This Munich Re annual report differs in appearance from any of its predecessors, with a cover full of questions. Most of them are not fundamentally new, but they have acquired a new urgency after 11th September 2001. The list culminates in one central issue: How much risk can the world take?
This question reflects the general vulnerability of our systems as manifested in many fields of risk – genetic engineering, communications technology, the effects of globalization, to name but a few. Munich Re is directly in touch with these risk worlds. As leading risk carriers, we see it as our task to find answers to the questions that have been raised. Consequently, in the magazine part of the annual report, such issues are dealt with in question-and-answer format by Munich Re specialists, who also offer perspectives on the future.
Munich Re’s market capitalization at 31st December bn 54.0 67.2 –19.8
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CCaattaassttrroopphhee.. A severe earthquake of magnitude 7.7 claims the lives of at least 14,000 people in the State of Gujarat, India, and damages more than one million buildings. The economic loss amounts to US$ 4.5bn. 2266tthh JJaannuuaarryy 22000011
The crisis is blamed on the liberalization of the US electricity market. 1177tthh JJaannuuaarryy 22000011
In the magazine we look at questions raised by the year 2001.
Despite the drastic reduction in our profit, we still propose paying a dividend of €1.25 per share for the business year 2001 – in other words, maintaining last year’s substantial dividend increase. We see this as a signal for the current year: all the indicators at present point to a successful business year 2002, in which we can resume the trend set by the very good Group result for 2000.
Our reinsurance result was shaped by three factors which are typical of our business but which have rarely accumulated so massively: – The risk of change had a dramatic impact on insurers and reinsurers in the year under review. A terrorist attack with such catastrophic consequences for many classes of insurance simultaneously was inconceivable prior to 11th September. And where policyholders, insurers and reinsurers do not perceive a risk, it follows that this cannot be reflected in prices and conditions. Our logical conclusion has been to adopt a new model for classifying and evaluating terrorism risks, which we have been implementing since October. Another manifestation of the risk of change was the need to substantially strengthen reserves for long-tail claims in our US business.
– The third factor was the negative effects of 11th September on the capital markets, which brought us considerable losses in the investment sector.
The events of 11th September accelerated the return to reason in the insurance markets and really brought home to cedants the need for reinsurance with top security.
Given the persistent weakness of the capital markets, 2001 was not a good year for asset management and the sale of investment fund products. MEAG’s business with private and institutional clients was also adversely affected.
In 2002 we intend to take full advantage of the many different opportunities for strategic cooperation between the Munich Re Group and the HVB Group. Together we are forging a European financial alliance that offers its clients a broad range of financial services.
Another word on Munich Re shares: in 2001 they performed in line with the DAX. We are not satisfied with this, of course, given that – on the basis of nearly all longer performance review periods – the price of our shares has constantly risen more strongly than the index.
Europe 2 and Latin America together with Dr. Hans-Wilmar von Stockhausen
The terrorist attack of 11th September gave rise to extremely high losses in the business year 2001, deeply impacting Munich Re’s results. However, thanks to its solid financial foundations, the company was able to close with a positive result for the year and even to consolidate and extend its position in the insurance and reinsurance markets.
The Board of Management kept us briefed on the restructuring measures implemented on 1st July 2001, which will further enhance Munich Re’s efficiency and competitiveness. We were also regularly informed by the Board about the Holocaust issue and the state of considerations with regard to corporate governance.
The second half-year was dominated by the effects of the terrorist attack on 11th September. The Board of Management put us clearly and fully in the picture about this loss, by far the biggest in Munich Re’s history. We consequently examined, among other things, the new risk management concept for limiting terrorism coverage which the Board of Management presented to us in detail. Furthermore, we discussed at length the Board of Management’s decision to give Munich Re subsidiary American Re a capital injection of over US$ 1bn.
KPMG Bayerische Treuhandgesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft audited the following documents and gave them an unqualified auditor’s opinion: the Munich Reinsurance Company’s bookkeeping, its company financial statements and the consolidated financial statements as at 31st December 2001, plus the management reports for the company and the Group. The auditor’s reports were promptly given to all the members of the Supervisory Board. After a detailed discussion between the Chairman of the Supervisory Board and the auditor, there was also extensive consideration of the company financial statements and the consolidated financial statements, the management reports and the auditor’s reports at the meeting of the Supervisory Board on 23rd May 2002, at which the auditor was present.
The Supervisory Board welcomes the German Code of Corporate Governance adopted in February 2002, which sets out standards of good and responsible corporate management and control. Munich Re already meets many of these standards. We will be looking at the Code’s other recommendations with the Board of Management shortly.
With effect from 1st April 2002 we appointed Mr. John Phelan (55) a member of the Board of Management. Mr. Phelan joined Munich Reinsurance Company of Canada (MROC) in 1973, where he became President and Director in 1986. Since 9th March 2002 he has been President, Chief Executive Officer and Chairman of the Board of American Re Corporation (ARC).
Dr. rer. pol. Alfons Titzrath Former Member of the Board of Management of Dresdner Bank AG
Certainly not. Experience has shown that the maxim “to err is human” applies on the capital markets as well.
A classic example is what happened to Munich Re’s share price on 11th and 12th September and in the days afterwards.
Directly following the World Trade Center tragedy, we were flooded with telephone calls asking for estimates of our share of the loss. Like the others involved, we were not able to give an answer so soon. What occurred next might be termed
“negative fantasy”: speculation led to our share price of €285 going through the floor. At 12.30 hrs on 12th September it reached a low of €207, wiping off over €14bn or nearly one third of Munich Re’s market value – all within the space of less than 24 hours.
In this generally crisis-ridden environment, 11th September provided a dramatic watershed: the attack on the World Trade Center unnerved the financial markets worldwide and led to a crash within a few hours. The DAX plummeted by 11%. In the following days it fell further and reached its year low of 3,787 on 21st September.
Proceeding from this level, they followed the general downtrend until around the middle of March. There was then a short recovery phase up to the beginning of April. At first the share price was unable to profit from the announcement of the disentangling of shareholdings with Allianz and the restructuring of the remaining portfolio.
HHuummaann ggeennoommee.. The sequencing of the human genome is largely complete. Two competing teams – one international and financed with public money, the other a US firm – present the genetic blueprint for human beings. 1155tthh aanndd 1166tthh FFeebbrruuaarryy 22000011
From May to July ERGO shareholders were able to exchange their stock for Munich Re shares at a ratio of 2:1 and a cash payment of €9 per ERGO share. This offer met with a very positive response and the transaction proved a success. Munich Re’s stake in ERGO rose from 62.9% to 91.7%, and our share price increased substantially. However, from July onwards it again followed the generally accelerating downtrend on the stock markets.
Year-end closing price € 305.00 380.00 Annual performance % –19.7 50.9 Market capitalization at 31st December €bn 54.0 67.2 Average daily turnover in Xetra trading ’000 724 462 Price/earnings ratio at 31st December 216.3 38.4 Earnings per share € 1.41 9.89 Dividend per share € 1.25 1.25 Tax credit per share (for German shareholders)* € – 0.54 Dividend yield at 31st December % 0.4 0.3 Overall dividend amount €m 221 221 * Owing to a change in corporation tax law, this credit now no longer applies.
Munich Re shares are no-par-value registered shares. They are traded on all the German stock exchanges and are also included in Xetra computer trading. Additional data and news are provided on our website (www.munichre.com). Besides this, of course, information can be obtained from the daily papers or from specialist providers of financial market data.
SStteeeell mmeerrggeerr.. Arbed, Aceralia and Usinor merge to become NewCo, the world’s largest steel group, with headquarters in Luxembourg. 1199tthh FFeebbrruuaarryy 22000011
Munich Re shares represent an attractive investment with a well-above-average return for the long-term investor. In the ten-year period from 1992 to 2001 the share price rose on average by 19.8% annually, compared with growth of only 12.6% in the DAX. Our shares continue to be among the winners within the insurance sector as well. This is shown by a comparison with the Morgan Stanley insurance index, whose average annual increase in the same period was 14.2%.
By reinvesting dividends to purchase further shares and making use of opération blanche (i.e. reinvesting the proceeds of subscription rights), a German shareholder would have been able to add a total of 470 no-par-value shares and 16 warrants to the portfolio.
On the basis of a price of €266.50 per share and €50.60 per warrant on 7th May 2002, the value of the portfolio amounts to €659,065, equivalent to an increase of 396%. According to the internal rate of return method, this works out at an average annual return of 18.7%.
Performance of a specimen portfolio as from 30th December 1992 in €’000
– For institutional investors we also placed two natural catastrophe bonds with a total value of US$ 300m in December 2000; their three-year term began on 1st January 2001 and ends on 31st December 2003.
This meant we were adequately prepared for the loss in terms of capital resources. In other words, we had made assumptions which – despite 11th September and its exceptional losses –
ultimately proved sufficient, even though the impact on our financial statements cannot be denied.
Dr. Nikolaus von Bomhard, Member of the Board of Management 04 ECONOMIC PARAMETERS
This improvement was promoted and supported by monetary and fiscal measures. The US Federal Reserve, for its part, had lowered the intended Fed funds rate a total of eleven times since January 2001. The rate currently stands at 1.75%. Further substantial tax cuts and spending increases are imminent.
MMaassccoott.. Mir, Russia’s 140-tonne space icon, is committed to a watery grave in the South Pacific after nearly 90,000 orbits. The eventuality of Mir crashing and causing damage was insured for a sum of US$ 200m. 2233rrdd MMaarrcchh 22000011
Given the economic slowdown in the large industrialized countries, emerging markets suffered particularly from worsening sales prospects for their exports.
As economic prospects became significantly gloomier, the Japanese yen fell considerably in value against both the US dollar and the euro in the second half of 2001.
AAtttteennttiioonn ddeeffiicciieennccyy hhyyppeerr-aaccttiivviittyy ddiissoorrddeerr.. The drug Ritalin, manufactured by Novartis, is prescribed for children suffering from ADHD. Claimants file billion-dollar suits for damages, which are provisionally dismissed by the courts owing to lack of clarity in the symptoms.
Three factors enabled investors in bonds to achieve extraordinary returns for much of the year: low inflation rates, the reduction of interest rates by central banks, and the flight to fixed-interest investments triggered by falling stock markets. Nevertheless, market development in the area of short terms and corporate bonds was extremely volatile. Owing to the sometimes aggressive monetary policy of the central banks, yield curves steepened considerably, while in the year-end comparison long-term yields remained more or less constant at just under 5%.
