The “other receivables” contain receivables from sales of securities amounting to €1,001m (–) and receivables of €210m (294m) resulting from insurance contracts without significant risk transfer, which do not fall within the scope of application of ifrs 4.
Life and health Property-casualty Life and health Property-casualty 31.12. Prev. 31.12. Prev. 31.12. Prev. 31.12. Prev. 31.12. Prev.
All figures in €m* 2005 year 2005 year 2005 year 2005 year 2005 year
Provision for future policy benefits 1,470 1,208 – – 1,593 1,574 – – 3,063 2,782 *After elimination of intra-Group transactions across segments.
Reference is made to the risk report for information on the risks from defaults on receivables from underwriting business.
Acquisition costs are capitalised and amortised over the terms of the contracts, depending on the type of insurance. This includes accrued interest. The impairment losses stem from changes in the assumptions underlying the calculations, which require a retrospective adjustment in the measurement. The change in the consolidated group mainly results from the sale of the Karlsruher Insurance Group.
(15) Other assets These mainly comprise owner-occupied property totalling €2,680m (683m), plant and equipment and inventories totalling €352m (339m), deferred expenses from the conclusion of insurance contracts amounting to €82m (–) and other deferred items of €175m (392m).
Accumulated depreciation and accumulated impairment losses at 31.12. previous year 141 –
The useful lives of the buildings were adjusted in the business year, owing to the first-time application of the component approach, and are now between 40 and 55 years (previous year: max. 50 years). The overall change in the depreciation volume resulting from this is insignificant. The impairment losses largely result from market-value adjustments at Munich Reinsurance Company amounting to €26m and at dkv Deutsche Krankenversicherung amounting to €38m.
The impairment losses are distributed between the different Group segments as follows: In the reinsurance segment, €6m (–) is apportionable to life and health and €20m (–) to property-casualty; in the primary insurance segment, €58m (–) is apportionable to life and health and €3m (–) to property-casualty; €0m (–) is apportionable to the asset management segment.
Vorsorge Lebensversicherung ag, Düsseldorf, and Vorsorge Luxemburg Lebensversicherung s.a., Munsbach, decreased retained earnings by €13m. By contrast, a positive impact of €39m resulted from the recalculation of deferred taxes and provision for deferred premium refunds at HamburgMannheimer Versicherungs-Aktiengesellschaft, Hamburg, New Reinsurance Company, Geneva, Europaeiske Rejseforsikring a/s, Copenhagen, Europeiska Försäkringsaktiebolaget, Stockholm, victoria Lebensversicherung Aktiengesellschaft, Düsseldorf, KarstadtQuelle Lebensversicherung ag, Fürth, and Deutsche Krankenversicherung ag, Cologne. Further adjustments under ias 8, which include the change in recognition of direct minority interests in special funds, reduced retained earnings by €11m.
To safeguard subscription rights from exercise of warrants (Contingent Capital Increase 2003 i) 35
The Annual General Meeting on 28 April 2005 cancelled the authorisation granted on 11 June 2003 to issue convertible bonds and/or bonds with warrants, and Contingent
The fair value of the liabilities at the balance sheet date amounts to €4,038m (3,974m).
The “other reserves” include €52m (150m) in unrealised gains and losses resulting from valuation of associates at equity and €6,076m (4,471m) in unrealised gains and losses on investments in unconsolidated affiliated enterprises and other securities. Unrealised gains and losses apportionable to unconsolidated affiliated companies and other securities are distributed between the different items as follows:
Owing to the basically short-term nature of unearned premiums, the carrying amount mainly relates to premium income from the year under review. It can generally be reckoned that the corresponding liability will be settled within 12 months of the balance sheet date.
The provision for future policy benefits involving a combination of more than one risk generally derives from reinsurance contracts. Provisions for future policy benefits in primary insurance and reinsurance are determined on the basis of prudent assumptions regarding expected mortality and morbidity. For German life and health primary insurance, to which approx. 92% of the provisions for future policy benefits in primary insurance are apportionable, we mainly use the biometric actuarial assumptions recommended by the German Association of Actuaries. We also largely use the tables of the national actuarial associations for the rest of the primary insurance business. The actuarial assumptions for calculating the provisions for future policy benefits in reinsurance are derived mainly from tables published by the national actuarial associations. These tables are modified in accordance with the termination rates observed in the reinsured portfolios.
In primary insurance, actuarial interest rates between 2.5% and 5.0% are generally used. Of the net provisions for future policy benefits posted by our life insurers, 69% are calculated with actuarial interest rates of up to 3.5% and a further 25% with actuarial interest rates of between 3.5% and 4.0%. Around 6% of the provisions for future policy benefits are apportionable to provisions for terminal dividends whose interest rate is not guaranted. In health primary insurance, an actuarial interest rate of 5.0% is generally used for calculating the provisions for future policy benefits.
are selected using appropriate actuarial principles. In primary insurance, a discount rate of between 2.5% and 4.5% is applied. In reinsurance, the relevant interest on the provisions for future policy benefits is in many cases collateralised by a corresponding deposit at the ceding company, with the deposit interest guaranteed by the cedant. An interest-rate risk remains for undeposited provisions with a volume of €835m, whose calculation is based on actuarial interest rates of between 2.5% and 6.1%.
