensions and areas of the group were identified, analysed and assessed and improvements and control procedures defined. We focused on significant risks, key processes and controls, and important units in our international organisation.
By systematically linking risks and processes and determining the relevant risk control points, we were able to clearly identify even cross-divisional risks and controls. staff from our specialist departments were involved throughout and were thus able to feed their knowledge and experience directly into the ics. their involvement also enabled us to make the need for risk controls and risk management clearer. in this way, we have been able to build a stronger foundation for a uniform understanding of risk and improve our awareness of risk and the need for controls. the ics will in future be reviewed by internal audit as part of the internal audit plan at least annually to evaluate its effectiveness and assess the need to adapt it to take account of changes in parameters.
Besides risks in our operational units, the ics and risk management also covers risks in the compliance and accounting areas. the risks in our operations comprise investment risks, underwriting risks and operational risks.
We use the ics to ensure that appropriate internal controls are set up and maintained for accounting risks, enabling us to guarantee that financial reporting is reliable and, in particular, that our published financial statements are correct.
By means of an accounting manual and regular circulation of information on changes required, Munich Re ensures that uniform rules are applied throughout the group for the treatment, valuation and disclosure of all items in the balance sheet and income statement. any amendments are subject to a stringent procedure as regards timing, responsibilities and circulation of information. a standardised “enforcement” process is used to ensure that the companies included implement and comply with the accounting regulations.
the consolidated financial statements are prepared using a fast-close procedure in a central system. subgroup accounts are produced as an integral part of the consolidated financial statements for the group as a whole. clearly documented instructions and controls are in place for the closing process (consolidation and reporting).
Dual control is applied throughout the process of producing individual company and consolidated financial statements. system and accounting checks are in place at every stage of the closing process. any errors are analysed, followed up and corrected.
Risk reporting internal risk reporting provides management with regular information on the risk situation, both as regards the individual risk categories (ongoing) and the entire group (quarterly). this ensures that faint signals and negative trends are identified in sufficient time for countermeasures to be taken. Responsibility for risk reporting lies with iRM, whilst group Reporting attends to related annual-report requirements deriving from the accounting standards applied.
this operational responsibility is increased or limited by instructions and procedures, which define the activity of each underwriting unit and recognise the particular characteristics of the insurance or reinsurance business concerned.
for the natural hazard and terrorism scenarios, budget capacities compatible with the risk strategy are allocated to each underwriting unit. Before business is accepted, risk data must be recorded and the potential loss quantified in accordance with mandatory rules and the business may only be written if sufficient budget capacity is available.
in order to prevent Munich Re’s risk appetite for a single risk being exceeded, mandatory procedures ensure that the channels through which we might be involved in a large individual risk are checked before it is written to ascertain the size of our overall participation.
Reserve risk the estimation of liabilities is fraught with uncertainty. this is due to the fact that the settlement of claims that have arisen before the balance sheet date is dependent on future events and developments. unforeseen loss trends resulting from court decisions, changes in the law, differences in loss adjustment practice, medical and long-term care, and economic factors such as inflation can have a considerable effect on loss experience.
151ManageMent RepoRt RisK RepoRt further information on underwriting risk can be found in the notes to the consolidated financial statements under (38) Risks from insurance contracts in the property-casualty segment.
Underwriting risk: Life and health insurance the underwriting risk in this case is defined as the risk that insured benefits payable in life or health business (insurance and reinsurance) may be higher than expected.
the remarks on underwriting guidelines and limits (see “property-casualty” section) also apply to life and health reinsurance business. in primary insurance, regular reviews of the actuarial assumptions by actuaries and the requisite amendment of rating rules ensure that risk and process management are adequate.
further information on underwriting risk can be found in the notes to the consolidated financial statements under (37) Risks from insurance contracts in the life and health segment.
We deal with market risks by means of suitable limit and early-warning systems and through our asset-liability management, which is described on page 121. We limit the deviations in actual investments from those investments that are economically required to cover underwriting liabilities with minimum market risk (referred to as the replicating portfolio). a breakdown of investments by type can be found on page 114 f.
the investments we make in our operations must meet the requirements of our general investment guidelines, which lay down the group-wide minimum standards for operational investments. furthermore, we take account of associated restrictions for investments resulting from our risk strategy.
a detailed presentation of the economic risk capital for market risks can be found on page 159 f.
to take account of other country risks besides credit default, our group Development function also prepares a specific country rating in addition to the pure default rating. this is not included in the limit calculation, but has to be considered in underwriting and investment decisions. it covers political, economic and security-related country risks, thus permitting an additional comprehensive assessment of country risks, which are relevant in different ways for the individual fields of business. Beyond this, we monitor and – if necessary – limit our accumulations in certain sectors and regions.
in the area of retrocession, we control the default risk through the Retro security committee, which monitors the quality of our potential retrocessionaires independently based on various criteria (such as minimum ratings and capital requirements), and issues appropriate limits. With this system, we achieve a broad and high-quality spread of our retrocessions in the reinsurance market.