The longer-term trend of disproportionate growth in insurances of the person continued in most countries in 2001. Business experience in property-casualty insurance, on the other hand, was affected by the unsatisfactory economic situation in the major insurance markets. The hesitant growth in new business was nevertheless partially compensated for by the global trend towards higher rates in both primary insurance and reinsurance. Especially in the reinsurance market, the reduced scope for cushioning underwriting losses with investment income, combined with the higher claims costs, led to a sharp rise in prices and an improvement in technical conditions. Cedant demand for reinsurance cover from companies with top ratings rose disproportionately after 11th September.
RRiigg ggooeess ddoowwnn.. Despite massive rescue efforts, the world’s largest mobile oil platform sinks off the coast of Brazil. 1.5 million litres of oil flow into the sea. The total loss is estimated at just over US$ 500m.
Munich Re has a share of around 5% in the risk. 2200tthh MMaarrcchh 22000011
It is extremely difficult at this juncture to make predictions about the near future. A crucial uncertainty factor is how the geopolitical environment will evolve.
Since the turn of the year there have been mounting signs of global economic improvement: initial data from the real economy in the US and an increasing number of early indicators in both Euroland and the US pointed to the beginnings of an economic upswing. The extent to which this upswing gathers momentum in the US and the global economy depends largely on the elasticity of private demand. There is still the risk of an economic setback if the private sector does not react as hoped to the monetary and fiscal incentives or if unfavourable capital market developments curb the upswing. The investment climate could be substantially worsened, for example, by doubts about the credibility of published balance sheets in the wake of spectacular cases of insolvency.
Given the country’s considerable domestic problems, economic growth in Japan is likely to remain below expectations. Among emerging markets, the Asian economies should show the biggest recovery.
AAnnggrraa IIII aanndd IIIIII.. Insurance of two nuclear power plants (built by Siemens Power Generating Group) in the State of Rio de Janeiro. Block II goes into operation after a 24-year construction phase with long interruptions, but without any significant technical problems. 2266tthh MMaarrcchh 22000011
Our assumption is that the insurance industry will follow the trends of macroeconomic development in the current year. In reinsurance we expect rates to increase further and the hard market phase to continue over several renewals.
A preferred partner in risk is therefore the partner whom you trust more than others to find tailor-made quality solutions for your own, often complex problems. Munich Re’s frequently cited financial strength is certainly an important “opportunistic ” aspect in this process. But the decisive qualitative difference is the risk carrier’s knowledge potential. It is the combination of experience, expertise, innovation and the productive transfer of this through dialogue that makes a suitable risk partner into a preferred partner in risk.
The overdue adjustment of prices and conditions in reinsurance, which had begun in the 2001 renewals, accelerated after the attack on the World Trade Center on 11th September.
Group premium income rose by 16.1% (13.5%) in the past year to €36.1bn (31.1bn). Growth thus exceeded even our high expectations.
We again grew most strongly in life and health reinsurance, where we recorded a plus of 25.5% (25.6%). In property-casualty reinsurance, premium climbed by
Growth in Munich Re’s PRIMARY INSURANCE business was also very satisfactory. Premium revenue advanced by 9.0% (6.8%) to €15.7bn (14.4bn), 5.4 percentage points being due to consolidation effects (mainly the first full consolidation of Bayerische Vita, Italy, in the ERGO Insurance Group). Life and health insurance grew by 7.9% (5.0%), and property-casualty insurance by 11.7% (11.4%). Expansion of business in the rest of Europe continues to be one of our main strategic goals: in the year 2001 the amount of non-German business written in primary insurance rose to €3.0bn (1.8bn).
The Group result deteriorated markedly in 2001: we were left with a profit of only €250m (1,750m), despite positive one-off effects of €830m (320m) from the German tax reform and from the valuation of our shares in Allianz on a less deferred basis. The main reason for this disappointing result was the extraordinarily heavy claims burden for large and very large losses. We paid or reserved a total of €4.7bn for such losses last year, €3.4bn (2.2bn net) for 11th September alone.
THE ORGANIZATIONAL RESTRUCTURING OF MUNICH RE WAS EXTENSIVE. HAS IT BEEN SUCCESSFUL?
Munich Re’s organizational restructuring in 2001 was indeed extensive. Virtually all the staff employed in our reinsurance business were affected more or less directly by the measures.
Our staff also have new perspectives in terms of greater authority to make decisions and take action. Quick decisionmaking processes in particular are one of the strengths of the new structure, and this virtue has been confirmed by our clients.
The new structure safeguards and enhances our ability to meet the requirements of our changing business environment. Since 1st July 2001 the previous matrix organization, with its units responsible for business lines and products on the one hand and for markets and clients on the other, has been replaced by seven new operative divisions: – Life and Health
Our 2001 management report follows the pattern of the new structure. This means that the premium volumes of the regional divisions and divisional units are not comparable with those published in the previous year. Substantial blocks of premium, for example, are now written by the division Corporate Underwriting/Global Clients, which is responsible for our reinsurance business with globally operating insurance groups. The comparative figures given for the previous year are pro forma figures.
SSyymmppoossiiuumm.. Munich Re Group engineering underwriters from Asia, Australasia, London, Princeton and Munich meet in Hong Kong. 2233rrdd AApprriill 22000011
In the year under review we were able to increase our premium in life and health business by 25.5% (25.6%). As in the previous year, growth was driven solely by our non-German business. The result was satisfactory.
In the renewals of reinsurance treaties for the current business year we succeeded in achieving substantial adjustments of prices and conditions in important markets. We profited to an above-average degree from the fact that primary insurers are attaching even more importance to the quality and security of their reinsurers. Furthermore, there was a shrinkage of the reinsurance capacity on offer in many markets after the occurrences of 11th September, which created additional business opportunities for us. We terminated business to a significant extent where we were unable to achieve essential objectives. All in all for 2002, we expect further premium growth and a much more satisfactory result.
Since the reorganization of our internal operations, life and health reinsurance have been combined in one division, in line with the structure adopted by many of our clients.
Our premium showed growth in the UK in 2001, and we are pushing strongly ahead with the expansion of our portfolio in France. Our business in Central, Eastern and Southern Europe also developed pleasingly. We see clear growth impulses for further new business in both insurance and reinsurance.
We again recorded above-average growth in the US and Canada in 2001. In the US life reinsurance market, where we are represented by our subsidiary Munich American Reassurance Company (MARC), we achieved premium growth of more than 80%. This large increase resulted partly from the acquisition of CNA Financial Corporation’s life reinsurance business at the end of 2000, and partly from strong organic growth. The acquisition of CNA firmly establishes us among the five biggest life reinsurers in the US. We expect growth rates in life reinsurance to continue surpassing those in primary insurance.
In Canada, Munich Reinsurance Company Canada Branch (Life) again performed well. Its premium volume, which showed an appreciable increase, reflects in particular the growing trend among our clients to use reinsurance as an instrument of capital and risk management. Future business prospects continue to look rosy.
SSppaaccee ttoouurriissmm.. Dennis Tito fulfils a lifelong dream with a flight ticket for US$ 20m. He returns safely after six days in space.
The Asian life insurance markets are only gradually recovering from the crises of the last few years. Japanese companies are still struggling with the problems of shrinking investment income and the high interest-rate guarantees given under past policies. In some Asian markets we have not fully succeeded in recapturing the high growth rates of earlier years.
Loss ratio 70.8 82.5 Expense ratio 31.1 31.4 Combined ratio 101.9 113.9
In our division EUROPE 1 we handle property-casualty reinsurance from Germany, the other Central European counties, Eastern Europe, Greece and Turkey.
The division’s premium income stagnated in 2001. This was mainly due to the development of our portfolio in Germany and to our quality-driven underwriting policy. In most countries, business continued to suffer from inadequate prices and conditions. Claims experience was mainly characterized by many large individual losses. The underwriting result deteriorated compared with the previous year.
Germany continues to be by far the biggest market handled by the division. Premium volume in the German primary insurance market for property-casualty business rose by around 2.9% (1.2%) to approximately €50bn in 2001, having shrunk continually from 1995 to 1999. Remedial measures in motor insurance made visible progress, and there were the first signs of premium increases in industrial property insurance as well. However, in our view the rates that are now being charged in primary insurance still fall short of the required technical levels.
In Austria our premium volume increased by only 1.6% to €129m (127m) as a consequence of our selective underwriting policy. The result was still unsatisfactory.
Loss ratio 60.7 75.5 Expense ratio 31.4 31.2 Combined ratio 92.1 106.7
Profit for the year €m 18.2 4.2 * Financial statements in accordance with IAS.
Our division EUROPE 2 AND LATIN AMERICA is responsible for clients from Northern, Western and Southern Europe, and from Latin America, in propertycasualty reinsurance.
In Northern Europe we also retained our position as market leader. The result remained negative, however, not least because of the poor claims experience in motor business.
In France we also recorded a deficit, owing to major losses and unsatisfactory original rates. The explosion at a chemicals factory in Toulouse, which caused considerable damage in the surrounding area, gave rise to high claims costs for this division as well as other units. Altogether it resulted in a burden of more than €100m for the Munich Re Group.
Loss ratio 96.4 86.4 Expense ratio 29.2 28.9 Combined ratio 125.6 115.3
Treaty renewals for 2002 in the division Europe 2 and Latin America were also characterized by a change in the market climate in favour of reinsurers. We were able to strengthen our position in the individual markets, to take a big step towards achieving the requisite prices and conditions, and to grow our premium. All in all, we expect to record a satisfactory result.
CCaanncceerr tthheerraappyy.. A new cancer drug, licensed by the FDA in the US, comes onto the market. Gleevec is the first drug directly targeted at the molecular cause of cancer – seen as a milestone by the journal “Science”.
Our division ASIA, AUSTRALASIA, AFRICA covers three continents and the Pacific Islands: an area that practically girdles the earth, with a large number of very different insurance and reinsurance markets.
In Korea, which continues to offer good prospects for reinsurers, our premium again grew at an above-average rate, rising by more than 50% to €80m (53m), and the result was pleasing. We have taken systematic advantage of the progressive opening of the market to further consolidate our leading market position.
Foreign reinsurers in India are still subject to restrictions on market access. Our business opportunities were therefore limited.
In Australia and New Zealand we are represented mainly by our subsidiary Munich Reinsurance Company of Australasia (MRA).
Our business in the very promising growth markets of Greater China continued to develop satisfactorily. We again successfully defended our top position in an extremely competitive market environment, and have a secure basis for expanding our portfolio long term.
Premium rose by 20.7% to €216m (179m). However, the overall result across all lines of business was impacted by Typhoon Nari, which hit Taiwan in autumn 2001.