The provision for benefit cases is for claims already incurred but not yet (fully) settled. These are usually due short term and are largely measured at face value. The provisions are subject to an underwriting risk only insofar as they include, to a small extent, provisions for unknown claims, whose amounts are estimated. The annuity provision mainly involves ongoing disability annuities. As with the provision for future policy benefits, this is calculated as the present value of the expected future (annuity) payments. The biometric actuarial assumptions
The timing of the payment obligations varies according to class of insurance, but altogether extends over a prolonged period.
The annuity provision is for annuities in personal accident and liability insurance. As with the provision for future policy benefits, this is calculated as the present value of the expected future (annuity) payments. The biometric actuarial assumptions are selected using appropriate actuarial principles. A discount rate of between 2.5% and 4.0% is applied.
Net run-off result excluding currency translation differences 1,021 391 –635 –2,920 –5,279 –7,332 –7,720 –2,956 –1,293 –428
Provisions for asbestos and environmental claims The provision for outstanding claims in the propertycasualty segment includes provisions for asbestos and environmental claims. Since the mid-eighties industrial insurers writing business worldwide have found themselves being confronted with losses from policies taken out decades before. In particular, these include claims under product liability policies in the USA involving asbestos -related injuries which manifest themselves after a long latency period. There are also potential claims burdens under employers’ liability policies, especially in some European countries. In addition, we have posted provisions for claims under old general liability policies which provided cover against environmental liability claims under us law.
We have made provision for our share of these losses, continually adjusting our reserves in line with the latest knowledge of the loss potential. As the result of a re-estimate, American Re increased its net reserves for asbestos and environmental losses in 2005 by us$ 259m.
Munich Re Group Annual Report 2005 Notes to the consolidated balance sheet – Equity and liabilities
Life and health Property-casualty Life and health Property-casualty 31.12. Previous 31.12. Previous 31.12. Previous 31.12. Previous 31.12. Previous
– Thereof resulting from other revaluations (recognised in profit or loss) – – – – 2,410 2,427 – – 2,410 2,427 *After elimination of intra-Group transactions across segments.
Changes resulting from other revaluations (with impact on profit or loss) 50 468
For determining the portion of the valuation differences allocable to the provision for deferred premium refunds, rates of between 85.0% and 92.5% after tax were generally used.
(22) Gross underwriting provisions for life insurance policies where the investment risk is borne by the policyholders
These provisions are valued retrospectively. The withdrawal for underwriting risks from the premiums and provisions for future policy benefits is made on the basis of prudent assumptions regarding expected mortality and morbidity. Here, as with the provisions for future policy benefits for non-unit-linked life insurance, the underlying calculation is based on best estimates with appropriate provisions for adverse deviation.
Expenses for defined contribution plans in the year under review totalled €29m (29m).
Defined benefit plans The amount of the defined benefits is largely dependent on salary and length of service. These benefits may be partially or fully financed through a pension fund.
The expenses are shown in the consolidated income statement mainly under “operating expenses” and “expenses for claims and benefits”.
Prev. year Allocations With- Reversal Other 31.12.2005 All figures in €m drawals changes
The miscellaneous other provisions comprise a large number of different items, including €66m (1m) for reconcilement of interests, €65m (36m) for salary obligations, €28m (26m) for competitions for sales staff, €22m (16m) for other remuneration for desk and field staff, €10m (10m) for lawsuit risks, €8m (10m) for financial statement and reporting expenses, €7m (8m) for social insurance against occupational accidents, and €61m (4m) in connection with longterm incentive plans. The provisions for early-retirement benefits/semi-retirement and anniversary benefits are mainly long term, whereas the provisions for earned commission, outstanding invoices, bonuses, holiday and overtime pay, and miscellaneous are essentially short term.
The changes in deposits retained generally derive from the changes in the relevant underwriting provisions covering ceded business. Except for an amount of €21m (23m), the contractual period to maturity of the deposits retained on ceded business is up to 12 months.
In the business year 2005, the items shown under “other deferred items” were completely reclassified to the item “other liabilities”. The previous year’s figures have been adjusted accordingly.
Investments in affiliated companies 39 –1 141 –3 –1 –35 –38 3 –1 – 140 –36
The result for land and buildings includes rental income of €514m (663m). The expenses for the management of investments include running costs and expenses for repair and maintenance of property totalling €78m (121m).
Management expenses, interest charges and other expenses 64 85 246 282 429 671 30 54 7 10 776 1,102 *After elimination of intra-Group transactions across segments.