153ManageMent RepoRt RisK RepoRt the credit exposure on capital market placements, such as our catastrophe bonds, is generally reduced by the deposit of first-class collateral or the integration of suitable hedging mechanisms.
We control the credit risk in our fixed-interest investments by selecting issuers of suitable quality and respecting counterparty limits. We set very high standards for issuers, which are also reflected in our group-wide investment principles. there are additional limits on investments in structured products according to their risk profile.
through our comprehensive internal control system, we identify and mitigate these risks (see page 147 ff.). it is our declared corporate aim, which we consistently pursue, to make employees aware of the potential risks and to establish an appropriate risk culture. this includes willingness to learn from mistakes and to recognise them as opportunities for improvement.
in general, our insurance and reinsurance business continuously generates significant liquidity, as premium income is usually received some time before claims and other benefits are paid to our clients.
We also manage liquidity risk in the framework of our overall risk strategy, with the Board of Management defining limits for liquidity risk, on which minimum liquidity requirements for our operations are based. these risk limits are reviewed annually and compliance with the minimum requirements continuously monitored. the management of liquidity risk includes taking account of: Management of the liquidity risk in the framework of our overall risk strategy
Strategic risk Munich Re defines strategic risk as the risk of making wrong business decisions, implementing decisions poorly, or being unable to adapt to changes in its operating environment. the existing and new potential for success in the group and the segments in which it operates creates strategic risks, which generally arise early on and can lead to a significant long-term reduction in corporate value.
We counter this risk through the activities of our strategy committee, which discusses strategic planning and significant strategic issues and decisions, and regularly monitors their implementation. the strategy committee comprises members of the group committee, and hence the cRo, plus the ceos of the business segments and the head of group Development. as a result, strategic decision-making processes are intermeshed with risk management. iRM is additionally involved in the operational business planning and in the processes for mergers and acquisitions.
Reputational risk Reputational risk is the risk of a loss resulting from damage to the group’s public image (for example with clients, shareholders or other parties).
155ManageMent RepoRt RisK RepoRt on page 149 ff., we provide several examples of the above-mentioned risks and how we deal with them.
Munich Re manages its business on the basis of a consolidated group view, using its own integrated risk model to determine the capital needed to ensure the group’s ability to meet its commitments even after extreme loss events.
the Munich Re group’s risk model specifies the distribution of the available financial resources over a one-year time horizon. it is based on separately modelled distributions for the risk segments property-casualty, life and health, market, credit, and operational risks.
every risk segment embraces all the risks that the group runs within the area concerned, in both the reinsurance and the primary insurance segments. We also consider (tail) interdependencies between the segments, which take account of the fact that the different risks cannot be seen completely independently of each other but are interconnected in certain ways. altogether, compared with a situation where the risks are assumed to be independent, this results in a lesser diversification effect, which is reflected in an increased capital requirement.
a key figure calculated using the internal model is our economic risk capital (ERC). By economic risk capital, we mean the amount of available financial resources that Munich Re needs, with a given risk appetite, to cover unexpected losses in the following year.
156 ManageMent RepoRt RisK RepoRt the table shows Munich Re’s economic risk capital and risk categories as at 31 December 2009. over the past year, the economic risk capital rose slightly by €0.9bn. the following contributory factors worked in diff erent directions: // the economic risk capital for the property-casualty risk category decreased by around €0.4bn. this was primarily the result of the substantially reduced exposure to the “storm europe” scenario compared to the previous year and a further improvement in the modelling of external retrocession covers. // the risk capital for life and health business fell by some €0.3bn, mainly due to higher interest rates in the usa and canada and an improved modelling of lapsesensitive life reinsurance business, factors which off set portfolio growth and currency translation eff ects. // the economic risk capital for market risks rose by around €1.4bn as a result of an increased equity-backing ratio (after taking derivatives into account) and an improved modelling of both the volatility risks and the increase in capital-market credit risk spreads in primary insurance. // the economic risk capital for credit risks was up by around €0.4bn. this is due partly to an increase in the volume invested in fi xed-interest securities and partly to a higher percentage of investments in corporate bonds. // as last year, we used scenarios to determine the economic capital requirement for operational risk. the scenarios were prepared by various expert teams and will be annually reviewed and refi ned as part of the ics review (see page 147 ff .).
