» Key figures (IFRS) – Munich Re at a glance (XLS, 37 KB)
Gross premiums written €bn 31.3 31.6 31.5 Investments (incl. insurance-related investments) €bn 85.6 85.8 91.9 Net technical provisions €bn 72.4 68.1 67.1 Major losses (net) €m –2,152 –4,314 –1,542 –1,046 –1,162
Combined management report 23 Group 25 Macroeconomic and industry environment 47 Important tools of corporate management 48 Business performance 50 Financial position 62 Risk report 66 Opportunities report 75 Prospects 77 Munich Reinsurance Company (information reported on the basis of German accountancy rules) 81
The Internet of Things is opening up new, digital fields of business that we will tap into together with partners. In cooperation with Bosch, we intend to continue to support industrial clients that utilise connected manufacturing, so that they can minimise downtimes at their plants, increase the number of units manufactured and improve the quality of their products. For instance, we can provide insurance for the operational risks involved in connected manufacturing or the requisite financing. Together with KUKA and the consulting company MHP, we are also working on a solution to enable commercially viable, flexible small-batch manufacturing and thereby reduce the time to market for new products by up to a third. By covering the cost of investment in production plants and risks such as business interruption through Smart Factory as a Service, we ensure that in future these companies will be able to focus their efforts on developing and testing new products.
Munich Re Group Annual Report 2018 and software in real time, thus enabling them to anticipate production downtimes and raise productivity.
Munich Re is getting leaner. Last year, we systematically reduced costs in reinsurance and the Group as a whole. Since then, we have been managing a growing business with fewer resources, which in return is creating further scope for investment in digitalisation through cost savings. This has made us more competitive.
In reinsurance, we wrote profitable new business and saw pleasing growth. The life and health segment generated a technical result that significantly surpassed our expectations – in part thanks to very favourable claims development in the USA. We posted a good profit in property-casualty reinsurance – despite high natural catastrophe losses in the fourth quarter, including Typhoon Jebi and the wildfires in California. This segment accounted for around half of our consolidated profit.
Compared with 2017, reinsurance prices remained stable for treaties renegotiated at the turn of the year. We are confident that the market environment will see an improvement in the course of this year. Nevertheless, we will continue to actively seek and seize opportunities to grow profitably.
Corporate governance report 016 Corporate legal structure 016 Annual General Meeting 016 Board of Management 016 Collaboration between Board of Management and Supervisory Board 017 Supervisory Board 017 Share trading by Board members 018 Responsibilities and seats held by the Board of Management 019 Supervisory Board and seats held by members of the Supervisory Board 020
We monitored the Board of Management in its conduct of the business, and gave advice on all matters of importance for the Group. No inspection measures in accordance with Section 111(2) sentence 1 of the German Stock Corporation Act (AktG) were required at any time.
Outside of Supervisory Board meetings, the Board of Management informed us promptly about important events in the Group, such as developments during the renewals of property-casualty reinsurance treaties, and the acquisition of the Internet of Things (IoT) technology firm relayr by our US subsidiary Hartford Steam Boiler. The shareholder representatives and the employee representatives met regularly with the Chairman of the Board of Management for separate discussions in preparation for the meetings.
The meeting on 24 April dealt with matters involving the Board of Management, specifically the evaluation of the individual Board members’ annual performance for 2017 and their multi-year performance for 2015–2017. We also dealt with a selfassessment of the members of the Supervisory Board concerning their knowledge of specific fields that are important for providing advice and supervision to Munich Re. Compared with the previous year, the Supervisory Board’s good overall level of competence has increased further. We found that the Supervisory Board as a whole possesses the appropriate diversity of qualifications, knowledge and experience to provide advice and supervision to Munich Re in a professional manner, taking account of the company-specific characteristics.
The meeting on 18 October dealt with matters of corporate governance, including the adoption of amendments to the Rules of Procedure of the Audit Committee, the annual Declaration of Conformity with the German Corporate Governance Code, as well as the outcome of the annual efficiency review. Further topics included the submission of the 2017 Group-wide remuneration report in accordance with Solvency II and the German Remuneration Regulation for Insurance Companies (VersVergV), and the update of the Munich Re Group Compensation Policy pursuant to Solvency II. The Board of Management also briefed us on Munich Re’s IoT business strategy.
Details of the tasks of the committees and their composition can be obtained on page 20 f. and from our website at www.munichre.com/supervisory-board.
Corporate governance Report of the Supervisory Board quarterly reporting to the Supervisory Authority in these meetings. Another key task of the Committee consisted in monitoring the Group’s risk situation and risk management on an ongoing basis, and discussing its risk strategy: the Group Chief Risk Officer provided detailed verbal input at several meetings of the Committee in addition to the quarterly written reports submitted. The Audit Committee also dealt with the measures taken by Munich Re to guard against cyber attacks. The holder of the actuarial function presented the report of the actuarial function of Munich Re (Group) at two Committee meetings. Further issues discussed regularly were the internal control system and compliance topics. The Group Chief Auditor informed the members of the Committee in full about the outcome of the audits for 2017 and the audit planning for 2018. The Committee received regular updates on the current status of individual compliance issues and the progress of audits. In the absence of the Board of Management, the members of the Committee took the opportunity to confer amongst themselves or with the Group Chief Auditor, the Group Chief Compliance Officer, the Group Chief Risk Officer and the external auditor on a regular basis. In addition, the Audit Committee and the external auditor exchanged their views on selected topics on an ad-hoc basis between meetings. Furthermore, the Audit Committee closely reviewed and monitored the auditor’s independence. It regularly called for reports on the auditor’s new activities beyond the auditing of the annual financial statements and on the utilisation of the statutory limit for awarding such contracts. The auditor presented the Audit Committee with explanations of the key audit matters for the 2018 financial year. Likewise, the Audit Committee prepared a report for the full Supervisory Board on the appointment of the external auditor for the 2018 financial year, determined the main points of the audits, and set the auditor’s fees. Following a resolution by the full Supervisory Board, the Chair of the Committee commissioned KPMG Bayerische Treuhandgesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft (KPMG), Munich, with the audit for the 2018 financial year, and also commissioned the auditor’s review of the 2018 Half-Year Financial Report and the Quarterly Report for the third quarter of 2018.
The Nomination Committee held six meetings in the period under review. It dealt in great depth with long-term succession planning on the Supervisory Board. In preparation of the upcoming election of ten shareholder representatives at the Annual General Meeting on 30 April 2019, the Nomination Committee drew up requirement profiles and deliberated on the re-election of Supervisory Board members and suitable new candidates to be nominated for election to the Supervisory Board. The Committee also looked for suitable successors to the Chair of the Supervisory Board and the Chair of the Audit Committee. In selecting and evaluating potential candidates, the Committee took account of the objectives set by the Supervisory Board for the composition of the Board and the set of criteria established for this purpose.
There was again no need to convene the Conference Committee in the 2018 financial year.
Supervisory Board succession planning In my role as Chairman of the Supervisory Board, I have been holding discussions with investors and proxy advisors since 2018 about the upcoming election of shareholder representatives to the Supervisory Board at the Annual General Meeting in 2019. Key topics discussed included the candidates’ independence and time availability. All the candidates nominated for election to the Supervisory Board as shareholder representatives at the next Annual General Meeting have confirmed to the full Supervisory Board that they can spend sufficient time at Munich Re on their Supervisory Board work – and, if applicable, Committee work. Among the candidates standing for election for the first time, Karl-Heinz Streibich has a high level of IT and digitalisation expertise, while Nikolaus von Bomhard possesses wide-ranging industry knowledge and an in-depth understanding of Munich Re (Group).
The Chair of the Supervisory Board is a key position and should thus be filled with an individual of exceptional qualities and skills. In order to be able to communicate closely with the Chairman of the Board of Management and to provide oversight and advice to the Company’s management, the Supervisory Board Chair needs to have a deep understanding of the core business and excellent leadership qualities. I fully agree with the Nomination Committee and the Supervisory Board that Nikolaus von Bomhard, due to his excellent expertise across the full value chain of our complex reinsurance and primary insurance business model, his universally acknowledged personal integrity for which he is held in high esteem, and his many years of experience as Chairman of the Board of Management of Munich Re, best meets the requirements of this position. In performing his role, he will promote good corporate governance especially in working together with the Chairman of the Board of Management.
On 13 December 2018, the Supervisory Board appointed Nicholas Gartside to the Board of Management. In his role as Chief Investment Officer, he will assume responsibility for all asset management activities at Munich Re (Group) as of 18 March 2019.
Changes on the Supervisory Board Ron Sommer stepped down from the Supervisory Board with effect from the end of the Annual General Meeting in 2018. Kurt Bock was elected to the Supervisory Board for the remainder of Sommer’s period of office by the Annual General Meeting on 25 April 2018.
Wolfgang Mayrhuber passed away on 1 December 2018. He was a member of the Supervisory Board from 2002 to 2016, and served on the Personnel Committee and Standing Committee during his last years of office. We owe him a great debt of thanks for his open and constructive cooperation, and mourn the loss of a highly esteemed and outstanding personality.
On the basis of this comprehensive examination, the Supervisory Board raised no objections concerning the outcome of the external audit. It approved the Company and Group financial statements on 19 March 2019. The financial statements were thus adopted. Having carefully weighed all relevant aspects, the Supervisory Board followed the proposal of the Board of Management for appropriation of the net retained profits.
Words of thanks to the Board of Management and employees The Supervisory Board wishes to thank all members of the Board of Management and staff worldwide. With their work and commitment, they have contributed to a successful result for Munich Re.
More information on corporate governance can be found at www.munichre.com/cg-en. There, you can also find the Statement on Corporate Governance in accordance with Sections 289f and 315d of the German Commercial Code (HGB) and the Declaration of Conformity by the Board of Management and Supervisory Board with the German Corporate Governance Code in accordance with Section 161 of the German Stock Corporation Act (AktG). The remuneration report can be found on page 29 ff. of the combined management report.
Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (Munich Reinsurance Company) has three governing bodies: the Annual General Meeting, the Board of Management and the Supervisory Board. Their functions and powers are defined by law, the Articles of Association, the Co-determination Agreement applicable to Munich Reinsurance Company, and by rules of procedure and internal guidelines. Employee co-determination on the Supervisory Board is governed by the Co-determination Agreement concluded pursuant to the German Act on the Co-Determination of Employees in Cross-Border Mergers (MgVG). There, the principle of parity co-determination on the Supervisory Board has been strengthened by taking into account staff employed in the rest of Europe.
The Annual General Meeting regularly reaches a resolution on the appropriation of profits and approval of the actions of the Board of Management and Supervisory Board. Besides this, the Annual General Meeting elects the shareholder representatives on the Supervisory Board and, in particular, votes on changes to the Articles of Association and on individual capital measures. Certain corporate contracts also require the approval of the Annual General Meeting to become effective.
The Supervisory Board monitors the Board of Management and gives counsel where appropriate, but it is not authorised to take management action in place of the Board of Management. In accordance with a special rule applicable to (re)insurance companies, the Supervisory Board in particular also appoints the external auditor for the Company and Group financial statements and for the Half-Year Financial Report.
Objectives of the Supervisory Board concerning its composition and competences In accordance with Section 5.4.1(2) of the German Corporate Governance Code, the Supervisory Board has set itself the following objectives concerning its composition and has defined requirements regarding the competencies of its members: Competence profile The Supervisory Board as a whole must have the necessary knowledge, skills and experience in the markets, business processes, competition and the requirements of reinsurance, primary insurance and investment in order to perform its duties properly. Furthermore, the Board must have the overall required knowledge of risk management, accounting, financial control and auditing, asset liability management, law, regulatory supervision, compliance and taxation. The Members must collectively be familiar with the sector in which the Company operates, and have a good understanding of its business model. At least one member of the Supervisory Board must have expertise in accounting or financial reporting, and specific knowledge and experience in the application of accounting principles and standards. It should be ensured that the competence profile is met when persons are nominated to the Supervisory Board.
Internationality As the Group operates internationally, it should be ensured that the Supervisory Board includes an appropriate number of members with international experience.
Independence The Supervisory Board should have at least sixteen independent members within the meaning of Section 5.4.2 of the German Corporate Governance Code, including at least eight shareholder representatives. Members of the Supervisory Board should have no relevant conflicts of interest.
Further information about compliance and the key features of the CMS can be found at www.munichre.com/en/ compliance.
The Board of Management and the Supervisory Board cooperate closely for 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. The Board of Management reports regularly and as needed to the Supervisory Board about all questions relevant to the Company. Beyond this, the Board of Management reports to the Audit Committee on specific topics falling within the latter’s scope of responsibility. The Supervisory Board has defined the Board of Management’s information and reporting obligations in detail. Specific types of transaction, such as certain investments and divestments, require the Supervisory Board’s consent. The Supervisory Board’s approval is also required for sideline activities assumed by members of the Board of Management, and for important transactions involving members of the Board of Management or persons or undertakings closely associated with them.
Status of implementation of objectives and competence profile for the composition of the Supervisory Board The Supervisory Board believes that it meets the abovementioned objectives for its composition and competence profile. The members of the Supervisory Board have the required knowledge, expertise and experience to properly carry out their duties in the Supervisory Board, and are collectively familiar with the sector in which the Company operates. An adequate number of Supervisory Board members have the required level of international experience. Diversity aspects are adequately taken into account in the Supervisory Board. The members have different professional and educational credentials (such as a professional background in law, economics, mathematics, natural sciences, business and insurance). The Supervisory Board members also have management experience in various sectors (such as finance and insurance, IT, chemicals, the automobile industry), and extensive experience in academia and politics. The proportion of women on the Supervisory Board at the end of the 2018 financial year was 45%, so the objective of having at least 30% of the seats on the Supervisory Board filled by women is already exceeded.
Munich Reinsurance Company publishes information of this kind on its website without undue delay at www.munichre.com/en/managers-transactions.
Diversity The composition of the Supervisory Board should pay due regard to diversity of its members – especially in terms of professional background and education, internationality, age and gender. No change has been made to the objective of having at least 30% of Supervisory Board seats filled by women at the start of the next term of office. The diversity aspect should be taken into account at an early stage when selecting potential candidates for re-election or appointment to the Supervisory Board.
Length of membership and age limit Future nominations of candidates for election to the Supervisory Board should also take into account that, as a rule, at the time of election no candidate should already have been on the Supervisory Board for a continuous period of more than ten years. Normally, Supervisory Board members should not serve on the Board for a continuous period of more than twelve years. In addition, nominated candidates should not be older than 70 years of age.
The Supervisory Board’s Nomination Committee selects candidates for the shareholder representatives based on a defined set of criteria. Besides the objectives and competences mentioned, these criteria include a good overall understanding of the Company’s business model, sufficient time availability, and specific skills and competence. The set of criteria also includes other personal qualities of the Supervisory Board members, such as corporate and international experience, a strong commitment to corporate governance and to a sustainable corporate strategy and business policy geared to creating long-term value for shareholders, strategic and problemsolving skills, and competence in dealing with change.
Additional requirements will be defined on a case-by-case basis for specific tasks to be handled by the Supervisory Board. The European Electoral Board, which is responsible for the election of the employee representatives, applies a corresponding set of criteria. In addition, the specific rules for co-determination apply.
Dr. oec. publ. Joachim Wenning Chairman of the Board of Management Chairman of the – Group Committee – Strategy Committee – Group Investment Committee
Group Holdings Group Strategy and M&A Group Communications Group Audit Economics, Sustainability & Public Affairs3
Group Human Resources Group Executive Affairs Group Compliance and Legal (since 1 January 2019)
Dr. rer. pol. Thomas Blunck Life and Health Capital Partners Digital Partners Reinsurance Investments
Special and Financial Risks (until 31 July 2018) Europe and Latin America (since 1 August 2018) Human Resources
Dr. rer. pol. Peter Röder Global Clients and North America Europe and Latin America (until 31 July 2018)
MEAG MUNICH ERGO Kapitalanlagegesellschaft mbH, Munich2 1 As at 31 December 2018; seats held on supervisory boards of German companies and memberships of comparable bodies of German and foreign business enterprises. 2 Own Group company within the meaning of Section 18 of the German Stock Corporation Act (AktG). 3 Including responsibility for environmental, social and governance (ESG) issues.
Dr. Ing. E. h. Dipl. Ing. Bernd Pischetsrieder Chairman Member since 17 April 2002, last re-elected 30 April 2014
Standing Committee Personnel Committee Audit Committee Nomination Committee Conference Committee Remuneration Committee (since 1 January 2018)
Deutsche Börse AG, Frankfurt4 (until 8 May 2019) Linde AG, Munich4,7 (until conclusion of the envisaged squeeze-out of the company) Linde plc, Ireland4,7
Euroassekuranz Versicherungsmakler AG, Regensburg (Chair) Hyperion Insurance Group Ltd., United Kingdom
1 As at 31 December 2018. 2 Seats held on supervisory boards of German companies and memberships of comparable bodies of German and foreign business enterprises. 3 Own Group company within the meaning of Section 18 of the German Stock Corporation Act (AktG). 4 Listed on the stock exchange.
Ina Hosenfelder Employee of ERGO Group AG Member since 30 April 2014
Prof. Dr. rer. nat. Dr. Ing. E. h. Henning Kagermann Chair of the Board of Trustees of acatech – German Academy of Science and Engineering Member since 22 July 1999, last re-elected 30 April 2014
Ulrich Plottke Employee of ERGO Group AG Member since 30 April 2014
Macroeconomic and industry environment 047 Capital markets 047 Insurance industry 047
Business performance 050 Board of Management’s overall assessment of the business performance and situation of the Group 050 Business performance of the Group and overview of investment performance 050 Reinsurance – Life and health 054 Reinsurance – Property-casualty 055 ERGO Life and Health Germany 058 ERGO Property-casualty Germany 060 ERGO International 061
The CR in insurance and CR in investment sections include information on the statutory aspects of environmental protection, social factors and human rights. The combined non-financial statement prepared in accordance with sections 289b(3) and 315b(3) of the German Commercial Code (HGB) can be found at www.munichre.com/cnfs in the information on corporate governance.
In ERGO, we combine all of Munich Re’s primary insurance activities. Some 68% of gross premiums written by ERGO derive from Germany, and 32% from international business – mainly from central and eastern European countries. ERGO has also extended its activities to Asian markets such as India, China, Singapore and Thailand.
In reinsurance, we operate in life, health and propertycasualty business. Under reinsurance, we also include specialised primary insurance activities that are handled by the reinsurance organisation and business from managing general agencies (MGAs). Munich Re does business with over 4,000 corporate clients from more than 160 countries.
As reinsurers, we write our business in direct collaboration with primary insurers, but also via brokers and within the framework of strategic partnerships. In addition to traditional reinsurance business, we participate in insurance pools, public-private partnerships, business in specialist niche segments, and also as a primary insurer. Through our operating field Risk Solutions, we offer our clients a wide range of specialised products, customised insurance solutions and services, which we manage from within our reinsurance organisation. Our clients thus have direct access to the expertise, innovative strength and capacity of a leading global risk carrier. Thanks to our capital management know-how, we are a sought-after partner for products geared to our clients’ balance-sheet, solvency and rating-capital requirements, as well as their risk models.
International AG manages the ERGO Group’s international business. The third pillar, ERGO Digital Ventures AG, is responsible for all of the ERGO Group’s digital and direct activities. Since the beginning of 2019, a new IT company to strategically manage international IT activities has been in operation; it is at the same level as ERGO Germany, ERGO International and ERGO Digital Ventures. The new company’s name is ERGO Technology & Services Management AG.
With ERGO Versicherung AG, our primary insurance arm is one of Germany’s largest providers of property and legal protection insurance. As a specialist in capital-marketoriented insurance, ERGO Vorsorge Lebensversicherung AG is shaping change in the area of private provision and biometric risk products. ERGO Lebensversicherung AG and Victoria Lebensversicherung AG are responsible for running off our traditional life insurance portfolio. DKV Deutsche Krankenversicherung AG is a leading provider and specialist in the healthcare market, catering for both privately and statutorily insured individuals with its broad range of supplementary covers. The specialist travel insurer ERV is a market leader internationally as well as in Germany.
Under the aegis of ERGO Digital Ventures AG, ERGO Direkt Versicherungen is the online centre of competence with responsibility for direct business and provides the expertise in digital marketing that is becoming increasingly important across the market. In Europe and Asia, ERGO is represented by life and property insurers and specialised travel and legal protection insurers.
Our Europe and Latin America Division is responsible for property-casualty business with our clients from Europe, Latin America and the Caribbean. Business Units – for example, in London, Madrid, Paris and Milan – afford us market proximity and regional competence. In the South American markets, our Brazilian subsidiary Munich Re do Brasil Resseguradora S.A. and our liaison office in Bogotá help to ensure client proximity. The division also includes the divisional unit Financial Risks. Great Lakes Insurance SE, which has its headquarters in Munich and a large branch office in London, is also assigned to this division. In future, we will pool a significant share of our Group-wide business activities in the United Kingdom in these units. In consultation with the relevant supervisory authorities, we have prepared for the various scenarios and consequences of the United Kingdom leaving the European Union and will be able to continue with our business operations in any of these cases. The necessary preparatory work and measures have been initiated.