(29) Other income In addition to foreign currency exchange gains of €696m (400m), the other income mainly includes income from services rendered of €266m (283m), interest and similar income of €157m (111m), income from the release/
The change in the provision for future policy benefits (net) contains €170m (53m) in unrealised gains/losses from unitlinked life insurance. Expenses for claims and benefits include expenses for policyholders’ bonuses. Of this, €1,493m (559m) is for the allocation to the provision for premium refunds on the basis of national regulations, €50m (468m) for the change in the provision for deferred premium refunds recognised
Changes in underwriting provisions – Provision for future policy benefits 574 656 60 18 2,439 2,432 37 23 3,110 3,129
Changes in underwriting provisions – Provision for future policy benefits 83 –308 – – 121 134 – – 204 –174
Ceded share of expenses for claims and benefits 353 18 1,146 474 217 235 492 183 2,208 910
Net expenses for claims and benefits 5,158 5,274 10,797 9,650 14,452 13,855 2,944 2,857 33,351 31,636 *After elimination of intra-Group transactions across segments.
(33) Finance costs By finance costs we understand all interest and other expenses directly attributable to strategic debt. Debt has a strategic character for us if it is does not have an original, direct link with our operative business.
The decrease in finance costs compared with the previous year is mainly due to the reduction in strategic debt. Thus, Munich Reinsurance Company’s bonds exchangeable into Allianz ag shares were redeemed on schedule in the second quarter of 2005. Information on the Group’s strategic debt can be found in the management report on page 100 f. and under (17) Subordinated liabilities and (24) Notes and debentures.
Life and health Property-casualty Life and health Property-casualty Prev. Prev. Prev. Prev. Prev.
Reinsurance commission and profit commission 1,683 1,671 2,989 3,035 20 20 12 17 4,704 4,743
Commission received on ceded business 77 124 262 187 25 11 53 54 417 376 *After elimination of intra-Group transactions across segments.
The current tax is derived from the tax results of the business year, to which the local tax rates of the respective subsidiaries are applied. Deferred tax is also calculated using the local tax rates. Sometimes for simplicity’s sake we use uniform tax rates for individual circumstances or subsidiaries. Changes in tax rates and tax legislation that have already been adopted by the government at the balance sheet date are generally taken into account. In the year under review, these effects were negligible.
Deferred tax assets are recognised for unused loss carryforwards to the extent that, on the basis of tax result planning, it is sufficiently probable that they will be utilised. The following table shows the reconciliation between the expected taxes on income and the tax on income actually shown. The expected tax expenses are calculated by multiplying the operating result before taxes on income (but after “other tax”) by the Group tax rate. The Group tax rate amounts to 40%. This takes into account corporation tax including solidarity surcharge, and a mixed trade-tax rate.
Deferred tax resulting from the occurrence or reversal of loss carry-forwards –293 165
The effective tax burden is the ratio between the taxes on income shown and the result before taxes on income (but after “other tax”). In the year under review, as in the previous year, the tax burden amounted to 27%.
In addition, with a view to the already existing loss carryforwards, we have treated a portion of the burdens incurred at our subsidiary American Re as no longer utilisable tax losses for the time being. The item “municipal trade earnings tax” includes the differences between the trade-tax rate applied by the respective Group companies and the Group mixed trade-tax rate.
(35) Risks in the life and health segment Of importance in the life and health segment are the biometric risk, the interest-rate risk and the lapse risk. Underwriting provisions are calculated using biometric actuarial assumptions, i.e. assumptions regarding the development of mortality, disablement and morbidity, as well as the contract - or plan-specific discount rates and actuarial interest rates. The measurement of deferred acquisition costs also includes assumptions regarding the lapse rate and profit sharing. In addition, potential market risks from unit-linked contracts and risks from embedded derivatives have to be taken into account.
The biometric actuarial assumptions are regularly checked by the supervisory authorities, depending on the specific national regulations. In primary insurance and reinsurance, the risk is regularly assessed on the basis of updated portfolio information. Besides this, we also take market standards into account when checking the adequacy of the biometric actuarial assumptions and trend assumptions included in them. The verification of the assumptions and adequacy of the trend factors may result in a change in the provision for adverse deviation allowed for in the actuarial assumptions. The value of the provisions for future policy benefits and the deferred acquisition costs is not directly affected by this initially. If the provisions for adverse deviation in the biometric actuarial assumptions have been exhausted, it may be necessary to make additional provisions or write down the deferred acquisition costs. Adjustments of this kind are made on the basis of the liability adequacy test under ifrs 4 if, after taking into account all the actuarial assumptions, the adequacy of the underwriting provisions is no longer guaranteed. A deficiency is recognised in the consolidated income statement.
In the health segment, we are proceeding on the assumption that further advances in medical treatment will lead to higher costs. Accordingly, the actuarial assumptions used are constantly reviewed. Premiums are adjusted for contracts calculated on a long-term basis if the assumptions regarding the required policy benefits deviate from the original assumptions and this deviation cannot be regarded as merely temporary. This limits the financial and balancesheet effects of permanent changes in morbidity.