Economic risk capital (ERC) 31.12.2009 prev. year change €bn group Re- primary segment group Re- primary segment group insurance insurance diversi- insurance insurance diversifi cation fi cation property-casualty life and health Market credit operational risk Subtotal Diversifi cation eff ect Total slight rise of €0.9bn in economic risk capital
Property-casualty as described, Munich Re actively controls its risk exposure. this includes restricting our exposure through limits and budgets for natural catastrophe risks, where our experts consider scenarios for possible natural events, the scientific factors, occurrence probabilities and potential loss amounts. on the basis of these models, the impact of various events on Munich Re’s portfolio is calculated and represented in mathematical terms in the form of a stochastic model. these models form the basis for the eRc calculation for the “large and accumulation losses” category, which apart from natural hazard scenarios includes man-made losses, and for the limits and budgets for accumulation losses.
the exposures of the reinsurance segment are updated for the quarterly eRc calculations, and the data is used to adjust the stochastic models for natural hazards. the current limit utilisation – also referred to as budget consumption – is determined by a bottom-up process. in view of the higher degree of stability of its portfolio, eRgo’s exposure is only updated annually.
the largest natural catastrophe exposure for Munich Re is the €2.9bn currently retained for the “atlantic hurricane” scenario (value at risk for a 200-year return period). our exposure to european windstorms has been quantified at €2.7bn using the scenarios we have drawn up.
Whilst the exposure in the atlantic hurricane scenario is almost unchanged, there is a clear decrease in the storm europe scenario, which is due to the non-renewal of a substantial part of our portfolio.
the underwriting risk capital for property-casualty is made up as follows from the two components “basic losses” and “large and accumulation losses”: claims costing in excess of €10m at group level are classified as large losses. accumulation losses are losses affecting more than one risk (or more than one line of business). We classify all other losses as basic losses.
for basic losses, we calculate the risk of subsequent reserving being required for existing risks within a year (reserve risk) and the risk of an underrating (premium risk). to achieve this, we use analytical methods that are based on standard reserving pro cedures but take into account the one-year time horizon. the risk arising out of large and accumulation losses is depicted using the above-mentioned models, the models for large man-made losses being calibrated on the basis of historical claims experience.
159ManageMent RepoRt RisK RepoRt as a global risk carrier, we can diversify our portfolio through the broadest possible mix and spread of individual risks, significantly reducing the volatility of total claims payments and substantially increasing the value added by all divisional units.
Market risks Market risks are established using a scenario-based simulation calculation. the scenarios are calibrated on the basis of long historical time series. this risk category can be broken down further into the subcategories “equity risks”, “general interest-rate risks”, “specific interest-rate risks”, “property risks” and “currency risks”. the general interest-rate risk includes implicit volatility risks and inflation risks.
160 ManageMent RepoRt RisK RepoRt equities the market value of our investments in equities, including participating interests, was €5.2bn (6.2bn) on 31 December 2009. at this date, on a market-value basis and before taking derivatives into account, the ratio of equities to total investments amounted to 2.8% (3.5%).
the equity-backing ratio after consideration of derivatives, which is relevant for the risk calculation, rose from 1.6% to 2.8%. this is the main reason for the increase in the equity risk..
in the primary insurance segment, however, the increase in interest-rate risks is primarily the result of more refined modelling of the risks in implicit interest-rate volatilities and the credit risk spreads.
in reinsurance, the interest-rate risk on fixed-interest investments in units of modified duration (interest-rate sensitivity) is around 5.3, whereas the modified duration of liabilities is approximately 4.9. the sensitivity of available financial resources (see next section) to a parallel increase in all interest-rate curves by one basis point (DV01) amounts to approximately –€13m. Were such a parallel shift in the interest-rate curves to occur, the available financial resources would change by the given amount.
in primary insurance, the modified duration is 6.3 for fixed-interest investments and 6.8 for liabilities. this exposure to falling interest rates derives mainly from the longterm options and guarantees in life insurance business. these risks were reduced substantially by the extensive interest-rate risk hedging programme first implemented in 2005. the sensitivity of available financial resources (see next section) to a parallel increase in all interest-rate curves by one basis point (DV01) amounts to approximately €6m. the different exposure in reinsurance and primary insurance thus has the effect of reducing our interest-rate risk at group level.
the market value of our investments in fixed-interest securities and loans as at 31 December 2009 was €158.8bn, representing 85.8% of the market value of Munich Re’s total investments. these securities thus made up the bulk of the portfolio. a detailed presentation of our fixed-interest securities and loans, including short-term investments, on a market-value basis can be found in the investment performance section on page 116. Ratings for these investments are provided in the notes to the consolidated financial statements under (5) loans, (6) other securities held to maturity, (8) other securities available for sale and (9) other securities, at fair value through profit or loss.
our provisions ceded to reinsurers and retrocessionaires were assigned to the following rating categories as at 31 December 2009:
161ManageMent RepoRt RisK RepoRt the shifts are mainly due to the change in rating of a few reinsurers/retrocessionaires.
