Attributable to non-controlling interests €m 0 –17 –34 17 1 Earnings per share € 8.63 18.97 15.53 2.44 16.13 Return on equity (RoE)3 % 5.3 11.7 8.4 1.3 8.1 Return on investments (RoI) % 3.0 3.2 2.8 3.2 3.2 Dividend per share4 € 9.80 9.80 9.25 8.60 8.60 Dividend payout4 €m 1,373 1,373 1,335 1,286 1,333 Share price at 31 December € 242.80 263.00 190.55 180.75 179.65 Munich Reinsurance Company’s market capitalisation at 31 December €bn 34.0 38.0 28.5 28.0 28.9 Carrying amount per share € 213.38 215.32 180.86 185.19 200.86 Investments €m 232,950 228,764 216,852 217,562 221,752 Insurance-related investments €m 11,033 9,163 8,424 9,664 9,558 Equity €m 29,994 30,576 26,500 28,198 31,785 Off-balance-sheet unrealised gains and losses5 €m 21,298 19,913 16,067 14,980 17,276 Net technical provisions €m 221,480 217,941 208,270 205,754 202,240 Balance sheet total €m 297,946 287,553 270,168 265,722 267,805 Staff at 31 December 39,642 39,662 41,410 42,410 43,428
Natural catastrophe losses €m –906 –2,053 –1,256 –3,678 –929 Combined ratio property-casualty % 105.6 100.2 99.4 114.1 95.7 Investment result €m 3,193 3,318 2,543 2,760 2,275 Consolidated result €m 694 2,268 1,864 120 2,540
Thereof: Reinsurance – Life and Health €m 123 706 729 596 515 Thereof: Reinsurance – Property-casualty €m 571 1,562 1,135 –476 2,025
2020 2019 2018 2017 2016 Gross premiums written €m 17,569 17,650 17,778 17,546 17,388 Investments (incl. insurance-related investments) €m 149,352 145,497 139,671 141,422 139,383 Net technical provisions €m 143,290 140,776 135,863 137,645 135,173 Combined ratio property-casualty Germany % 92.4 92.3 96.0 97.5 97.0 Combined ratio International % 92.7 94.3 94.6 95.3 98.0 Investment result €m 4,206 4,504 3,983 4,851 5,291 Consolidated result €m 517 440 412 273 41
4 Subject to approval by the Annual General Meeting. 5 Including those apportionable to minority interests and policyholders. 6 With the publication of our Ambition 2025 in December 2020, RoE has now become a target figure for our fields of business. Further information can be found in the combined management report under Tools of corporate management and strategic financial objectives, and in the Notes to the consolidated financial statements, in the section entitled Segment reporting, Notes on determining the return on equity (RoE). We do not report this indicator for the years up to and including 2018.
Consolidated financial statements and notes 113 Consolidated balance sheet 116 Consolidated income statement 118 Statement of recognised income and expense 119 Group statement of changes in equity 120 Consolidated cash flow statement 122 Notes 123
It is rare that a single topic defines an entire year like the spread of the coronavirus defined 2020. As elsewhere, the pandemic left its mark on our results. All the same, Munich Re concluded the year by generating a profit of €1.2bn. If it hadn’t been for the COVID-19 losses, we certainly would have attained our profit guidance of €2.8bn for 2020. In this light, we regard our multi-year ambition for 2018–2020 as accomplished.
Our business model has proved that it will outlast this crisis, as it has others. The insured losses arising from COVID-19 in life business and in property-casualty were financially manageable for Munich Re. By covering insured losses totalling billions, we are playing a substantial role in helping the economy and society cope with the pandemic.
At the same time, COVID-19 laid bare the failure of countries and societies around the world to make sufficient, comprehensive preparations. The global community should learn from these shortcomings now so as to increase resilience prior to the next pandemic. It is impossible to insure the economic costs of a pandemic. Neither insureds nor insurers can privately shoulder such enormous burdens. In such situations, governments naturally must assume responsibility. Smart strategies are needed to sustain the world’s economies, in which insurers can and want to add value. Munich Re therefore endorses the establishment of state-backed pandemic risk pools.
Despite the justified focus on the pandemic, we must not forget that other major risks of a systemic nature also pose enormous challenges to our industry. Cyber risks and especially climate change both pose major risks. In 2020, natural catastrophes caused US$ 210bn in worldwide losses, which was once again considerably worse than the long-term average. It is not possible to definitively attribute the developments in any one year or an individual event to climate change. All the same, two things are clear: Climate change is real. And natural catastrophe losses are on the rise.
Having concluded the above-mentioned strategy programmes in 2020, we now turn our attention to the next five years. To this end, we launched our Munich Re Group Ambition 2025 in December 2020. Under the triad of Scale – Shape – Succeed, our Ambition 2025 strategy synchronises the planning processes for reinsurance, ERGO and asset management. It also outlines the path to a successful future and to the top of the competition for our entire Group.
Munich Re unites colleagues from over 60 countries under one roof, at more than 50 locations around the world. Over 80 professions are represented in our Group. Diversity is a defining characteristic of Munich Re. But we have room for improvement, including the number of women managers – a matter we will resolutely tackle. We want to increase the percentage of women in senior management at Munich Re to 40% by 2025.
Despite considerable uncertainty caused by COVID-19, in 2020 we laid the tracks to the future of the Munich Re Group. I am confident that we have thus established a solid basis for growth and value creation for all our stakeholders. On behalf of our approximately 40,000 staff members worldwide, I wish to thank you for the trust you place in us and our Group. I invite you to accompany us on the journey ahead.