Munich Re Group Annual Report 2005 Notes_Disclosures on the uncertainties of future cash flows from insurance contracts benefits has to be earned from the investment result, the mortality result and the cost result. As a rule, the fixedinterest investments have a shorter duration than insurance commitments. This means there is a reinvestment risk involved. Should capital-market interest rates fall to a very low level for a prolonged period, the overall income earned could be tight or even insufficient in relation to the obligations. In reinsurance, a similar interest-rate risk can often be eliminated through appropriate treaty design. For many treaties, the interest on the provisions for future policy benefits is secured by an inflow of investment income from deposits retained that is guaranteed by the ceding company. In the case of treaties with undeposited provisions for future policy benefits where historically-related high discount rates are used, the provisions are generally matched by suitably high-interest-bearing investments to eliminate the interest-rate risk.
If unadjusted earnings are insufficient, it may be necessary to make additional provisions or to write down the deferred acquisition costs. Adjustments of this kind are made on the basis of the liability adequacy test under ifrs 4 if, and only if, the deficiency cannot be made good from other sources of income or an adjustment of the discretionary profit sharing in primary insurance is not possible. In such a case, a deficiency would be recognised in the consolidated income statement.
Market risks In primary insurance, potential market risks are relevant only for unit- and index-linked life insurance. For the respective contracts in our portfolio, the investment risk lies completely with the policyholder. This means that the underwriting provision for these contracts is not subject to a direct market risk. Appropriate product design ensures that the necessary premium portions for assuming payment of a guaranteed minimum benefit on occurrence of the insured event are adjusted where necessary on the basis of the current fund assets. Consequently, the embedded derivative connected with this guarantee is not subject to any significant market risk.
Risks from lapses and embedded derivatives In primary insurance, the reported provision for future policy benefits in the case of contracts with a surrender right is generally at least as high as the relevant surrender values. Therefore, lapse rates are not included in the calculation of the underwriting provisions. Surrenders are taken into account in the amortisation of deferred acquisition costs. As the basis for this, we use appropriately chosen assumptions regarding lapse rates, which are regularly checked. The policyholder’s right in some contracts to maintain the contract with a waiver of premium and an adjustment of the guaranteed benefits corresponds to a partial lapse and is taken into account in the calculations analogously. In the case of deferred pension policies, the lump-sum option on expiry of the deferment period is of importance. The exercise of these options can be influenced by the way the insurer structures bonuses. Such options are explicitly taken into account in the liability adequacy test under ifrs 4. The aforementioned options do not have an interest-rate sensitivity or market sensitivity, since their exercise by the policyholder is always determined to a crucial extent by individual factors and relates to the insurance components. Other options embedded in primary insurance contracts are of subordinate economic importance. Of the other derivatives embedded in primary insurance contracts, only the interest-rate guarantee – analysed under interest-rate risks – is of significance. In reinsurance, thanks to suitable product and treaty design, the risk in our portfolio from lapses and embedded derivatives is significantly lower. The residual lapse risk is assessed by means of product-specific portfolio analyses and is taken into account in pricing. Therefore changes in lapse probabilities or in the exercise of embedded derivatives with regard to insurance contracts do not have any direct effects on equity or the consolidated income statement.
(36) Risks in the property-casualty segment Of particular importance in this segment is the estimation risk with regard to the amount of the expect claims expenditure
In estimating claims expenditure, we take cost increases into account, so the estimation risk always also includes the inflation risk. Besides this, there is an interest-rate risk for parts of the portfolio.
The process of estimating and pricing risks naturally involves uncertainties. The basis for the calculation is an estimate of the claims frequency to be expected for a contract or portfolio of contracts. In addition, an estimation of the claims amount is necessary, from which a mathematical distribution of the expected losses is derived. The result of these two steps is an estimation of the expected overall claims in a portfolio. A third element comprises the expected cash flows to settle the claims incurred. If the claims settlement extends over several years, inflation and interest-rate effects are also relevant.
(37) Controlling underwriting risks by means of reinsurance, retrocession and capital market instruments An important risk control measure in the field of underwriting is the cession of a portion of our risks to third parties via external reinsurance and retrocession. All our companies have intra-Group and external reinsurance and retrocession cover. The core component of our retrocession is an accumulation excess-of-loss cover, which provides protection against losses from natural catastrophes. The dimensions of this cover are based on analyses of our accumulation budgets in those parts of the world exposed to natural catastrophes.
We also diversify our risk management instruments beyond this. Munich Re has protected itself with a catastrophe bond against the risk of severe windstorms in western Europe. This bond covers windstorm losses in Germany and four other countries in cases where, among other things, peak wind speeds of over 27 m/s are recorded at five adjoining weather stations and a weighted windstorm index value is exceeded. Its term began in midNovember 2005 and will end on 31 March 2009; we have thus transferred the risk of seasonal windstorm activities over almost four years, with a total volume of up to €110m, to the capital markets.
(38) Risks from reinsurance and retrocessions In connection with the business we cede, the default risk is also of relevance. For our externally placed reinsurance and retrocessions, we choose only business partners that have been approved by our Security Committee, which regularly examines the security of potential retrocessionaires and reinsurers on the basis of a range of criteria. The minimum requirement for participating in one of our retrocession or reinsurance treaties is an s&p or A.M. Best rating of A–. Especially in the property-casualty segment, we avoid an accumulation of risks through a broad spread of our retrocessions.