Available financial resources 31.12.2009 prev. year change €bn ifRs equity Valuation reserves Value adjustments for property-casualty and life and health goodwill and other intangible assets tax effects and other Economic equity hybrid capital Available financial resources
162 ManageMent RepoRt RisK RepoRt the table shows Munich Re’s available financial resources as at 31 December 2009. compared to the previous year, economic equity rose by approximately €4.0bn, of which some €2.6bn was attributable to the consolidated result. the dividends and share buy-backs (–€1.5bn) and other changes in ifRs equity (€0.1bn) are also reflected in the changes in economic equity. finally, the valuation adjustments for property-casualty and life and health were some €2.3bn higher, primarily because of the rise in the group’s Market consistent embedded Value (MceV). compared with the previous year, adjustments for goodwill and other intangible assets showed a change of €0.1bn, and those for taxes and other items a change of €0.4bn, while hybrid capital was down by €0.2bn. these effects combined resulted in an increase of €3.8bn in the available financial resources.
our exposure to credit risk on the investment side in 2009 was relatively low, though even we are not immune to the crisis due to our high investment volume. our exposure to the financial sector – at market value – amounted to around €73bn at year-end. Much of our exposure (around 45%) is to the german financial sector. We took various measures during the year to counter the risk arising out of such exposure, including the introduction of tools for monitoring and limiting sector accumulations. the limits in our group-wide counterparty limit system for certain banks were also subjected to a critical review and continuously monitored taking account of current market indicators.
Whilst we are in a position to adequately assess the known risks in our portfolio on the basis of current knowledge, scientific research into climate change is complex and the political and regulatory environment in which we operate is developing dynamically, so that we must remain vigilant with regard to the identification and representation of new or emerging risks. We adopt a multidisciplinary approach, using and combining the experience and expertise of our scientists, specialist underwriters, lawyers, economists, sociologists and actuaries.
Within our early-warning system, we also consider “emerging risks”. these are risks that may have unidentified effects on our risk portfolio due to changes in risk factors (e.g. legal, socio-political, scientific and technological), where the degree of uncertainty as regards the extent of damage and occurrence probability is by nature very high.
Legal and supervisory risks as a result of our global activities, we are subject to a large number of supervisory regulations in different countries. these may give rise to legal and regulatory risks. in april 2004, new York state attorney general eliot spitzer started an investigation into the use of placement or Market service agreements (psas) in the insurance industry. several other us state regulators subsequently commenced similar probes into this matter, as have regulators in other countries. We have received requests to provide information in connection with these investigations and are cooperating fully with the authorities. Munich Re entities have been named together with several other insurers and brokers as defendants in a number of psa-related class actions by us policyholders. Munich Re denies any wrongdoing and will defend itself against the accusations in the appropriate manner.
in late 2004, the us securities and exchange commission (sec) and the office of the new York state attorney general initiated inquiries into Munich Re with respect to “certain loss mitigation insurance products”. subsequently, a number of other authorities in the usa and elsewhere made both formal and informal requests for similar information from Munich Re and some of its subsidiaries. We are fully cooperating with these inquiries.
in november 2009, the spanish antitrust authority (cnc – comisión nacional de la competencia) imposed fines on various insurers and reinsurers, including Munich Re’s spanish branch (Münchener Rückversicherungsgesellschaft, surcursal españa y portugal), for alleged collusion restricting competition in spanish decennial liability business (compulsory insurance for guarantee claims in respect of contract works). in December 2009, Munich Re’s spanish branch lodged an appeal against the cnc’s decision in the expectation that the next higher instance will arrive at a different assessment of the facts.
Summary in accordance with the prescribed processes, Munich Re’s Board committees explicitly defined the risk appetite for significant risk categories in the year under review and quantified it by means of specific figures. We determined and documented the risk appetite across the group hierarchy and communicated it throughout Munich Re. During the whole of 2009, risk exposures were regularly quantified and compared with the risk appetite. since exposure was always within the appetite, we assess Munich Re’s risk situation as manageable and under control.