Statement on Corporate Governance 16 Responsibilities of the members of the Board of Management and their mandates on statutory supervisory boards and comparable bodies 18 Composition of the Board of Management committees 20 Subcommittees of the Board of Management committees 21 Members of the Supervisory Board and their mandates on statutory supervisory boards and comparable bodies 22 Composition of the Supervisory Board committees 24
Between meetings, I held regular discussions with the Chairman of the Board of Management, Joachim Wenning. We discussed questions of strategic orientation, risk management, compliance, the current business situation and the impact of the coronavirus pandemic on Munich Re. Also between meetings, the Chair of the Audit Committee Maximilian Zimmerer remained in close contact with Chief Financial Officer Christoph Jurecka.
Focal points of the meetings of the full Supervisory Board There were eight meetings of the Supervisory Board in 2020. We regularly held in-depth discussions with the Board of Management about business performance and current topics, with a special focus on strategic considerations of the Board of Management with respect to the individual fields of business and the development of the pandemic and its impact. The Board of Management reported to us regularly on Munich Re’s investments, addressing developments in the global economy and financial markets in detail, as well as their impact on the Group’s assets, financial position and results. In addition, we advised the Board of Management on matters of strategic importance for the future of the Group, including its digitalisation, growth, investment
A workshop was held on 13 July in which we discussed in depth the strategic development of Munich Re and the individual fields of business.
On 14 July, we adopted a resolution on the restructuring of the Munich Re pension plan for the members of the Board of Management and a corresponding adjustment of Board of Management contracts. We also discussed the need for any action regarding the remuneration system for the Board of Management in light of the German Act implementing the Second Shareholders’ Rights Directive (ARUG II) and the fundamental revision of the German Corporate Governance Code. Furthermore, we considered the Group-wide remuneration report for the 2019 financial year in line with Solvency II and the Remuneration Regulation for Insurance Companies (VersVergV). The Board of Management provided us with up-to-date information concerning not only the impact of the coronavirus pandemic on the claims burden of Munich Re, but also digital transformation within the Group.
Munich Re Group Annual Report 2020 members of the Board of Management should be women by the end of 2025 in implementation of the Act on Equal Participation of Women and Men in Leadership Positions in the Private and Public Sectors.
On 10 December, we adopted a resolution concerning the remuneration system for the Board of Management as of 1 January 2021 – to be put to the Annual General Meeting for approval on 28 April 2021 – and a resolution concerning adjustments to the contracts for Board members. Furthermore, we reviewed the compensation of the Board of Management and, following a comprehensive discussion, we established the amount of remuneration for the Board of Management with effect from 2021. We also adopted the assessment bases for variable remuneration in 2021. The shareholder representatives adopted a resolution concerning a change on the Supervisory Board. During this meeting, the Group Chief Risk Officer informed us about the risk situation of the Group. Furthermore, the Board of Management reported on current topics, presented us with the Group human resources report, and explained the focal points of human resources work within the Group. It also informed us about the Munich Re sustainability strategy.
The Remuneration Committee also met six times in 2020. In particular, it is responsible for preparing resolutions on matters involving the Board of Management – as already mentioned above when reporting on the work of the full Supervisory Board – as far as these resolutions concerned the remuneration system for the Board of Management, the amount of remuneration, the establishment of the assessment basis for variable remuneration and the corresponding evaluation, fringe benefits and benefits in kind, as well as the sections of the Board members’ contracts relating to remuneration. A significant focus of the Committee’s work in the reporting year related to the intensive discussion of the requirements and resultant need for action pursuant to ARUG II and the German Corporate Governance Code as well as the expectations of investors and other stakeholders as regards Board of Management remuneration.
In order to avoid even the semblance of work or decision-making processes being influenced by personal interests, each member of the Supervisory Board promptly discloses any conflicts of interest. Where a current Supervisory Board member was on the Board of Management during a period which is currently being dealt with by the Supervisory Board, the member in question does not participate in any of the discussions of the matter or in any related resolutions. This was the approach I took for two agenda items in the 2020 financial year.
In my role as Chairman of the Supervisory Board, I held discussions on topics relevant to the Supervisory Board with investors and proxy advisors as part of an ongoing dialogue with investors. The focus of the discussions was the remuneration system for the Board of Management that will be put to the Annual General Meeting for approval on 28 April 2021.
Changes on the Board of Management For personal reasons, Hermann Pohlchristoph did not extend his appointment that expired on 30 April 2020, and has left the Company. Achim Kassow was appointed his successor with effect from 1 May 2020, and he took over responsibility for the Asia Pacific and Africa division and for the Central Procurement and Services central divisions.
Company and Group financial statements for 2020, Solvency II reporting and non-financial information The auditors EY duly audited the annual financial statements of Munich Reinsurance Company, the Group financial statements and the combined management report as at 31 December 2020, and issued them with an unqualified auditor’s opinion. The German Public Auditor responsible for the engagement is Thomas Kagermeier. It is the first time that he has been responsible for the audit of the Company and Group financial statements.
The above-mentioned reports and the Board of Management’s proposal for appropriation of the net retained profits were submitted to the members of the Supervisory Board. On 23 February 2021, the Audit Committee intensively discussed the preliminary year-end figures as at 31 December 2020, along with the Board of Management’s proposal for appropriation of the net retained profits. At its meeting on 24 February 2021, the Supervisory Board also intensively discussed the preliminary year-end figures as at 31 December 2020, along with the Board of
Management’s proposal for appropriation of the net retained profits. On 15 March 2021, the Audit Committee prepared the Supervisory Board’s resolution on the adoption of the Company financial statements and the approval of the Group financial statements. To this end, the Audit Committee examined the annual and consolidated financial statements and the combined management report (including the combined non-financial statement) in advance. It discussed these at length with the external auditors present at the meeting, and gave detailed consideration to the auditor’s reports. The Audit Committee paid particular attention to the key audit matters described in the auditor’s opinion, including audit activity. The Chair of the Audit Committee briefed the full Supervisory Board about the outcome of its consultations at the balance sheet meeting. In its March meeting, the Audit Committee discussed the preliminary key figures under Solvency II reporting – and the Solvency II ratio in particular – and reported on this to the full Supervisory Board.