The economic environment in Southeast Asia is extremely difficult. We nevertheless halted the decline in our premium income in the business year 2001 and, with a good overall technical result, broadened the basis for sustained growth.
In Africa the business written by our subsidiary Munich Reinsurance Company of Africa (MRoA) stems mainly from the South African market. Developments there, and the fact that we largely withdrew from the Zimbabwean market, meant that our premium income fell by 11.0% to €203m (228m). There were no major claims costs from natural catastrophes. The result, which had already been very good in the previous year, showed a further notable improvement.
A long-standing feature of the insurance and reinsurance markets in the Near and Middle East is overheated competition. Despite positive underwriting results overall, we did not manage to achieve the requisite risk premium levels in the markets.
Israel is the largest market in the Near and Middle East. Notwithstanding the tense political situation, we expanded our premium volume by 20.7% to €204m (169m). The intense competition – especially in property and liability business – meant that the result was unsatisfactory.
The division NORTH AMERICA is responsible for our subsidiaries American Reinsurance Company and the Munich Re Canada Group.
The division’s premium income grew markedly in the business year 2001, rising by 20.8%. Although we terminated some business, the losses in premium were more than offset by new business and improvements in rates. The result was much worse than in the previous year, owing primarily to the losses of 11th September.
American Re is realigning itself structurally and in terms of the business it writes in the Munich Re Group, concentrating on its core business in the US. In a first step, Munich Re will take over American Re’s international business segment, i.e. business outside the US. Besides this, American Re will work together more closely with specialists in Munich in the fields of healthcare, ocean marine and aviation.
Munich Reinsurance Company of Canada (MROC) maintained its position as market leader in Canada.
We are proceeding on the assumption that, despite the keen competition, our business in Canada will continue to grow in 2002 and register the usual good result, always provided we are not badly hit by catastrophe losses.
OOppeerraattiioonn ssuucccceessssffuull.. Experts succeed in reducing the 4.5-metre tilt of the 800-year-old Tower of Pisa by 44 cm. 1166tthh JJuunnee 22000011
We succeeded in consolidating and even extending our position in business with our global clients. In the first three quarters of 2001 it looked as if we were on course to improve the underwriting result compared with the previous year, but hopes of this were dashed by the heavy claims burden from the WTC catastrophe and other large losses. The substantial underwriting loss reflects the global operations of our clients, who largely participate in the same major risks throughout the world, and also stems from the fact that individual portfolios are highly exposed.
In the renewal negotiations we took extensive measures to improve the quality of the overall portfolio. At the same we realized every opportunity to broaden cooperation with our global clients.
Here we succeeded in considerably increasing our premium income through the selective expansion of attractive business. The underwriting losses in this business segment (especially in property and marine) were also chiefly due to the WTC loss. However, this exceptional loss event accelerated the trend on the insurance and reinsurance markets towards substantial rate increases and improvements in conditions.
In the agricultural classes of business we recorded growth in premium volume and a very good underwriting result in the year 2001. The decisive factor here was the positive performance of government-sponsored crop insurance in the US, which is easily the biggest market for us in agriculture, accounting for 85% of our premium. The remainder comes mainly from Germany, Portugal and Australia. We see good prospects for growth in agricultural reinsurance, which our team of specialists are consistently seeking to exploit.
For 2002 we expect to increase premium income by around 30%, mainly from additional business potential in the US; the result should again improve.
The Geo Risks Research Department deals with occurrences in the field of natural hazards, especially the marked increase in catastrophe losses; it analyses their causes (e.g. concentration of values, climate-changing factors) and evaluates the results for our underwriting. Its wide range of services is greatly valued by our clients, who make frequent use of them. In addition, the department has close contacts with scientific institutions and the media. These contacts are used to put the insurance industry’s point of view in public discussion of issues related to natural hazard risks.
Rate increases in aviation business and the alternative markets segment ensured that premium income rose by 13.6% in the year under review. The clearly negative result is primarily attributable to the terrorist attack of 11th September, but it also reflects the state of the global economy and the ensuing company failures, which had a knock-on effect on credit insurance in particular. Results were also hit by the high loss ratio in space reinsurance, where the risk of random fluctuations made itself felt.
For 2002 we expect our premium volume to show strong growth again in all business segments, thanks to the remedial progress made in insurance and reinsurance. We are also planning a further expansion of our business in the alternative markets segment. As far as the result is concerned, we expect a distinct improvement. We laid the foundations for this in the last round of renewals, with a selective underwriting policy and further adjustments in prices and conditions.
The premium volume of our divisional unit for this business grew markedly by 21.0%. Growth derived mainly from rate increases in aviation insurance, while premium income in space insurance declined.
The clients in this business segment, which we service with our unit MunichAmerican RiskPartners (MARP), are primarily large industrial corporations. We number among the market leaders with our products in some sectors here and succeeded in considerably expanding our business in the period under review. This will continue in 2002, when we will be concentrating primarily on the European market. The results of the year under review were impacted by the WTC loss and were thus very negative. As the price level has since risen perceptibly, we are reckoning with a positive result for 2002.
The unsatisfactory result posted again by our subsidiary New Re in Geneva, whose business focuses on Europe, was due to three main factors: run-off losses from earlier underwriting years accompanied by the need to strengthen reserves, especially in motor and liability reinsurance; the negative experience of fire business; and claims costs from the WTC loss.
Following the progress already made on the prices and conditions front in the treaty renewal negotiations for 2001, further improvements were achieved for 2002. As the restructuring of New Re’s entire portfolio has now been concluded and facultative underwriting terminated, we expect a satisfactory result for the current year. Premium income should be around the same level as last year.
This divisional unit bundles Munich Re’s activities in the development and marketing of non-traditional risk-financing and capital-market solutions. We support our clients with holistic risk management, offering a full spectrum of covers and services ranging from conventional reinsurance cover to structured reinsurances. Especially in the wake of 11th September, there has been a pronounced increase in the demand for financially structured risk cover.
CCooddeeRReedd,, a sophisticated malicious computer program, attacks systems connected to the Internet. Countless IT specialists attempt to keep the damage to a minimum and stop it spreading. Damage is estimated at US$ 2.62bn. 1199tthh JJuullyy 22000011
HOW IS THE MARKET ENVIRONMENT DEVELOPING IN PRIMARY INSURANCE AND WHAT ARE THE IMPLICATIONS FOR MUNICH RE?
But it is not only provision for old age that presents us with great challenges – developments in healthcare are also opening up new avenues. Here, though, the environment is still being shaped more strongly by individual state regulation. Our answer in this case is to offer financeable solutions through the expansion of consistent healthcare management.
The result before tax, amortization of goodwill and minority interests in earnings deteriorated by 58.6% (+41.6%) to €555m (1,342m).
The Munich Re Group ranks among the top three German life insurers. We succeeded in improving our new business production by 5.9% in 2001 to €1.5bn. The life insurers in the Group already began successfully exploiting sales opportunities presented by the German pension reform, with its introduction of a state-subsidized private component (“Riester pension”).
In health insurance the Group was able to further extend its leading position in Germany and Europe. We again wrote a pleasing amount of new business and recorded premium growth of 4.6% (6.7%) to €4.0bn (3.8bn), of which €0.6bn (0.5bn) came from abroad. Pressure on costs continued to be high.
CCoommpprroommiissee.. Following a compromise proposal and a negotiation marathon, the Kyoto Protocol is saved. At the Bonn climate summit the community of nations adopts an international agreement on climate protection for the first time. 2233rrdd JJuullyy 22000011
The result before amortization of goodwill fell by 64.1% (+39.3%) to €0.4bn (1.2bn). ERGO’s profit for the year amounted to €655m (804m), or 18.5% less than in the excellent business year 2000. As a result of tax rate changes, a number of deferred tax items had to be reversed, resulting in net income of €325m (246m).
At the end of 2001 the ERGO Group employed 28,558 (27,489) staff. This increase reflects the continuing expansion of its business. The number of full-time agents rose substantially by 8.6% to 25,938 (23,882).
As part of the strategic partnership with the HVB Group, plans were unveiled for an intensive expansion of our cooperation, which will be realized in the current business year. The sales forces of the ERGO Insurance Group are already offering their clients HypoVereinsbank products. Conversely, HypoVereinsbank is offering its banking clients the life, health and property-casualty insurance products of the ERGO insurers nationwide and exclusively. The collaboration between Bank Austria and ERGO in Austria will be intensified. Expansion of the cooperation in Poland, one of the most important growth markets for financial services in Europe, is also planned.
In the first half-year 2002 the ERGO Insurance Group acquired 100% of the shares in QVH Beteiligungs GmbH, which owns Quelle Versicherungen. ERGO has thus, in line with its multi-channel strategy, added a further string to its bow. At the same time the acquisition is a significant component of the new strategic partnership between ERGO and KarstadtQuelle: each partner holds 50% in the joint venture KarstadtQuelle Financial Services GmbH (KQFS). KQFS is a marketing and sales company which offers a comprehensive range of insurance and banking products plus other financial services. This cooperation gives the ERGO Insurance Group access to the enormous potential presented by 19 million customers of KarstadtQuelle. Despite these moves, we have not lost sight of our aim to expand above all in markets outside Germany.
An amount of €4.3bn (4.0bn) was paid out to policyholders in maturity benefits or annuity payments. The reinvestment rate, i.e. the portion of these benefits reinvested in other ERGO products such as investment funds, again reached the high level of the previous year, namely 19%.
With premium growth of 4.6% (6.7%) to €4.0bn (3.8bn), ERGO further consolidated its market leadership in Germany and Europe. In the year under review the ERGO health insurers continued their long-standing policy of using surpluses to mitigate necessary premium increases, thus substantially enhancing their competitiveness.
SSeennssaattiioonn ttoouurriissmm.. The eruption of Etna attracts swarms of tourists to the region of Catania, where a state of emergency has been declared. Ultimately, the lava only causes damage to the lift that took visitors up the volcano. 2266tthh JJuullyy 22000011
In legal protection insurance, ERGO was able to reinforce its position as European market leader.
The Karlsruher Insurance Group consists of five companies that operate in life insurance and in all classes of property-casualty business. It mainly offers personal lines insurance and products for small and medium-sized firms.
As in the previous years, Karlsruher Versicherung AG was able to achieve premium growth clearly in excess of the market average. In primary insurance business its gross premiums rose by 11.2% (9.7%) to €216m (194m). Altogether, there was growth of 18.0% (12.0%) to €242m (205m). The company’s combined ratio amounted to 104.4% (103.4%), with investments made in its distribution structure having an effect on costs.