Dr. Lothar Meyer, Chairman of ergo Versicherungsgruppe ag’s Board of Management, has continued to be a member of HypoVereinsbank ag’s Supervisory Board since the integration of the hvb Group into the UniCredit Group.
(42) Long-term incentive plans Every year since 1 July 1999, Munich Reinsurance Company has set up long-term incentive plans, each with a term of seven years. Entitled to participate in these shareprice -related remuneration plans are members of the Board of Management, senior management in Munich, and top executives in Munich Re’s international organisation. Participants receive a certain number of stock appreciation rights. The relevant initial share price for the stock appreciation rights is calculated from the average of closing prices for Munich Re shares in Frankfurt Xetra trading over the last three months prior to plan commencement. The initial price for the 2005 long-term incentive plan is
Munich Re Group Annual Report 2005 Notes_Other information were measured at their intrinsic value (difference between current share price and initial share price for the stock appreciation rights). The fair value recognises not only the intrinsic value but also the possibility of growth in value up to the date of forfeiture or expiry of the rights and is determined on the basis of recognised valuation models, taking into account the exercise conditions.
At each balance sheet date, the fair value is calculated and reserved; this amount is recognised in full. The personnel expenses recognised in the income statement therefore correspond to the change in the provision in the year under review, taking into account any rights exercised.
In the year under review, provisions of €46.8m (3.2m) had to be posted for the reinsurers in the Munich Re Group; the personnel expenses totalled €43.6m (1.7m). Of this, €26.6m is due to a one-off adjustment required by the change in accounting method in the business year 2005.
The weighted average share price for the stock appreciation rights exercised in 2005 was €106.69 for plan year 2003. The intrinsic value of the exercisable stock appreciation rights amounted to €8.7m at the balance sheet date.
New initial share price after capital increase €173.67 €303.72 €304.80 €247.64 €82.02 €88.65 €88.10
Number of rights on 31 December 1999 110,840 – – – – – –
Number of rights on 31 December 2000 119,885 80,582 – – – – –
Number of rights on 31 December 2004 78,981 77,417 106,828 134,452 437,227 456,336 –
Number of rights on 31 December 2005 78,981 77,394 106,286 133,772 259,678 456,028 485,527
In the year under review, a total of 212,028 (155,839) stock appreciation rights were granted, 184,310 (132,653) of these to Board of Management members. The future obligations from the long-term plans are covered with Munich Re shares.
In the year under review, provisions of €14.4m (1.1m) had to be posted for the primary insurers and asset managers in the Munich Re Group; the personnel expenses totalled €13.3m (1.1m). Of this, €9.5m is due to a one-off adjustment required by the change in accounting method in the business year 2005.
The weighted average share price for the stock appreciation rights exercised in 2005 was €109.39 for plan year 2003. The intrinsic value of the exercisable stock appreciation rights amounted to €2.0m at the balance sheet date.
Incentive plans 2002–2005 of the Munich Re Group’s primary insurers and asset managers
New initial share price after 2003 capital increase €247.64 €82.02 €88.65 €88.10
Number of rights on 31 December 2002 45,476 – – –
Number of rights on 31 December 2003 57,845 168,681 – –
Number of rights on 31 December 2004 54,795 156,917 154,189 –
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 the initial price. In addition,
When the stock appreciation rights are exercised, the cash payment is made (in the respective national currency) by the company that granted the rights. Stock appreciation rights not exercised on the last trading day of the plan term are exercised on the participant’s behalf insofar as the prerequisites for this are met. If the prerequisites are not met, the stock appreciation rights are forfeited.
If another company acquires control of Munich Re or the Company’s group of shareholders changes significantly due to a merger or comparable transaction or business combination (”change in control”), all plan participants from the Munich Re Group may exercise their stock appreciation rights within 60 days after the change in control becomes effective, even if the prerequisites for exercising the rights are not yet met at that juncture.
(43) Remuneration report All disclosures on the remuneration of and loans to Board members, share trading and shares held by members of the Board of Management and the Supervisory Board, and the structure of the Board of Management’s remuneration system can be found in the remuneration report on page 112.
(44) Employee share programmes In 2005, Munich Reinsurance Company staff were given the opportunity to acquire five employee shares at no cost (free shares). The value of the benefit accruing to staff is equivalent to the share price at the date on which management decided to grant the programme and amounted to €83.79 per share. Altogether, 2,974 staff obtained 14,870 shares; personnel expenses totalled €878 thousand. In addition, staff of meag munich ergo AssetManagement GmbH or one of its subsidiaries had the opportunity to acquire five employee shares at preferential conditions. The purchase price per share was €60.31, resulting in a benefit of €27.00 per share based on the share price applicable at the time the programme was granted. Altogether, 481 staff took advantage of the offer and acquired 2,378 shares; personnel expenses totalled €64 thousand. Both programmes were carried out using own shares acquired in the business year 2005 and, to a small extent, residual holdings of own shares acquired prior to the business year. Differences between the cost of own shares and the personnel expenses have been offset against retained earnings.