The full Supervisory Board also checked the financial statements of Munich Reinsurance Company and the Group, and the combined management report (including the combined nonfinancial statement). The auditor’s reports were available to all members of the Supervisory Board and were discussed in detail at the balance sheet meeting of the Supervisory Board on 16 March 2021 in the presence of the external auditors. The audit findings of the combined nonfinancial statement were also considered by the Supervisory Board. The auditors reported on the scope, the main points, and the key results of the audit, going into particular detail on the key audit matters (please refer to the independent auditor’s report for information) and the audit activity conducted. There were no reports of material weaknesses in the internal control system or the risk management system.
Words of thanks to the Board of Management and employees The Supervisory Board wishes to thank all members of the Board of Management and staff worldwide. With their work and commitment, they have contributed to a gratifying result for Munich Re – despite the challenges presented by the coronavirus pandemic.
Nikolaus von Bomhard 8/8 100% 6/6 6/6 6/6 2/2 Anne Horstmann 8/8 100% 6/6 Ann-Kristin Achleitner 8/8 100% 6/6 6/6 2/2 Kurt Wilhelm Bock1 3/3 100% 3/3 1/1 Clement Booth 8/8 100% Ruth Brown 8/8 100% Stephan Eberl 8/8 100% 6/6 6/6 6/6 Frank Fassin 8/8 100% Benita Ferrero-Waldner 7/8 88% Ursula Gather 8/8 100% Gerd Häusler 8/8 100% 6/6 Eva-Maria Haiduk 8/8 100% Renata Jungo Brüngger 7/8 88% 6/6 6/6 Stefan Kaindl 8/8 100% 6/6 Gabriele Mücke 8/8 100% Ulrich Plottke 8/8 100% 6/6 Manfred Rassy 8/8 100% Gabriele Sinz-Toporzysek 8/8 100% Carsten Spohr2 5/5 100% Karl-Heinz Streibich 8/8 100% Maximilian Zimmerer 8/8 100% 3/3 6/6 1/1 Participation quota (average)
1 Member of the Supervisory Board until 29 April 2020. 2 Member of the Supervisory Board from 29 April 2020.
Statement on Corporate Governance pursuant to Section 289f and Section 315d of the German Commercial Code (HGB)1 Pursuant to Section 289f and Section 315d of the German Commercial Code (HGB), Münchener RückversicherungsGesellschaft Aktiengesellschaft in München (Munich Reinsurance Company Joint-Stock Company in Munich) has issued the following Statement on Corporate Governance and Group Statement on Corporate Governance. This Statement also contains the disclosures and explanatory notes as recommended in the German Corporate Governance Code in the version dated 16 December 2019 (published on 20 March 2020). The remuneration report can be found in the Group section of the combined management report. More information on corporate governance can be found at www.munichre.com/cg-en.
We apply the highest standards to our operations and activities and therefore comply with all the recommendations and proposals of the German Corporate Governance Code. There are no overriding statutory provisions that render the recommendations and suggestions of the German Corporate Governance Code not applicable to Munich Reinsurance Company Joint-Stock Company in Munich.
Additional corporate governance requirements are set out in the regulatory requirements for (re)insurance companies, especially the German Insurance Supervision Act (VAG) and the European supervisory regulations (Solvency II). They include specific rules on various issues such as business organisation or the qualifications and remuneration of members of the Board of Management, Supervisory Board members and other individuals.
The principle of “one share, one vote” applies at the Annual General Meeting of Munich Reinsurance Company. Shareholders can opt for postal or electronic voting. Until the vote count begins, shareholders can change their votes online.
Shareholders may also have their voting rights exercised at the Annual General Meeting by one of the proxies nominated by Munich Reinsurance Company. These proxies will exercise the voting rights solely in accordance with the instructions they receive from the shareholders. Power of attorney and instructions may also be issued online to the Company proxies, and also changed online until the vote count begins.
The Annual General Meeting on 29 April 2020 was conducted as a virtual Annual General Meeting – with neither shareholders nor their authorised representatives physically present – on account of the special circumstances caused by the COVID-19 pandemic and in accordance with Section 1(2) of the German Act Concerning Measures Under
Munich Re Group Annual Report 2020 the Law of Companies, Cooperative Societies, Associations, Foundations and Commonhold Property to Combat the Effects of the COVID-19 Pandemic of 27 March 2020 (Federal Law Gazette, Part 1, p. 569).
Member of the Board of Management/Responsibilities Seats held on statutory supervisory boards1
Dr. Thomas Blunck ERGO Group AG2 – Life and Health Capital Partners Digital Partners (until 30 November 2020)
Financial and Regulatory Reporting Group Controlling Integrated Risk Management Group Taxation Investor and Rating Agency Relations
Dr. Achim Kassow (since 1 May 2020) ERGO International AG2 – Asia Pacific and Africa Central Procurement Services
Dr. Markus Rieß ERGO Deutschland AG2 (Chair) Next Insurance, Inc., USA Primary Insurance/ERGO ERGO Digital Ventures AG2 (Chair)
Dr. Peter Röder (until 31 December 2020) EXTREMUS Versicherungs-AG Munich Re America Corporation, USA2 Global Clients and North America (Chair)
Stefan Golling (since 1 January 2021) – Munich Re America Corporation, USA2 Global Clients and North America (Chair)
Compliance The Group Compliance and Legal division (GCL) of Munich Reinsurance Company reports directly to the Chairman of the Board of Management. GCL manages the compliance activities and monitors their implementation by means of the Compliance Management System (CMS). The CMS is the methodical framework for the structured implementation of early warning, risk control, consulting and monitoring functions.
Strategy Committee Dr. Joachim Wenning (Chair) Nicholas Gartside Dr. Torsten Jeworrek Dr. Christoph Jurecka Dr. Markus Rieß
Reinsurance Committee The Reinsurance Committee (RC) is the central management committee of the reinsurance field of business. It decides on all matters of fundamental importance for this field of business, except investments.