The Asia Pacific and Africa Division conducts propertycasualty business with our clients in Africa, Asia, Australia, New Zealand and the Pacific Islands. Branches in Mumbai, Beijing, Seoul, Singapore, Sydney and Tokyo allow us to take full advantage of the business opportunities in the rapidly growing Asia-Pacific insurance market. In the African market, we are represented by our subsidiary Munich Reinsurance Company of Africa Ltd., headquartered in Johannesburg. These branches and other liaison offices guarantee our competitiveness in these key growth markets.
German, international, and direct and digital business are bundled in three separate units – ERGO Deutschland AG, ERGO International AG, and ERGO Digital Ventures AG – under the umbrella of ERGO Group AG. Traditional German business is concentrated in ERGO Deutschland AG. ERGO
In Asia, ERGO is represented through partnerships in joint ventures in the rapidly growing markets of India and China, and in other countries. In India, HDFC ERGO continues to perform very well. In China, ERGO China Life – a joint venture with the state-owned financial investor SSAIH – is tapping into the potential of the major provinces of Shandong and Jiangsu. And in Thailand, too, our affiliate is performing well.
ERGO gears itself consistently to clients’ needs and wants. They demand excellent service online and offline, irrespective of the sales channel or product category – and they want the security of a strong brand. Hence, ERGO will position itself in future as a brand offering most insurance products from a single source and via all channels. In other words, ERGO Direkt and Europäische Reiseversicherung (the travel insurer of ERGO; ERV) will continue their success stories under the ERGO brand.
Of ERGO’s European companies, in particular those in Poland, Belgium, Spain, Austria, the Baltic states and Greece have a strong market presence. ERGO is the
The remuneration report describes the structure of the remuneration system for the Board of Management and Supervisory Board in the past financial year, and contains detailed information on the individual remuneration of the members of the Board of Management and Supervisory Board.
Remuneration of the members of the Board of Management in 2018 The full Supervisory Board decides on the remuneration system for the Board of Management, and reviews it regularly. Since its formation on 1 January 2018, the Remuneration Committee has been responsible for preparing resolutions on remuneration matters for the full Supervisory Board. The Remuneration Committee is composed of the Chairman of the Supervisory Board and one representative each of the shareholders and employees. Following the 2019 Supervisory Board election, the Committee is to be set up in such a way that the two shareholder representatives may not be members of the Supervisory Board for more than ten years. This meets a key demand of our shareholders.
Structure of the remuneration system for the members of the Board of Management
Basic remuneration 50% Function, responsibility, Fixed plus remuneration in kind/ Length of service fringe benefits on Board
Variable remuneration 50% Corporate performance, Result of divisional unit, Personal performance 30% annual bonus IFRS consolidated result Linear scaling Achievement of Evaluation of (for 100 % performance evaluation) 0 – 200% annual objective overall performance: (fully achieved Bonus scheme = 100 %) Adjustment of spanning achievement figures one calendar year by the Supervisory Board, taking into 70% multi-year bonus Total shareholder return Linear scaling2 Performance of account (for 100 % performance evaluation) (TSR) of Munich Re 0 – 200% Munich Re – individual and shares compared with a shares compared collective management Bonus scheme defined peer group 0% = lowest with peer group performance spanning TSR value in – financial situation, five calendar years (Peer group: Allianz, AXA, the peer group performance and Generali, Hannover Re, comparison future prospects of the SCOR, Swiss Re, Zurich Company Insurance Group) 200% = highest TSR value in Loading/reduction of the peer group up to 20 percentage comparison points
Defined contribution plan Target overall direct Pension > Retirement remuneration3 contribution > Insured event > Premature termination
Munich Re’s business strategy is geared to profitable growth and successful positioning among our competitors. As an established result aggregate and relevant key figure for the capital market, the IFRS consolidated result takes account of high and stable earnings power in the annual variable remuneration component. The target for the IFRS consolidated result is based on annual planning figures, which in turn reflect Munich Re’s business strategy.
Based on its long-term strategic orientation and economic management of the Group, Munich Re is convinced of its ability to sustainably create value for its shareholders in the form of TSR. TSR takes account of dividend payments as well as share price performance. A multi-year component based on an increase in TSR in comparison with our peer group makes up the largest portion of variable remuneration for the Board of Management. From Munich Re’s point of view, the relative TSR is well suited for bringing in line the interests of shareholders and of the members of the Board of Management. As TSR is measured over a period of several years, it reflects Munich Re’s sustainable and longterm performance not only in absolute terms, but also in relative terms. After all, above-average TSR development in comparison with the peer group is not conceivable in the long term without simultaneously generating good results and creating value for our shareholders. Surpassing the performance of our peer group can be in the interests of shareholders – even in a weak market environment.
In evaluating overall performance, in particular financial and non-financial criteria for the individual member’s performance and the performance of the respective divisional unit/division and the field of business need to be taken into consideration. Other aspects, such as those relating to periods prior to the appraisal period in question, may also be taken into account. For this purpose, the Supervisory Board has compiled a set of criteria with the following examples of bonus-malus aspects: The equal shares of basic remuneration and variable remuneration provide for a balanced composition of overall remuneration as stipulated in the Solvency II regulations. In accordance with Solvency II, fixed and variable remuneration components must be in balance, so that the fixed component represents a sufficiently high proportion of the total remuneration and enables the undertaking to apply a fully flexible bonus policy, including the possibility of paying no variable remuneration at all. There should be no incentive for members of the Board of Management to engage in excessive risk-taking in order to achieve higher bonuses.
Munich Re Group Annual Report 2018 €1,800m = 0% achievement of objective €2,500m = 100% achievement of objective €3,200m = 200% achievement of objective
Achievement of objective in 2018 At its meeting in March 2019, the Supervisory Board will decide about the achievement of objectives in 2018 on the basis of the IFRS consolidated result and taking into account any loadings or reductions as part of the overall performance evaluation. As the editorial deadline for the Annual Report precedes the Supervisory Board meeting, this information could not be included in the remuneration report. However, it will be made available at www.munichre.com/board-of-management/remuneration on 20 March 2019.
The contractual indemnity provision protects the Company; it is designed to safeguard the Company’s assets in the event of a serious breach of duty. In the Company’s view, an additional clawback provision for bonuses already paid is therefore not required.
Upper remuneration limits The respective 0–200% target corridor defines an upper limit for variable remuneration paid to members of the Board of Management. Any higher achievement of objectives is capped at 200%; in this case, there is therefore also no loading as a result of the overall performance evaluation. In addition, there are caps on the maximum amounts of total remuneration and its variable components in accordance with the German Corporate Governance Code.
The TSR used in the multi-year bonus reflects the performance of Munich Re’s shares, which ensures that the interests of the Board of Management are in line with those of our shareholders. From the Company’s point of view, the continually increasing requirements in terms of insider trading law regarding the purchase and sale of shares and the rising number of inquiries – also in connection with share-based remuneration components – are compelling reasons to refrain from remuneration based on the obligation to purchase shares. The reputational damage that may ensue for a company is huge (even if the legal proceedings are terminated) and may also have a negative effect on shareholders.
bonus fully reflects the sustainable and long-term performance of Munich Re’s shares, so that a further multiyear deferral period – which in turn is geared to share price performance – is neither expedient nor necessary. In the case of the annual bonus, a deferral period does not offer any significant added value either, as the annual bonus makes up only 15% of overall remuneration.
Total value XETRA of shares in Number closing Total value % of basic of shares on price on of shares on remuneration Members of the Board of Management 28.12.20181 28.12.20181 28.12.20181 for 20182 1 Last trading day in 2018.
As a matter of principle, the Company ensures that severance payments are related to performance achieved over the whole period of activity.
Stock option plans No stock option plans or similar incentive schemes are in place for the Board of Management.
Benefit: − In the case of defined contribution plans: 80% of the insured occupational pension up to the age of 59 or 61, with subsequent occupational pension. − In the case of a combination of defined benefit plans and defined contribution plans: Vested pension from the defined benefit plan and 80% of the insured occupational pension benefit up to age 59, with subsequent occupational pension based on the defined contribution plan.
Board of Management remuneration under DRS 17 Under DRS 17, remuneration for the 2018 annual bonus is shown as the provisions set aside for that purpose taking into account the relevant additional/reduced expenditure for the previous year, since the performance on which the remuneration is based has been completed as at the balance sheet date and the requisite Board resolution is already foreseeable. Under DRS 17, remuneration for multi-year performance 2015–2017 is recognised in the year of payment, i.e. in 2018.
2 The multi-year performance component paid annually until 2017 is geared to the success of the fields of business and personal performance of the members of the Board of Management, for which three-year objectives were agreed. In addition, the Supervisory Board assesses the overall performance of the Board of Management as a whole and the individual Board members, and it also takes into account developments during the appraisal period that are beyond the influence of the Board. Payment is effected in the fourth year, with 25% of the net payout amount to be invested in Munich Reinsurance Company shares that must be held for at least a two- year period. 3 The amounts paid out in 2018 were for multi-year performance 2015–2017, those paid out in 2017 were for 2014–2016. 4 The compensation components that Markus Rieß received for his work at ERGO Group AG are included in the remuneration. Other: Compensation, paid in four equal instalments, for the forfeited variable remuneration from the previous employer. 5 The higher basic remuneration compared with the previous year is due to an increase in the fixed component of target overall direct remuneration from 30% to 50% as of 2018, and to a general upward remuneration adjustment.
Remuneration of individual Board members as per DRS 17 (revised 2010) (in accordance with Section 285 sentence 1 (9a) sentences 5–8 of the German Commercial Code (HGB) and Section 314(1) (6a) sentences 5–8 HGB)
Munich Re Group Annual Report 2018 1 The remuneration set for the annual bonus for 2018 is payable in 2019, that for 2019 in 2020. 2 The remuneration set for the multi-year bonus for 2018 is payable in 2022, that for 2019 in 2023. 3 Information on the assessment bases and targets for the amounts set for 2018 and 2019 is provided on page 29 ff. 4 The ERGO Group AG remuneration system does not provide for a variable component. Markus Rieß thus only receives variable target amounts from Munich Reinsurance Company.
Multi-year Total amounts Name Annual bonus1, 3 bonus2, 3 payable Set in for € € €
The following tables show the benefits granted and the remuneration paid out in accordance with the German Corporate Governance Code: Board of Management remuneration under the German Corporate Governance Code As required by the provisions of the German Corporate Governance Code, the following tables show the benefits granted and remuneration paid out to individual members of the Board of Management in the year under review.
1 In the case of Board members transferred from the old system to the new, the amount corresponds to the value of the annual vested pension at 31 December 2008. 2 Expenses for defined benefit plan, including provision for continued payment of salary for surviving dependants. 3 Entitled to occupational pension in the event of termination of employment owing to incapacity to work.
Defined contribution plan Pension Present contribution value of rate for target Entitlement entitlement Financial overall direct as at as at Personnel Name year remuneration 31 December 31 December expenses
Remuneration in kind/fringe benefits 39,201 39,201 39,201 128,254 33,797 33,797 33,797 31,466
Remuneration in kind/fringe benefits 32,273 32,273 32,273 32,105 37,021 37,021 37,021 36,179
Munich Re Group Annual Report 2018 1 The multi-year performance component paid annually until 2017 is geared to the success of the fields of business and personal performance of the members of the Board of Management, for which three-year objectives were agreed. In addition, the Supervisory Board assesses the overall performance of the Board of Management as a whole and the individual Board members, and it also takes into account developments during the appraisal period that are beyond the influence of the Board. Payment is effected in the fourth year, with 25% of the net payout amount to be invested in Munich Reinsurance Company shares that must be held for at least a two- year period. 2 Rieß: Remuneration also includes compensation components and pension expenses for work at ERGO Group AG. 3 Rieß: Compensation, paid in four equal instalments, for the forfeited variable remuneration from the previous employer.
Remuneration in kind/fringe benefits 120,626 120,626 120,626 140,167 47,250 47,250 47,250 49,342
Peter Röder Jörg Schneider Board member Board member (leaving date: 31 December 2018)
Remuneration in kind/fringe benefits 31,713 31,713 31,713 30,278 37,719 37,719 37,719 41,782
Doris Höpke Torsten Jeworrek Board member Board member Overall Overall performance performance evaluation evaluation
Basic remuneration 1,075,000 615,000 1,550,000 885,000 Remuneration in kind/fringe benefits 32,273 32,105 37,021 36,179 Total 1,107,273 647,105 1,587,021 921,179 One-year variable remuneration
Joachim Wenning Thomas Blunck Board member (until 26 April 2017) Board member Chairman of the Board of Management (since 27 April 2017) Overall Overall performance performance evaluation evaluation
Multi-year variable remuneration Multi-year performance 2015–20171, 3 646,800 66 637,000 65
Other Total 3,668,421 2,237,009 2,181,817 1,662,306 Pension expenses 1,136,448 889,414 538,910 511,187 Total remuneration 4,804,869 3,126,423 2,720,727 2,173,493
Markus Rieß Board member Total5 thereof for Munich Reinsurance Company Overall performance evaluation
Basic remuneration 2,462,500 976,250 637,500 337,500 Remuneration in kind/fringe benefits 120,626 140,167 47,250 49,342 Total 2,583,126 1,116,417 684,750 386,842 One-year variable remuneration
2 At the time of preparation of this report, no Supervisory Board resolution had yet been passed on the amounts to be paid for the 2018 annual bonus, the amount shown is based on estimates and the relevant provisions posted. 3 The multi-year performance component paid annually until 2017 is geared to the success of the fields of business and personal performance of the members of the Board of Management, for which three-year objectives were agreed. In addition, the Supervisory Board assesses the overall performance of the Board of Management as a whole and the individual Board members, and it also takes into account developments during the appraisal period that are beyond the influence of the Board. Payment is effected in the fourth year, with 25% of the net payout amount to be invested in Munich Reinsurance Company shares that must be held for at least a two-year period. 4 At the time of preparation of this report, no Supervisory Board resolution had yet been passed on the amounts to be paid for the 2016–2018 multi-year performance, the amount shown is based on estimates and the relevant provisions posted. 5 Rieß: Remuneration also includes compensation components and pension expenses for work at ERGO Group AG. 6 Rieß: Compensation, paid in four equal instalments, for the forfeited variable remuneration from the previous employer.
Peter Röder Jörg Schneider Board member Board member (leaving date: 31 December 2018) Overall Overall performance performance evaluation evaluation
Multi-year variable remuneration Multi-year performance 2015–20171, 3 637,000 65 1,051,540 74
For membership of supervisory boards at Munich Reinsurance Company subsidiaries, In accordance with Article 15 of the in accordance with the companies’ Articles of Association respective articles of association Fixed remuneration Fixed remuneration Com- Com- Financial mittee Attend- mittee Attend- Name year Annual work ance fees Total Annual work ance fees Total
Ann-Kristin Achleitner 2018 90,000 72,000 20,000 182,000 2017 90,000 45,000 13,000 148,000 Kurt Wilhelm Bock (since 25 April 2018) 2018 67,500 – 3,000 70,500 2017 – – – – Clement B. Booth 2018 90,000 – 6,000 96,000 2017 90,000 – 6,000 96,000 Frank Fassin 2018 90,000 – 6,000 96,000 35,000 – – 35,000
Benita Ferrero-Waldner 2018 90,000 – 6,000 96,000 2017 90,000 – 5,000 95,000 Christian Fuhrmann 2018 90,000 45,000 15,000 150,000 2017 90,000 45,000 12,000 147,000 Ursula Gather 2018 90,000 – 6,000 96,000 2017 90,000 – 6,000 96,000 Gerd Häusler 2018 90,000 13,500 7,000 110,500 2017 90,000 13,500 6,000 109,500 Anne Horstmann 2018 90,000 45,000 15,000 150,000 52,500 7,500 – 60,000
Ina Hosenfelder 2018 90,000 – 4,000 94,000 2017 90,000 – 6,000 96,000 Renata Jungo Brüngger 2018 90,000 – 6,000 96,000 2017 90,000 – 3,000 93,000 Henning Kagermann 2018 90,000 130,500 21,000 241,500 2017 90,000 130,500 17,000 237,500 Beate Mensch 2018 90,000 – 6,000 96,000 2017 90,000 – 6,000 96,000 Ulrich Plottke 2018 90,000 – 6,000 96,000 35,000 17,500 – 52,500
Ron Sommer (until 25 April 2018) 2018 30,000 – 3,000 33,000 2017 90,000 – 6,000 96,000 Angelika Wirtz 2018 90,000 27,000 9,000 126,000 2017 90,000 27,000 10,000 127,000 Maximilian Zimmerer 2018 90,000 – 6,000 96,000 2017 45,000 – 2,000 47,000 Total2 2018 1,942,500 486,000 186,000 2,614,500 172,500 25,000 – 197,500
The US Federal Reserve continued its monetary tightening campaign by raising the policy rate four times in 2018. At the end of December, the target corridor for the US key interest rate was 2.25–2.5%. In addition, expiring bonds previously purchased by the Fed were no longer fully reinvested. By contrast, the European Central Bank (ECB) continued to pursue an expansionary monetary policy, maintaining its key interest rate at 0%. However, during the course of the year it reduced the monthly volume of its bond purchases in two stages, and ceased making any net purchases in December. The redemption amounts for securities purchased as part of the ECB’s bond-buying programme will, however, continue to be reinvested at maturity for quite some time.
Driven by strong economic growth, higher inflation and monetary tightening, yields on ten-year US government bonds rose to over 3.2% during the year. Towards the end of the year, however, yields fell again due to increasing risk aversion on global capital markets. In Europe, the low interest-rate environment continued to pose great challenges for investors: yields on ten-year German government bonds rose to over 0.7% in February, but then repeatedly fell back to a very low level over the further course of the year. One reason for the increased demand for German government bonds – which are perceived as safe – was concern over the fiscal policies of the new government in Italy. The yield differential between Italian and German government bonds widened significantly. Other causes of the fall in German government bond yields were uncertainty about Brexit, the escalating trade war between the USA and its trading partners (especially China), and the financial crisis in Turkey.
The US dollar to euro exchange rate fluctuated in 2018. The euro exchange rate rose to US$ 1.25 at the beginning of the year, but later fell sharply and reached a low of US$ 1.12 in November. At the end of December, the euro exchange rate was around 5% lower against the US dollar than at the end of 2017, but higher against the Canadian dollar (around 4%) and pound sterling (around 1%). Compared with the previous year, the average annual value of the euro for 2018 was up by almost 5% against the US dollar, by more than 4% against the Canadian dollar, and by around 1% against the pound. Further information on exchange rates can be found in the Notes to the consolidated financial statements on page 116.
According to preliminary estimates, the German insurance industry’s premium income increased significantly in 2018. Premiums in property-casualty business and health insurance showed solid growth, in line with the average in recent years. In life insurance, premium volume also increased in 2018, following several years of decline.
Our value-based management is characterised by the following aspects: − Risk capital, i.e. the capital required to cover the risks, is the basis of our value- and risk-based management. The capital requirement corresponds to the solvency capital requirement under Solvency II, as determined on the basis of our certified internal risk model. Information on the internal risk model is provided on page 67 ff. − Consequently, business activities are assessed not only according to their earnings potential, but also relative to the extent of the risks assumed. Only the risk-return relationship reveals how beneficial an activity is from the point of view of our shareholders. − With value-based corporate management tools, we ensure an economic valuation and the comparability of alternative initiatives.
Contrasting aspects have to be evaluated when selecting suitable target figures. On the one hand, the often complex economic realities should be reflected as closely as possible in order to emphasise added value as the Group’s overriding guiding principle, on the other hand target figures should be simple and easy to understand for investors, staff, and the public.
In applying the uniform Group performance-measurement model of economic earnings in the individual fields of business, we use conceptually consistent value-based and risk-capital-based measurement approaches that are individually geared to the characteristics of each of the respective businesses. These comprise the adjusted result with a minimum required return on the risk capital for property-casualty reinsurance and the excess return from our investment activity (asset-liability management). In life and health reinsurance, we apply value added by new business and the change in value of in-force business, which are based on the solvency balance sheet. The management tool economic earnings is used directly for ERGO. Group corporate management is designed so that we are in a position to maximise value creation while observing subsidiary parameters.
The combined ratio is regularly posted for propertycasualty business. Calculated as the percentage ratio of the sum of expenses for claims and benefits plus operating expenses to earned premiums (all of which are net, i.e. after reinsurance cessions), the combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio of 100% means that premium income was exactly sufficient to cover claims and costs. Expenses for claims and benefits mainly include paid claims, the change in claims provisions, and the bulk of other underwriting expenses.2 Operating expenses chiefly comprise the costs arising in the acquisition of new business and for the ongoing administration of insurance contracts.
1 We use the figures set at the beginning of the period in order to calculate RORAC.
For us, the combined ratio by itself is not a sufficiently informative performance measure. It is only of limited suitability for comparing the financial performance of competitors owing to differing calculation methods and portfolio mixes. Generally, we aim to keep the combined ratio as low as possible by means of good underwriting and claims management.