Owing to the 11th September atrocities, 2001 was the travel industry’s most difficult year for decades. Bookings for business trips and holidays fell by as much as 30% in the fourth quarter. After pleasing growth of 16.3% in net premiums in the first nine months of 2001 compared with the same period in the previous year, growth for the year as a whole totalled 7.9% (1.0%). Only Europäische’s Spanish and Czech companies were able to maintain the positive level achieved prior to 11th September. At the same time, the Europäische Group felt the effects of a substantial rise in claims under policies for travel cancellation expenses.
As a number of small and medium-sized travel operators lack sufficient reserves to tide them over in the current situation, consolidation in the European tourist industry will intensify. The Europäische Group has taken account of this trend. It operates under a uniform logo in all the main European countries through its international network of subsidiaries and participating interests. In addition to proven sales channels, it is continuing to make successful use of innovative distribution channels such as the Internet.
Profit for the year €m –16 8.5 * Consolidated financial statements in accordance with IAS.
A total of 653 (656) staff were employed by the Europäische Group in 2001.
The majority of MEAG’s products also considerably outperformed their peer group in the area of mutual funds. In the case of equity and umbrella funds, private investors took advantage of the low prices to increase their investments.
And with bond and money-market funds, our bold investment strategy with longer durations definitely proved positive –
The quality of MEAG’s asset management has been endorsed by two awards from Standard & Poor’s: its European bond fund MEAG EuroRent achieved first place in the five-year performance class. And MEAG took an excellent third place among a total of 56 investment companies in its category.
The stock markets got off to a very hesitant start in 2001 and reached their first low in March. After a brief recovery phase, the downturn continued in the summer. The crucial date for the stock markets, as in so many other areas, was 11th September, with sharp drops of more than 15% in the main indices. The stock markets recovered surprisingly quickly after the atrocities, all the important indices having returned to or even climbed above their beginningof -September level by mid-November. However, over the year as a whole, the markets suffered a clear downward trend: thus the Euro STOXX 50, the benchmark for our European equity funds, lost a good 20% of its value in this period.
LLiippoobbaayy.. The cholesterolreducing drug gives its name to a new long-tail risk. Six million patients have been treated with Lipobay since it came onto the market. Over 50 deaths are linked to the drug. Suits for damages are pending. 99tthh AAuugguusstt 22000011
Our bond portfolio appreciated considerably in value last year. Overall, we have diversified the portfolio both regionally and in terms of categories. Internationally, our main shifts were from Euroland to Scandinavia and Eastern Europe. In the individual categories, we continued to move away from government bonds towards other types of fixed-income instruments, such as liquid corporate bonds and asset/mortgage-backed securities.
We have always endeavoured to match our expected liabilities with assets in the same currencies. Although the insurance claims resulting from September’s terrorist attack will for the most part not become payable for some time, we have already made arrangements for the availability of the necessary funds in US dollars. While most of the dollars required were purchased directly or via foreign exchange forwards, we have defined strict risk parameters for coverage of the remaining requirements.
Despite the extremely difficult capital market situation, our asset management company MEAG MUNICH ERGO AssetManagement GmbH performed well.
Issues like environmental protection and sustainable development are important to us in the financial sector as well. Step by step, with an established team of experts from Munich Re, ERGO and MEAG, we are working towards the objectives we have set ourselves in the Munich Re Group’s environmental programme. A considerable portion of our assets is already invested in stocks that are best-in-class in terms of such sustainability.
All figures in €m 31.12.2001 31.12.2001 31.12.2001 Prev. year Prev. year Prev. year
Expenses for the management of investments and 2001 Prev. year Change
The year 2001 saw a big reduction market-wide in the investment income that had been available to compensate for or improve underwriting results in the recent past. It is true that in the case of fixed-interest securities there were price increases due to the fall in interest rates, but lower yields will have an adverse effect on regular income in the next few years. In the case of equities there were few opportunities for profit-taking.
In a year like 2001, the need for well-functioning risk management and experienced asset-liability management becomes particularly apparent. We see the outcome as an endorsement of our investment policy, which continues to be geared to high quality and liquidity even in times of crisis.
Regular income from investments totalled €9,654m (8,652m) in the year under review. Net realized gains amounted to €1,765m (4,072m).
The table below shows the valuation reserves not recognized in the balance sheet.
In the current business year we expect to record consolidated premium income of €39bn (36bn). As far as the Group result is concerned, we want to resume the positive trend of the previous years, taking as our benchmark the very good 2000 Group result.
In the past months our main aim has been to improve our portfolio in terms of quality – additional growth was not a prime concern. Of the reinsurance treaties up for renewal at 1st January, Munich Re terminated almost one fifth – measured in terms of premium volume – because appropriate improvements in prices and conditions were not possible; on the other hand, we were able to achieve appreciably better terms of trade for the business we did renew and to acquire attractive new business.
The foundations have thus been laid for healthy growth in 2002 and a satisfactory result again in reinsurance.
In January we successfully completed the shareholding transactions announced in April 2001: the Munich Re Group now holds 25.7% of the share capital and 26.4% of the voting rights in HypoVereinsbank AG and 91.7% of ERGO AG. In return, we have sold our shares in Allianz Lebensversicherungs-AG and Dresdner Bank AG to Allianz AG and reduced our stake in the voting capital of Allianz AG to around 21%. The other measures envisaged in April 2000 are scheduled to be realized as planned in the middle of this year: Munich Re will sell its shares in Bayerische Versicherungsbank AG and Frankfurter Versicherungs -AG to Allianz AG and will increase its stake in Karlsruher Lebensversicherungs AG to 90.1%. The result for the year 2002 will be significantly influenced by the high book profits deriving from this complex reorganization of our shareholdings with Allianz.
AAttttaacckk.. A new form of computer worm, Nimda, exploits known but unremedied weaknesses in computers to cause substantial damage. Estimated outage losses: US$ 635m. 1199tthh SSeepptteemmbbeerr 22000011
HOW DO INSURERS PERFORM THE DOUBLE ACT OF TAKING ON RISKS AND GETTING A RETURN?
Handling risks is our business. Carefully evaluating them is therefore a core part of our value-based management.
From the measurement of risks by our experts we derive the risk capital required, which is the main basis for our business units’ result targets. This thinking is embedded in our Groupwide risk management, with which we limit our overall risks, balance our portfolio and control our business. Our objective is the maximum return on the capital invested. We are continually refining our risk management tools and taking into account new, often seemingly abstruse scenarios.
On 11th September our systems passed the test. But we were also shown the limits of our imagination and thus of our models. Even the most refined risk management methods cannot replace strategic vision, entrepreneurial intuition and above all a healthy dose of prudence.
Risk management in the Munich Re Group is organized both centrally and on a decentralized basis. Shorter response times and the growing complexity of our business have made it increasingly necessary to delegate competencies and responsibilities to decentralized units. This also applies to risk management, although we continue to plan and coordinate our activities centrally.
The role of internal auditing at the individual Group companies is to examine independently whether the monitoring measures that have been implemented are effective and complete.
Underwriting risks are the premium/claims risk in property-casualty business, i.e. the risk of having to pay, from premiums fixed in advance, claims and benefits whose scope is uncertain at the time the premium is fixed (risk of random fluctuations and risk of change); the premium/benefits risk in life and health insurance, i.e. the risk of having to pay, from a premium that may be fixed for many years at a constant level, benefits which can be affected by intervening trends as regards when they become due and also in terms of their scope (risk of change); the interest-guarantee risk in lines of insurance with guaranteed interest payments; the reserving risk in the assessment of the underwriting provisions required.
Risks from defaults on receivables from underwriting business may arise in primary insurance in relation to reinsurers, policyholders and insurance agents; and in reinsurance in relation to retrocessionaires, cedants and brokers.
Investment risks comprise market price risks, which involve potential losses in the value of invested capital as a result of changes in market prices, i.e. due to fluctuations in interest rates, share prices or exchange rates; credit risks, which result from deleterious changes in the creditworthiness of issuers or counterparties; liquidity risks, which can jeopardize the fulfilment of payment obligations through delays in cash inflows and outflows.
In our view, closely gearing our operations to the principles of value-based management is an essential element of responsible risk prevention. In both insurance and reinsurance we want to make capital available only at conditions that promise an appropriate return. The difficult market conditions and ruinous competition in property-casualty (re)insurance in recent years have led to rates being far too low. This has been reflected in unacceptable combined ratios, also in our case. In the meantime, there appears to have been a return to commercial reason with more appropriate terms of trade.
In life and health (re)insurance we are systematically continuing the expansion of our business. In so doing, we are not only investing in what are two growth markets but also creating a balance to the more volatile classes of reinsurance business, whose results correlate to only a small extent with those of life and health insurance.
Providing cover for losses from natural catastrophes is part of the core business of reinsurance. Particularly in property lines, we assume what are in some cases very large liabilities in reinsuring earthquake, windstorm and flood losses. Given the accumulation character of this business, a single loss event can have a substantial impact on the result situation of individual units or even the whole Group.
Risk accumulations outside the area of natural hazards are analysed in a similar manner – a task to which we have been devoting particularly close attention since the events of 11th September. For accumulations whose occurrence probability cannot be determined statistically and for which no scenarios can be derived from past experience, the maximum amount of the capital that may be exposed is decided on annually by the Board of Management. This budgeting enables us firstly to protect our portfolio against uncontrollable geographical and concentration accumulations, such as those that may result from terrorist attacks. Secondly, it enables us to make available to our clients at a fair price that amount of capacity which may be responsibly provided on the basis of technical criteria. Such an approach requires that we limit our liabilities in the form of contractually agreed loss limits, event limits or annual aggregate limits. Further risk management measures are geared to ensuring efficient accumulation control.
In December 2000 we also placed two catastrophe bonds on the capital market with a total volume of US$ 300m and a term of three years. This refinancing possibility provides our Group with relief cover for precisely defined extreme events (earthquakes in Los Angeles and San Francisco, hurricanes in Florida and New York, and windstorms in Europe).
Provisions for unknown liabilities arising from our commitments are calculated for life and health insurance and for property-casualty business using prudent actuarial methods. For information on the run-off of these provisions, please see the notes to the consolidated financial statements, page 136 f.
As far as our own retrocessions and reinsurance are concerned, we reduce the risk of defaults on receivables by selecting our retrocessionaires and reinsurers on the basis of particularly strict criteria. 85.9% of the accounts receivable on business that we have ceded are vis-à-vis companies that have been awarded at least AA by Standard & Poor’s or a comparable rating by one of the other internationally recognized rating agencies (Moody’s or A. M. Best).