Strategy Committee The Strategy Committee (StratC) is the central management committee for fundamental strategic matters in the fields of business (reinsurance, primary insurance). It makes decisions on all strategic matters of fundamental importance for the fields of business, including own investments and administered (third-party) funds.
The following applies to all Board of Management committees: Where decisions within the sphere of responsibility of a committee relate to issues reserved for the full Board of Management, the respective committee will prepare these matters for decision. Committee meetings are held regularly, and as required. Only members of the Board of Management have voting rights on the committees. The committees are further governed by their respective rules of procedure, as adopted by the full Board of Management.
Group Risk Committee Dr. Christoph Jurecka (Chair) Dr. Joachim Wenning Chief Risk Officer (Group)2
Dr. Torsten Jeworrek (Chair) Dr. Thomas Blunck Stefan Golling (from 1.1.2021) Dr. Peter Röder (until 31.12.2020) Chief Financial Officer for the reinsurance field of business2 Chief Risk Officer (Group)2 Head of Head of Investment Strategies2 Head of CU (Corporate Underwriting)2
The Group Investment Committee – a subcommittee of the Group Committee responsible for substantiating investment principles for the Group and the fields of business, and for other important issues in relation to investments – was dissolved as at 30 November 2020.
The Board of Management determines the strategic direction of the Company in conjunction with the Supervisory Board. The Board of Management reports regularly and as needed to the Supervisory Board about all questions relevant to the Company. The Chairman of the Supervisory Board maintains regular contact with the Board of Management between meetings – in particular with the Chairman of the Board of Management – in order to discuss issues of strategy, planning, business development, the risk situation, risk management and Company compliance. The Supervisory Board has defined the Board of Management’s information and reporting obligations in detail. The Supervisory Board’s consent is required before the Board of Management can conduct specific types of transactions, which include the following: annual financial planning, certain investments and divestments, the implementation of share buy-back programmes, the conclusion of intercompany agreements, and the execution of corporate restructurings in which the Company holds a stake. The Supervisory Board’s approval is also required for sideline activities assumed by members of the Board of Management and for important transactions involving persons closely associated with them as defined in Section 111b(1) of the German Stock Corporation Act (AktG).
Dr. Anne Horstmann2 – – (Deputy Chair) Employee of ERGO Group AG Member since 30 April 2014
Prof. Dr. Dr. Dr. h.c. Ann-Kristin Achleitner – Linde plc, Ireland4 Scientific Co-Director of the Center for Entrepreneurial and Financial Studies (CEFS) at the Technical University of Munich Member since 3 January 2013
Dr. Kurt Wilhelm Bock Fresenius Management SE6 – Member of the Supervisory Board of Munich Reinsurance Company Member from 25 April 2018 until 29 April 2020
Frank Fassin2 ERGO Group AG3 – Regional Section Head Financial Services at ver.di North Rhine-Westphalia Member since 22 April 2009
Prof. Dr. Dr. h.c. Ursula Gather thyssenkrupp AG4 – Chair of Board of Trustees of Alfried Krupp von Bohlen und Halbach Foundation Member since 30 April 2014
Renata Jungo Brüngger – – Member of the Board of Management of Daimler AG Member since 3 January 2017
Ulrich Plottke2 ERGO Group AG3 – Employee of ERGO Group AG Member since 30 April 2014
Carsten Spohr – – Chair of the Board of Management of Deutsche Lufthansa AG Member since 29 April 2020
Dr. Maximilian Zimmerer Deutsche Beteiligungs AG4 – Member of the Supervisory Board of Munich Reinsurance Company Member since 4 July 2017
Investmentaktiengesellschaft für langfristige Investoren TGV (Chair)6 1 As at 31 December 2020. 2 Employee representative. 3 Mandate within the Munich Re Group. 4 Listed on the stock exchange. 5 Membership of a non-statutory supervisory board. 6 Company with fewer than 500 employees.
The Supervisory Board normally meets at least six times during the financial year. Supervisory Board meetings are generally held with the members of the Supervisory Board personally present at the meeting (face-to-face meeting). If the Chairman of the Supervisory Board so rules, meetings of the Supervisory Board may also be held using electronic media, and individual members of the Supervisory Board may attend meetings via electronic media. The members of the Board of Management attend the meetings of the Supervisory Board unless the Chairman of the Supervisory Board decides otherwise. The Supervisory Board also meets regularly without the Board of Management.
Self-assessment The Supervisory Board and its committees regularly assess how effectively the Supervisory Board as a whole and also its individual committees perform their duties. Following preparations by the Standing Committee, the Supervisory Board conducted an internal self-assessment in 2020 based on a wide-ranging questionnaire. The Supervisory Board discussed the findings of the self-assessment in depth at its meeting on 15 October 2020. The self-assessment confirms that the working relationships within the Supervisory Board
Munich Re Group Annual Report 2020 and with the Board of Management are professional and constructive, and characterised by a high degree of trust and candour. In addition, the findings document the efficient organisation and execution of meetings, as well as appropriate reporting by the Board of Management. There was no indication of any fundamental need for change. A few optimisation measures were identified and are being put into practice.