(46) Auditor’s fees For services rendered to the parent and consolidated subsidiaries by the Group auditor (kmpg Bayerische Treuhandgesellschaft ag Wirtschaftsprüfungsgesellschaft, Munich, and its affiliated companies within the meaning of Section 271 para. 2 of the German Commercial Code), the following fees have been recognised as an expense in the business year: kpmg has supported Munich Re in connection with the Gloria project, primarily with assurance and appraisal services, e.g. in relation to the migration of data and the examination of control concepts. In addition, kpmg’s services have included professional consultancy in the design of the requisite processes prior to Munich Re’s own development of systems and their subsequent implementation. The expenses for this work are shown under “other services ”.
Beyond this, there are other financial commitments of €4m (40m) and obligations from guarantees totalling €227m (227m). In connection with a sale of shares, a liability towards the purchaser totalling a maximum of £2m has been assumed. There are contingent liabilities of €100m (105m) from a lease transaction with land and buildings.
At €4m, the amount of minimum lease payments under finance leases at the balance sheet date was insignificant.
(49) Events after the balance sheet date In December 2005, ergo Versicherungsgruppe ag signed agreements with gfkl Financial Services ag under which the latter would acquire its majority stake in the ada-has Group, an it systems specialist. In the meantime, the governing bodies and cartel authorities have given the formal approvals still outstanding when the agreements were signed, so that the sale will be completed in the current business year. ada-has will continue to be our partner for it issues.
(51) Proposal for the appropriation of profit Munich Reinsurance Company’s net retained profits for 2005 according to its financial statements prepared on the basis of the German Commercial Code amount to €712m (459m). The Board of Management will propose to shareholders at the Annual General Meeting that this be used for payment of a dividend of €3.10 (2.00) on each share entitled to dividend and that any residual amount be carried forward to new account.
% share Equity Result for of the year capital €’000** €’000**
Hamburg-Mannheimer Pensionskasse AG, Hamburg 94.69% 36,848 –38,152 dkv Deutsche Krankenversicherung Aktiengesellschaft, Cologne***) 94.69% 465,576 309 dkv belgium s.a., Brussels 94.69% 29,531 177 dkv Luxembourg s.a., Luxembourg 71.01% 14,063 1,103 dkv Seguros y Reaseguros, Sociedad Anónima Española, Saragossa 94.69% 56,408 8,657
Unión Médica la Fuencisla, s.a., Compañía de Seguros, Saragossa 94.69% 6,253 269 globale Krankenversicherungs-Aktiengesellschaft, Cologne 94.69% 12,878 4,204 d.a.s. Deutscher Automobil Schutz Allgemeine Rechtsschutz-Versicherungs-Aktiengesellschaft, Munich***) 94.69% 220,304 11,190 d.a.s.Deutscher Automobil Schutz Versicherungs-Aktiengesellschaft, Munich***) 94.69% 44,151 0 d.a.s. Nederlandse Rechtsbijstand Verzekeringmaatschappij n.v., Amsterdam 48.29% 28,809 7,027
d.a.s. Österreichische Allgemeine Rechtsschutz-Versicherungs-Aktiengesellschaft, Vienna 94.67% 29,402 2,255 d.a.s. Legal Expenses Insurance Company Limited, Bristol 94.69% 58,035 1,237
Neckermann Lebensversicherung ag, Fürth 39.06% 9,296 202 ergo International Aktiengesellschaft, Düsseldorf 94.69% 923,848 74,280 ergo Assicurazioni S.p.A., Milan 94.69% 61,434 10,605 ergo Italia S.p.A., Milan 94.69% 263,765 34,005 ergo Kindlustuse as, Tallinn 94.09% 17,518 5,378 ergo Latvija Versicherung ag (ergo Latvija Apdrosinasanas Akciju Sabiedriba), Riga 93.38% 5,593 96 ergo Lietuva draudimo uab, Vilnius 94.69% 11,138 –524 ergo Previdenza S.p.A., Milan 66.62% 273,654 39,003 ergo Vida Seguros y Reaseguros, Sociedad Anónima, Saragossa 94.69% 15,070 2,056
Powszechne Towarzystwo Emerytalne Ergo Hestia s.a.(Pension Fund), Warsaw 94.69% 20,824 4,563
Sopockie Towarzystwo Ubezpieczen na Zycie Ergo Hestia Spolka Akcyjna, Sopot 94.69% 10,538 801
Financial services and asset management, consolidated subsidiaries ergo Trust GmbH, Düsseldorf 97.87% 12,293 59 meag Hong Kong Limited, Hong Kong 100.00% 1,824 667 meag munich ergo AssetManagement GmbH, Munich 97.87% 103,747 35,848 meag munich ergo Kapitalanlagegesellschaft mbH, Munich***) 97.87% 19,665 0 meag New York Corporation, Wilmington, Delaware 100.00% 1,786 3,701
Other shareholdings in quoted companies bhs tabletop ag, Selb 28.91% 28,179 4,000
Heidelberger Druckmaschinen ag, Heidelberg 5.98% 1,230 61 mediclin Aktiengesellschaft, Frankfurt am Main 28.31% 133,347 –33,172
Österreichische Volksbanken-ag, Vienna 9.47% 758,756 47,283 wmf Württembergische Metallwarenfabrik ag, Geislingen 11.03% 182,002 2 ***Some of these selected participating interests are held indirectly. They are calculated proportionally in each case. ***The amounts are taken from the individual companies’ financial statements.
Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements comply with ifrs, as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315a para.1 of the German Commercial Code, and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The Group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.
Affiliated companies In the consolidated financial statements of Munich Reinsurance Company (the parent), all companies are deemed affiliated companies in which Munich Reinsurance Company holds the majority of the voting rights either directly or indirectly.
Captive An insurance company established as a subsidiary of one or more industrial/trading companies or groups mainly for purpose of insuring the risks of these companies and their affiliates.
Cash flow statement Statement showing the origin and utilisation of cash during the business year. It shows the change in liquid funds separately according to cash flows from operating activities, cash flows from investing activities and cash flows from financing activities.
Cash-generating unit The smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or group of assets. If the � recoverable amount of an asset cannot be determined individually in the impairment test for assets under ias 36, the recoverable amount of a cash-generating unit to which the relevant asset belongs must be determined.
Catastrophe bond Also referred to as “cat bonds” and “act of God bonds”, catastrophe bonds are used to transfer natural catastrophe risks to the capital markets. The buyers of such bonds profit from a comparatively high coupon rate, but assume all or part of the (re)insurer’s risk with regard to a natural catastrophe. If a catastrophe exceeds a predefined � parametric trigger, some or all of the capital and interest is used to pay the (re)insurer’s financial loss from the natural catastrophe instead of being repaid/credited to the buyers.
Chain ladder method Standard (multiplicative) actuarial method used to estimate the reserves needed for future claims expenditure on the assumption that the cumulative loss will rise by the same factor in all accident years. With this method, the overall loss expected is determined exclusively on the basis of historical data on the run-off of losses in the insurer’s portfolio.
Claims equalisation provision Provisions required by national regulations to smooth fluctuations in loss experience in future years. In ifrs accounting, they are recognised in equity.
Directors’ and officers’ liability insurance Insurance for the personal liability of the directors and officers of companies, i.e. for Board members, general managers and internationally comparable executives.
Diversification Business policy tool geared to spreading a company’s activities over different areas so as to avoid particular dependencies. A diversification strategy may have different focal points: the breadth of product range with a view to tapping new clients, the geographical spread of business, the mixture of risks in investments, or the optimum composition of an insurance portfolio. Active risk diversification is one of the Munich Re Group’s “cardinal virtues”, which shapes its integrated risk management.
Effective interest method Method of determining the � amortised cost of financial instruments and the distribution of interest earnings and expenses between individual periods. ias 39 requires that the effective interest must include fees, other transaction costs and any premiums or discounts.
Embedded value Concept used in valuing life reinsurance business. Embedded value mainly comprises the present value of earnings from business in force, calculated according to actuarial principles, plus the value of equity, including valuation reserves, and less the cost of holding capital.
Event limit A limit restricting the maximum indemnity for a certain type of event that typically results in large numbers of individual losses, e.g. earthquake.
Exchangeable bond Special form of corporate bond which, besides entitling holders to repayment of the face amount and regular interest, gives them the option to convert the bond into shares. The conversion right is for shares in a company which is not the bond issuer.
Exposure The measurable extent of a risk or a portfolio of risks; basis for calculating premiums in reinsurance.
Facultative reinsurance The reinsurer assumes a share of selected individual risks. The primary insurer can offer an individual risk in reinsurance, which the reinsurer for its part can either accept or decline (cf. � obligatory reinsurance).
Fast close The sum of organisational and technical improvements in business processes that serve to accelerate publication of a company’s quarterly and annual financial statements.
Investments for policyholders under � unit-linked life insurances. They also include investments under index-linked life insurance policies whose performance depends on share or currency indices. Obligations arising from this type of contract are mainly recognised under the balance sheet item “underwriting provisions for life insurance policies where the investment risk is borne by the policyholders”.
Life and health One of the segments in our segment reporting, containing the classes of life (re)insurance and health (re)insurance.
Market value The publicly listed market price obtainable for an asset in an active market (especially the stock market price).
Non-proportional reinsurance Under this form of reinsurance, the reinsurer assumes payment of the primary insurer’s losses above a defined amount. The calculation of the reinsurance premium is based on claims experience with the type of business concerned.
Other securities held to maturity Debt securities that the company has the intention and ability to hold to maturity. They are valued at � amortised cost.