The high standards we apply to our retrocessionaires also showed their importance after the terrorist attack of 11th September. 70.3% of our retrocessions were placed with companies with a rating of at least AA from Standard & Poor’s or comparable rating. The defaults that we know of are below 1%, and we do not expect there to be any increase in this figure.
BBiigg ttuubb.. With a length of 294.13 metres, the Norwegian Star is the largest cruise ship ever built in Germany. Only at high tide, for a period of two and a half hours, is the River Ems deep enough to move the giant vessel from the shipyard in Papenburg to the port of Emden. 22nndd OOccttoobbeerr 22000011
For our fixed-interest securities, which make up the major part of our investments available for sale and held to maturity, we perform regular duration analyses. We use this procedure to counter the risks posed by changes in interest rates for the coverage of our obligations from insurance and reinsurance business, and where necessary we hedge interest-sensitive portfolios.
Possible market price risks in our investments are measured using the valueat -risk approach. This approach is employed in our strategic investment planning to model the optimum investment portfolio according to our risk preference. Using scenario analyses (“stress tests”), we also simulate unexpected market fluctuations and devise strategies for countering them swiftly in practice. Here we apply the following assumptions: – for our equity holdings, index fluctuations of +/–10% or +/–20%; – for our investments in fixed-interest securities, a change in the respective interest rate curve of +/–100 or +/–200 basis points; – and for our cash positions, a change in the exchange rate vis-à-vis the euro of +/–10%.
We use derivative financial instruments for three principal reasons: hedging parts of the portfolio, optimizing earnings, and implementing planned purchases and sales. Our Group companies act as end-users of derivatives; there is little trading in these instruments with a view to profit-making. Particular care is paid to limiting risks, choosing top-quality business partners and strictly monitoring adherence to instructions. Whilst producing a positive overall result, derivatives did not have a significant effect on the investment profit; the volumes involved are shown on page 129 f.
Of central importance for credit risks in the portfolio management of fixedinterest securities is the credit assessment of the individual investment. The main factor here is the quality of the issuer, as primarily reflected – for investments of the Munich Re Group – in the gradings of international rating agencies: 90% of our investments in fixed-interest securities have a rating of A or better, and 81% have a rating of AA or better (according to Standard & Poor’s rating classification). The majority of fixed-interest securities in our portfolio have been issued by governments or banks with excellent ratings, e.g. German government bonds, US Treasuries, and mortgage-backed bonds.
On top of this, we actively control the exposure of our largest credit risks. This involves monitoring effects on other investments and liabilities from credit reinsurance business. In addition, we prevent risk concentrations in individual portfolios by means of further diversification measures.
Operational risks are hazards posed by technical or human failure, by natural impairments of a company’s operations or other adverse developments in its external environment. These include events resulting in claims for damages from third parties, or criminal acts like sabotage or misappropriation. Such risks, which may be connected with any activity at the company, can only be minimized through a wide range of targeted risk management measures.
Beyond this, a central objective is to sensitize employees to possible risks and to establish an appropriate risk culture.
Firm evidence of whether BSE could lead to a new variant of the highly dangerous Creutzfeldt-Jakob disease among humans is still lacking. OOccttoobbeerr 22000011
All companies in our Group have binding standards of corporate integrity governing conduct within the companies themselves, their business transactions and other relationships with external parties. These standards also serve to prevent conflicts of interest for staff.
Even the suspicion of an infringement of insider laws can have a highly detrimental effect on a company’s reputation and standing, particularly in the financial sector. At the parent company and all the main subsidiaries a compliance officer ensures that insider information is handled in conformity with the law. This officer is also responsible for monitoring adherence to insider regulations.
The subject of Holocaust claims continues to be a public issue. After the establishment of the foundation “Remembrance, Responsibility and Future” the class actions brought in the US against Munich Re and VICTORIA Leben in 1997 and 1998 were dismissed. However, despite the promise of full and lasting relief from legal action before US courts, a new class action involving VICTORIA has been pending since October 2001. Furthermore, as a result of special Holocaust legislation, Munich Re and its American subsidiaries continue to be subject to far-reaching reporting requirements and administrative action by insurance regulatory bodies in various US states. In several cases we have had to appeal against such measures in the courts. Despite successes at various instances, a final decision in California, for example, is still pending.
Markets, products, structures and operations are subject to processes of change at ever shorter intervals. This means that the risk situation is continually changing, one of the potential hazards being that opportunities may not be recognized or exploited in time.
“Corporate governance” stands for a form of company management that employs effective and transparent structures of direction and control. Its aim is to strengthen the confidence of shareholders, investors, employees and the public in the running of the company.
The debate surrounding this issue in Germany goes back several years. This February a committee appointed by the Federal Government published the German Code of Corporate Governance. It contains recommendations for the conduct of supervisory boards and boards of management of listed companies and formulates standards of good corporate management and control. Its aim is to standardize current methods and practices and to make transparent the corporate governance rules already applicable by law in Germany. Munich Re welcomes the adoption of the Code, which will make an important contribution to strengthening the confidence of investors – especially those abroad – in the management of German companies.
EEnnccoouurraaggeemmeenntt.. The winners of the 2001 Nobel Peace Price are Kofi Annan and the United Nations, who speak of a “vote of confidence in our common future”.
“THE WORLD WILL NEVER BE THE SAME AGAIN.” HAS THIS PROVED TRUE AFTER 11TH SEPTEMBER?
__ The losses of 11th September posed a particularly big challenge to Munich Re’s claims management. It was necessary to quantify claims of unprecedented size and complexity as quickly as possible in nearly all classes of business, to organize the handling of these claims in terms of personnel, and to ensure that our clients’ payment requests were dealt with swiftly and responsibly.
Models for government liability have been developed by countries that have a history of bitter experience with terrorism. The UK, France and Spain have created pool solutions with government participation to cover terrorism risks. Germany has decided to follow suit, at least provisionally. In other countries, like the US, the debate is still going on.
Ground Zero, digital. This laser picture shows the vertical extent of the devastation.
Nothing of the kind applied with regard to 11th September. Nor did the premium calculations of the insurers affected include other events of such magnitude. Even the most expensive losses caused by earthquakes or cyclones had never reached the size of the 11th September disaster. This meant that insurers initially had to pay this loss with money set aside for other losses and other classes of business.
There has always been agreement in the insurance industry that it is beyond the financial means of insurers to pay for the destructive consequences of war, so that these losses have been excluded in nearly all insurance products. By contrast, customary policies have contained no such exclusion for terrorism.
All this changed on 11th September. Insurers worldwide suddenly became aware that terrorist attacks could pose a serious threat to their claims-paying ability. On the one hand, insurers ran the risk of being badly hit by a very large loss because they did not usually include terrorism scenarios when assuming liabilities. On the other hand, insurers had to reckon with an unforeseeable number of policies being affected by a terrorist attack. The World Trade Center and its vicinity, where the offices of several hundred firms were located, is a classic example of this.
This does not solve the problem, of course, especially as the situation becomes less and less satisfactory for clients the more effectively insurers exempt themselves from liability for terrorism. The call for joint market solutions supported by the state has therefore come as no surprise.
Not least in the interests of our shareholders, we have a duty to pursue a very restrictive underwriting policy here. Where we do reinsure the terrorism risk, we have narrowly limited the coverage in property and aviation third party business, for example. In property reinsurance we have also stipulated a right of termination with a period of notice of 14 days. This right is absolutely essential, given that assumptions about occurrence probability – like those made for natural hazards – are not possible with regard to terrorist attacks.
Complexity is a hallmark of our times. We have to live with it.
HOW DO YOU SEE THE STATE OF AVIATION ONE YEAR ON FROM 11TH SEPTEMBER?
In information technology, it is just the same as in other areas: “state of the art” means state of the art with regard to risks and misuse as well. Sabotage and espionage constitute special risks in view of the tempting amounts of data that are to be found criss-crossing the world. But even tiny programming errors can lead to catastrophes, and minimal tolerance exceedances can make robots and control systems go haywire.
The accumulation of incidents and their consequences highlight the limits of the technology and put the focus back on people, not only as perpetrators but also as initiators of solutions. Risk awareness and the pursuit of quality – in this case security – acquire new importance. Only if you know the risks can you control them. This old adage still holds good today and will continue to apply in the world of tomorrow.
The numbers for 2001 are far from complete. It must be assumed that the economic losses caused by viruses worldwide will total around US$ 22bn.
Optimum technical facilities are a must. But people are the key.
HAVEN’T THE INTERNATIONAL AGREEMENTS ON CLIMATE PROTECTION COME MUCH TOO LATE?
To put it bluntly: the climate will not notice the Kyoto Protocol, even if it is implemented in full.
Nevertheless it is definitely an important step in the right direction, because it is the first one. Further, bigger steps must and will follow, if only because the emissions are directly connected with the irreversible plundering of our fossil energy reserves; and these will become more valuable (and expensive) the more the realization dawns that they will be exhausted within a few generations. Moreover, nature will make us painfully aware that increasing changes in the climate will result in more and
Munich Re has been successfully endeavouring for years to inform its clients and the public about the growing risks of climate change and for its own part to contribute actively to protecting the climate.
“We concern ourselves with today’s great challenges – population growth, reducing resources, environmental pollution, climate change. From our knowledge of risk, we are competent to adopt positions on issues affecting society. We think and act globally.” This is what it says in Munich Re’s guiding principles. The establishment of a Centre of Competence for Life Sciences is a further illustration of how we put our guiding principles into practice.
work are the practical use of the knowledge in the insurance sectors concerned and sensitization of these sectors to the new risk potentials that may emerge.
Our latest publication on this topic will be appearing at the end of 2002.
With its experts in life sciences, Munich Re is facing the challenges presented by the rapid advances in genetic engineering.
In Germany, the cultivation of genetically modified crops is prohibited except for test purposes. Does this mean that the risks for agriculture have therefore been banished? Let us take an example – maize. Here it is possible that genetically modified varieties and normal varieties could become mixed in the production of seed stock. This would lead to the existence of crops whose origin the farmer could not definitely vouch for: a tricky situation, given that the thresholds for contamination with genetically modified maize are lower than those for species purity under the German Plant Species Protection Act.
It is true: compared with the pioneering days of the Green movement, the subject of the environment is not the headline-hitter it used to be. Perhaps this is partly because awareness for the environment, and the dangers to which it is exposed, has become firmly established and no longer needs to be “stirred up”. At any rate, industrial facilities, waste incineration plants and power stations discharge far fewer pollutants into the water, soil and air than in the seventies, when dark plumes of smoke and foaming waters made it clear to everyone that things could not go on like that.