Key figures 2018 Prev. year Change % Gross premiums written €bn 49.1 49.1 –0.1 Combined ratio
Reinsurance property-casualty % 99.4 114.1 ERGO Property-casualty Germany % 96.0 97.5 ERGO International % 94.6 95.3
Technical result €m 2,779 –292 – Investment result €m 6,526 7,611 –14.3 Result from insurance-related investments €m –685 443 –
Currency result €m –39 –294 86.7 Taxes on income €m –576 298 – Risk-adjusted capital (RORAC) % 9.1 1.5 Economic earnings €bn 1.9 0.5 245.3 Return on equity (RoE)1 % 8.4 1.3 Consolidated result €m 2,275 392 480.2 Investments €bn 216.9 217.6 –0.3 Insurance-related investments €bn 8.4 9.7 –12.8 Net technical provisions €bn 208.3 205.8 1.2 Equity €bn 26.5 28.2 –6.0
Economic earnings are attributable to factors from new and in-force business deriving from underwriting, and to the impact of capital market parameters. Operational value creation was positive in reinsurance and at ERGO. By contrast, market variances caused by wider risk spreads on fixed-interest securities and lower share prices had an adverse impact on both reinsurance and ERGO. Adverse effects were offset by positive effects, in particular from updated property valuations in reinsurance.
Our investment result (excluding insurance-related investments) decreased to €6,526m (7,611m), due in particular to lower gains on disposal.
Our effective tax rate is 20.2% (–315.0%). In the previous year, the tax rate had been influenced by a positive, one-off effect from the US tax reform.
Other securities available for sale 139,272 143,845 6,771 10,883 139,272 143,845
Other securities at fair value through profit or loss 2,616 1,979 0 0 2,616 1,979
Life and health reinsurance 22% (28%) Property-casualty reinsurance 42% (36%) ERGO Life and Health Germany 19% (19%) ERGO Property-casualty Germany 7% (7%) ERGO International 10% (10%)
Combined management report Business performance bonds. We mainly reduced our bond holdings from issuers in the USA, Germany, Italy and Spain in the reporting year. The purchase of government bonds from emerging markets is part of our balanced investment strategy. The share of these bonds came to 9.6% of our portfolio of government bonds; the share of Argentinian and Turkish government bonds came to a total of 0.3%.
The emphasis of our investment in covered bonds remained on German securities, with around 38%. We also held bonds from France (20%) and the United Kingdom (8%) in our portfolio.
The regional weighting of corporate bonds in our portfolio is 33% for the USA and 39% for the eurozone.
Our investment in bank bonds is limited, and was further reduced in the course of the year. The share in our overall portfolio of interest-bearing securities was 2% at the reporting date. Financial instruments from states in southern Europe made up 3% of this portfolio. Most of our bank bonds were senior bonds (80%), i.e. bonds that are not subordinated or subject to loss participation. Subordinated bonds and loss-bearing bonds made up 20% of our bank bond holdings.
The higher level of risk spreads and the realisation of valuation reserves were chiefly responsible for the decline in net unrealised gains on loans and other fixedinterest securities available for sale. The valuation reserves on equities decreased primarily due to negative market development.
At the reporting date, over half of our portfolio of interestbearing securities was invested in government bonds. The vast majority of these continue to come from countries with a high credit rating. The fair value of our German and US government bond holdings came to 13.4% (13.8%) and 8.3% (8.7%) of the portfolio of interest-bearing securities. Italian and Spanish government bonds each accounted for around 1.1% (1.6%) and 2.0% (2.3%) of the portfolio of interest-bearing securities. Our new investments in the reporting year were above all in Australian government
Covered bonds 23% (23%) Corporate bonds 12% (11%) Cash other 5% (4%) Structured products (credit structures) 2% (2%) Bank bonds 2% (2%) Policy and mortgage loans 4% (3%)
Result from equities and equity derivatives1 €m 2018 Prev. year Regular income 614 606 Write-downs –964 –133 Realised gains/losses 739 886 Result from equities 389 1,359 Change in on-balance-sheet unrealised gains and losses in equity (gross) –1,444 337 Result from equity derivatives 341 –363 Total –714 1,333 1 To determine the total annualised return on our equity portfolio (see text), we calculate the ratio of the total result shown in the table and the mean value of the following figures: Equity portfolio (carrying amounts) as at 31 December 2017 (€17,359m), 31 March 2018 (€16,911m), 30 June 2018 (€16,795m), 30 September 2018 (€18,151m) and 31 December 2018 (€15,177m).
We posted a net gain from write-ups and write-downs of derivatives and from the disposal of derivatives. This was primarily due to gains on equity derivatives, which counterbalanced losses on interest, commodity and credit derivatives.
1 Details of the result by type of investment are shown on page 157 in the Notes to the consolidated financial statements. 2 Annual % return on the mean value of the investment portfolio measured at market value as at the quarterly reporting dates. The overall investment portfolio used to determine the return for 2018 (2.8%) is calculated as the mean value of the investment portfolios (carrying amounts) as at 31 December 2017 (€217,562m), 31 March 2018 (€216,201m), 30 June 2018 (€217,546m), 30 September 2018 (€216,950m) and 31 December 2018 (€216,852m), and the off-balance-sheet unrealised gains and losses (excluding owner-occupied property and insurance-related loans) as at 31 December 2017 (€14,323m), 31 March 2018 (€13,580m), 30 June 2018 (€13,604m), 30 September 2018 (€14,321m) and 31 December 2018 (€15,024m).
The main reason for this positive development was favourable claims experience overall, mainly on account of mortality business in the USA. By contrast, claims expenditure in Canada was slightly higher than anticipated owing to what can be assumed to be random fluctuations.
As in the previous year, Australian disability business saw increased claims expenditure, which we took into account by strengthening our provisions for outstanding claims. Furthermore, we expect a planned change in legislation to adversely impact our Australian business. In order to make allowance for the foreseeable effects this will have, we have written off part of our deferred acquisition costs. The aforementioned negative developments were largely offset by net positive reserving effects in other portions of the portfolio, including reserve releases in health reinsurance in particular. The result also benefited from the development of new business.
One-off business effects balanced each other out: run- off profits were generated from the recapture of a treaty in Europe, whilst the technical result was adversely impacted by the sale of group life specialist Ellipse in the United Kingdom. However, including the non-technical components, the consolidated result benefited overall from this sale.
Based on premium volume, around 40% of our global reinsurance business is written in North America, with the USA (around 25%) ranking before Canada (around 15%). Some 25% of our premium comes from Europe, with approximately 10% generated in the United Kingdom and about 5% in Germany. Further substantial shares derive from Asia (around 25%) and Australia/New Zealand (approximately 10%). Our activities in the MENA region are ascribed to Asia. We are also well positioned in Africa and Latin America, but due to the small size of these markets, their share of our global business is modest (less than 5% in total).
The substantial increase in premium volume was due to an expansion of business across almost all lines and regions. Key drivers included growth of existing and new business with selected clients in North America, a new large-volume reinsurance quota share treaty in Australia, and selective growth in India and China. Motor, fire, liability and marine business were the main sources of growth.
Thereof: Major losses Percentage points 11.6 25.8 Expense ratio % 34.2 33.5 Combined ratio % 99.4 114.1 Technical result €m 1,250 –1,261 – Investment result €m 1,555 1,895 –17.9 Operating result €m 1,534 –635 – Consolidated result €m 1,135 –476 –
in the United Kingdom. Overall, however, this sale had a positive effect on the consolidated result.
In the USA, gross premium remained largely constant at €2.8bn (2.8bn), despite the adverse effect of currency exchange rates. We therefore continue to be one of the most important reinsurers in this market, which is the largest worldwide. The technical result was significantly up on the previous year and also gratifyingly higher than we expected – mainly thanks to favourable claims experience overall, particularly in mortality business, and positive reserving effects from health business in the process of being run off. We continue to be very satisfied with the development of our new business, both in terms of volume and profitability.
In Asia, which also comprises business written in the MENA region, our premium income climbed to €2.6bn (2.1bn). New business continued to develop very well. Thanks to our broad diversification, we are in a position to benefit from the growth potential in the region. The technical result was good, and in line with expectations.
The consolidated result and the operating result in property-casualty reinsurance improved compared with the previous year. Expenditure for major losses was down, and the technical result increased compared with the severely hurricane-affected 2017. Adjusted for commissions, Munich Re’s customary review of provisions resulted in a reduction in the basic claims provisions for prior years of around €860m for the full year, which is equivalent to around 4.6 percentage points of the combined ratio. This positive development related to almost all lines in our portfolio. The safety margin in the provisions remained unchanged year on year.
Major losses – in excess of €10m each – totalled €2,152m (4,314m) in 2018, after retrocession and before tax. This amount includes run-off profits and losses for major claims from previous years, and is equivalent to 11.6% of net earned premium. It is much lower than in the previous year, and also slightly below our major-loss expectation of 12% of net earned premium.
At €896m, man-made major losses were up on the previous year (€636m). This figure is equivalent to 4.8% (3.8%) of net earned premium. The number of losses above the major-loss threshold was randomly higher than in previous years. The most expensive individual loss resulted from structural damage to a hydroelectric power station in Colombia.
Our individual core markets and selected special lines Based on premium volume, around 45% of our global property-casualty reinsurance business – including Risk Solutions – is written in North America (including Canada). Around 35% of our premium comes from Europe, of which more than half is generated in the United Kingdom. Further substantial shares are contributed by Asia (about 10%), Australia/New Zealand (approximately 5%) and Latin America (approximately 5%).
In the US market, we continued to grow our existing reinsurance business with selected clients and, in addition, wrote profitable new business in the past financial year. Consequently, as in the previous year, Munich Reinsurance America Inc. increased its premium volume to €4,384m (3,409m). Reinsurance prices improved in the wake of loss events in the previous year. The year’s results were again negatively affected by Hurricanes Florence and Michael. In addition, other natural hazard events such as the wildfires in California, local hail events and tornadoes also had an impact on the results.
European business is dominated by property business and UK motor business. In the United Kingdom, premium volume was up at €3,588m (3,210m). This increase was mainly attributable to the expansion of our business relationships with strategic clients. In Continental Europe, premium volume increased moderately despite the difficult market environment. Targeted growth of business, for instance in France, and alternative capital solutions more than offset the decline from our consistent cycle- and profitability-oriented portfolio management in traditional reinsurance.
In Australia and New Zealand, we significantly grew our reinsurance business to €1,210m (698m) by providing a large-volume, multi-year proportional reinsurance solution for a major client.
Premium income in Japan was slightly up on the previous year; it totalled €336m (281m).
In India, we continued to expand our business in 2018, and premium income increased to €206m (120m). Thanks to our local branch, we are well positioned to successfully participate in the expected future growth potential.
At €440m (756m), premium income in agricultural business was down by 42% because we did not renew the business with one major client. The combined ratio improved year on year as a result of more favourable claims experience.
Approximately 55% of the segment’s premium income derives from the Health Germany division, around 34% from Life Germany and approximately 11% from German direct business.
In the ERGO Life and Health Germany segment, total premium income and gross premiums written were up in the 2018 financial year. Growth originated from Health Germany and German direct business. The main contributors were travel insurance in Health Germany, and supplementary dental insurance in German direct business. As expected, total premium income and gross premiums written were down on the previous year in the Life Germany division.
Development of premium income and results by segment For the ERGO Life and Health Germany segment, more detailed information about German life, health and direct business is provided below.
Key figures 2018 Prev. year Change €m €m % Total premium income1 3,433 3,525 –2.6 Gross premiums written 2,831 2,865 –1.2 1 Total premium income includes not only gross premiums written but also savings premiums for unit-linked life insurance and capitalisation products in accordance with the applicable statutory accounting guidelines.
Total premium income and gross premiums written increased year on year, in particular on account of growth of 8.9% in health insurance, mainly from supplemental dental plans. Gross premiums written in propertycasualty business were also up, by 7.5%. As expected, total premium income and gross premiums written in life insurance respectively decreased by 4.9% and 3.9% compared with the previous year. The decline was chiefly attributable to lower regular premiums in lump-sum life insurance. By contrast, in terms of annual premium equivalent, the volume of new life business grew slightly by 2.1% compared with the previous year.
The technical result substantially increased year on year, chiefly thanks to a one-off effect from changed assumptions about profit appropriation. In the past financial year, the investment result totalled €2,172m (2,699m); this decline was mainly attributable to lower gains on disposals. To finance the additional interest reserve (ZZR – to be built up only in single-entity financial statements under German GAAP), we realised lower gains on the disposal of investments compared with 2017. This was mainly on account of the relief as regards allocations to the additional interest reserve brought about by changes in calculation rules (corridor method). On balance, the operating result saw a substantial increase.
In the Health Germany division, gross premiums written in 2018 were up on the previous year. Premiums showed year-on-year growth of 2.3% in supplementary health insurance, and remained approximately at the previous year’s level (–0.4%) in comprehensive health insurance. Growth in supplementary health insurance largely benefited from the performance of business not similar to life insurance (+12.5%). The development in comprehensive health business was partly attributable to a reduced portfolio. In travel insurance, gross premiums written were up 24.8% to €579m (464m). Contributing factors included organic growth and the integration of the non-German company Globality S.A., which formerly transacted international health business, in the first quarter of 2018.
New business Life Germany 2018 Prev. year Change €m €m %
Key figures 2018 Prev. year Change €m €m % Total premium income 5,448 5,320 2.4 Gross premiums written 5,448 5,320 2.4
As regards the segment’s premium income, our most important classes of business are motor insurance and fire and property insurance, which respectively account for around 20% and 19% of gross premiums written.
The combined ratio for 2018 was 1.6 percentage points lower than in the previous year. While the loss ratio improved considerably, mainly on account of a higher run-off result, the cost ratio remained roughly at the same level as in the previous year. Paid claims and the change in claims provisions totalled €2,033m (€2,053m), along with net operating expenses of €1,087m (€1,072m), compared to net earned premiums of €3,252m (3,204m).
The decline in the segment result was attributable to the lower investment result.
Key figures 2018 Prev. year Change % Gross premiums written €m 3,377 3,293 2.5 Share of gross premiums written by ERGO % 19.0 18.8 Loss ratio % 62.5 64.1 Expense ratio % 33.4 33.5 Combined ratio % 96.0 97.5 Technical result €m 166 138 19.6 Investment result €m 133 185 –28.0 Operating result €m 228 244 –6.4 Consolidated result €m 45 57 –21.5
In international property-casualty business, the combined ratio improved by 0.6 percentage points year on year. Improvement was especially pronounced in Poland (–2.3 percentage points), where business benefited from price adjustments, and in international legal protection business in the United Kingdom (–3.3 percentage points). The combined ratio also improved in international health business (–2.9 percentage points). Paid claims and the change in claims provisions totalled €2,047m (€2,060m), along with net operating expenses of €1,068m (€1,022m), compared to net earned premiums of €3,292m (3,236m).
The investment result was down on the previous year, chiefly on account of lower gains on disposals that partly resulted from losses on the disposal of shareholdings.
New business Life International 2018 Prev. year Change €m €m % Regular premiums 36 74 –51.7 Single premiums 140 262 –46.6
With regard to the segment’s premium income, propertycasualty insurance accounts for around 53%, health for about 26% and life insurance for approximately 21%. Our biggest markets include Poland, accounting for approximately 28% of the premium volume, Belgium (approx. 19%) and Spain (approx. 15%).
Despite a streamlined international portfolio, total premium income and gross premiums written remained almost at the same level compared with the previous year, bolstered by growth in international property-casualty business. Adjusted to eliminate negative currency translation effects, gross premiums written in the ERGO International segment would have increased by 1.7% compared with the previous year.
In international property-casualty business, we posted gross premiums written of €2,840m, up 2.0% compared with the previous year (€2,783m). At 11.0%, growth was especially strong in Poland, our largest market. We also increased our premium volume in the Baltic States and Austria.
At €843m (855m), gross premiums written in international life insurance business were down on the previous year by 1.4%. This was partly due to developments in Belgium, where we deliberately stopped writing new business in the middle of 2017. Total premium income in international life insurance business was down 3.5% to €1,123m (1,164m).
Key figures 2018 Prev. year Change % Total premium income1 €m 5,337 5,352 –0.3 Gross premiums written €m 5,057 5,043 0.3 Share of gross premiums written by ERGO % 28.4 28.7 Loss ratio % 62.2 63.7 Expense ratio % 32.5 31.6 Combined ratio % 94.6 95.3 Technical result €m 228 20 >1,000.0 Investment result €m 348 470 –26.0
Our primary insurance and reinsurance operations have a significant influence on the structure of our balance sheet: as we have consistently geared our Group towards value creation in its core business, investments serve to cover technical provisions (79% of the balance sheet total). Equity (10% of the balance sheet total) and bonds classified as strategic debt (1% of the balance sheet total) are the most important sources of funds.
Group equity was lower than at the beginning of the year. This is attributable in particular to the dividend payment, share buy-back programme and decline in the valuation reserves for fixed-interest securities on account of increased risk spreads. This decline was partly counterbalanced by our consolidated result and a higher currency translation reserve.
Restrictions on voting rights and the transfer of shares The listed registered shares are subject to transfer restrictions. The issuing of restrictedly transferable registered shares by Munich Reinsurance Company dates back to the Company’s foundation in 1880. Restricted transferability means that these shares may be transferred to another holder only with the Company’s consent, which, according to Article 3(2) of Munich Reinsurance Company’s Articles of Association, is granted at the Company’s discretion. Since the share-trading processes have been made very efficient, the consent requirement does not lead to any delays in entry in the register. In recent decades, it has been granted without exception. Contractual agreements are in place with the members of the Board of Management providing for two or four-year minimum holding periods for the shares of the Company they have to purchase as part of share-based remuneration programmes under the remuneration system applicable prior to 2018.
Through active capital management, we strive to ensure that Munich Re’s capital satisfies all applicable standards. In addition to the capital requirements determined using our internal risk model, more far-reaching requirements by regulatory authorities, rating agencies and our key insurance markets must be met. The Solvency II ratio is a fundamental measure of Munich Re’s capital strength. Further information on this ratio can be found on page 73 in the risk report. We aim to ensure that our financial strength is such that it enables us to take advantage of profitable 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 own funds as one which does not lastingly exceed that which is required. Excess capital is returned to our shareholders via dividends and share buy-backs. In practice, capital repatriation comes up against limits because German commercial law (the German Commercial Code; HGB) forces our parent, Munich Reinsurance Company, to maintain the claims equalisation provision in local GAAP accounting at a level that exceeds the economic requirements. This restricts the revenue reserves and profit distribution possibilities, but stabilises results in years with high claims expenditure. As at 31 December 2018, Munich Reinsurance Company’s claims equalisation provision totalled €8.5bn. Additional information can be found under Munich Reinsurance Company (comments based on the German Commercial Code) on page 85 f.
Consolidated cash flow statement 2018 Prev. year Change €m €m % Cash flows from operating activities 2,998 1,833 63.6 Cash flows from investing activities –95 2,326 – Cash flows from financing activities –1,338 –3,754 64.4 Cash flows for the financial year 1,565 405 286.3
Organisational structure Munich Re has set up a governance system as required under Solvency II. The main elements of this system are the risk management, compliance, audit and actuarial functions. At Group level, risk management is part of the Integrated Risk Management division (IRM) and reports to the Chief Risk Officer (Group CRO). In addition to the Group functions, there are risk management units in the fields of business, each headed up by its own CRO.
Risk governance Our risk governance ensures that an appropriate risk and control culture is in place by clearly assigning roles and responsibilities for all material risks. Risk governance is supported by various committees at Group and field-of- business level. The Board of Management must consult the risk management function on major decisions to be taken.
We determine the risk strategy by defining limits and triggers for a number of risk criteria that are based on the capital and liquidity available, and on our earnings target, and provide a frame of reference for the Group’s operating divisions.
Implementation of strategy and the risk management cycle The risk appetite defined by the Board of Management is reflected in our business planning and integrated into the management of our operations. If capacity shortages or conflicts with the limit system or regulations arise, defined escalation and decision-making processes are followed. These have been designed to ensure that the interests of the business and risk management considerations are weighed and reconciled with each other as far as possible.
Munich Re Group Annual Report 2018 property-casualty, life and health, market, credit and operational risks. We use primarily historical data for the calibration of these distributions, complemented in some areas by expert judgement. Our historical data covers a long period to take account of the one-year time horizon and to provide a stable and appropriate estimate of our risk parameters. We continue to take account of diversification effects we achieve through our broad spread across various risk categories and the combination of primary insurance and reinsurance business. We also take into account dependencies between the risks, which can result in higher capital requirements than would be the case if no dependency were assumed. We then determine the effect of the loss absorbency of deferred taxes.
Other1 446 454 221 205 Subtotal 20,907 19,923 9,192 9,089 Diversification effect –7,764 –7,397 –1,985 –1,923 Tax –2,346 –2,144 –633 –597 Total 10,798 10,382 6,574 6,569 –2,702 –2,597
Diversification effect –9,912 –9,133 –779 8.5 Tax –2,448 –2,287 –160 7.0 segments. The diversification effect between all categories is now just under 37%. Further information on the changes within individual risk categories can be found in the sections below.