Premiums The amount that has to be paid for the insurance cover provided by an insurer. It may be paid as a regular or single premium. In the case of products that are largely of an investment nature (e.g. financing treaties and unit-linked life insurance) it only includes – under ias/ifrs – the amount serving to cover the risk and the costs. In ias/ifrs financial statements there are no “premiums from the provision for premium refunds” either. Premiums written means all premium income that has become payable in the business year. The portion of this premium income that constitutes payment for insurance cover in the business year is referred to as earned premiums.
Property-casualty One of the segments in our segment reporting, chiefly containing the classes liability, accident, motor, marine, aviation, space, fire and engineering.
Provision for premium refunds Provisions 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 policyholders’ share of accumulated valuation differences between ias/ifrs and German Commercial Code (provision for deferred premium refunds).
Renewable energy Also referred to as regenerative or alternative energies, these are sources of energy that continually renew or replenish themselves or are inexhaustible by human standards, i.e. are available in unlimited amounts. The most important renewable energies are solar, wind, water/hydro, biomass and geothermal energy.
Retrocessionaire Reinsurance of reinsurance business assumed from other insurance companies (a reinsurance of reinsurance). Retrocession enables the reinsurer to lay off part of its risk to other insurance companies.
Return on equity (roe) Indicator for measuring a company’s financial performance. It is calculated as a percentage ratio of the result for the period to the average equity employed.
Risk capital The amount of capital hypothetically assigned for the conducting of insurance of reinsurance business to ensure that the probability of default in respect of the portion of the business exposed to risk is kept to a minimum. The capital required for this purpose is calculated using mathematical risk and financing models.
Solvency ii Project of the European Commission to revise European insurance supervisory regulations to protect policyholders against loss. The project’s main objectives are further harmonisation of the financial services sector, creation of a level playing field, risk-based determination of capital-adequacy requirements, inclusion of qualitative factors in the supervisory process, promotion of active internal risk management, and enhancement of risk transparency for supervisory authorities and the public. Solvency ii follows the three-pillar approach used in Basle ii: minimum capital requirements (quantitative), supervisory review process (qualitative) and market discipline (disclosure).
Statutory surplus Surplus recorded in the balance sheet of us insurance companies on the basis of the statutory accounting regulations used by us state supervisory authorities.
Stock split Splitting of shares into two or more units for one, resulting in a lower par value per share or, in the case of no-par-value shares, in a lower percentage of the company’s share capital per share. The objective is to make the shares less expensive to purchase and to boost share liquidity. A stock split does not affect a shareholder’s proportionate holding in the company.
Stress test A special form of � scenario analysis. The aim is to make a quantitative statement on the loss potential of portfolios in the event of extreme market fluctuations.
Structured products In the case of structured products, a � derivative financial instrument (e.g. an � option) is combined with a non-derivative instrument (e.g. a bond). Structured products are also referred to as hybrid products.
Termination rate Basis for measuring underwriting provisions in life and health insurance and pension obligations. It measures the probability of a policy being terminated because of death, lapse or other circumstances, leading to the payment of policy benefits or the cessation of annuity payments.
Third Party Administration (tpa) An independent corporate entity (third party) that administers benefits and claims for risk carriers and self-insured schemes. A tpa does not typically assume risk.
Unearned premiums The portion of premium income in the business year that is attributable to periods after the balance sheet date is accounted for in the underwriting provisions as unearned premiums.
UK Great Lakes Reinsurance (uk) plc Upper Ground Floor 1, Minster Court Mincing Lane, London EC3R 7AA
USA American Re-Insurance Company 555 College Road East Princeton, NJ 08543-5241
USA Munich American Reassurance Company 56 Perimeter Center East, N. E. Atlanta, GA 30346-2290 Tel.: +1 770 350 3200 www.marclife.com
Australia Munich Holdings of Australasia PTY Limited (MHA) Munich Re House 143 Macquarie Street Sydney NSW 2000 Australia P.O. Box H35 Australia Square Sydney NSW 1215 Australia
Munich Re Group Annual Report 2005 General information_Important addresses victoria Lebensversicherung ag victoria Versicherung ag victoria Pensionskasse ag Victoriaplatz 1 und 2 40198 Düsseldorf
E-mail: PSC@hamburg-mannheimer.de www.hamburg-mannheimer.de dkv Deutsche Krankenversicherung ag Aachener Straße 300 50933 Köln
E-mail: info@kqfs.de www.kqfs.de ergo People & Pensions GmbH Immermannstrasse 23 40198 Düsseldorf
Asset management meag munich ergo AssetManagement GmbH Oskar-von-Miller-Ring 18 80333 München
Primary insurance: Our primary insurers – the ergo Group with its brands victoria, Hamburg-Mannheimer, dkv, d.a.s. and KarstadtQuelle Versicherungen, plus Europäische Reiseversicherung – provide cover for private individuals and for small and medium-sized businesses.
Picture credits Jörg Koopmann, Munich, front cover, pp. 16–29 Karsten de Riese, Bairawies, pp. 5, 8–10 Ulrike Myrzik + Manfred Jarisch, Munich, front cover,