Standing Committee Dr. Nikolaus von Bomhard (Chair) Dr. Kurt Wilhelm Bock (until 29 April 2020) Stephan Eberl Gerd Häusler Dr. Anne Horstmann Dr. Maximilian Zimmerer (since 13 May 2020)
Nomination Committee Dr. Nikolaus von Bomhard (Chair) Prof. Dr. Dr. Dr. h.c. Ann-Kristin Achleitner Dr. Kurt Wilhelm Bock (until 29 April 2020) Dr. Maximilian Zimmerer (since 13 May 2020)
Conference Committee Dr. Nikolaus von Bomhard (Chair) Dr. Kurt Wilhelm Bock (until 29 April 2020) Frank Fassin Dr. Anne Horstmann Dr. Maximilian Zimmerer (since 13 May 2020)
The main responsibilities of the committees are as follows: Standing Committee The Standing Committee prepares meetings of the Supervisory Board, unless another committee is responsible for doing so. It decides on matters of Company business requiring the Supervisory Board’s consent, unless the full Supervisory Board or another committee is responsible. In addition, the Standing Committee is responsible for an internal procedure – as per Section 111a(2) of the Stock Corporation Act (AktG) – that assesses related-party transactions. The Standing Committee also prepares the Report of the Supervisory Board to the Annual General
Personnel Committee The Personnel Committee prepares the appointment of members to the Board of Management. It also prepares the long-term succession planning together with the Board of Management, including setting targets for the number of
This Committee oversees the accounting, the accounting process, and the appropriateness and effectiveness of the internal control system. It also oversees the appropriateness and effectiveness of the risk management system, the compliance management system (including whistleblowing) and handling of material compliance cases, the actuarial function system and the internal audit system. Furthermore, the Audit Committee is responsible for examining potential claims due to breach of duty by members of the Board of Management.
Supervisory Board. The Audit Committee is responsible for assessing performance and monitoring the independence of the external auditor; it also assures the quality of the audit and any additional services provided by the external auditor. In particular, it appoints the external auditor for the Company and Group financial statements as well as for any voluntary external audit of the combined nonfinancial statement. The Audit Committee also determines focal points of the audits and agrees the auditor’s fee for the annual audits; the same applies to the review of the Half-Year Financial Report and the review of the solvency balance sheets. Beyond this, the Committee handles the approval and monitoring of non-audit services.
In this connection, the Audit Committee hears reports not only from the Board of Management but also directly from the Group Chief Compliance Officer, the Group Chief Auditor, the Group Chief Risk Officer, the Head of the Actuarial Function and, if required, from the General Counsel.
Nomination Committee The Nomination Committee is made up exclusively of shareholder representatives.
This Committee provides the Supervisory Board with names of suitable candidates that the latter can nominate for election at the Annual General Meeting. As a basis for this, the shareholder representatives have developed and adopted a list of criteria for the selection of suitable candidates for the Supervisory Board. The Nomination Committee also proposes suitable candidates to the Supervisory Board for the election of shareholder representatives to Supervisory Board committees and as chairs of the respective committees.
Munich Re Code of Conduct The Munich Re Code of Conduct clearly states the Group’s definition of legally impeccable behaviour based on ethical principles. It contains regulations that are binding on all employees and management in the Group. On the basis of the Code of Conduct, staff undertake to comply with applicable laws and Munich Re corporate regulations to prevent loss, damage or harm to the Group.
Net-Zero Asset Owner Alliance Beyond the PRI, we joined the Net-Zero Asset Owner Alliance in early 2020. Munich Re thus undertakes to gradually transition its investment portfolio to net-zero greenhouse gas emissions by 2050.
When appointing new Board of Management members, the Supervisory Board has extensively discussed a higher percentage of women Board of Management members in addition to the need for a Board of Management that meets all requirements and is balanced in its composition. Despite this, it has not been possible to increase the percentage of women during recent appointments. As part of redoubling its efforts, the Supervisory Board has increased the target quota such that, effective 1 January 2021, at least 25% of the members of the Board of Management should be women by 31 December 2025. This is to be achieved by, among other things, further increasing the percentage of women in the talent pools and by Board of Management members mentoring selected women candidates one on one.
From 1 July 2016, the Board of Management set the target quota for female participation at 4.0% for the first management level below the Board of Management, and 20.1% for the second management level below the Board of Management. Both targets were to be achieved by 31 December 2020. As at the deadline of 31 December 2020, the target quota was surpassed, with women accounting for 7.9% of managers in the first level below the Board of Management. As women constituted 19.4% of the managers two levels below the Board of Management, the target quota for this level was not met.
This second-level target was not met due to organisational changes that affected management positions and some female managers having departed Munich Re as part of the Voluntary Programme. Management turnover remained low on the whole, with few positions opening up for new managers.
With effect from 1 January 2021, the Board of Management significantly increased the target quota for female participation to 15% for the first management level below the Board of Management, and 35% for the second management level below the Board of Management. Both target quotas are to be achieved by 31 December 2025.
Munich Re has made concerted efforts over the years to foster diversity, with a particular emphasis on talented women. Mentoring, training and coaching programmes as well as networks of women exist throughout the Group and are making an impact. It was thus possible to increase to 35% the percentage of female managers worldwide (as at 31 December 2020). Women are well represented in the Group’s talent programmes, constituting between 31% (in the Group’s top talent pool) and 38% of participants (in the high-potential programme). In combination with established training and development measures, as well as a focused approach to filling management vacancies, we will continue working resolutely on meeting our targets by the end of 2025.
The management levels are defined as follows: A manager at the first management level reports to a member of the Board of Management. A manager at the second manage- ment level reports to a manager at the first management
Diversity is taken into account when filling management positions in the Company and in the composition of the Board of Management and the Supervisory Board. Diversity is an important part of Munich Re’s corporate culture. The tenets of diversity are set out in the Diversity Policy. This applies to all employees across the Group.
The differences between the business models within the Group and between divisions in the reinsurance business field require that the Board of Management have a broad professional and educational background.
In its current composition, the Board of Management shows a diverse range of professional training and education. It includes graduates of various degrees and vocational training (e.g. business and economics, law, mathematics, physics, and political science). The CVs of the individual members of the Board of Management have different focuses – in operative business, in certain markets, or in specialist areas. The diverse careers and personalities within the Board of Management express the versatility of our business model, and reflect the complex requirements faced by the Board.
The Supervisory Board has set itself specific objectives concerning its composition and has defined requirements regarding the competences of the Supervisory Board as a whole. Moreover, both employee representatives and shareholder representatives have each adopted a set of criteria that specifies more far-reaching requirements.