Compared with the status quo at 31 December of the previous year, the SCR at Group level were up slightly from €14.4bn to €14.7bn. The main drivers behind this rise was increased exposure in risk-capital intensive areas of the property-casualty and life and health reinsurance
We differentiate between large losses involving a cost exceeding €10m in one field of business, losses affecting more than one risk or more than one line of business (accumulation losses), and all other losses (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 under-rating (premium risk).
Another measure for controlling underwriting risks is the targeted cession of a portion of our risks to other carriers via external reinsurance or retrocession. Most of our companies have intra-Group and/or external reinsurance and retrocession cover. In addition to traditional retrocession, we use alternative risk transfer for natural catastrophe risks in particular. Under this process, underwriting risks are transferred to the capital markets via special purpose vehicles.
Reinsurance ERGO Diversification 31.12.2018 Prev. year 31.12.2018 Prev. year 31.12.2018 Prev. year €m €m €m €m €m €m
Group 31.12.2018 Prev. year Change €m €m €m % Equity risk 3,552 4,342 –790 –18.2 General interest-rate risk 3,664 3,416 248 7.3 Specific interest-rate risk 3,220 3,925 –705 –18.0 Property risk 2,138 1,542 596 38.7 Currency risk 3,773 3,939 –166 –4.2 Subtotal 16,348 17,164 –816 –4.8 Diversification effect –7,131 –7,943 812 –10.2
Solvency capital requirement – Market Equity risk The lower equities exposure after derivatives compared with the previous year was reflected in a fall in the solvency capital requirement.
In the reinsurance field of business, the market value of interest-sensitive investments as at 31 December 2018 was €67.8bn (66.6bn). Measured in terms of modified duration, the interest-rate sensitivity of those investments was 5.0 (5.8), while that of the liabilities1 was 5.8 (5.8). The change in available financial resources in the event of a decrease in interest rates of one basis point would be approximately €4.0m (7.5m).
In the ERGO field of business, the market value of interest-sensitive investments as at 31 December 2018 was €127.8bn (130.6bn). The modified duration was 8.8 (8.8) for interest-sensitive investments and 9.2 (9.5) for liabilities. A decrease in interest rates of one basis point would have reduced the available own funds by approximately €7.6m (9.8m). This resulted in exposure to falling interest rates arising mainly out of the long-term options and guarantees in life insurance business.
Currency risk The currency risk receded, primarily due to a reduction in USD positions.
The Group has established an accounting manual and a system providing regular information on changes to rules applied throughout the Group. Financial accounting and reporting are subject to materiality thresholds to ensure that the cost of the internal controls performed is proportionate to the benefits derived. The risks that are significant from a Group perspective for our financial reporting are covered by the ICS and are reviewed by the risk carriers on a regular basis.
We use scenario analyses to quantify operational risks. The results are fed into the modelling of the solvency capital requirement for operational risks and are validated using various sources of information, such as the ICS and internal and external loss data.
Solvency capital requirement – Operational risk The reduction in the solvency capital requirement was due on the one hand to ERGO’s more detailed appraisal of a number of scenarios, and risk-mitigating measures for cyber risks on the other.
Reputational risk We define reputational risk as the risk of damage to Munich Re’s reputation as a consequence of a negative public image resulting in a deterioration in its credit rating, corporate value, etc. The reputational-risk aspect of relevant issues is assessed in the fields of business by “Reputational Risk Committees”. Where a reputational risk could potentially have an impact on Munich Re, central divisions at Group level are involved in the assessment.
Strategic risk We define strategic risk as the risk of making wrong business decisions, implementing decisions poorly, or being unable to adapt to changes in the operating environment. Existing and new potential for success in the Group and the fields of business in which it operates creates strategic risks, which we manage by carrying out risk analyses for significant strategic issues and regularly manage credit default risk in retrocession and external reinsurance with the assistance of limits determined by the Retro Security Committee. Our reserves ceded to reinsurers were assignable to the following rating categories as at 31 December: Further information on the risks arising out of receivables relating to insurance business can be found in the Notes to the consolidated financial statements on page 136.
Solvency capital requirement – Credit The decline in the solvency capital requirement was mainly due to developments in the capital markets, particularly the heightened USD interest rates and a fall in the historical rating migration and default probabilities that are used to calibrate the models.
A key component of the ICS lies in ensuring the reliability of annual financial statements at both consolidated and solo-undertaking level, and the identification, management and control of risks arising out of the accounting process.
Economic and financial-market developments and regulatory risks Munich Re has substantial investments in the eurozone. We attach importance to maintaining a correspondingly broad diversification of investments to cover our technical provisions and liabilities in euros. However, low interest rates continue to pose major challenges, in particular for life insurance companies in the eurozone. Fluctuations in the capital markets give rise to considerable volatility in the balance sheet. We counter these risks with various risk-management measures.
Political risks in the eurozone continue to exist owing to the discord caused by conflicting national interests of the individual member states. In Italy, borrowing costs rose with the change of government in 2018, though the regime now appears to be relenting. The reduction in the stimulus provided by the European Central Bank’s monetary policy could cause borrowing costs to rise for some countries. Though progress has been made in the exit negotiations between the EU and the United
Liquidity risk Our objective in managing liquidity risk is to ensure that we are in a position to meet our payment obligations at all times. To guarantee this, the liquidity position at our units is continuously monitored and subject to stringent requirements for the availability of liquidity. The shortterm and medium-term liquidity planning is submitted to the Board of Management on a regular basis. The liquidity risk is managed within the framework of our holistic risk strategy, with the Board of Management defining limits on which minimum liquidity requirements for our operations are based. These risk limits are reviewed annually, and compliance with the minimum requirements is continuously monitored. Using quantitative risk criteria, we ensure that Munich Re has sufficient liquidity available to meet its payment obligations even under adverse scenarios, with the liquidity position being assessed both for insurance catastrophe scenarios and for adverse situations in the capital markets. Further information on liquidity risks in life and health insurance business and in property-casualty business can be found in the Notes to the consolidated financial statements on pages 159 ff. and 161 ff.
Security risk We define security risks as risks resulting from threats to the security of our employees, data, information, and property. We are intensifying our analysis of cyber risks in particular in recognition of the increasing importance of information technology for Munich Re’s core processes and the dynamic growth of cyber crime. Security risk committees have been set up in the fields of business to steer and coordinate measures aimed at managing security risks. The members of the security risk committees are managers from operational units (e.g. IT Security), the control functions (e.g. Information Security Officer, Data Protection) and representatives of the divisional units and central divisions. To further improve cyber security, we are working together on initiatives across the fields of business.
Climate change represents one of the greatest long-term risks of change for the insurance industry. We expect climate change to lead to a lasting increase in extreme weather events. Our risk-management competence built up over many years and our highly developed risk models allow us to professionally assess these altered natural hazard risks and to adequately account for these risks in the solvency capital requirement and in pricing.
We constantly analyse the potential impact that developments of this sort may have on our risk profile.
Global players such as Munich Re are subject to increased fiscal pressure nationally and internationally, as well as a higher audit intensity. This trend is likely to strengthen yet further given the political spotlight on the appropriate taxation of international enterprises.
Our strong client focus, global risk management capabilities and industry knowledge put us in a good position to benefit from continuously evolving markets and changes in client behaviour, whilst we create new business opportunities by developing customised solutions for our clients. Unless stated otherwise, the opportunities for Munich Re outlined below generally relate equally to all fields of business.
Partners and Digital Ventures units, numerous new business and cooperation ideas are arising which will help us to expand our business model beyond the insurance value chain and tap the growth opportunities offered by the digital world.
We strive to obtain the highest possible degree of automation throughout the value chain and across all business units to not only meet our clients’ and our own needs as regards quality, speed and security, but also to improve efficiency. Significant investments in data, infrastructure, and human resources make it possible for us to use big data analytics even more systematically for our own business and make the technology available to our clients. Given our clients’ changing and increasingly hybrid requirements, we are actively driving the integration of various products and sales channels, and the expansion of direct sales in all classes of primary insurance. Besides investments in offers for ERGO’s hybrid customers, a very promising example that can be mentioned in this regard is nexible – ERGO’s purely digital insurer – which after its successful start in Germany is now also expanding into select other countries and aiming to further broaden its product range. As well as building our own digital competence, we are also focusing our activities on acquiring auspicious technology companies with which we intend to generate further growth. By way of example, we have purchased a 100% stake in the rapidly growing Internet of Things (IoT) specialist Relayr via our US subsidiary Hartford Steam Boiler. In addition to our IoT-related cooperation with Bosch and KUKA, this is a further important step in pressing ahead with new business models and helping to shape change in the manufacturing industry.
The generally positive economic dynamics and low levels of insurance penetration in many developing and emerging markets provide opportunities for profitably expanding and further diversifying our business portfolio, and we are utilising these in order to expand selectively. In life and health insurance, demand for private-provision products will rise on account of the ageing population.
Together with our clients, we strive to expand the boundaries of insurability in many ways, working on cyber risks and enhanced cover options, among other things. We now offer our clients diverse coverage concepts for risks and damage caused by faulty product software and cyber attacks. Besides this, we are expanding our range of integrated cyber services, with the aim of providing our clients with optimal support before, during and after a potential loss event. In addition to this, we are developing a broad range of covers for risks, such as alternative energies, pandemic risks, agricultural risks or entrepreneurial risks in their multitude of different forms, for our clients. Many of these risks in our changed world are now of much greater significance than the perils traditionally covered by the insurance industry.
We expect climate change to lead to an increase in weather-related natural catastrophes in the long term. This growing loss potential will result in greater demand for primary insurance and reinsurance products. Our expertise in dealing with natural hazard risks enables us to calculate adequate prices for traditional covers, and develop new solutions for our primary insurance and reinsurance clients.
Comparison of prospects for Munich Re (Group) for 2018 with results achieved
At the beginning of the financial year, we had forecast gross premiums written of €29–31bn in the reinsurance field of business. At €31.3bn, we surpassed this target. In life and health reinsurance, we had projected an appreciable decline in gross premiums written to €9.5– 10.5bn, chiefly on account of the termination of largevolume treaties and negative currency translation effects. With premium income at €10.8bn, the decline was not quite as strong as expected at the beginning of the year. In property-casualty reinsurance, we had forecast gross premiums written of €19.5–20.5bn. At €20.4bn, we were at the upper end of the range, mainly owing to the conclusion of new large-volume treaties.
At the start of the year, we forecast a technical result for life and health reinsurance – including the result from business with non-significant risk transfer – of at least €475m; we significantly surpassed this target and achieved a technical result of €584m, partly thanks to favourable claims experience in the USA.
The consolidated result for 2018 in reinsurance amounted to €1.9bn, which was in line with our initial expectations of €1.8–2.2bn.
As at 1 January 2019, around half of the non-life reinsurance business was up for renewal, representing a premium volume of €9.4bn. At around €10.0bn, total premium volume written was up 6%. Thanks to our excellent client relationships and our sought-after expertise, we were able to tap into attractive business opportunities across all regions and classes of business. These involved the expansion of existing client relationships as well as new business.
The renewals at 1 April 2019 (mainly Japan) and 1 July 2019 (parts of the portfolio in the USA, Australia and Latin America) will involve the renegotiation of a premium volume of around €5bn in reinsurance treaty business. It is Munich Re’s expectation that the market environment will improve in the April renewals, as treaties in regions with significant claims experience in 2018, such as Japan, will then be renegotiated.
Total premium income in 2019 for the ERGO field of business should roughly be at the same level as the previous year – around €18.5bn – with gross premiums written of around €17.5bn. For the ERGO field of business, we anticipate a consolidated result of around €400m in 2019, just slightly below the very good level attained in the 2018 financial year.
In property-casualty reinsurance, we expect gross premiums written for 2019 to come to about €21bn, around €0.6bn more than the previous year’s figure. We anticipate a combined ratio of around 98% of net earned premiums. At 12% of net earned premiums, our major- loss expectation remains the same as in the previous year, roughly equivalent to €2.3bn.
Gross premiums written €bn 49 Technical result life and health reinsurance1 €m 500 Combined ratio property-casualty reinsurance % 98 Combined ratio ERGO Property-casualty Germany % 93 Combined ratio ERGO Property-casualty International % 95 Return on investment2 % 3 Economic earnings €bn over 2.5 Consolidated result €bn 2.5 1 Including the result from business with non-significant risk transfer. 2 Excluding insurance-related investments.
As in the previous year, we want to incrementally increase our widely diversified investments and investment commitments in the area of alternative investments. Regular income from our investments should come to around 2.8%, roughly at the previous year’s level. Overall, we expect the investment result to be around €6.5bn, i.e. on par with 2018, equivalent to an annual return on investment of around 3%.
We aim to achieve a consolidated result of around €2.5bn, i.e. €0.2bn higher than the previous year’s figure. The effective tax rate should be around 25%. This profit guidance is subject to claims experience with regard to major losses being within normal bounds, to claims provisions remaining unchanged and to our income statement not being impacted by severe currency or capital market movements, significant changes in fiscal parameters, or other special factors.
We expect the Group’s gross premiums written for 2019 to total around €49bn, on par with the previous year.
The projection is based on the assumption of stable capital markets, normal major-loss incidence and unchanged modelling parameters. Deviations from these assumptions may have a different impact on economic earnings than on IFRS accounting. Further information on economic earnings as a management tool can be found on page 48.
The accounting result of Munich Reinsurance Company developed as follows: Munich Reinsurance Company (information reported on the basis of German accountancy rules)
Condensed income statement for Munich Reinsurance Company 2018 Prev. year Change €m €m % Earned premiums for own account 16,856 20,525 –17.9 Interest on technical provisions for own account 398 469 –15.3 Other underwriting income for own account 18 39 –52.8 Claims incurred for own account –11,562 –16,711 30.8 Change in other technical provisions for own account 418 –552 – Expenses for performance-related and non-performance-related premium refunds for own account 0 –1 – Operating expenses for own account –4,964 –5,736 13,5 Other underwriting expenses for own account –133 –23 –470.6 Subtotal 1,031 –1,990 – Change in claims equalisation provision and similar provisions –780 2,382 – Underwriting result for own account 251 392 –36.1
Major-loss expenditure totalling €1,316m (3,428m) after retrocession and before tax was significantly lower than in the previous year and fell below our expectations. There were also a large number of major losses in 2018, the largest by far being Typhoon Jebi, which caused severe damage in Japan in September.
The technical result is significantly above the level of the previous year. The previous year’s result was impacted in part by significant reserve strengthening in Israel. There was also a positive effect from the restructuring of retrocession programmes at US subsidiaries in 2018. By contrast, claims expenditure in the United Kingdom and Canada was slightly higher than expected.
In the 2018 financial year, Munich Reinsurance Company’s gross premium income totalled €20,503m (22,612m). The year-on-year decrease of 9.3% was mainly due to the planned termination and conversion of two large-volume structured reinsurance treaties in life and health reinsurance. Another factor in the reduction was changes in the value of the euro as against other currencies.
In property-casualty reinsurance, we posted growth in premium income of 14.2% to €13,489m (11,813bn) in 2018. The substantial increase was due to an expansion of business across almost all lines and regions. The main driver was a new large-volume reinsurance quota share treaty in Australia. Motor, fire, and liability business were the main sources of growth. This was partially offset by negative currency effects; if exchange rates had remained unchanged, premium volume would have increased by 18.8%. Even after the high natural catastrophe losses of the previous year, the amount of reinsurance capital in the market remained high. Nevertheless, the 2018 renewals showed a marginal price increase of 0.8%, after the previous year had seen prices fall. This increase was particularly due to the regions hit by natural catastrophes. In other regions and lines of business, prices remained largely stable or increased slightly. A higher interest-rate level compared with the previous year further strengthened the profitability of our business. New attractive quota share treaties were major contributory factors that allowed for selective expansion of our business in individual markets. Overall, we are adhering to our profit-oriented underwriting policy.
In marine reinsurance, premium volume was up slightly in the reporting year. The result before claims equalisation provision improved appreciably owing to lower major-loss expenditure than in the previous year.
Motor 2018 Prev. year Change % Gross premiums written €m 3,953 2,970 33.1 Combined ratio % 106.7 105.9 Underwriting result before claims equalisation provision and similar provisions €m –217 –153 –42.2
Aviation 2018 Prev. year Change % Gross premiums written €m 392 486 –19.4 Combined ratio % 86.0 73.3 Underwriting result before claims equalisation provision and similar provisions €m 58 132 –56.3
In health reinsurance, the decrease in premium income was also chiefly attributable to the planned termination and conversion of two large-volume structured reinsurance treaties. The result was slightly up on the previous year due to a lower loss ratio.
In personal accident reinsurance, premium income was up slightly in the reporting year. The result before claims equalisation provision improved appreciably owing to lower claims expenditure than in the previous year.
Personal accident 2018 Prev. year Change % Gross premiums written €m 261 236 10.9 Combined ratio % 4.5 55.8 Underwriting result before claims equalisation provision and similar provisions €m 225 105 113.4
Under other classes of business, we subsume the remaining classes of property reinsurance, such as burglary, plate glass, hail (including agricultural reinsurance), water damage, contingency, windstorm, livestock and householders’ and homeowners’ comprehensive reinsurance – as well as credit and fidelity guarantee reinsurance.
Year-on-year premium income remained almost constant. The combined technical result of these other classes of business improved strongly compared with the previous year, primarily due to lower claims and major-loss expenditure.
In Europe, the low interest-rate environment continued to pose major challenges for investors: although yields on ten-year German government bonds rose to over 0.7% in January 2018, they fell again over the further course of the year.
International equity markets suffered repeated bouts of turbulence during the past financial year, such as the global price slump in February 2018. After some recovery in the second and third quarters, volatility on equity markets increased in the fourth quarter and remained high until the end of the year. Overall, the US Dow Jones index and the EuroStoxx 50 closed the year with heavy losses.
The exchange rate between the euro and the US dollar fluctuated over the course of 2018. It rose at the beginning of the year, later fell back significantly, and hit a low point in November 2018. At the end of December, the euro exchange rate was around 5% lower against the US dollar than at the end of 2017, but higher against the Canadian dollar (around 4%) and the pound sterling (around 1%).
Premium income in aviation reinsurance, which comprises the aviation and space classes, decreased in the financial year. This was due to the fact that business that had previously been written by Munich Reinsurance Company was transferred to a subsidiary. The technical result declined due to higher claims expenditure than in the previous year.
Engineering 2018 Prev. year Change % Gross premiums written €m 613 567 8.1 Combined ratio % 94.8 122.0 Underwriting result before claims equalisation provision and similar provisions €m 29 –125 –
In the 2018 financial year, Munich Reinsurance Company’s investment result fell by €593m, mainly due to a decrease in regular income caused by dividend payouts. Impairment losses and reversals of impairment losses largely balanced each other out due to counterbalancing effects. The significant improvement in gains on the
As at 31 December 2018, 95% of our fixed-interest securities were investment-grade, and around 88% were rated “A” or better.
If, in a given financial year, loss ratios in individual classes of business are significantly in excess of the long-term average (which amounts to 15 years in most classes), the claims equalisation provision is reduced and the aboveaverage loss expenditure is largely offset. According to current calculations, it is expected that – given normal claims expenditure – the allocations to the claims equalisation provision, which have an adverse impact on the result, will be lower.
Equity1 €m 2018 Prev. year Issued capital 573 573 Capital reserve 6,845 6,845 Revenue reserves 2,900 3,089 Net retained profits 1,383 1,333
The current level of the claims equalisation provision is 100% of the legally stipulated maximum amount allowed in the liability, marine, and accident classes of business, and more than 50% in fire, motor and credit.
Munich Reinsurance Company has submitted the Statement of Corporate Governance in accordance with Section 289f of the Commercial Code (HGB), and the Group Statement of Corporate Governance in accordance with Section 315d of the Commercial Code. The Statements have been combined and can be found at www.munichre.com/cg-en.
Against this background, Munich Reinsurance Company should post gross premium of around €21bn in the 2019 financial year – assuming that exchange rates remain constant. We expect the combined ratio to be around 98% of net earned premium. An accurate forecast is not possible, partly due to the obvious fluctuations in the incidence of major losses. Assuming average claims experience, we project that the underwriting result before claims equalisation provision for the 2019 financial year will be at around the same level as the reporting year.
The investment result of Munich Reinsurance Company is expected to decrease in the 2019 financial year. The forecast increase in regular income, particularly from affiliated companies, is unlikely to fully compensate for the effects of net gains and losses on disposal in 2018.