In view of the self-evident way in which environmental awareness is practised today, it can thus be seen as a good sign that environmental issues are no longer discussed in public with such intensity as before. But this is not to say that specialists are neglecting these issues – safety experts, for example, are taking increasing account of potential environmental damage in worst-case scenarios.
Whether policyholder or primary insurer, each client expects us to have the financial strength to cover the risks we have assumed at all times. And the market valuation of our shares is the reflection of this potential.
Last but not least, the special interest of our shareholders and investors in Munich Re is reflected in the best performance among all DAX stocks in the last 20 years.
stocks. With a total return of nearly 23% p.a. they not only beat the financial stocks in the index but outperformed stocks from other branches as well.
A notable performance: Munich Re’s asset and financial management consulting service.
Munich Re’s investment strategy has proved itself, even in the face of markets slumps.
Financially strong companies like Munich Re are no strangers to recommendations for greater risk-taking in their investment policy. Usually we politely ignore these and continue to bank on a sensible, earnings-oriented but risk-commensurate approach. In so doing, we give due attention to the security and profitability of our investments and ensure that they harmonize with the liabilities we assume on the underwriting side.
Currency risks, for example, are something we avoid because we do not expect them to produce additional earnings for us. Through the simulation of major loss scenarios, we ensure that sufficient liquidity will be available in the event of large catastrophes, even if the capital markets are affected by these.
How important this financial strength is for reinsurers was illustrated in the days after 11th September: whilst many companies were forced to sell stocks at extremely low prices, we – as capitally strong, long-term 11 _ INVESTMENT STRATEGY
Professional asset management is also increasingly becoming a key competitive and performance factor for insurers.
The interaction of asset and liability management is essential for the optimum management of an insurance company’s balance sheet. To achieve sustained optimization of the investment result, the individual processes of asset management therefore need to be closely linked. We consequently offer our clients comprehensive “one-stop” service: our advice on strategic asset allocation, risk management and asset-liability management is combined with the offer of professional investment management by MEAG MUNICH ERGO
Munich Re offers its clients and staff more than 200 courses and seminars per year.
Financial services are an abstract product. They often involve complicated and complex tasks, as in reinsurance. Munich Re’s clients expect superior quality in all questions relating to risk. These expectations must be met by our staff, with their knowledge, their skills, their initiative and their personalities. They are therefore our Group’s most crucial and valuable resource. This is reflected in the intensity of Munich Re’s efforts to ensure that its staff have the requisite qualifications, in the broadest sense of the word.
* DACHSTUM R JOSE´FERNANDEZ, MUNICH RE, CHILE, nedunfeg sulschab nekituleben reikenit et sumsaidade kuklet sumritufus muz mittanebereten Kundwert tabschoder guaredisch kneumyx bonter osatgrunden mesen doler nestefirm dellerstrift rebusch bonter mo finestema drewitera nedogal prebie neschtertrilla sedkombaden tiez ormolek eidrati sedkan inmost plede posetrat felhom pruterm em noll bates Guaredisch reiken Dellertrem knark eifemmen gefnu mus allomrifutus must mtto nedunfeg sulschab nekituleben.
To ensure that the financial consequences of medical care do not prove ruinous for individuals, health insurance distributes the costs incurred by sick persons between all insureds and thus makes broad access to the healthcare system possible.
Management, shareholders, analysts and supervisors need data that are relevant, accurate and up to date. It is very much in a company’s own interests to make its reporting as transparent and speedy as possible. In rapidly changing markets, only those players have a good chance of survival who know where they stand and how their business is shaping.
V. Other investments 1. Deposits retained on assumed reinsurance (11) 12,800 12,010 790 6.6
C. Investments for the benefit of life insurance policyholders who bear the investment risk 666 581 85 14.6
D. Ceded share of underwriting provisions (17–20) 11,994 10,166 1,828 18.0
F. Cash with banks, cheques and cash in hand 1,866 2,273 –407 –17.9
II. Provision for future policy benefits (18) 89,016 82,944 6,072 7.3
D. Gross underwriting provisions for life insurance policies where the investment risk is borne by the policyholders 655 583 72 12.3
Total equity and liabilities 202,054 193,567 8,487 4.4 07 CONSOLIDATED FINANCIAL STATEMENTS 2001
Profit for the year, including minority interests in earnings 395 2,071
Our reporting on the Group cash flow is based on IAS 7 and the principles of German Accounting Standard No. 2 (DRS 2) issued by the German Standards Board (DSR) for the presentation of cash flow statements.
Life and health Property-casualty 31.12.2001 Prev. year 31.12.2001 Prev. year €m €m €m €m
The Munich Re Group’s segment reporting is based on IAS 14 and the principles of German Accounting Standard No. 3 (DRS 3) issued by the German Standards Board (DSR). This has been supplemented by the requirements of DRS 3-20, which applies specifically to insurance companies.
The individual fields of business are shown after consolidation of internal transactions within the individual field of business but before consolidation across segments.
In contrast to the previous year, goodwill has been allocated to the segment of the respective subsidiary.
Life and health Property-casualty 2001 Prev. year 2001 Prev. year €m €m €m €m
Thereof: – From insurance transactions with other segments 855 820 919 806 – From insurance transactions with external third parties 5,045 3,881 15,377 12,818
– The group of associated enterprises valued at equity is considerably larger in IAS financial statements, because it is no longer relevant whether a significant influence is actually exercised or not. The consolidated profit includes a corresponding portion of the net profit of the enterprises concerned rather than only the dividend distributions.
– The provisions for future policy benefits are higher because, unlike in German Commercial Code accounting, there is no zillmerization, but capitalization of the acquisition costs.
– Premiums tend to be lower under IAS. In the case of products which are mainly of an investment character (e.g. financing treaties, unit-linked life insurance) only that portion of the premium used to cover the risk insured and associated costs is treated as premium income. In IAS financial statements there are no “premiums from the provision for policyholders’ dividends”.
We have calculated the previous year’s figures on the same basis as the figures for the business year 2001.
Date of first Profit for Goodwill1 Amortization Fair value of Amortized consolidation the year of goodwill acquired life fair value of insurance acquired life portfolios insurance portfolios 1 At the date of first consolidation.
In accordance with IAS 28, associated enterprises are all enterprises which are not subsidiaries and in which Group companies hold between 20% and 50% of the voting rights – regardless of whether a significant influence is actually exercised on the financial and operating decisions of the enterprise.
The application of the accounting, valuation and disclosure methods follows the principle that a method once chosen should be applied consistently. Effects of any changes in accounting and valuation methods are generally recognized in the income statement.
RReevviivvaall.. The Concorde takes off again after its long suspension from service following the crash near Paris in July 2000.
In addition, other intangible assets include the fair values of acquired life insurance portfolios (PVFP: present value of future profits). These are amortized in accordance with the realization of the profits underlying the PVFP calculation.
Investments in affiliated enterprises that we do not consolidate because they are not material are carried at their fair values. If the shares are listed on a stock exchange, we use the share prices at the balance sheet date; for other shares, the fair value is the net asset value based on the German Association of Financial Analysts (DVFA) method or – in the case of new acquisitions – the acquisition cost.
These are mainly investments for policyholders under unit-linked life insurances. They are accounted for at market value; unrealized gains and losses are matched by corresponding changes in the underwriting provisions (equity and liabilities item D).
In life reinsurance, the deferred acquisition costs are capitalized and amortized over the term of the policies either proportionally to the premium income (FAS 60) or proportionally to the expected profits (FAS 97). In other reinsurance and in property-casualty insurance, the deferred acquisition costs are amortized on a straight-line basis over the average term of the policies, from one to five years.
In life insurance, the deferred acquisition costs are also capitalized and amortized over the terms of the policies; the amount of amortization depends on the gross margins of the respective products calculated for the relevant year of the policy term.
SSuuppeerrssttaarrss.. American and British stars give a gala benefit concert at Madison Square Garden to honour the heroes of New York. 2211sstt NNoovveemmbbeerr 22000011
CClloonneedd.. US researchers succeed in growing human embryos, intended as a source of embryonic stem cells. 2266tthh NNoovveemmbbeerr 22000011
Provisions for premium refunds are made for obligations involving bonuses and rebates in life and health insurance that are not yet payable at the balance sheet date; the amount posted is based on supervisory or contractual regulations. The item “other underwriting provisions” also includes amounts apportionable to policyholders from the accumulated valuation differences between IAS and German Commercial Code (provision for deferred premium refunds).
EEnnrroonn.. The US energy trading corporation files voluntary petitions for Chapter 11 reorganization, which could lead to the biggest case of insolvency in US history. To the dismay of banks and other creditors, instances of catastrophic negligence and fraud come to light worldwide, such as financial manipulations through nondisclosure of billion-dollar liabilities in the balance sheet. 1155tthh DDeecceemmbbeerr 22000011
Pension obligations are valued in accordance with IAS 19 (Employee Benefits) using the projected unit credit method and based on actuarial studies. The valuation includes not only the pension entitlements and current pensions known on the balance sheet date but also their expected future development. The interest rate at which the pension obligations are discounted is based on the yields for long-term high-quality bonds (e.g. government bonds).
EEuurroo.. Twelve European countries, including Germany, say goodbye to their national currencies. From 1st January 2002 they are replaced by euro coins and notes. 3311sstt DDeecceemmbbeerr 22000011
WWeellccoommee ttoo tthhee cclluubb!! The global population has increased by another 78 million people this year. By 2025 it is expected to number some eight billion.
Group companies that write a significant portion of their business in foreign currency generally safeguard themselves against exchange losses by attempting to match assets and liabilities in the same currency. Where exchange gains or losses occur nevertheless in the translation of the balance sheet currencies of the consolidated companies, they are accounted for under “other income” and “other expenses” respectively.
The following table shows the exchange rates of the most important currencies for our business (exchange rate for €1 in each case): Balance sheet Income statement 31.12.2001 Prev. year 2001 Prev. year
PPrroossppeeccttss.. Europe’s largest satellite, Envisat, will orbit the earth once every 100 minutes from the beginning of 2002. It is expected to help provide more precise forecasts on climate development, volcanic eruptions and earthquakes.
Accumulated depreciation at 31.12. previous year 197 38 66 301 207
Carrying amount at 31.12. business year 180 844 79 1,103 843
Gross amount capitalized at 31.12. business year 422 917 170 1,509 1,144 07 CONSOLIDATED FINANCIAL STATEMENTS 2001
The fair value of real estate at the balance sheet date totals €11,124m (10,508m). The fair value is generally the capitalized earnings value; new buildings and freshly purchased real estate are valued at cost.