In accordance with the competence profile for the Supervisory Board as a whole and both sets of criteria, it must be ensured that – in terms of the professional and educational background of its members – the Supervisory Board as a whole has adequate knowledge, skills and experience with regard to the markets, business processes, competition and the requirements of reinsurance, primary insurance and investment in order to perform its duties properly. Appropriate knowledge of the following fields is also required: risk management, accounting, controlling, internal audit, asset-liability management, law, regulatory supervision, compliance, tax, and strategically relevant topics, such as innovation and digitalisation. The competence profile also includes a good overall understanding of the business model. Board members must collectively be familiar with the sector in which the Company operates.
Any additional requirements for specific duties will be defined on a case-by-case basis. At least one member of the Audit Committee must have expertise in accounting or auditing.
The Nomination Committee of the Supervisory Board selects candidates for the shareholder representatives – based on the objectives concerning composition of the Supervisory Board, the competence profile and the set of criteria for the shareholder representatives – and prepares the Supervisory Board’s election proposals to the Annual General Meeting. This Committee draws up a requirements profile to be used in the selection process. Shareholders receive the detailed CVs of the respective candidates along with their invitation to the Annual General Meeting. When selecting candidates, care is taken to achieve diversity in terms of the composition of the Supervisory Board to ensure that the Supervisory Board as a whole fits the required competence profile.
Half of the members of the Supervisory Board are elected representatives of Group employees in the EU/EEA. The employee representatives on the Supervisory Board are governed by special co-determination rules under the Co-Determination Agreement. The Co-Determination Agreement also specifies a corresponding set of criteria for the employee representatives, including diversity criteria, which serves as a basis for electing employee representatives to the Supervisory Board. The bodies responsible for making election nominations to the European Electoral Board under the Co-Determination Agreement should take these criteria into account within the limits prescribed by applicable regulations to ensure that the diversity criteria and other requirements are met.
In its current composition, the Supervisory Board demonstrates diversity of professional training and education, and also has the overall knowledge, expertise and professional experience necessary for the proper performance of its duties. Members have diverse professional and educational focuses (including law, economics, mathematics, natural sciences, engineering, and commercial and insurance-specific training). The Supervisory Board members also have management experience in various sectors (such as finance and insurance, software, automotive, and aviation), and extensive experience in academia and politics. In addition, above all the Chair of the Audit Committee of the Supervisory Board
This report combines the management reports of Munich Reinsurance Company and the Munich Re Group.
Group 34 Group structure 34 Our brands 37 Remuneration report 38
Tools of corporate management and strategic financial objectives 68 Munich Re’s management philosophy − Based on value creation 68 The Group’s corporate management tools 68 Strategic financial objectives as part of our Ambition 2025 68
Business performance 71 Overall assessment by the Board of Management on the business performance and situation of the Group 71 Business performance of the Group and overview of investment performance 71 Reinsurance – Life and health 75 Reinsurance – Property-casualty 76 ERGO Life and Health Germany 79 ERGO Property-casualty Germany 79 ERGO International 81
Prospects 101 Comparison of the prospects for 2020 with the result achieved 101 Outlook 2021 103
We also report on non-financial aspects as required by the European Union’s Corporate Social Responsibility (CSR) Directive. These requirements have been transposed into the German Commercial Code (HGB). Detailed information, especially on reportable aspects deemed material by Munich Re, can be found in the combined nonfinancial statement.
In reinsurance, we operate in life, health and propertycasualty business. Under reinsurance, we also include specialised primary insurance activities that are handled by the reinsurance organisation and business from managing general agencies (MGAs). Organisationally, we have pooled worldwide activities covering the Internet of Things (IoT) into the new divisional unit “Global IoT”.
Focus of life and health reinsurance operations Our international life and health reinsurance business is written in the Life and Health division. This is split into three geographical regions and one international unit that develops specialised solutions for savings and annuity products. The focus of the division’s business activities is on traditional reinsurance solutions that concentrate on the transfer of mortality risk. Moreover, we are active in the market for living benefits products. These include products such as occupational disability, long-term care, and critical illness, which have seen increased demand. We also offer capacity for longevity risks.
In order to ensure proximity to our clients, we are represented in many markets with local subsidiaries and branches. We write the main portion of our business via our Canadian branch and our subsidiary in the USA. In Europe, we have operations in Germany, the United Kingdom, Spain and Italy. At the same time, we have a strong local presence in Australia and South Africa, and in all important growth markets in Latin America and Asia. Asian business is centrally managed by a dedicated branch in Singapore, which underlines the strategic importance of this region for life and health reinsurance.
The property-casualty reinsurance divisions The Global Clients and North America division handles our accounts with major international insurance groups, globally operating Lloyd’s syndicates and Bermuda companies. It also pools our know-how in the North American market and is responsible for our property-casualty subsidiaries in this region, as well as international special-lines business such as marine, aviation and space, and global large-risk business, which is pooled in our Facultative & Corporate unit.
Our Europe and Latin America Division is responsible for property-casualty business with our clients from Europe, Latin America and the Caribbean. Business Units – for example, in London, Madrid, Paris and Milan – afford us market proximity and regional competence. In the South American markets, our Brazilian subsidiary Munich Re do Brasil Resseguradora S.A. and our liaison office in Bogotá help to ensure client proximity. The division also includes the divisional unit Financial Risks. Great Lakes Insurance SE, which has its headquarters in Munich and a large branch office in London, is also assigned to this division. We pool a significant share of our Group-wide business activities in the United Kingdom in these units. Munich Re is prepared for the consequences of the United Kingdom’s exit from the European Union.