Notes to the consolidated financial statements 099 Application of International Financial Reporting Standards (IFRSs) 099 Declaration of Conformity with the German Corporate Governance Code in accordance with Section 161 of the German Stock Corporation Act (AktG) 099 Recognition and measurement 099 Consolidation 104
Notes to the consolidated income statement 155 31 Income from technical interest 155 32 Expenses for claims and benefits 156 33 Operating expenses 156 34 Investment result 157 35 Insurance-related investment result 157 36 Other operating result 157 37 Other non-operating result, impairment losses on goodwill and net finance costs 158 38 Taxes on income 158
Disclosures on risks from insurance contracts and financial instruments 159 39 Disclosures on risks from life and health insurance business 159 40 Disclosures on risks from property-casualty insurance business 161
Other information 165 42 Related parties 165 43 Personnel expenses 165 44 Mid-Term Incentive Plan 165 45 Remuneration report 166 46 Number of staff 166 47 Auditor’s fees 166 48 Contingent liabilities, other financial commitments 167 49 Significant restrictions 168 51 Events after the balance sheet date 169 52 Earnings per share 169 53 Proposal for appropriation of profit 169
List of shareholdings as at 31 December 2018 pursuant to Section 313(2) of the German Commercial Code (HGB) 170
Notes 31.12.2018 Prev. year Change €m €m €m €m €m %
V. Deposits retained on assumed reinsurance (9) 7,241 5,690 1,550 27.2
C. Insurance-related investments (8) 8,424 9,664 –1,239 –12.8 D. Ceded share of technical provisions (11) 4,263 4,169 93 2.2 E. Receivables I. Current tax receivables 604 440 164 37.3
F. Cash at banks, cheques and cash in hand 4,986 3,625 1,360 37.5 G. Deferred acquisition costs (13) Gross 9,466 9,563 –97 –1.0 Ceded share –254 –135 –119 –88.2
C. Gross technical provisions I. Unearned premiums (20) 9,790 8,857 933 10.5 II. Provision for future policy benefits (21) 111,147 108,956 2,191 2.0 III. Provision for outstanding claims (22) 66,356 63,965 2,391 3.7 IV. Other technical provisions (23) 17,314 19,174 –1,860 –9.7
D. Gross technical provisions for unit-linked life insurance (24) 7,925 8,971 –1,047 –11.7
F. Liabilities I. Bonds and notes issued (26) 292 277 14 5.1 II. Deposits retained on ceded business (27) 506 594 –89 –14.9 III. Current tax liabilities 1,929 2,439 –510 –20.9
Notes 2018 Prev. year Change €m €m €m €m €m % Gross premiums written 49,064 49,115 –51 –0.1
Gains (losses) recognised in equity 345 –1,837 Recognised in the consolidated income statement 0 0
Change resulting from equity method measurement Gains (losses) recognised in equity 47 –20 Recognised in the consolidated income statement 0 0
Income and expense recognised directly in equity 0 0 –76 0 370 –1,831 16 0 –8 –1,530
Income and expense recognised directly in equity 0 0 91 0 –2,095 344 9 0 –8 –1,659
Unrealised gains and losses on investments 0 0 0 0 –2,120 0 0 0 –9 –2,129 Change resulting from equity method measurement 0 0 13 0 25 0 9 0 0 47 Change resulting from cash flow hedges 0 0 0 0 0 0 0 0 0 0 Remeasurements of defined benefit plans 0 0 78 0 0 0 0 0 0 78
Total recognised income and expense 0 0 91 0 –2,095 344 9 2,310 –42 616 Change in shareholdings in subsidiaries 0 0 0 0 0 0 0 0 0 –1
I. Cash flows from operating activities 2,998 1,833 Change from losing control of consolidated subsidiaries 72 9 Change from obtaining control of consolidated subsidiaries –889 –48 Change from the acquisition, sale and maturity of investments and insurance-related investments 140 2,142 Change from the acquisition and sale of investments for unit-linked life insurance contracts 485 99
III. Cash flows from financing activities –1,338 –3,754 Cash flows for the financial year (I + II + III)1 1,565 405
Thereof: Cash not attributable to disposal group2 4,986 3,625 Cash attributable to disposal group 164 3 Restricted cash 12 45
Retrospective adjustments have been made to the segment balance sheet for the 2017 financial year in the Notes to the consolidated financial statements (see section “Changes in accounting policies and other adjustments”). The other previous-year figures have been calculated on the same basis as the figures for the 2018 financial year.
Changes in accounting policies and other adjustments Application of the recognition, measurement and disclosure methods follows the principle of consistency.
Notes to the consolidated financial statements Application of International Financial Reporting Standards (IFRSs)
Consolidated financial statements Notes time of measurement more than 90% of total liabilities were related to insurance business. Besides liabilities that fall within the scope of IFRS 4, these also include liabilities from investment contracts measured at fair value and other liabilities resulting from insurance business. At Munich Re, liabilities related to insurance business accounted for a share of around 96.5% of total liabilities as at 31 December 2015. In the meantime, there have been no changes to our business activities that would necessitate a reassessment.
The measurement of our investments under IFRS 9 is partly geared to their contractual cash flows. If these only comprise the payment of principal and interest on the amount outstanding, measurement is based either on amortised cost or – without impact on profit or loss – on the fair value, depending on the business model. This does not apply in particular to equities and derivatives or to complex structured products. These are measured at fair value through profit or loss. The measurement of our investments under IFRS 9 will thus differ from our current measurement. The objective of the following table is therefore to achieve comparability in terms of the measurement of our investments with those undertakings that already apply IFRS 9.
Due to the close interlinking of underwriting liabilities and investments of insurance companies, it is essential to have an aligned measurement of these line items in the balance sheet in order to prevent balance sheet distortions. The IASB therefore published an amendment standard to IFRS 4, Insurance Contracts, in September 2016. This gives the possibility of postponing the first-time application of IFRS 9 until 2021, but requires evidence on the basis of the financial statements as at 31 December 2015 that most of the Group’s activity is in insurance. Insurance business is considered “predominant” if at the
In terms of numbers and size, associates and joint ventures already required to use IFRS 9 under local regulations and accounted for in Munich Re’s consolidated financial statements using the equity method were immaterial. Therefore, these entities have not been remeasured, and no detailed information has been disclosed.
The following table provides for an assessment of the quality of our investments, whose contractual cash flows only comprise the payment of principal and interest on the amount outstanding and will therefore not be measured at fair value through profit or loss once we apply IFRS 9. The amounts shown are the carrying amounts of these investments pursuant to IAS 39.
Other securities at fair value through profit or loss Held for trading 15 18 –2 2,191 1,605 585 Securities designated as at fair value through profit or loss 50 43 6 360 313 47 Other investments Deposits with banks 3,219 3,138 82 0 0 0 Insurance-related investments Investments for unit-linked life insurance contracts 0 0 0 7,533 8,772 –1,239 1 Excluding investments measured at fair value through profit or loss in accordance with IFRS 9, irrespective of whether they meet the cash-flow requirements. 2 Including investments measured at fair value through profit or loss in accordance with IFRS 9, irrespective of whether they meet the cash-flow requirements.
In October 2017, the IASB issued an amendment to IFRS 9 (rev. 10/2017), Prepayment Features with Negative Compensation. This amendment clarifies how certain financial instruments with prepayment features are to be classified and therefore measured under IFRS 9. This amendment is to be applied from 2019 onwards and will be taken into consideration by Munich Re as part of its overall IFRS 9 project.
As at 31 December 2018, future minimum lease payments under non-cancellable operating leases (on a nondiscounted basis) totalled €438m (409m), see Other information (50) Leasing.
Standards or changes in standards not yet entered into force Unless otherwise stated, all standards or amendments to standards that have not yet entered into force will be applied by Munich Re for the first time as from the mandatory effective date for entities with their registered office in the European Union. The relevant dates for mandatory first-time application are shown in the following list of new standards.
For financial liabilities, there are no changes in the measurement rules except that if the fair value option is applied, value changes attributable to a change in the entity’s credit risk must in future be recognised without impact on profit or loss.
The provisions of IFRS 9 are associated with extensive additional disclosures required in the appendices that were adopted in IFRS 7, Financial Instruments: Disclosures. The provisions are mandatory for financial years beginning on or after 1 January 2018. We are making use of the option to postpone the first-time application of these new provisions, see section “Changes in accounting policies and other adjustments”.
The new rules require detailed reconciliations to be disclosed for changes to individual measurement components, as under IFRS 17 the measurement of insurance business is made on the basis of models that include unobservable inputs. Notes about the risks from insurance contracts remain largely unchanged.
Application of IFRS 17 will be mandatory for financial years beginning on or after 1 January 2021. Due to the high complexity of the rules and the substantial work required for their implementation, discussions are currently under way about deferring this effective date. In November 2018, the IASB tentatively decided to defer the mandatory effective date of this standard by one year to 1 January 2022. At the same time, insurance companies qualifying for deferral of IFRS 9 would be allowed an additional year of deferral to 2022 for the first-time application of IFRS 9. Meanwhile, the first changes to IFRS 17 are being discussed, but have yet to evolve into an amendment standard. This amendment standard is likely to be published at the end of the second half of 2019.
IFRS 9 and IFRS 16 were adopted into European law in November 2016 and October 2017 respectively. The endorsement of IFRS 17 is still outstanding.
Cash flows arising from obtaining control €m 2018 Prev. year Total consideration for obtaining control –905 –100 Non-cash consideration for obtaining control 0 0 Cash consideration for obtaining control –905 –100 Cash over which control was obtained 16 52 Total –889 –48
Net assets acquired €m 31.12.2018 Prev. year Goodwill/gain from bargain purchase 244 –2 Other intangible assets 87 4
Other intangible assets –5 0 Investments –130 0 Cash –77 0 Other assets –269 –2 Technical provisions (net) 145 0 Other liabilities 228 0 Total –109 –2
Business combinations occurring during the reporting period On 11 July 2018, via its subsidiary ERGO Group AG, Düsseldorf, Munich Re acquired 100% of the voting shares in Atena Usługi Informatyczne i Finansowe S.A. (Atena), Sopot, Poland. Atena offers innovative software products for the insurance sector specifically, and is a leading IT service provider on the Polish market. The intent is to involve Atena in Group-wide IT projects.
On 25 October 2018, via its subsidiary HSB Group Inc., Wilmington, Delaware, USA, Munich Re acquired an additional 83.7% of the voting shares of relayr Inc., Wilmington, Delaware, USA (relayr). This raised Munich Re’s holding to a total of 100%, thus giving it control of relayr and its subsidiaries in which relayr, in turn, owns a 100% stake: relayr GmbH, Pullach i. Isartal, Germany relayr Ltd. , Watford, UK Proximetry LLC, Delaware, USA Proximetry Poland Sp. z.o.o., Katowice, Poland Neokami Inc., Delaware, USA Neokami GmbH, Munich, Germany
The purchase price of €241.4m was settled in cash and cash equivalents.
On 12 December 2018, via its subsidiaries FS San Augustine LLC, Wilmington, Delaware, USA, and FS Louisiana II LLC, Wilmington, Delaware, USA, Munich Re acquired 91,000 hectares of forest in Texas and Louisiana from an institutional investor and concluded an agreement with a timber investment management organisation (TIMO). The forest areas are professionally and sustainably managed by this TIMO to ensure long-term cash flow for Munich Re via logging and scheduled afforestation. The total provisional purchase price for the forest areas is €389.1m (€197.4m for FS San Augustine LLC and €191.7m for FS Louisiana II LLC). This was settled using cash and cash equivalents. The revenue and contribution to the consolidated result during the period from 12 December 2018 to the reporting date were immaterial. Had the acquisition taken place at 1 January 2018, Munich Re would have achieved revenue of €15m and a net result of €8m for forest management in the past financial year.
On 27 December 2018, via its subsidiaries Ergo Private Capital Zweite GmbH & Co. KG, Düsseldorf, Ergo Private Capital Dritte GmbH & Co. KG, Düsseldorf, and Ergo Private Capital Vierte GmbH & Co. KG, Düsseldorf, Munich Re acquired 100% of the voting shares in the solar power company FREE MOUNTAIN SYSTEMS S.L., Barcelona, Spain. The provisional purchase price was €128.0m, and was settled using cash and cash equivalents. A payment for the balance of this – a total of €2.5m – is due upon commissioning. Contract negotiations resulted in a bargain purchase gain of €3.3m, which was recognised with an impact on consolidated income. No revenue or contributions to the consolidated result were recognised for the period from 27 December 2018 to the reporting date. Because the solar park is only scheduled for commissioning in 2019, no disclosure can
The fair values of the assets and liabilities at the time of acquisition are shown in the above table. The fair values for the acquisition of forest areas via FS San Augustine LLC and FS Louisiana II LLC and for the purchase of FREE MOUNTAIN SYSTEMS S.L. are provisional.
1 The fair value of the receivables acquired as part of the transaction largely corresponds to the carrying amount. No material defaults were expected at the acquisition date.
2 The fair value of potential tax liabilities, taking into account the range of possible results, is €4m. These liabilities are matched by contractually agreed indemnity payments in the same amount, which are recognised as an indemnification asset.
Cash at bank, cheques and cash in hand 13 0 0 0 0
Structured entities are entities that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant business activities are directed by means of contractual arrangements.
Deposits retained on assumed reinsurance 0 0 0 390 390 Investments for unit-linked life insurance contracts 0 8,141 0 0 8,141 Ceded share of technical provisions 0 0 0 61 61
Goodwill resulting from the first-time consolidation of subsidiaries is tested for impairment at least annually. We additionally carry out ad-hoc impairment tests if there are indications of impairment.
The other intangible assets mainly comprise acquired insurance portfolios and software inventories.
Deferred tax assets must be recognised in cases where asset items have to be valued lower, or liability items higher, in the consolidated balance sheet than in the tax accounts of the Group company concerned and these differences will be eliminated at a later date with a corresponding effect on taxable income (temporary differences). Also included are tax assets deriving from tax loss carry-forwards. Deferred tax assets are recognised to the extent that, on the basis of tax result planning, it is sufficiently probable that they will be utilised. As a rule, a five-year forecast period is considered. We take into account the tax rates of the countries concerned and the consolidated company’s respective tax situation; in some cases, for purposes of simplification, we use uniform tax rates for individual circumstances or subsidiaries. Changes in tax rates and tax legislation that have already been adopted by the government at the balance sheet date are taken into account.
Other assets are generally recognised at amortised cost. Amortisations or depreciations mainly occur on a straightline basis; the average useful life is 55 years. Where required, impairment losses are recognised or reversed for the Group’s owner-occupied property, plant and equipment. These impairment losses and impairment losses reversed are distributed between the functional areas.
The provision for future policy benefits in long-term underwriting business is posted for the actuarially calculated value of obligations arising from policyholders’ guaranteed entitlements. As well as life insurance, this concerns portions of health and personal accident insurance, insofar as the business is conducted like life insurance. Measurement is usually based on the prospective method, by determining the difference between the present values of future benefits and future premiums. The actuarial assumptions used for their calculation include, in particular, assumptions relating to mortality, disability and morbidity, as well as assumptions regarding interest-rate development, lapses and costs. These are estimated on a realistic basis at the time the insurance contracts are concluded, and they include adequate provision for adverse deviation to make allowance for the risks of change, error and random fluctuations.
Under retained earnings, we show the profits which consolidated companies have earned and retained since becoming part of Munich Re, and income and expenses resulting from changes in the consolidated group. In addition, the adjustment amount resulting from changes in accounting policies for earlier periods not included in the consolidated financial statements is recognised in the opening balance of the retained earnings for the earliest prior period reported. Retained earnings also include the effects from remeasurement of defined benefit plans.
Liability adequacy test All technical provisions are regularly subjected to a liability adequacy test in accordance with IFRS 4. If current experience shows that the provisions posted on the basis of the original assumptions – less the related deferred acquisition costs and the present value of the related premiums – are inadequate to cover the expected future benefits, we adjust the relevant technical provisions with recognition in profit or loss and disclose this under impairment losses in the Notes to the consolidated balance sheet; see Notes to the consolidated balance sheet – Assets (2) Other intangible assets, Assets (13) Deferred acquisition costs, and Equity and liabilities (21) Provision for future policy benefits. The appropriateness of unearned premiums and of the provision for outstanding claims is assessed in relation to the realistically estimated future amount to be paid. The appropriateness of the provision for future policy benefits is assessed on the basis of realistic estimates of the actuarial assumptions, the proportional investment result and, for contracts with participation in surplus, future profit sharing.
This item encompasses the provision for future policy benefits in life primary insurance where policyholders bear the investment risk themselves (unit-linked life insurance). The value of the provision for future policy benefits essentially corresponds to the fair value of the relevant investments shown under Assets – C Insurancerelated investments – Investments for policyholders under unit-linked life insurance contracts. Changes in this provision are fully recognised in the technical result. Insofar as these changes derive from unrealised gains and losses from alterations in the fair values of the related investments, they are matched by opposite changes of the same amount in the insurance-related investment result.
Pension obligations are recognised in accordance with IAS 19, using the projected unit credit method. The calculation includes not only the pension entitlements and current pensions known at the balance sheet date, but also their expected future development. The assumptions for the future development are determined on the basis of the circumstances in the individual countries.
IV. Other securities 1. Available for sale 19,689 20,675 49,116 51,883 50,603 51,727 4,625 4,409 15,240 15,151 139,272 143,845 2. At fair value through profit or loss 122 75 634 378 1,362 1,024 53 14 444 488 2,616 1,979
Reinsurance ERGO Total Life and Health Property-casualty Life and health Property-casualty Germany Germany International €m 31.12.2018 Prev. year 31.12.2018 Prev. year 31.12.2018 Prev. year 31.12.2018 Prev. year 31.12.2018 Prev. year 31.12.2018 Prev. year
B. Gross technical provisions I. Unearned premiums 309 295 6,985 6,034 250 214 484 468 1,762 1,846 9,790 8,857 II. Provision for future policy benefits 12,107 10,825 26 26 88,950 87,774 422 433 9,641 9,897 111,147 108,956 III. Provision for outstanding claims 9,034 8,694 46,919 45,004 2,886 2,935 4,670 4,483 2,848 2,849 66,356 63,965
C. Gross technical provisions for unit-linked life insurance contracts 0 0 0 0 5,098 5,809 0 0 2,827 3,162 7,925 8,971
D. Ceded share of technical provisions 858 735 2,709 2,727 19 15 74 78 603 615 4,263 4,169
Other operating expenses –114 –112 –444 –394 –149 –149 –83 –91 –187 –178 –976 –924 Income from associates and joint ventures accounted for using the equity method 1 0 113 82 44 31 2 4 27 28 187 145
Reinsurance ERGO Total Life and Health Property-casualty Life and health Property-casualty Germany Germany International €m 2018 Prev. year 2018 Prev. year 2018 Prev. year 2018 Prev. year 2018 Prev. year 2018 Prev. year 3. Net expenses for claims and benefits –7,855 –10,842 –12,140 –13,467 –9,955 –11,734 –2,075 –2,069 –3,091 –3,533 –35,116 –41,645 4. Net operating expenses –2,146 –2,815 –6,372 –5,600 –1,530 –1,195 –1,087 –1,072 –1,451 –1,504 –12,587 –12,186 9. Deduction of income from technical interest –637 –602 –1,144 –1,083 –2,817 –4,180 –76 –75 –73 –435 –4,747 –6,376 12. Other non-operating result, net finance costs and impairment losses on goodwill –34 –82 –110 –284 –400 –437 –204 –185 –127 –158 –874 –1,146
Interest expenses –14 –17 –51 –46 –36 –42 –9 –9 –16 –17 –125 –132 Depreciation and amortisation –62 –42 –111 –140 –52 –79 –43 –50 –83 –80 –351 –392
Net expenses for claims and benefits –12,140 –13,467 –2,075 –2,069 –2,088 –2,068 Net operating expenses –6,372 –5,600 –1,087 –1,072 –1,068 –1,022
Fire brigade tax and other expenses 14 17 15 13 31 28
Other underwriting income –6 –24 –3 –5 –25 –24 Change in other technical provisions and
Non-current assets by country1 €m 31.12.2018 Prev. year 1 The non-current assets mainly comprise intangible assets (especially goodwill) and our owner-occupied and investment property, as well as investments in renewable energy.
Latin America 1,277 1,230 1 The premiums are generally allocated according to the location of the risks insured.
Notes to the consolidated balance sheet – Assets 1 Goodwill Changes in goodwill €m 2018 Prev. year Gross carrying amount at 31 Dec. previous year 4,134 4,358 Accumulated amortisation and impair- ment losses at 31 Dec. previous year –1,550 –1,541 Carrying amount at 31 Dec. previous year 2,584 2,817 Currency translation differences 81 –217
Amortisation and impairment losses –6 –9 Carrying amount at 31 Dec. financial year 2,904 2,584 Accumulated amortisation and impair- ment losses at 31 Dec. financial year –1,556 –1,550 Gross carrying amount at 31 Dec. financial year 4,460 4,134
Cash-generating units Global ERGO Clients and North America Division Property-casualty Germany segment reinsurance property-casualty
Impairment tests for cash-generating units to which a significant portion of the goodwill was allocated are based on the assumptions shown below.
Consolidated financial statements Notes environment. After the detailed planning phase, we estimate the target results achievable long term on the basis of the last adjusted planning year and taking into account growth rates and RoI derived from macroeconomic forecasts.