PPrrootteeoommiiccss.. Most processes of life are carried out by complexes of several proteins, which form the proteome. Heidelberg scientists achieve a breakthrough in proteome research after analysing the interaction pattern of 589 proteins. 1100tthh JJaannuuaarryy 22000022
Over 5 years and up to 10 years 291 395 293 406
All figures in €m 31.12.2001 Prev. year 31.12.2001 Prev. year 31.12.2001 Prev. year
Disposal proceeds in the business year were as follows: 07 CONSOLIDATED FINANCIAL STATEMENTS 2001
A distinction is made between “over-the-counter” (OTC) products and standardized transactions concluded on the stock exchange.
Derivatives are used at the individual Group companies within the framework of individual supervisory regulations and additional company directives. They are used to optimize investment earnings, with the main focus being on hedging investment portfolios against unfavourable market developments.
Over one year and up to 5 years 35,737 32,712 35,223 31,722
Over 5 years and up to 10 years 25,558 25,416 24,891 24,970 07 CONSOLIDATED FINANCIAL STATEMENTS 2001
The following table shows the notional principal amounts, broken down by product type and period to maturity: Open positions
The following table gives the periods to maturity of cash flow hedges at the balance sheet date: Fair value hedges are used to reduce the market-price risk of current investments. Such fair value hedges are employed for the selected and efficient hedging of parts of the portfolio against interest-rate risks. The fair value of the derivatives used here amounted to –€6m at the balance sheet date.
The newly deferred acquisition costs for health in the primary insurance segment include €897m for the subsequent capitalization of waiting-period and selection profits; the provision for future policy benefits has been increased by the same amount.
By resolution of the Annual General Meeting on 19th July 2000, Munich Re was authorized to buy back shares amounting to a maximum of 10% of the share capital up to 19th January 2002. This authorization was cancelled by the Annual General Meeting on 18th July 2001 and replaced by a new one, authorizing the Board of Management to buy back shares amounting to a maximum of 10% of the share capital up to 18th January 2003.
To safeguard conversion rights or subscription rights from convertible bonds or bonds with warrants 15.4
On 18th July 2001 the Annual General Meeting approved a further authorization to increase the company’s share capital (Authorized Capital Increase IV) by up to €3.84m in order to issue employee shares.
The “other reserves” include €2,310m (4,189m) unrealized gains and losses resulting from valuation at equity, and €2,108m (5,324m) unrealized gains and losses on other investments.
Changes in the consolidated group – – 171 – – 171
The following table shows the distribution of net unearned premiums between the different Group segments: All figures in €m* 31.12.2001 Prev. year
– Property-casualty 931 819 * After elimination of intra-Group transactions across segments.
The distribution of the net provision for future policy benefits between the different Group segments is as follows: All figures in €m* 31.12.2001 Prev. year
– Property-casualty 64 38 * After elimination of intra-Group transactions across segments.
In calculating the provision for future policy benefits, interest rates of between 3% and 8% have been used.
– Property-casualty 3,947 3,259 * After elimination of intra-Group transactions across segments.
The table illustrates how the estimate of the respective balance sheet provision has changed in the course of time – owing partly to payments made and partly to the re-estimate of the outstanding payments. The net run-off result reflects the difference between the current and original estimate. It is often materially affected by changes in exchange rates. The rise in the value of important foreign currencies for us (mainly the US dollar and the pound sterling) against the euro led to a significant increase in the provisions. On the other hand, there have been corresponding rises in the value of investments as a consequence of our consistent currency matching policy.
Net provision for outstanding claims 12,421 13,306 15,139 15,649 16,714 17,888 19,465 19,285 22,584 23,854 29,220
Change resulting from unrealized gains and losses on investments –5,150 –2,060
A total of €980m (792m) was credited directly to life insurance policyholders in the business year.
The financing status of the defined benefit plans is as follows: All figures in €m 31.12.2001 Prev. year
The provision for defined benefit plans changed as follows in the business year: All figures in €m 2001 Prev. year
The expenses are shown in the income statement mainly under “operating expenses” and “expenses for claims and benefits”.
American Re Corporation, Princeton 7.45%, US$ 500m Senior Notes 1996/2026 Rating: AA 565 531
In September 2001 ERGO International AG issued two bonds, exchangeable into E.ON shares and Aventis shares respectively. The first may be exchanged into ordinary E.ON shares with an equivalent value of €75 per share; the yield to maturity is 2.25%. The second bond, with a yield to maturity of 0.75%, may be exchanged into ordinary Aventis AG shares with an equivalent value of €98.50 per share. If the bonds are not exchanged or redeemed beforehand, they will be redeemed on 14th September 2006 at 100% of the face value.
Early-retirement benefits/semi-retirement 55 44 17 12 – 70 07 CONSOLIDATED FINANCIAL STATEMENTS 2001
The remaining terms of liabilities shown under this item are as follows: All figures in €m 31.12.2001 Prev. year
All figures in €m* 2001 Prev. year 2001 Prev. year 2001 Prev. year 2001 Prev. year 2001 Prev. year
Gains on the disposal of investments 791 509 980 875 2,327 4,768 201 459 4 – 4,303 6,611
In addition to foreign currency exchange gains of €172m (118m), the other income mainly includes income from services rendered of €200m (123m), interest and similar income of €189m (54m), and income from the reversal/ reduction of miscellaneous provisions and adjustments of values for receivables.
Total expenses for claims and * After elimination of intra-Group transactions across segments.
Deferred tax resulting from the occurrence or reversal of loss carry-forwards –489 –5
Effects of changes in tax rates on deferred tax –284 –423
In addition to foreign currency exchange losses of €139m (55m), the other expenses mainly include expenses for services rendered of €292m (193m), interest and similar expenses of €459m (348m), and writedowns of €335m (214m).
Tax on earnings is made up as follows: All figures in €m 2001 Prev. year
All figures in €m* 2001 Pr. yr. 2001 Pr. yr. 2001 Pr. yr. 2001 Pr. yr. 2001 Pr. yr.
Tax on earnings shown –1,070 379 07 CONSOLIDATED FINANCIAL STATEMENTS 2001
The effective tax burden is the ratio between the tax on earnings shown and the result before earnings tax (but after “other tax”). In the previous year the tax burden was 15%. In the current business year the ratio shows tax relief of 159%.
Members of the Boards of Management of Munich Re and Allianz hold seats on the Supervisory Boards of the above-mentioned companies and, in individual instances, on the Boards of other companies in each other’s Groups. Dr. jur. Henning Schulte-Noelle, Chairman of the Board of Management of Allianz AG, is Deputy Chairman of the Munich Reinsurance Company’s Supervisory Board.
In the year under review, Allianz’s cessions to Munich Re amounted to 11.8% (13.9%) of our gross premiums in reinsurance or 7.3% (8.0%) of our overall consolidated premiums. Munich Re’s cessions to Allianz amounted to 31.9% (42.2%) of our ceded premiums.
The reinsurance agreements between Munich Re and Allianz are concluded at market conditions.
Besides this, there are further contractual relations between Munich Re and Allianz in connection with the normal running of our business, such as the conclusion of insurance policies for own risks (e.g. buildings insurance policies).
The following personnel expenses are included in the operating expenses, in the expenses for claims and benefits and in the investment result: All figures in €m 2001 Prev. year
As at 1st July 1999, 1st July 2000 and 1st July 2001 Munich Re launched longterm incentive plans. These plans, each with a term of seven years, provide for the members of the Board of Management and senior management in Munich and for the top executives in Munich Re’s international organization to be granted a defined number of stock appreciation rights.
The stock appreciation rights may only be exercised after a two-year vesting period and then only if the share price is at least 20% higher than at the start of the plan. In addition, Munich Re shares must have outperformed the DAX 30 (Plan 1999) or the Euro STOXX 50 (Plan 2000 and Plan 2001) twice at the end of a three-month period during the term of the plan. The gross amount that may be obtained from the exercising of the stock appreciation rights is limited to an increase of 150% of the initial share price.
In the year under review a total of 115,420 (83,681) stock appreciation rights were granted, 42,664 (27,029) of these to members of the Board of Management. The expenses incurred for the stock appreciation rights have been determined on the basis of the change in Munich Re’s share price.
In the year 2001 the provision set up in the previous years was reduced by €17.4m (previous year: increase of €15.5m). The reduction in the provision resulted partly from the fact that stock appreciation rights from the LongTerm Incentive Plan 1999 had been exercised and partly from the fall in Munich Re’s share price.
The total emoluments of the Board of Management of the Munich Reinsurance Company for fulfilment of its duties in respect of the parent company and the subsidiaries totalled €11.1m (9.2m). Of this, €4.3m (4.5m) is apportionable to fixed components, €3.2m (4.7m) to variable components, and €3.6m to the exercise of stock appreciation rights under the Long-Term Incentive Plan 1999. Payments to retired members of the Board of Management or their surviving dependants amounted to €3.3m (2.9m).
(38) Shares held by members of the Board of Management and the Supervisory Board
As part of the restructuring of shareholdings, there were commitments of €7,787m at the balance sheet to acquire shares in HypoVereinsbank and ERGO. The purchases were effected on 15th January 2002.
On 15th January 2002 the Munich Re Group sold its directly and indirectly held stakes in Dresdner Bank to Allianz and also made available around 4% of Allianz shares. Besides this, Munich Re sold its 40.6% interest in Allianz Life to the Allianz Group. In return, Munich Re acquired from the Allianz Group and the Dresdner Bank Group their shares in HypoVereinsbank, thus increasing the Munich Re Group’s stake to 25.7%.
For the diluted earnings per share, the number of shares is increased by the weighted average of the potential number of shares that would have a diluting effect. Outstanding warrants are additionally included pro rata temporis up to the time they are exercised.
The auditor’s opinion is worded as follows: We have audited the consolidated financial statements, consisting of the balance sheet, the income statement and the statements of changes in shareholders’ equity and cash flows as well as the notes to the financial statements, prepared by the Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München for the business year from 1st January 2001 to 31st December 2001. The preparation and the content of the consolidated financial statements are the responsibility of the Company’s Board of Management. Our responsibility is to express an opinion on the financial statements based on our audit.