Via ERGO, we offer products in all the main classes of insurance: life insurance, health insurance, and in nearly all lines of property-casualty insurance, including travel insurance and legal protection insurance. With these products – in combination with the provision of assistance, other services and individual consultancy – we cover the needs of retail and corporate clients. ERGO serves some 35 million mostly retail customers in around 30 countries,
With ERGO Versicherung AG, our primary insurance arm is one of Germany’s largest providers of property and legal protection insurance. ERGO Vorsorge Lebensversicherung AG is ERGO’s life insurer for capital-market-linked and biometric products. It offers solutions for all three types of old-age provision, mainly based on innovative and flexible unit-linked insurance products. ERGO Lebensversicherung AG and Victoria Lebensversicherung AG are responsible for running off our traditional life insurance portfolio. DKV Deutsche Krankenversicherung AG offers a full portfolio of comprehensive private health insurance, products designed to supplement statutory health cover, and company health insurance. ERGO’s health insurance offering focuses on products that supplement statutory health insurance, especially supplementary dental plans.
In Germany, ERGO’s tied agents (agency sales) and ERGO Pro (structured sales force) are bundled under one roof in the sales company ERGO Beratung und Vertrieb AG. Direct sales in Germany are managed by ERGO Direkt AG. All of ERGO’s German sales organisations were developed further in 2020 – in particular with regard to digitalisation and implementation of the new “hybrid customer” business model. Today’s clients are the focus of the new business model; they can choose from an essentially identical range of products via all online and offline channels. ERGO is thus making integrated use of various channels – such as faceto -face consultation, internet, online chat, email, telephone or even video consultation – to leverage new potential.
ERGO Digital Ventures AG is responsible for digital transformation. It provides support via innovative sales strategies, manages the fully digital player nexible, and is setting up automated technologies, such as artificial intelligence and robotics. ERGO Digital Ventures AG is also responsible for further developing international legal protection and ERGO Reiseversicherung AG business, and driving ahead their digitalisation. ERGO Mobility Solutions seeks to establish partnerships and alliances with vehicle manufacturers, dealerships and mobility service providers. Further achievements in 2020 included the start of sales activities at Great Wall Motors in China and the conclusion of a cooperation agreement with BMW.
In Europe, ERGO is concentrating mainly on expanding its market presence in Poland, the Baltic States, Greece, Spain, Austria and Belgium. In Asia, ERGO is represented through joint ventures in the rapidly growing markets of India and China. In India, ERGO is well positioned in property-casualty and health insurance. In China, ERGO China Life – a joint venture with the state-owned financial investor SSAIH – is tapping into the potential of the major provinces of Shandong, Jiangsu and Hebei.
The detailed breakdown of participations can be seen in the list of shareholdings in the Notes to the consolidated financial statements. Already in 2019, ERGO brought ERGO Direkt, ERGO Vorsorge and D.A.S. Rechtsschutz under the ERGO brand in the German market. In addition, steps were taken to bring ERV under the ERGO brand. The process of bringing ERV under the ERGO brand at international level will be completed in 2023.
The remuneration report describes the structure of the remuneration system for the Board of Management and Supervisory Board in the past financial year, and contains detailed information on the individual remuneration of the members of the Board of Management and Supervisory Board. The remuneration system for the Board of Management has been adjusted, effective 1 January 2021. This adjusted system will be submitted to the 2021 Annual General Meeting for approval.
The Supervisory Board decides on the remuneration system for the Board of Management. More specifically, the Supervisory Board’s Remuneration Committee supports the full Supervisory Board and prepares resolutions for the Supervisory Board to discuss in detail and adopt. The Remuneration Committee comprises two shareholder representatives, both of whom are independent, and one employee representative. External remuneration consultants are not engaged.
Basic remuneration and variable remuneration, split into equal shares of 50% each, provide for a balanced composition of overall remuneration as stipulated in the Solvency II regulations. This means that the fixed component represents a sufficiently high proportion of the total remuneration and enables the undertaking to apply a flexible bonus policy, including the possibility of paying no variable remuneration at all. There is consequently no
As soon as the information on the achievement of objectives is available, as part of the overall performance evaluation the Supervisory Board can take into consideration both in the annual and multi-year bonus the performance of the individual members of the Board of Management and the Board of Management as a whole, along with Munich Re’s financial situation, performance and future prospects. This is done by means of loadings or reductions of up to 20 percentage points on the relevant objective achieved.
Individual management performance – Result of division/divisional unit, contribution to overall performance – Personal performance (qualitative and/or quantitative) – ESG (environmental, social and governance) criteria – Employee satisfaction – Consideration of special market circumstances or unexpected developments – Implementation of strategy, improvements in organisation and processes, innovation – Conduct (leadership, role model function, adherence to guidelines/compliance requirements, cooperation with colleagues and Supervisory Board)
Targets for 2021 The same target of €2,800m has been set for 2021, with the following scaling for the 0–200% target corridor: €1,800m = 0% achievement of objective €2,800m = 100% achievement of objective €3,300m = 200% achievement of objective
Targets/Achievement of objective for the multi-year bonus The objective of the multi-year bonus is the sustainable performance of Munich Re’s shares in terms of TSR in comparison with a defined group of competitors. The companies in this group were selected based on comparable business activities and size. Furthermore, they must be listed on the stock exchange and subject to similar accounting standards as Munich Re, which is why the peer group only includes European primary insurance and reinsurance companies. The peer group currently comprises Allianz, AXA, Generali, Hannover Re, SCOR, Swiss Re and Zurich Insurance Group. It is the same peer group as for the analysts’ conference.
The multi-year bonus spans five calendar years. In the first calendar year, the initial TSR value is established, and at the end of the fifth calendar year, the final TSR value is calculated. The values are compared in order to determine achievement of the objectives, and are calculated as annual average values. The calculations are based on reporting date figures.
Deferral The term, structure, and time horizon of the deferred multiyear bonus reflect essential characteristics of the Company’s business activities. The TSR in the multi-year bonus fully reflects the sustainable and long-term performance of Munich Re’s shares, so that a further multi-year deferral period – which in turn is geared to share price performance – is neither expedient nor necessary. In the case of the annual bonus, a deferral period does not offer any significant added value either, as the annual bonus constitutes only a rather small percentage of overall remuneration.