The calculation of these values in use is based on distributable target results derived from the current market environment and the latest corporate planning approved by management. Prepared in an interactive process involving the operational units, the responsible controlling units and the Board of Management, the corporate plans are reviewed and updated at least every quarter. The aforementioned key assumptions regarding premium income development and combined ratios derive from the aggregation of the company plans of the individual companies of a cash-generating unit. The key assumptions regarding developments in the equity market and interestrate level are defined on the basis of the current market 2 Other intangible assets
Acquired insurance portfolios Software Internally developed Other €m 2018 Prev. year 2018 Prev. year 2018 Prev. year Gross carrying amount at 31 Dec. previous year 1,304 1,334 413 405 1,244 1,186 Accumulated amortisation and impairment losses at 31 Dec. previous year –870 –798 –383 –363 –972 –898 Carrying amount at 31 Dec. previous year 433 536 30 42 272 288 Currency translation differences –6 –24 –1 –1 1 –7 Additions
Intangible assets pledged as security and other restrictions on title amount to €110m (115m). 8006_C
Carrying amount at 31 Dec. financial year 29 29 143 111 240 211 Accumulated amortisation and impairment losses at 31 Dec. financial year –194 –193 –518 –568 –90 –84 Gross carrying amount at 31 Dec. financial year 223 222 661 679 330 295
Carrying amount at 31 Dec. financial year 15 18 1,161 1,105 Accumulated amortisation and impairment losses at 31 Dec. financial year –19 –66 –3,191 –3,137 Gross carrying amount at 31 Dec. financial year 34 85 4,352 4,243
Reclassifications 6 –3 Carrying amount at 31 Dec. financial year 5,851 5,121 Accumulated amortisation and impairment losses at 31 Dec. financial year –1,255 –1,302 Gross carrying amount at 31 Dec. financial year 7,107 6,423
The impairment losses reversed are primarily attributable to the increase in property market values from updated fair value assumptions. They mainly derive from the property-casualty reinsurance segment (€67m) and the ERGO Life and Health Germany segment (€80m).
Property pledged as security and other restrictions on title amount to €1,000m (916m). Contractual commitments to acquire property amount to €78m (239m).
Munich Re Group Annual Report 2018 of the market quotes available from market data providers is insufficient, so we use broker valuations. With these investments, we thus do not perform our own valuations using inputs that are not based on observable market data. We regularly subject the valuations supplied to plausibility tests on the basis of comparable investments.
At 31 December 2018, around 11% (13%) of the investments measured at fair value were allocated to Level 1 of the fair value hierarchy, 85% (83%) to Level 2 and 5% (4%) to Level 3, as shown in the table below.
In the financial year, the allocation to the individual levels of the fair value hierarchy was largely unchanged. The minor transfer amounts relating to Level 3 of the fair value hierarchy are adjustments to our Group requirements.
The following table but one resents the reconciliation from the opening balances to the closing balances for investments allocated to Level 3.
Investments not measured at fair value Loans 0 64,082 1,393 65,475
Investments in affiliated Investments in associates companies measured at and joint ventures fair value measured at fair value €m 2018 Prev. year 2018 Prev. year Carrying amount at 31 Dec. previous year 171 138 34 8 Gains and losses –15 4 0 0
Gains (losses) recognised in the income statement –17 –9 –3 0 Gains (losses) recognised in equity 3 13 3 0
Transfer out of Level 3 0 –11 0 0 Changes in the fair value of derivatives 0 0 0 0 Carrying amount at 31 Dec. financial year 177 171 36 34 Gains (losses) recognised in the income statement that are attributable to investments shown at the end of the financial year –21 –10 –3 0
Insurance-related investments Total €m 2018 Prev. year 2018 Prev. year Carrying amount at 31 Dec. previous year 304 277 6,082 5,959
Other securities available for sale Fixed-interest Non-fixed-interest €m 2018 Prev. year 2018 Prev. year Carrying amount at 31 Dec. previous year 2,675 2,683 2,860 2,814 Gains and losses –50 –14 118 3
Transfer out of Level 3 0 –19 0 0 Changes in the fair value of derivatives 0 0 0 0 Carrying amount at 31 Dec. financial year 3,137 2,675 3,410 2,860 Gains (losses) recognised in the income statement that are attributable to investments shown at the end of the financial year –14 74 –15 –39
Gains (losses) recognised in the income statement 0 0 0 0 –15 –1 Gains (losses) recognised in equity 0 0 0 0 0 0
Carrying amounts €m 31.12.2018 Prev. year Mortgage loans 6,326 5,842 Loans and advance payments on insurance policies 239 266 Other loans 48,280 48,595
The fair value of the loans is based on recognised valuation techniques in line with the present value principle and taking observable market inputs into account; see (4) Hierarchy for the fair value measurement of assets. The fair value totalled €64,298m (65,490m) at the reporting date.
In the financial year, shares of losses of associates and joint ventures amounting to €1m (3m) were not recognised in the balance sheet. Overall, losses not recognised in the balance sheet totalled €4m (3m).
Further information about affiliated companies, associates and joint ventures can be found in Other information (48) Contingent liabilities, other financial commitments, (49) Significant restrictions, and in the List of shareholdings as at 31 December 2018 pursuant to Section 313(2) of the German Commercial Code (HGB).
Aggregated financial information on investments in associates and joint ventures accounted for using the equity method €m 31.12.2018 Prev. year Overall result for the year after tax from continued operations 165 106 Result after tax from discontinued operations 0 0 Income and expenses recognised directly in equity –17 9 Total recognised income and expenses 148 115
Disposal proceeds in the financial year €m 2018 Prev. year Fixed-interest securities 54,803 48,780 Non-fixed-interest securities
Approximately 40% of the corporate debt securities are covered bonds or government-guaranteed bank issues. The remaining portfolio is composed of securities issued by companies outside the banking sector, with each individual risk making up less than 1%, bonds issued by banks and state central savings banks, and asset-backed securities/mortgage-backed securities. The asset-backed securities/mortgage-backed securities are largely rated A or better. Assets pledged as security and other restrictions on title amount to €8,015m (7,677m). Of the securities shown, €1,910m (0m) had been loaned to third parties. Loaned securities are not derecognised, as the main resultant risks and rewards remain with Munich Re. Of the €6,771m (10,883m) in unrealised gains and losses, €2,565m (4,672m) has been recognised in equity (other reserves), after deduction of provisions for deferred premium refunds, deferred taxes, non-controlling interests, and consolidation and currency translation effects.
Non-fixed-interest securities Shares 10,181 13,013 1,246 2,709 8,935 10,304 Investment funds
The insurance-related investments include investments for unit-linked life insurance contracts of €7,533m (8,772m) and other insurance-related investments of €891m (891m).
As at 31 December 2018, Munich Re held collateral for derivatives in the form of cash collateral and securities with a rating of at least AA. The fair value of the securities amounts to €29m (26m), and the cash collateral approximately €530m (383m). The collateral received is subject to a title transfer collateral arrangement, but is not re-sold or pledged.
Rating of fixed-interest securities according to fair values €m 31.12.2018 Prev. year
Cash flow hedges play a role in countering fluctuations that may be caused, for example, by variable interest payments. Munich Re uses cash flow hedges chiefly to hedge against interest-rate risks, with interest-rate swaps being the main instruments employed. Changes in the fair value of the hedging instrument are recognised directly in equity for this purpose. Only when the actual cash inflow or outflow takes place – as a result of the hedged circumstance – is the relevant equity item reversed with recognition in profit or loss. The change in fair value assignable to the ineffective portion of the hedging was negligible at the reporting date. At the balance sheet date, there is an equity item of €16m (7m) from cash flow hedges. The net fair value of the derivatives falling into this category amounted to €18m (21m) at the balance sheet date.
10 Other investments Other investments comprise deposits with banks totalling €3,219m (3,138m), investments in renewable energies amounting to €662m (468m), physical gold of €372m (357m), and forestry investments of €265m (46m). Deposits with banks include receivables of €130m (134m) from borrowers under repurchase agreements that have been booked by us as the lender.
Although the derivatives used by Munich Re essentially serve to hedge against risks, only an amount of €18m (21m) meets the requirements of IAS 39 for hedge accounting.
9 Deposits to cedants Deposits retained on assumed reinsurance serve directly as collateral for technical provisions covering business assumed and may not be used by cedants independently. The credit risk is therefore limited. The amount of and changes in deposits retained on assumed reinsurance derive from the values for the changes in the related technical provisions for the reinsured business. Deposits retained on assumed reinsurance business thus do not have a fixed maturity date, and their release is generally dependent on the run-off of the corresponding provisions.
Periods to maturity and amount of the hedged cash flows at the balance sheet date €m < 1 year 1–2 years 2–3 years 3–4 years 4–5 years > 5 years 31.12.2018 Prev. year Notional amounts of hedged transactions 189 100 0 0 0 90 379 289
Disclosure of derivatives by balance sheet item €m 31.12.2018 Prev. year Qualifying for Fair value hedge accounting Balance sheet item No Investments, other securities, designated as at fair value through profit or loss 2,078 1,538Positive
No Insurance-related investments 840 853 Yes Other assets 20 27 No Negative
Of the amounts receivable on primary insurance business, €747m (653m) is apportionable to receivables from insurance agents. The miscellaneous receivables include receivables of €5,297m (2,306m) resulting from contracts with non-significant risk transfer, which do not fall within the scope of IFRS 4.
The miscellaneous receivables contain cash collateral of €656m (356m), mainly for derivative transactions.
Given that the majority of other receivables, i.e. a total of €11,878m (10,497m), have a period to maturity of less than one year, the fair values largely correspond to the carrying amounts.
As at 31 December 2018, our accounts receivable on ceded reinsurance business were split between the following ratings (based on those of Standard & Poor’s): Rating of accounts receivable €m 31.12.2018 Prev. year
Of all our receivables on underwriting business at the balance sheet date, €371m (379m) was outstanding for more than 90 days. The average defaults of the last three years amount to €864m (282m).
Carrying amount at 31 Dec. financial year 662 468 Accumulated amortisation and impairment losses at 31 Dec. financial year –245 –231 Gross carrying amount at 31 Dec. financial year 907 699
Ceded share of technical provisions €m 31.12.2018 Prev. year Unearned premiums 390 328 Provision for future policy benefits 823 760 Provision for outstanding claims 3,005 2,957 Other technical provisions 46 125
The deferred acquisition costs of the disposal group amounting to €85m (4m) are recognised under Changes in consolidated group/Other.
The deferred tax assets and liabilities recognised in the consolidated balance sheet concern the following balance sheet items: No deferred taxes were posted for temporary differences of €57m (52m) in connection with investments in subsidiaries and associates, also referred to as outside basis differences. Likewise, no deferred tax assets were
Expiring in up to three years 30 35 65 24 43 67 Expiring in over three years and up to ten years 205 164 369 266 66 332 Expiring in over ten years 295 4 299 206 25 231
Expiring in up to three years 0 0 0 0 0 0 Expiring in over three years and up to ten years 0 0 0 0 0 0 Expiring in over ten years 0 0 0 0 0 0
Expiring in up to three years 5 8 13 13 0 13 Expiring in over three years and up to ten years 49 66 115 104 0 104 Expiring in over ten years 0 0 0 0 0 0 recognised on deductible temporary differences of €196m (246m) due to lack of recoverability. The available tax loss carry-forwards and tax credits are broken down as follows.
Reclassification –111 –2 0 –113 Carrying amount at 31 Dec. financial year 2,178 219 4 2,400 Accumulated amortisation and impairment losses at 31 Dec. financial year –1,170 –743 –25 –1,938 Gross carrying amount at 31 Dec. financial year 3,348 962 28 4,338
Owner- Operating occupied and office €m property equipment Other Total Prev. year Prev. year Prev. year Prev. year Gross carrying amount at 31 Dec. previous year 3,554 1,038 34 4,625 Accumulated amortisation and impairment losses at 31 Dec. previous year –1,179 –765 –24 –1,967 Carrying amount at 31 Dec. previous year 2,374 272 11 2,657 Currency translation differences –23 –3 –1 –27 Additions
Reclassification –19 –3 0 –22 Carrying amount at 31 Dec. financial year 2,280 241 7 2,527 Accumulated amortisation and impairment losses at 31 Dec. financial year –1,214 –760 –24 –1,998 Gross carrying amount at 31 Dec. financial year 3,494 1,000 31 4,525
The other reserves of Group equity include an amount of €7m for disposal groups mainly attributable to unrealised gains on fixed-interest securities, and €44m in unrealised losses on the currency translation reserve.
In the fourth quarter of 2018, the disposal groups ERGO Russia Life, Moscow, and the Dutch companies Van Arkel Gerechtsdeurwaarders B.V., Leiden, Landelijke Associatie Van Gerechtsdeurwaarders B.V., Groningen, and Bos Incasso B.V., Groningen were sold and deconsolidated.
Non-current assets and disposal groups held for sale €m 31.12.2018 Prev. year Assets Land and buildings, including buildings on third-party land 102 22 Other securities available for sale 288 75 Other investments 16 3 Other assets of the disposal group 622 17 Total assets 1,029 118 Liabilities Gross technical provisions 749 57 Other liabilities of the disposal group 74 8 Total liabilities 823 65
Notes to the consolidated balance sheet – Equity and liabilities 17 Equity The total share capital of €587,725,396.48 as at 31 December 2018 is divided into 149,538,477 no-parvalue registered shares, each fully paid up and entitled to one vote. The number of shares in circulation was as follows: Development of shares in circulation
Disposals from hedging stock appreciation rights under long-term incentive plans 0 200
Reductions Acquisition of shares for retirement (share buy-back programme) –5,462,053 –5,643,062
In the financial year, Munich Re bought back 5,462,053 shares. This includes the 2017/2018 share buy-back programme completed on 6 April 2018, and the 2018/2019 programme approved by the Board of Management of Munich Reinsurance Company on 15 March 2018, which provides for the acquisition of shares up to a value of €1bn before the 2019 Annual General Meeting.
The acquisition costs of all Munich Re shares in the possession of Group companies at the end of the financial year totalled €696,764,312.27.
A total of €1,286m was distributed to Munich Reinsurance Company’s equity holders for the financial year 2017 in the form of a dividend of €8.60 per dividend-bearing share.
Composition of the authorised capital €m 31.12.2018 Authorised Capital 2015 (until 22 April 2020) 10 Authorised Capital 2017 (until 25 April 2022) 280 Total 290
Composition of contingent capital €m 31.12.2018 Contingent Capital 2015 (until 22 April 2020) 117 Total 117
Information on capital management is provided in the management report under “Financial position – Capital position”.
Tax effects in the income and expenses recognised directly in equity 2018 Prev. year €m Before tax Tax After tax Before tax Tax After tax
Unrealised gains and losses on investments –2,563 434 –2,129 167 193 360 Change resulting from equity method measurement 47 0 47 –15 –5 –20 Change resulting from cash flow hedges 0 0 0 –1 0 –1 Remeasurements of defined benefit plans 107 –29 78 31 –67 –36
Gains (losses) recognised in the income statement –41 1 Gains (losses) recognised in equity –18 50
In the case of Munich Reinsurance Company bonds, annual outflows of liquidity amounting to the respective interest payments occur until the first possible call dates. In the financial year, these amounted to €176m (254m). Thereafter, the liquidity outflows will vary, depending on the respective interest-rate level. For the registered bonds of ERGO Versicherung Aktiengesellschaft, and for the
HSB Group bonds, the annual outflow is variable, depending on the respective interest-rate levels.
Breakdown of subordinated liabilities €m A.M. Best Fitch Moody’s S&P 31.12.2018 Prev. year Munich Reinsurance Company, Munich, 3.25% until 2029, thereafter floating, €1,250m, Bonds 2018/2049 – A A2 (hyb) – 1,236 0 Munich Reinsurance Company, Munich, 6.25% until 2022, thereafter floating, €900m, Bonds 2012/2042 a+ A – A 897 896 Munich Reinsurance Company, Munich, 6.625% until 2022, thereafter floating, £450m, Bonds 2012/2042 a+ A – A 501 506 Munich Reinsurance Company, Munich, 6.00% until 2021, thereafter floating, €1,000m, Bonds 2011/2041 a+ A – A 997 995 Munich Reinsurance Company, Munich, 7.625% until 2018, thereafter floating, £300m1, Bonds 2003/2028 – – – – 0 338 ERGO Versicherung Aktiengesellschaft, Vienna, secondary market yield on federal government bonds (Austria) +70 BP, €6m, Registered bonds 2001/perpetual – – – – 6 6 ERGO Versicherung Aktiengesellschaft, Vienna, secondary market yield on federal government bonds (Austria) +70 BP, €7m, Registered bonds 1998/perpetual – – – – 7 7 HSB Group Inc., Delaware, LIBOR +91 BP, US$ 76m, Bonds 1997/2027 – – – – 46 42 1 In the second quarter 2018, the issuer redeemed the entire bond.
In the ERGO Life and Health segment, there was an adjustment in 2018 to the assumptions regarding future lapses, expenses, and long-term interest-rate levels that are geared to the long-term regular return on investments. The provision for future policy benefits reduced as a result of these adjustments.
Development of gross provision for future policy benefits €m 2018 Prev. year Status at 31 Dec. previous year 108,956 108,108 Currency translation differences 92 –175 Changes in consolidated group/Other 745 301 Changes
Gross provision by type €m 31.12.2018 Prev. year Annuity claims provision 7,333 7,105 Case reserve 25,697 24,592 IBNR reserve 33,326 32,268
Reinsurance ERGO % 31.12.2018 Prev. year 31.12.2018 Prev. year Up to one year 36.3 34.9 30.4 32.8 Over one year and up to five years 44.2 44.5 38.6 37.8 Over five years and up to ten years 11.4 11.7 15.7 15.1 Over ten years and up to fifteen years 3.7 3.9 5.5 5.2
For the year under review 18,443 –766 17,677 19,201 –1,209 17,992 For previous years –2,252 133 –2,119 –1,084 –20 –1,104
For the year under review –5,756 285 –5,471 –5,239 132 –5,107 For previous years –8,857 338 –8,519 –6,678 413 –6,265
Total payments –14,613 624 –13,990 –11,917 545 –11,372 Balance at 31 Dec. financial year 53,937 –2,776 51,161 51,831 –2,757 49,074 1 Comprises the segments property-casualty reinsurance, ERGO Property-casualty Germany and the property-casualty section of the ERGO International segment.
31 Dec. 2008 40,489 31 Dec. 2009 32,352 8,735 31 Dec. 2010 26,924 5,517 8,582 31 Dec. 2011 22,922 3,754 5,578 11,678 31 Dec. 2012 19,957 3,141 3,869 7,665 8,703 31 Dec. 2013 18,305 2,781 3,263 5,426 5,568 8,684 31 Dec. 2014 16,183 2,109 2,692 3,934 3,968 5,716 8,875 31 Dec. 2015 14,352 1,643 2,117 3,259 3,303 4,451 6,085 8,477 31 Dec. 2016 12,643 1,446 1,572 2,355 2,925 3,485 4,615 5,864 9,077 31 Dec. 2017 12,039 1,415 1,316 2,213 2,632 2,930 3,740 4,337 6,358 12,520 31 Dec. 2018 10,872 1,206 1,024 1,774 2,165 2,383 3,104 3,357 4,748 8,353 12,195 51,181
31 Dec. 2008 52,184 31 Dec. 2009 51,699 13,098 31 Dec. 2010 51,074 13,029 13,394 31 Dec. 2011 50,556 12,565 13,569 17,385 31 Dec. 2012 49,563 12,448 13,457 17,479 14,362 31 Dec. 2013 49,090 12,441 13,543 17,206 14,141 14,219 31 Dec. 2014 48,489 12,119 13,573 16,807 13,943 14,437 14,124 31 Dec. 2015 47,826 11,911 13,380 16,683 13,740 14,403 14,169 13,433 31 Dec. 2016 47,529 11,874 13,160 16,225 13,708 14,113 14,154 13,489 14,308 31 Dec. 2017 47,385 11,855 13,031 16,197 13,605 14,013 13,942 13,285 14,168 17,425 31 Dec. 2018 46,885 11,654 12,864 15,910 13,351 13,747 13,682 13,084 14,205 17,450 17,663 190,496
The ultimate loss of an accident year comprises all payments made for that accident year up to the reporting date, plus the claims reserve at the reporting date. Given complete information regarding all losses incurred up to the balance sheet date, the ultimate-loss status for each accident-year period would remain the same. In practice, however, the ultimate-loss status (based on estimates) is exposed to fluctuations that reflect the growth in knowledge about the claims cases. Changes in the consolidated group, especially new acquisitions or the composition of reportable segments, can also have an influence on the ultimate-loss status.
The run-off triangles are prepared on a currency-adjusted basis. For this purpose, all figures are translated from the respective local currency into the Group currency (euro) based on year-end exchange rates. This ensures that currency translation does not lead to run-off effects.
Development of provision for premium refunds based on national regulations €m 2018 Prev. year Status at 31 Dec. previous year 8,642 8,209 Changes in consolidated group 2 0 Allocation/Withdrawal –96 433 Status at 31 Dec. financial year 8,549 8,642
We recognise a provision for the disposal group of €165m (0m) in the item “Changes in consolidated group/Other”.
Breakdown of other provisions €m 31.12.2018 Prev. year Provisions for post-employment benefits 2,992 2,982 Other provisions 1,391 1,526
Expenses for defined contribution plans in the year under review totalled €64m (66m), with €109m (113m) for contributions to state plans.
The pension obligations of the ERGO Group account for €3,018m (2,960m) of the present value of obligations under defined pension plans and €423m (422m) of plan assets. The obligations include disability and old-age pensions, and pensions for surviving dependants. The amount of the pensions generally depends on salary and length of service. The commitments are generally funded through pension provisions. New members receive pension commitments in the form of defined contribution plans financed by means of intra-Group insurance contracts securing the obligations under pension schemes. There are also medical-care benefit obligations.