American Re-Insurance Company A++ AAA Aaa American Alternative Insurance Company A++ AAA Princeton Excess and Surplus Line Insurance Company A++ Munich American Reassurance Company A++ AAA Great Lakes Reinsurance (UK) PLC A++ AAA Munich Reinsurance Company of Canada A++ AAA Temple Insurance Company A++ Munich Reinsurance Company of Africa A++ Munich Reinsurance Company of Australasia A++ AAA Münchener Rück Italia A++ AAA New Reinsurance Company A++ AAA
VICTORIA Lebensversicherung Aktiengesellschaft AAA Aa1 VICTORIA Versicherung Aktiengesellschaft AAA Hamburg-Mannheimer VersicherungsAktien -Gesellschaft AAA Aa1 Hamburg-Mannheimer Sachversicherungs-AG AAA DKV Deutsche Krankenversicherung Aktiengesellschaft AAA
Combined ratio non-life reinsurance % 112.1 110.3 133.9 135.1 5. Net expenses for claims and benefits 7,217 7,370 10,332 9,243 34,162 8. Result before amortization of goodwill 995 824 –2,066 –168 –415 10. Operating result before tax 953 769 –2,147 –220 –645
Shares of reinsurance and primary insurance in Group premium income broken down by life and health and property-casualty business*
Great Lakes Reinsurance (UK) PLC Upper Ground Floor 1, Minster Court Mincing Lane, London EC3R 7YH
Munich Reinsurance Company of Canada (MROC) Munich Re Centre 390 Bay Street, 22nd Floor Toronto, Ont., M5H 2Y2
Further addresses may be obtained from the 2001 annual report of ERGO Versicherungsgruppe AG.
Commerzbank AG, Frankfurt a. M. Mediclin AG, Frankfurt a. M. WMF Württembergische Metallwarenfabrik Aktiengesellschaft, Geislingen/Steige
The Princeton Excess and Surplus Lines Insurance Company, Princeton 100.00 30,568 736
% of share Share- Result capital holders’ for the equity year
MEAG MUNICH ERGO Real Estate Investment GmbH, Munich 96.69 5,500 0
Middle Sea Valetta Life Assurance Co. Ltd., Floriana 10.00 35,725 767
Nürnberger Beteiligungs-Aktiengesellschaft, Nuremberg 19.84 377,796 16,141 **** Some of these selected participations are held indirectly. They are calculated proportionally in each case.
**** The amounts are taken from the individual companies’ financial statements. They have been translated using the exchange rates applicable on 31st December 2001.
The complete list of shareholdings required by Section 313 para. 2 of the German Commercial Code will be filed with the commercial registry in Munich; we will be glad to send you a copy on request.
Supervisory Board Seats held on supervisory boards Membership of comparable of other German companies bodies of German and foreign business enterprises
Ulrich Hartmann Deutsche Lufthansa AG Henkel KGaA Hochtief AG ARCELOR, Luxembourg IKB Deutsche Industriebank AG
Dr. phil. Ron Sommer T-Mobile International AG* (Chairman) – T-Online International AG* (Chairman)
Dr. jur. Hans-Jürgen Schinzler Allianz Lebensversicherungs-AG Aventis S. A., Schiltigheim Chairman Dresdner Bank AG Dresdner Kleinwort Wasserstein Inc.,
Dr. jur. Nikolaus von Bomhard Münchener und Magdeburger – Hagelversicherung AG
Dr. jur. Heiner Hasford D. A. S. Deutscher Automobil Schutz Munich London Investment Allgemeine Rechtsschutz- Management Ltd., London Versicherungs-AG
Stefan Heyd Allianz Versicherungs-AG – Bayerische Versicherungsbank AG Frankfurter Versicherungs-AG Kraft Versicherungs-AG
Christian Kluge Karlsruher Lebensversicherung AG – Mercur Assistance AG Holding (Chairman)
John Phelan – American Re Corporation, (from 1st April 2002) Wilmington, Delaware* (Chairman)
Dr. phil. Detlef Schneidawind DKV Deutsche Krankenversicherung AG Munich American Reassurance Generali Lloyd AG Company, Atlanta* Hamburg-Mannheimer Sachversicherungs -AG Hamburg-Mannheimer Versicherungs-AG Karlsruher Lebensversicherung AG
Dr. jur. Jörg Schneider Forst Ebnath AG (Chairman) American Re Corporation, MEAG MUNICH ERGO Kapital- Wilmington, Delaware*
Dr. jur. Hans-Wilmar von Stockhausen Allgemeine Kreditversicherung AG Münchener Rück Italia S. p. A., Milan*
Karl Wittmann – Jordan Ins. Co. p.l.c., Amman Saudi National Insurance Company
Deferred tax assets/liabilities Deferred taxes derive from temporary differences between accounting on the basis of International Accounting Standards (consolidated financial statements) and national tax law.
If asset items are valued lower, or liabilities higher, than in the tax balance sheet of the Group company concerned, the resulting future tax relief must be recognized as a deferred tax asset. If the accounting differences between the consolidated financial statements will lead to future tax burdens, these must be recognized as deferred tax liabilities.
Futures Standardized contracts to trade a financial instrument on a money market, capital market, precious -metals market or currency market at a specific price and on a specific future date. Frequently, rather than actually delivering the underlying financial instrument on that date, the difference between closing market value and the exercise price is settled in cash.
Goodwill Any excess of the purchase price of a subsidiary over the acquirer’s interest in the fair value of the net assets as at the acquisition date. Goodwill is amortized over its useful life.
An international body of 14 accounting experts responsible for issuing International Accounting Standards. The IASB’s objective is to achieve uniformity in the accounting principles that are used by businesses and other organizations for financial reporting around the world
Investments for the benefit of life insurance policyholders who bear the investment risk This mainly involves investments for policyholders under unitlinked life insurances. It also includes investments under index-linked life insurance policies whose performance depends on share or currency indices.
Obligatory reinsurance Reinsurance that is binding for both parties. The primary insurer is obliged to cede all risks covered by a reinsurance agreement to the reinsurer and the reinsurer is obliged to accept these risks.
Options Derivative financial instruments where the holder is entitled – but not obliged – to buy (a call option) or sell (a put option) the underlying asset at a predetermined price within a certain period. The writer of the option is obliged to transfer or buy the asset and receives a premium for granting the option to the purchaser
Proportional reinsurance In proportional reinsurance, the sum insured written by the primary insurer is divided proportionally between the primary insurer and the reinsurer, and the reinsurer is allocated a corresponding share of the premiums and claims.
Provision for premium refunds Provisions for premium refunds are made for obligations involving bonuses and rebates – especially in life and health insurance – which are not yet payable at the balance sheet date; the amount posted is based on supervisory or contractual regulations.
They also include the unrealized gains and losses from the accounting of certain investments at market value to the extent that policyholders would participate in these gains and losses on realization (provision for deferred premium refunds).
PVFP (present value of future profits) When insurance companies or individual insurance portfolios are acquired, the present value of the expected earnings from the business acquired is capitalized as “PVFP”. This intangible asset arises in particular when life or health insurance companies are acquired.
Security Ability (and willingness) of a reinsurer to meet its financial obligations from reinsurance agreements in full and at all times. Security depends on such factors as earnings capacity, quality of investments, capitalization and liquidity.
Unit-linked life insurance A type of life insurance with a savings component, where the benefits payable depend on the performance of the assets invested in a fund. The investment risk is borne by the policyholder.
GAAP) The principles of US accounting that are stipulated as compulsory for listed companies in the US.
Accumulation budgets 56 Addresses 160 Affiliated enterprises 118, 162 Africa 33 Agricultural risks 37
Alternative markets 38 f. Alternative risk solutions/retrocession 39 American Re 34 f., 136 Asia 28 Asia, Australasia, Africa 32 f., 114 f. Asset management 3, 47 ff. Asset-liability management 49 Associated enterprises 114, 117 ff. Auditor’s opinion 153 Aviation and space 38, 74
Balanced scorecards 61 Board of Management 4 f., 7, 165 f. Bond markets 19, 47 f.
Cash flow statement 105 Class actions 61 Classes of business 157 Combined ratio 55, 159 ff. Company of Canada 7 Computer viruses 60 Consolidated financial statements 102 ff. Consolidated group 115 ff. Consolidated income statement 104 Corporate governance 7, 62 Corporate Underwriting/Global Clients 36 f. Credit and bonding 38 Customized portfolio solutions 37
Dates 176 Derivative financial instruments 58, 129 ff. Derivatives 58, 129 ff.
Incentive plan 149 Inflation rate 18 Information technology 60, 75 Insider rules 60 International Accounting Standards 114 f. Investment mix 49
Latin America 30 f., 112 f. Life and Health 27 f., 41, 43 f. Lloyd’s 36
Natural catastrophes 37, 78 f. Natural catastrophe bonds 15, 56 Near and Middle East 33, 112 f. New Reinsurance Company 39
Profit for the year IC, 104 f., 155 Property-casualty insurance 26, 41
Purchase accounting 117 Purchase accounting method 132 PVFP (present value of future profits) 118
“Riester” policies 40, 43 Risk management IC, 53 ff. Risk of change 2, 54 Risk of random fluctuations 2 Risk report 53 ff. Risk types 54
Segment reporting 106 ff. Share performance 11 Share price indices 11, 47 Shareholder profile 13 Shareholders’ equity IC, 114, 133 ff. Shareholding transactions 51
Special and Financial Risks 38 f. Specimen portfolio 13 f. Staff IC, 98, 151 Stock markets 18, 47 Supervisory Board 6 ff., 165 f.
Besides this English translation of the official German original (also available from the company), a translation of our annual report is obtainable in Spanish. You will also find our annual reports and interim reports, along with further information about Munich Re, on the Internet (
If you have general questions on Munich Re shares, please use our shareholder hotline: E-mail: shareholder@munichre.com
If you are an institutional investor or analyst, please contact our investor relations team: E-mail: investorrelations@munichre.com
N a m e : S tre e t: T o w n
01 _ “The world will never be the same again.” Has this proved true after 11th September? (p. 64) 02 _ How do insurers cope with events like 11th September? (p. 68) 03 _ How are insurers and reinsurers dealing with terrorism risks? (p. 70) 04 _ How do you see the state of aviation one year on from 11th September? (p. 74) 05 _ What are potentially the most vulnerable points of our information networks? (p. 75) 06 _ Haven’t the international agreements on climate protection come much too late? (p. 78) 07 _ How can Munich Re’s clients benefit from the Centre of Competence for Life Sciences? (p. 82) 08 _ What risks has genetic engineering produced in agriculture? (p. 86) 09 _ Is environmental awareness still “in”? (p. 87) 10 _ Does a reinsurer need a high market capitalization? (p. 90) 11 _ How does Munich Re safeguard its financial strength? (p. 94) 12 _ What resources are decisive for securing market leadership? (p. 98) 13 _ Will health insurance become a privilege of the better-off? (p. 99)
What are potentially the most vulnerable points of our information networks?