For the 2019 financial year, capital transfers of €84m (81m) to plan assets are expected.
There was an effect of €12m (13m) resulting from the asset ceiling on overfunded defined benefit plans.
% 31.12.2018 Prev. year No quoted market price in an active market Cash or cash equivalents 0 1 Real estate 1 1 Fixed-interest securities 0 1 Non-fixed-interest securities 3 4
Munich Re uses generally recognised biometric actuarial assumptions, adjusted as a rule to take account of companyspecific circumstances. The average remaining life expectancy of a 65-year-old plan participant is 24.6 years for women and 24.4 years for men.
Present value of defined benefit obligations 2,780 2,743 Other 0 –1 Net balance sheet liability 2,780 2,741
Present value of defined benefit obligations 5,921 5,924 Plan assets –3,301 –3,253 Assets from the defined benefit plan 365 303 Effect of asset ceiling 12 13 Other –6 –5
Development of the provision for defined benefit plans €m 2018 Prev. year Balance at 31 Dec. previous year 2,982 3,058 Currency translation differences 13 –45 Changes in consolidated group –1 1
Consolidated financial statements Notes includes components for multi-year performance and for the medium-term incentive plans. The “Miscellaneous” provisions comprise a large number of different items. The provisions for restructuring, early-retirement benefits/semiretirement, anniversary benefits, multi-year performance and medium-term incentive plans are mainly long term, whereas the provisions for earned commission, salary obligations, other remuneration for desk and field staff, and miscellaneous are essentially short term.
An increase or decrease in the following essential actuarial assumptions has an impact on the present value of defined benefit obligations: Contractual period to maturity of pension obligations €m 31.12.2018 Prev. year Up to one year 156 151 Over one year and up to five years 730 679 Over five years and up to ten years 1,031 975 Over ten years and up to twenty years 2,503 2,398 Over twenty years 6,058 6,037
The calculations for the actuarial assumptions classified as essential were carried out individually in order to display their effects separately.
Decrease in medical cost trend rate by 100 BP –37 –39 Increase in mortality rate by 10 % –158 –161 Decrease in mortality rate by 10 % 170 171
The following table provides information on the remaining contractual maturities of the items shown under “Other liabilities”. The amounts payable on primary insurance business are directly linked to the underlying insurance business, and therefore not taken into account here. This currently also applies to the derivatives embedded in variable annuity business; see Disclosures on risks from insurance contracts, (39) Disclosures on risks from life and health insurance business. The derivatives listed below are recognised at fair value.
Carrying amounts €m 31.12.2018 Prev. year Up to one year 9,516 8,549 Over one year and up to two years 163 125 Over two years and up to three years 271 770 Over three years and up to four years 172 48 Over four years and up to five years 2,062 159 Over five years and up to ten years 1,391 1,069 Over ten years 711 820
The major portion of the liabilities up to one year involve interest-free items, where the carrying amounts and the undiscounted cash flows are identical. A total of €334m (59m) of the amounts owed to banks and €920m (674m) of the liabilities from derivatives are due within one year. Any deviations in the liabilities with remaining terms of over one year from the undiscounted cash flows are not material for presenting the significance of the financial liabilities for our financial position and performance.
Breakdown of other liabilities €m 31.12.2018 Prev. year Amounts payable on primary insurance business 2,946 3,243 Accounts payable on reinsurance business 4,555 4,690 Amounts due to banks 674 602 Miscellaneous liabilities 9,972 6,936
Of the amounts due to banks, €93m (110m) is attributable to bank borrowing by Group companies acquired by Munich Re under its infrastructure investment strategy.
The table shows the cash and non-cash changes in liabilities arising from financing activities between the beginning of the financial year and the balance sheet date. The cash changes are included in the consolidated cash flow statement as item III., Cash flows from financing activities.
Premiums €m 2018 Prev. year Total gross premiums 49,973 50,117 Gross premiums written 49,064 49,115 Change in gross unearned premiums –1,045 –424 Gross earned premiums 48,019 48,691
Ceded premiums written –2,357 –1,565 Change in unearned premiums – Ceded share 72 37 Earned premiums ceded –2,284 –1,528
The total gross premiums include not only the gross premiums written but also savings premiums from unitlinked life insurance and capitalisation products. Premiums from long-term insurance business, especially in life primary insurance, are recognised in full as earned premiums and income when they become due. Under gross premiums written, only those parts of the premium from unit-linked life business are included that are used to cover the risks and associated costs.
In the ERGO Life and Health Germany segment, the income from technical interest for life primary insurance companies comprises the gains and losses from unit-linked life insurance, plus the guaranteed interest rate and profit sharing on the basis of the non-technical result sources. For health primary insurance companies, the income from technical interest corresponds to the allocation of interest to the ageing reserve (actuarial interest) and the allocation to the provision for premium refunds. The latter is based on the allocation of interest to the provision for nonperformance -related premium refunds, on the investment result exceeding the actuarial interest rate, and on policyholders’ participation in the other non-technical result components.
Expenses for claims and benefits €m 2018 Prev. year Gross Claims and benefits paid –33,679 –33,480 Change in technical provisions
Other technical result –125 –255 Gross expenses for claims and benefits –36,366 –43,194
Other technical result –119 –272 Net expenses for claims and benefits –35,116 –41,645
Other operating expenses –976 –924 Thereof: Interest and similar charges –117 –119 Write-downs of other operating assets –86 –34
Other operating income mainly comprises income of €473m (497m) from services rendered, interest income of €30m (39m), income of €88m (95m) from the release/ reduction of miscellaneous provisions and provisions for bad and doubtful debts, and income of €79m (30m) from owner-occupied property, some of which is also leased out.
The other operating result includes the result from reinsurance treaties with non-significant risk transfer totalling €80m (55m). A total of €81m (51m) derives from the life and health reinsurance segment.
The result for land and buildings includes rental income of €489m (427m). The expenses for the management of investments include running costs and expenses for repair and maintenance of property totalling €92m (79m). We earned interest income of €1,889m (1,929m) on loans. Other securities available for sale produced regular income of €3,506m (3,547m), while derivatives generated €151m (112m). Interest expenses on non-derivative investments amounted to €8m (12m), administrative expenses to €392m (380m), and other expenses to €126m (96m).
Write-downs of non-derivative investments €m 2018 Prev. year Land and buildings, including buildings on third-party land –124 –141 Investments in affiliated companies –10 –3 Investments in associates and joint ventures –62 –11 Loans –21 –11 Other securities available for sale –968 –137 Other securities at fair value through profit or loss –74 –22 Other investments –56 –44 Total –1,315 –371
The other non-operating result is unrelated to the conclusion, administration or settlement of insurance contracts or the administration of investments. It essentially comprises a foreign-currency result of –€39m (–294m), the other non-technical result of –€507m (–497m), write-downs of €49m (68m) on other intangible assets, and restructuring expenses of €90m (76m).
The effective tax burden is the ratio between the “taxes on income shown” and the “result before taxes on income (after “other tax”)”. In the 2018 financial year, there was a tax burden of 20.2% (previous year: tax relief of 315.0%).
Reconciliation to effective tax expenses/income €m 2018 Prev. year Result before taxes on income (after “other tax”) 2,851 94 Group tax rate in % 33 33 Derived taxes on income –941 –31 Tax effect of: Tax rate differences 179 104 Tax-free income 23 129 Non-deductible expenses –242 –206 Valuation allowances for deferred taxes/loss carry-forwards –93 –38 Change in tax rates and tax legislation 1 91 Tax for prior years 586 297 Trade tax adjustments –1 –6 Other –88 –42
Munich Re Group Annual Report 2018 39 Disclosures on risks from life and health insurance business
Market risk With regard to our technical provisions, we are particularly exposed to interest-rate risk. A distinction must be made between risks of changes in interest rates on the one hand and interest-rate guarantee risks on the other. Risks of changes in interest rates would result from the discounting of the provision for future policy benefits and of parts of the provision for outstanding claims. In accordance with accounting valuation rules, the discount rate is fixed at contract commencement and will generally not be adjusted during the term of the contract. To this extent, the accounting valuation of these technical provisions does not depend directly on the level of the market interest rates. Economically, however, an interestrate risk derives in principle from the need to earn a return on the investments covering the provision that is commensurate with the discount rate used in measuring the provision.
In reinsurance, we use the following discount rates for the provision for future policy benefits and the provision for outstanding claims: Disclosures on risks from insurance contracts and financial instruments Munich Re’s reporting is based on various legal regulations governing risks it is exposed to as a result of its business operations: In the Notes to the financial statements, risks from insurance contracts must be reported in accordance with IFRS 4 and risks from financial instruments in accordance with IFRS 7. Further disclosures on risks are required in the management report under Section 315 (2) no. 2 of the German Commercial Code (HGB) and German Accounting Standard no. 20 (DRS 20) for management reports.
Since risk reporting concerns not only accounting but also the activities of integrated risk management (IRM) at Munich Re, information on risks is provided in the risk report within the management report, in the disclosures on risks from insurance contracts, and in the disclosures on technical provisions and financial instruments in the Notes to the financial statements. Where necessary, we refer to the relevant information in the risk report and information on the respective items.
In the Notes to the financial statements, we describe in detail uncertainties involved in measuring insurance contracts. For risks from financial instruments, IFRS 7 stipulates that the disclosures must comprise information on the remaining terms and the rating.
In life primary insurance, an implicit or explicit interestrate guarantee is granted for the majority of contracts
Besides this, in German health primary insurance, discount rates of 1.5–3.5% are applied for calculating the provision for premium loadings and the provision for future premium reductions, which are both part of the provision for premium refunds and total €5,255m (5,148m). These discount rates can be altered in the event of a premium adjustment.
over their whole duration, based on a fixed interest rate applying at the time the contract is concluded. This exposes the insurance to an interest-guarantee risk. The discount rate used to calculate the provision for future policy benefits is identical with the guaranteed interest rate for the majority of contracts in our portfolios. An appropriate minimum return needs to be earned in the long term from the investment result (possibly also with assistance from the technical result) for the contractually guaranteed benefits. Given that the investments, as a rule, have a shorter duration than the insurance commitments, there is a reinvestment risk. As regards premiums yet to be received, the investment of these amounts involves a certain amount of risk. We counter these risks using our asset-liability management. In long-term health primary insurance, a discount rate is also used for calculating the provision for future policy benefits. However, this rate can generally be altered by way of premium adjustment. For short-term business, there is no direct interest-rate risk.
In primary insurance, the discount rates relevant for the portfolio in calculating the provision for future policy benefits and the provision for outstanding claims are as follows: The lump-sum option in the case of deferred annuity policies gives policyholders the option of having their annuity paid out in a single payment at a fixed date. As a result, there is a potential risk of an unexpectedly large number of policyholders exercising their option at an interest-rate level markedly higher than the discount rate used for the annuity calculation. But there is no direct interest-rate sensitivity or market sensitivity, since the exercise of the option by the policyholder is determined to a crucial extent by individual factors and relates to the insurance components.
Expected future technical cash flow (gross)1 €m 31.12.2018 Prev. year Up to one year –3,458 –3,401 Over one year and up to five years –9,651 –10,431 Over five years and up to ten years –16,146 –16,690 Over ten years and up to 20 years –38,305 –40,157 Over 20 years –101,376 –103,567 1 Premiums less benefits guaranteed at the balance sheet date and costs (excluding unit-linked products).
Combined ratio in % Reinsurance 1 In 2012, our segment reporting was modified and no longer has a consolidation column. The figures for the previous year have been adjusted accordingly. Comparability with the years up to and including 2010 is thus limited.
Provisions for asbestos and environmental claims 31.12.2018 Prev. year €m1 Gross Net Gross Net 1 The previous year’s figures have been adjusted to eliminate currency translation effects.
Information on the remuneration of Board members and transactions with these persons can be found in the management report under the remuneration report, and under (45) Remuneration report. Transactions between Munich Reinsurance Company and subsidiaries that are to be deemed related parties have been eliminated in consolidation and are not disclosed in the Notes. Business relations with unconsolidated subsidiaries are of subordinate importance as a whole; this also applies to business relations with associates and joint ventures.
Munich Reinsurance Company has established a contractual trust agreement in the form of a two-way trust for its unfunded company pension obligations. The Munich Re pension scheme is considered a related party in accordance with IAS 24. Contributions to the pension scheme are recognised as expenses for defined contribution plans; see Notes to the consolidated balance sheet – Equity and liabilities (25) Other provisions. For transactions of related parties with Munich Reinsurance Company shares, please refer to Notes to the consolidated balance sheet – Equity and liabilities (17) Equity.
The following personnel expenses are included in the operating expenses, in the expenses for claims and benefits (for claims adjustment) and in the investment result: Breakdown of personnel expenses €m 2018 Prev. year Wages and salaries –2,832 –2,763 Social security contributions and employee assistance –489 –501 Expenses for employees’ pensions –238 –199 Total –3,559 –3,463 44 Mid-Term Incentive Plan
In 2018, expenses of €23m (income of 0.2m) were recognised for the Mid-Term Incentive Plan. The provision at the reporting date amounted to €42m (25m).
Fair value 2018 for one right 0.00 € 483.01 € 508.77 € 535.76 € Number of rights (for 100% achievement of objectives) on 1 January 2015 0 0 0 0
Number of rights (for 100% achievement of objectives) on 31 December 2015 38,217 0 0 0 Number of rights (for 100% achievement of objectives) on 1 January 2016 38,217 0 0 0
Number of rights (for 100% achievement of objectives) on 31 December 2017 36,682 31,509 30,814 0 Number of rights (for 100% achievement of objectives) on 1 January 2018 36,682 31,509 30,814 0
Breakdown of auditor’s fees €k 2018 Audit services –9,874 Other assurance and appraisal services –111 Tax consultancy services 0 Other services –3,391 Total –13,376
In accordance with the German Insurance Supervision Act (VAG), all German life and health insurers of our Group are obliged to be members of a protection fund. For life insurers, the protection fund can levy special contributions of up to one per mille of total net technical provisions, in addition to a regular contribution of 0.2 per mille of total net technical provisions. For the health insurers, there is no pre-financing, but the fund may levy special contributions of up to two per mille of net technical provisions to fulfil its functions. This could give rise to a potential payment obligation of €166m (161m) at Group level. The functions and powers of the statutory protection fund for life insurance rest with Protektor Lebensversicherungs-AG, and those of the statutory protection fund for health insurance with Medicator AG.
Besides this, Munich Re has entered into various other financial obligations amounting to €701m (395m) for work and service contracts and €2,629m (1,821m) for investment obligations, of which €13m (74m) is from our investments in joint ventures. At the reporting date, there were loan commitments amounting to €1,753m (1,093m). These figures represent undiscounted nominal amounts. There are other financial commitments amounting to €15m (7m).
Of the auditor’s fees, €9,459k (8,957k) is attributable to KPMG Bayerische Treuhandgesellschaft AG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Munich. All other services were rendered mostly by their affiliated companies.
Our companies based in Greece are subject to the capital controls introduced in 2015 and loosened in 2018, and are required to go through the relevant approval processes when transferring assets.
Munich Re as lessee The operating leases mainly concern offices and business premises of the Group, IT infrastructure, and land. They include extension options as well as restrictions regarding the agreement of subleases. In the period under review, minimum lease payments of €97m (91m) and contingent lease payments of €6m (10m) were recognised as an expense.
Future minimum lease payments under operating leases €m 31.12.2018 Prev. year Up to one year 264 255 Over one year and up to five years 772 691 Over five years 682 574
Due dates 31.12.2018 Prev. year Gross Interest Net Gross Interest Net €m investment element investment investment element investment Minimum lease payments up to one year 0 0 0 0 0 0 Minimum lease payments of over one year and up to five years 2 1 1 2 1 1 Minimum lease payments of over five years 71 56 15 71 56 15
Munich Re Group Annual Report 2018 51 Events after the balance sheet date
The number of outstanding shares decreased by 5,462,053 (5,642,862) over the course of the 2018 financial year, essentially owing to the share buy-back programme.
List of shareholdings as at 31 December 2018 pursuant to Section 313(2) of the German Commercial Code (HGB)
Consolidated subsidiaries 13th & F Associates Limited Partnership, Washington, D.C.4 98.0000 1440 New York Ave. Associates LP, Dover, Delaware 100.0000 40, Rue Courcelles SAS, Paris 100.0000 Adelfa Servicios a Instalaciones Fotovoltaicas S.L., Santa Cruz de Tenerife 100.0000 AEVG 2004 GmbH i. L., Frankfurt am Main4 0.0000 AGRA Gesellschaft für landwirtschaftliche Entwicklung und Beteiligung mbH, Vienna 100.0000 ALICE GmbH, Düsseldorf 100.0000 ALLYSCA Assistance GmbH, Munich 100.0000 American Alternative Insurance Corporation, Wilmington, Delaware 100.0000 American Family Home Insurance Company, Jacksonville, Florida 100.0000 American Modern Home Insurance Company, Amelia, Ohio 100.0000 American Modern Home Service Company, Amelia, Ohio 100.0000 American Modern Insurance Company of Florida Inc., Jacksonville, Florida 100.0000 American Modern Insurance Group Inc., Amelia, Ohio 100.0000 American Modern Lloyds Insurance Company, Dallas, Texas 100.0000 American Modern Property & Casualty Insurance Company, Cincinnati, Ohio 100.0000 American Modern Select Insurance Company, Amelia, Ohio 100.0000 American Modern Surplus Lines Insurance Company, Amelia, Ohio 100.0000 American Southern Home Insurance Company, Jacksonville, Florida 100.0000 American Western Home Insurance Company, Oklahoma City, Oklahoma 100.0000 Amicus Legal Ltd., Bristol 100.0000 ArztPartner almeda AG, Munich 100.0000 Atena Uslugi Informatyczne i Finansowe S.A., Sopot 100.0000 ATU Landbau GmbH & Co. KG, Munich11 94.9000 Bagmoor Holdings Limited, London 100.0000 Bagmoor Wind Limited, London 100.0000 Beaufort Dedicated No.1 Ltd., London 100.0000 Beaufort Dedicated No.2 Ltd., London 100.0000 Beaufort Dedicated No.5 Ltd., London 100.0000
Beaufort Underwriting Agency Limited, London 100.0000 Bell & Clements (Bermuda) Ltd., Hamilton, Bermuda 100.0000 Bell & Clements (London) Ltd., London 100.0000 Bell & Clements (USA) Inc., Reston, Virginia 100.0000 Bell & Clements Inc., Reston, Virginia 100.0000 Bell & Clements Ltd., London 100.0000 Cannock Chase B.V., Leidschendam 100.0000 Cannock Chase Holding B.V., Amsterdam 100.0000 Cannock Chase Purchase B.V., The Hague 100.0000 Cannock Connect Center B.V., Brouwershaven 100.0000 Ceres Demetra GmbH, Munich 100.0000 Closed Joint Stock Company «ERGO» Insurance Company, Minsk 92.3114 Comino Beteiligungen GmbH, Grünwald 100.0000 Consumer Loan Underlying Bond (CLUB) Certificate Issuer Trust I Series 2018-17, San Francisco, California 95.0000 Consumer Loan Underlying Bond (CLUB) Certificate Issuer Trust I Series 2018-24, San Francisco, California 95.0000 Consumer Loan Underlying Bond (CLUB) Certificate Issuer Trust I Series 2018-31, San Francisco, California 95.0000 Corion Pty Ltd, Sydney 100.0000 Cornwall Power (Polmaugan) Limited, London 100.0000 Countryside Renewables (Forest Heath) Limited, London 100.0000 D.A.S. Defensa del Automovilista y de Siniestros – Internacional S.A. de Seguros y Reaseguros, Barcelona 100.0000 D.A.S. Hellas Insurance Company of Legal Protection S.A., Athens 100.0000 D.A.S. Jogvédelmi Biztosíto Részvénytársaság, Budapest 100.0000 D.A.S. Rechtsschutz Aktiengesellschaft, Vienna 100.0000 D.A.S. Société anonyme belge d’assurances de Protection Juridique, Brussels 100.0000 D.A.S. Towarzystwo Ubezpieczen Ochrony Prawnej S.A., Warsaw 100.0000 Daman Health Insurance – Qatar LLC, Doha 100.0000 Dansk Demetra ApS, Frederiksberg C 100.0000 DAS Assistance Limited, Bristol 100.0000 DAS Holding N.V., Amsterdam 51.0000 DAS Law Limited, Bristol 100.0000 DAS Legal Expenses Insurance Co., Ltd., Seoul 100.0000 DAS Legal Expenses Insurance Company Limited, Bristol 100.0000
DAS Legal Finance B.V., Amsterdam 100.0000 DAS MEDICAL ASSIST LIMITED, Bristol 100.0000 DAS Nederlandse Rechtsbijstand Verzekeringmaatschappij N.V., Amsterdam 100.0000 DAS Services Limited, Bristol 100.0000 DAS UK Holdings Limited, Bristol 100.0000 DB Platinum IV SICAV (Subfonds Institutional Fixed Income, Inhaber-Anteile I4D), Luxembourg 100.0000 DB Platinum IV SICAV (Subfonds Institutional Fixed Income, Inhaber-Anteile I5D), Luxembourg 100.0000 DB Platinum IV SICAV (Subfonds Institutional Fixed Income, Inhaber-Anteile I6D o.N.), Luxembourg 100.0000 DB Platinum IV SICAV (Subfonds Institutional Fixed Income, Inhaber-Anteile I7D o.N.), Luxembourg 100.0000 DB Platinum IV SICAV (Subfonds Institutional Fixed Income, Inhaber-Anteile I8D o.N.), Luxembourg 100.0000 Digital Advantage Insurance Company, Providence, Rhode Island 100.0000 Digital Affect Insurance Company, New York City, New York 100.0000 Digital Porte Inc., Toronto, Ontario 100.0000 DKV BELGIUM S.A., Brussels 100.0000 DKV Deutsche Krankenversicherung Aktiengesellschaft, Cologne 100.0000 DKV Pflegedienste & Residenzen GmbH, Cologne 100.0000 DKV Seguros y Reaseguros S.A. Española, Zaragoza 100.0000 DMS QIAIF Platform ICAV (FIVE LABS Subfonds), Dublin 100.0000 E&S Claims Management Inc., Reston, Virginia 100.0000 EIG Co., Wilmington, Delaware 100.0000 ERGO ASIGURARI DE VIATA S.A., Bucharest 100.0000 ERGO ASIGURARI S.A., Bucharest 100.0000 ERGO Austria International AG, Vienna 100.0000 ERGO Beratung und Vertrieb AG, Düsseldorf 100.0000 ERGO Deutschland AG, Düsseldorf 100.0000 ERGO Digital Ventures AG, Düsseldorf 100.0000 ERGO Direkt Krankenversicherung AG, Fürth 100.0000 ERGO Direkt Lebensversicherung AG, Fürth 100.0000 ERGO Direkt Versicherung AG, Fürth 100.0000 ERGO Életbiztosító Zrt, Budapest 100.0000 ERGO Elfte Beteiligungsgesellschaft mbH, Düsseldorf 100.0000 ERGO Fund I LP, Dover, Delaware11 100.0000 ERGO Generales Seguros y Reaseguros S.A., Madrid 100.0000 ERGO Group AG, Düsseldorf 100.0000 ERGO Grubu Holding A.Ş., Istanbul 100.0000 ERGO Grundstücksverwaltung GbR, Düsseldorf11 100.0000 ERGO Insurance Company S.A., Athens 100.0000 ERGO Insurance Company, Moscow 100.0000 ERGO Insurance N.V., Brussels 100.0000 ERGO Insurance Pte. Ltd., Singapore 100.0000 ERGO Insurance SE, Tallinn 100.0000 ERGO International Aktiengesellschaft, Düsseldorf 100.0000 ERGO International Services GmbH, Düsseldorf 100.0000 ERGO Invest SIA, Riga 100.0000 ERGO Lebensversicherung Aktiengesellschaft, Hamburg 100.0000 ERGO Life Insurance SE, Vilnius 100.0000 ERGO Life S.A., Grevenmacher 100.0000
MFI Munich Finance and Investment Ltd., Ta’ Xbiex 100.0000 Midland-Guardian Co., Amelia, Ohio 100.0000 Midwest Enterprises Inc., Miami, Florida 100.0000 MR Bazos LP, Dover, Delaware 100.0000 MR Beteiligungen 1. GmbH, Munich3 100.0000 MR Beteiligungen 2. EUR AG & Co. KG, Grünwald2 100.0000 MR Beteiligungen 3. EUR AG & Co. KG, Grünwald2 100.0000 MR Beteiligungen 16. GmbH, Munich3 100.0000 MR Beteiligungen 17. GmbH, Munich 100.0000 MR Beteiligungen 18. GmbH & Co. Immobilien KG, Grünwald2 100.0000 MR Beteiligungen 18. GmbH & Co. Real Estate KG, Grünwald 100.0000 MR Beteiligungen 19. GmbH, Munich 100.0000 MR Beteiligungen EUR AG & Co. KG, Grünwald2 100.0000 MR Beteiligungen GBP AG & Co. KG, Grünwald2 100.0000 MR Beteiligungen USD AG & Co. KG, Grünwald2 100.0000 MR Debt Finance GmbH, Munich 100.0000 MR Electra LP, Dover, Delaware 100.0000 MR ERGO Beteiligungen GmbH, Grünwald 100.0000 MR Infrastructure Investment GmbH, Munich 100.0000 MR Investment Inc., Dover, Delaware 100.0000 MR Jordan LP, Dover, Delaware 100.0000 MR RENT UK Investment Limited, London 100.0000 MR RENT-Investment GmbH, Munich3 100.0000 MR Solar GmbH & Co. KG, Düsseldorf 100.0000 MR SOLAR SAS DER WELIVIT SOLAR ITALIA S.r.l., Bolzano 100.0000 MSP Underwriting Ltd., London 100.0000 MU068 MR Placem (FCP), Paris4 100.0000 Munich American Holding Corporation, Wilmington, Delaware 100.0000 Munich American Life Reinsurance Company, Atlanta, Georgia 100.0000 Munich American Reassurance Company, Atlanta, Georgia 100.0000 Munich Health Alpha GmbH, Munich3 100.0000 Munich Health Daman Holding Ltd., Abu Dhabi 51.0000 Munich Health Holding AG, Munich3 100.0000 Munich Holdings Ltd., Toronto, Ontario 100.0000 Munich Holdings of Australasia Pty Ltd, Sydney 100.0000 Munich Life Holding Corporation, Wilmington, Delaware 100.0000 Munich Life Management Corporation Ltd., Toronto, Ontario 100.0000 Munich Re America Corporation, Wilmington, Delaware 100.0000 Munich Re America Services Inc., Wilmington, Delaware 100.0000 Munich Re Automation Solutions Limited, Dublin 100.0000 Munich Re Capital Limited, London 100.0000 Munich Re CVC Investment Corp., Dover, Delaware 100.0000 Munich Re Digital Partners US Holding Corporation, Dover, Delaware 100.0000 Munich Re do Brasil Resseguradora SA, São Paulo 100.0000 Munich Re Fund I LP, Dover, Delaware11 100.0000 Munich Re Innovation Systems Inc., Toronto, Ontario 100.0000 Munich Re Life Insurance Company of Vermont, Burlington, Vermont 100.0000
ERGO Versicherungs- und Finanzierungs-Vermittlung GmbH, Hamburg 100.0000 ERGO Vorsorgemanagement GmbH, Vienna 100.0000 ERGO Zehnte Beteiligungsgesellschaft mbH, Düsseldorf 100.0000 ERGO Zwölfte Beteiligungsgesellschaft mbH, Munich 100.0000 ERV Services Ltd., London 100.0000 ERV Sigorta Aracilik Hizmetleri Ltd. Şti., Istanbul 99.9980 Etics, s.r.o., Prague 100.0000 Etoblete 160016 S.L., Valencia 100.0000 Euro-Center (Cyprus) Ltd., Larnaca 100.0000 Euro-Center (Thailand) Co., Ltd., Bangkok 100.0000 Euro-Center Cape Town (Pty) Ltd, Cape Town 100.0000 Euro-Center Holding North Asia (HK) Pte. Ltd., Hong Kong 100.0000 Euro-Center Ltda, São Paulo 100.0000 Euro-Center North Asia Consulting Services (Beijing) Co., Ltd., Beijing 100.0000 Euro-Center Prague, s.r.o., Prague 100.0000 EUROCENTER S.A., Palma de Mallorca 100.0000 Euro-Center USA, Inc., New York City, New York 100.0000 Euro-Center Yerel Yardim Hizmetleri Ltd. Şti., Istanbul 100.0000 European Assistance Holding GmbH, Munich 100.0000 Evaluación Médica TUW S.L., Barcelona 100.0000 Exolvo GmbH, Hamburg 100.0000 Gamaponti 140014 S.L., Valencia 100.0000 GBG Vogelsanger Straße GmbH, Cologne 94.7826 Gebäude Service Gesellschaft Überseering 35 mbH, Hamburg 100.0000 goDentis – Gesellschaft für Innovation in der Zahnheilkunde mbH, Cologne 100.0000 Great Lakes (Gibraltar) Plc, Gibraltar 100.0000 Guanzu 2002 S.L., Valencia 100.0000 Hamburger Hof Management GmbH, Hamburg 100.0000 Hamburg-Mannheimer ForsikringService A/S, Copenhagen 100.0000 Hansekuranz Kontor GmbH, Münster 51.0000 Hartford Steam Boiler Colombia Ltda, Bogota 100.0000 Hartford Steam Boiler UK Limited, Salford 100.0000 Hestia Loss Control Sp.z.o.o., Sopot 100.0000 Horbach GmbH Versicherungsvermittlung und Finanzdienstleistungen, Düsseldorf 70.1000 HSB Associates Inc., New York City, New York 100.0000 HSB Ventures Inc., Dover, Delaware 100.0000 IDEENKAPITAL Anlagebetreuungs GmbH, Düsseldorf 100.0000 Ideenkapital Client Service GmbH, Düsseldorf 100.0000 Ideenkapital erste Investoren Service GmbH, Düsseldorf 100.0000 Ideenkapital Fonds Treuhand GmbH, Düsseldorf 100.0000 Ideenkapital Media Treuhand GmbH, Düsseldorf 100.0000 IDEENKAPITAL Metropolen Europa Verwaltungsgesellschaft mbH, Düsseldorf 100.0000 IDEENKAPITAL PRORENDITA EINS Treuhandgesellschaft mbH, Düsseldorf 100.0000 IDEENKAPITAL Schiffsfonds Treuhand GmbH, Düsseldorf 100.0000 IDEENKAPITAL Treuhand US Real Estate eins GmbH, Düsseldorf 100.0000
Munich Re Automation Solutions Pty Ltd, Sydney 100.0000 Munich Re Capital Markets GmbH, Munich 100.0000 Munich Re Capital No.2 Limited, London 100.0000 Munich Re Digital Partners Limited, London 100.0000 Munich Re India Services Private Limited, Mumbai 100.0000 Munich Re Risk Solution Ireland Limited, Dublin 100.0000 Munich Re Service GmbH, Munich 100.0000 Munich Re Underwriting Agents (DIFC) Ltd., Dubai 100.0000 Munich ReThink GmbH, Munich 100.0000 Munich-American Risk Partners GmbH, Munich 100.0000 Munich-Canada Management Corp. Ltd., Toronto, Ontario 100.0000 MunichFinancialGroup AG Holding, Munich 100.0000 MunichFinancialServices AG Holding, Munich 100.0000 Munichre Service Limited, Hong Kong 100.0000 Naretoblera 170017 S.L., Valencia 100.0000 Nerruze 120012 S.L., Valencia 100.0000 nexible GmbH, Düsseldorf 100.0000 Orrazipo 110011 S.L., Valencia 100.0000 P.A.N. Verwaltungs GmbH, Grünwald 100.0000 PLATINIA Verwaltungs-GmbH, Munich 100.0000 PRORENDITA DREI Verwaltungsgesellschaft mbH, Hamburg 100.0000 PRORENDITA EINS Verwaltungsgesellschaft mbH, Hamburg 100.0000 PRORENDITA FÜNF Verwaltungsgesellschaft mbH, Hamburg 100.0000 PRORENDITA VIER Verwaltungsgesellschaft mbH, Hamburg 100.0000 PRORENDITA ZWEI Verwaltungsgesellschaft mbH, Hamburg 100.0000 Reaseguradora de las Américas S.A., Havana 100.0000 Roanoke Trade Insurance Inc., Schaumburg, Illinois 100.0000 SAINT LEON ENERGIE S.A.R.L., Sarreguemines 100.0000 Schloss Hohenkammer GmbH, Hohenkammer 100.0000 Schrömbgens & Stephan GmbH Versicherungsmakler, Düsseldorf 100.0000 Smart Thinking Consulting (Beijing) Co. Ltd., Beijing 100.0000 Solarfonds Göttelborn 2 GmbH & Co. KG, Düsseldorf4 34.4234 Sopockie Towarzystwo Doradcze Sp.z.o.o., Sopot 100.0000 Stichting Aandelen Beheer D.A.S. Holding, Amsterdam 100.0000 Sustainable Finance Risk Consulting GmbH, Munich 100.0000 Sydney Euro-Center Pty Ltd, Sydney 100.0000 TAS Assekuranz Service GmbH i. L., Frankfurt am Main 100.0000 TAS Touristik Assekuranz-Service GmbH, Frankfurt am Main 100.0000 Three Lions Underwriting Ltd., London 100.0000 TIERdirekt GmbH, Munich 75.0000 Tillobesta 180018 S.L., Valencia 100.0000 Triple IP B.V., Culemborg 100.0000 US PROPERTIES VA Verwaltungs-GmbH, Düsseldorf 100.0000 Vectis Claims Services Ltd., Tel Aviv 75.0000 VICTORIA Immobilien Management GmbH, Munich 100.0000 Victoria Immobilien-Fonds GmbH, Düsseldorf 100.0000 VICTORIA US Property Zwei GmbH i. L., Munich 100.0000
Associates and joint ventures accounted for at fair value “PORT ELISABETH” GmbH & Co. KG, Bramstedt 31.9660 “PORT LOUIS” GmbH & Co. KG, Bramstedt 26.0495 Agricultural Management Services S.r.l., Verona 33.3333 Allianz Pegasus Fonds, Frankfurt am Main 46.0000 Assistance Partner GmbH & Co. KG, Munich 21.6600 Augury Inc., Wilmington, Delaware5 12.7500 carexpert Kfz-Sachverständigen GmbH, Walluf 25.0000 Fernkälte Geschäftsstadt Nord Gesellschaft bürgerlichen Rechts, Hamburg11 36.5609 Finsure Investments (Private) Limited, Harare 24.5000 GIG City Nord GmbH, Hamburg 20.0000 Hartford Research LLC, Lewes, Delaware 41.7500 IK Objektgesellschaft Frankfurt Theodor-Heuss-Allee GmbH & Co. KG, Düsseldorf 47.4000 Inshur Holdings Corp, Wilmington, Delaware5 16.0400 LCM Logistic Center Management GmbH, Hamburg 50.0000 MCAF Management GmbH i. L., Düsseldorf 50.0000 Mnubo Inc., Montreal, Quebec5 15.5800 Neos Ventures Limited, London5 9.7800 PERILS AG, Zurich5 10.0000 POOL Sp.z.o.o., Warsaw 33.7500 Residential Builders Underwriting Agency Pty Ltd, Sydney 20.0000 SIP Social Impact Partners GmbH, Munich 50.0000 Spruce Holdings Inc., Wilmington, Delaware5 11.9500 Super Home Inc., Wilmington, Delaware5 17.0100 Teko – Technisches Kontor für Versicherungen Gesellschaft mit beschränkter Haftung, Düsseldorf 30.0000 T-Solar Luxembourg GP S.à.r.l., Luxembourg 37.0000 vers.diagnose GmbH, Hanover 49.0000
Verwaltungsgesellschaft “PORT ELISABETH” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT KELANG” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT LOUIS” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT MAUBERT” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT MELBOURNE” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT MENIER” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT MOODY” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT MORESBY” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT MOUTON” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT NELSON” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT RUSSEL” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT SAID” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT STANLEY” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT STEWART” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT UNION” mbH, Bramstedt 50.0000 VisEq GmbH, Grünwald 34.0000 Volksbanken-Versicherungsdienst GmbH, Vienna 25.2319 VV Immobilien Verwaltungs GmbH i.L., Munich 30.0000 VV Immobilien Verwaltungs und Beteiligungs GmbH, Munich 30.0000 We Predict Limited, Swansea5 17.5900 Windpark Osterhausen-Mittelhausen Infrastruktur GbR, Bremen7, 11 58.9400 WISMA ATRIA Holding GmbH i. L., Düsseldorf 50.0000
Shareholdings exceeding 5% of the voting rights in large companies as defined in Section 271(1) of the German Commercial Code (HGB) Admiral Group plc, Cardiff (equity: €140,494k; result for year: €322,825k) 10.1030 Extremus Versicherungs-Aktiengesellschaft, Cologne (equity: €63,940k; result for year: €200k) 16.0000 Protektor Lebensversicherungs-AG, Berlin (equity: €105,796k; result for year: €384k) 10.7631 Saudi Enaya Cooperative Insurance Company, Jeddah (equity: €36,128k; result for year: –€3,278k) 15.0000 Wataniya Insurance Company, Jeddah (equity: €54,586k; result for year: €10,093k) 10.0000
2 This fully consolidated German subsidiary with the legal form of a partnership, as defined in Section 264a of the German Commercial Code (HGB), intends to fulfil the conditions required pursuant to Section 264b of the Commercial Code and, in the 2018 financial year, to avail itself of the relevant provision exempting it from preparing annual financial statements.
6 Not currently utilised. 7 No control, since the articles of association or another agreement bind the relevant operations to a quorum which cannot be achieved by Munich Re. 8 No control and/or no significant influence, as it is a purely financial investment under the managerial responsibility of an external asset manager. 9 Not currently utilised. 10 Not currently utilised. 11 Munich Reinsurance Company or one of its consolidated subsidiaries is a fully liable partner in this company.
(equity: €148,385k; result for year: €1,893k) 39.0800 Fraugster Limited, London (equity: €469k; result for year: –€2,551k) 5.7300 Green Acre LLC, Wilmington, Delaware8
Key audit matters in the audit of the consolidated financial statements Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements for the financial year from 1 January to 31 December 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, we do not provide a separate opinion on these matters.
Valuation of the provision for outstanding claims in property-casualty business For information on the accounting and valuation policies used, please see the notes to the consolidated financial statements on page 114, and details about the estimates and assumptions used on page 99. Further information about the line items in the financial statements can be found on pages 145–148. Risk information can be found on pages 161–164 of the Notes to the financial statements, and on pages 68–70 of the combined management report.
The financial statement risk The provision for outstanding claims at the reporting date was €46,919m in the property-casualty reinsurance segment and €4,670m in the property-casualty German primary insurance segment. In the ERGO International segment, a major part of the provision for outstanding claims of €2,848m refers to property-casualty business. Major losses from natural catastrophes had an impact of €1,256m on the Group in the financial year.
In our opinion, on the basis of the knowledge obtained in the audit,
− the accompanying consolidated financial statements comply, in all material respects, with the IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315e(1) of the German Commercial Code [Handelsgesetzbuch: HGB] and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and financial position of the Group as of 31 December 2018, and of its financial performance for the financial year from 1 January to 31 December 2018, and
Pursuant to Section 322(3) sentence 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the combined management report.
− We assessed the appropriateness of provisions for asbestos and environmental claims on the basis of statistics and key figures.
− We assessed the actual development of the provision for outstanding claims set for the previous year on the basis of run-off results in order to draw conclusions about the reliability of the estimates.
Our observations The valuation process for the provision for outstanding claims in property-casualty business is appropriate, and the valuation assumptions applied, including those for major losses, are appropriately derived. The explanatory notes and disclosures in the Notes to the consolidated financial statements are complete and appropriate.
With respect to the accounting policies, we refer to explanations in the Notes to the consolidated financial statements on pages 113–114, and to the explanations about the use of estimates and assumptions on page 99. Further information about the line items in the financial statements can be found on pages 137 and 145. Risk information can be found on pages 159–161 of the Notes to the financial statements, and on pages 69–70 of the combined management report.
Estimation of the provision for outstanding claims is subject to uncertainty and depends on the exercise of judgement. Uncertainties in estimation arise in particular from the occurrence, amount and speed of settlement of large claims, long-term claims development (especially in thirdparty liability) and in relation to the estimation of special loss scenarios, such as provisions for asbestos and environmental claims. With major losses in particular – such as for hurricane events – it can take a long time before all claims notifications are received from cedants. Where no adequate claims notifications are available, provisions for these major losses are estimated on the basis of internal analyses of market loss and the company’s own losses on the basis of cover it has provided.
− We requested explanations on the derivation of key assumptions used – including loss ratios and assumptions about run-off patterns – and assessed those assumptions.
With regard to the technical provisions in life and health business, disclosures in the Notes must be taken into account (especially information about uncertainty of estimates and sensitivities).
− We assessed the derivation and appropriateness of interest-rate assumptions used in calculating the provision for future policy benefits or in adequacy tests. For this purpose, we took account of relevant data from the capital markets.
− We analysed development of the provisions for future policy benefits and deferred acquisition costs compared to the previous year, and made an assessment taking into account current business developments and our expectations from market observations.
Comprehensive disclosures regarding valuation methods and scope of judgement are required to be made in the notes in connection with the valuation of investments.
− We have reviewed the disclosures in the Notes to the financial statements to determine whether they comply with accounting standards and, in particular, whether the accounting policies are presented appropriately.
Our observations The methods used to calculate the fair values of investments are appropriate. The valuation assumptions are reasonable. Subsequent accounting measurements and determination of the impact on profit or loss are appropriate. The explanatory notes and disclosures in the Notes to the consolidated financial statements are complete and appropriate.
Responsibilities of management and the Supervisory Board for the consolidated financial statements and the combined management report Management is responsible for the preparation of the consolidated financial statements that comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e(1) HGB and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition, management is responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.