Limit to variable remuneration (malus) and clawback Given that the Supervisory Board can take into account a loading or reduction of up to 20 percentage points on both the annual bonus and the multi-year bonus in order to reflect the achievements of the individual members of the Board of Management and the Board of Management as a whole, it has the option of reducing variable remuneration in the case of negative result contributions.
According to the employment contracts for members of the Board of Management appointed for the first time after 1 January 2017, with effect from 2020 all unpaid variable remuneration components are forfeited in the event of termination of a Board member’s contract by the Company for good cause or in the event of relinquishment by a Board member of their appointment to the Board of Management without good cause.
Other Continued payment of remuneration in the case of incapacity to work In the case of temporary incapacity to work due to illness or for another cause beyond the Board member’s control, the remuneration is paid until the end of the contract of employment. The Company may terminate the contract prematurely if Board members are incapacitated for a period of longer than 12 months and it is probable that they will be permanently unable to fully perform the duties conferred on them (permanent incapacity to work).
Severance cap and change of control Members who joined the Board of Management before 2017 have no contractual right to severance payments. If one of these Board members’ employment contracts is terminated prematurely by the Company without good cause, any payments to be agreed may exceed neither the equivalent of two years’ total remuneration nor the remaining term of the employment contract, if the latter is shorter. If the employment contract is terminated for good cause on grounds that are within the Board member’s control, no payments are made to the Board member. The calculation of any payment is based on the overall remuneration for the past financial year and, if necessary, on the probable overall remuneration for the current financial year.
If the contract of a member who has joined the Board of Management since 1 January 2017 is terminated prematurely by the Company without good cause, the member has a contractual right to a severance payment. Such payments are equivalent to two years’ total remuneration, but are restricted by the remaining term of the Board member’s contract if this term is shorter. Annual remuneration is calculated on the basis of fixed annual remuneration and variable remuneration paid out for the prior full financial year before the contract was terminated; remuneration in kind, other fringe benefits and contributions to occupational retirement schemes are not taken into account. Payments received by a Board member during a period of notice after termination of the appointment are offset against any severance payment. There will be no right to severance payments in the event of extraordinary termination of the Board member’s contract by the Company for good cause.
Contractual obligations for benefits triggered by a change of control will not be granted.
Pensions Through the end of 2008, the members of the Board of Management had a defined benefit plan. In 2009, a defined contribution plan was introduced for new Board of Management members.
For defined contribution plans, the Company provides a pension contribution for each calendar year (contribution year) during the term of the employment contract. It uniformly amounts to 25.5% of the target overall direct remuneration (= basic remuneration + variable remuneration on the basis of 100% achievement of objectives). The amount of the pension contribution takes into consideration the peer group (including DAX 30 companies) and the pension contributions for the employee groups below the level of the Board of Management. The pension contributions for the members of the Board of Management are paid over to an external pension insurer. The insurance benefits that result from the contribution payments constitute the Company’s pension commitment to the Board member.
Greater benefits at beginning of retirement Some Board of Management members have special contractual agreements which stipulate that they will receive a special payment, equal to their most recent monthly basic remuneration, for six months after retiring or three months after departing Munich Re – provided that, upon termination of employment, they are entitled to an oldage pension, a disability pension or a reduced occupational pension on early retirement.
Occupational pension Board members appointed before 2012 are entitled to an occupational pension on retiring from active service with the Company after reaching the age of 60. Board members appointed since April 2012 are entitled to an occupational pension on retiring from active service with the Company after reaching the age of 62. All members of the Board of Management must retire from active service no later than at the end of the calendar year in which they turn 67.
Disability pension Disability in this respect means that the member of the Board of Management is likely to be unable, or has already been unable, to exercise his or her position for six months without interruption, as a result of illness, injury, or infirmity beyond what is normal for his or her age. The entitlement to a disability pension does not arise until expiry of remuneration payment obligations or continuation of remuneration payment obligations after a mutual agreement to terminate the employment contract, as a result of non-extension or revocation of their appointment to the Board or where the contract of employment has been terminated by the Company due to permanent incapacity.
Vested benefits under the German Company Pension Act (BetrAVG): Board members are entitled to vested benefits under the German Company Pension Act if they leave the Company before reaching the age of 60 or 62 and the pension commitment has existed for at least three years (from 2021; previously five years) at the time of departure.
Provision for surviving dependants In the event of the death of a Board member during active service, the surviving dependants continue to receive the previous monthly basic remuneration for a period of six months if the deceased joined the Board of Management before 2006. In the case of Board members appointed between 2006 and 2018, the previous monthly basic remuneration is paid to the beneficiaries for a period of three months. If the Board member’s death occurs after retirement, the surviving dependants of members of the Board of Management who were appointed before 2018
Munich Re Group Annual Report 2020 will receive the previous monthly occupational pension for a period of three months, provided that the Board member’s marriage or registration of civil partnership had taken place and/or the member’s child(ren) had been born before the Board member started drawing the occupational pension.
Board of Management remuneration under DRS 17 Under DRS 17, remuneration for the 2020 annual bonus is shown as the provisions set aside for that purpose taking into account any additional/reduced expenditure for the previous year, since the performance on which the remuneration is based has been completed as at the balance sheet date and the requisite resolution is already foreseeable. Under DRS 17, remuneration for multi-year performance 2017–2019 is recognised in the year of payment, i.e. in 2020.
Fixed and variable remuneration components The serving members of Munich Reinsurance Company’s Board of Management in 2020 received remuneration totalling €22.8m (23.8m) for fulfilment of their duties in respect of the parent company and its subsidiaries in the financial year. Their remuneration thus decreased by around €1m compared with the previous year’s figure. This decline in total remuneration is due in particular to the likelihood that no annual bonus will be paid out for 2020 as a result of the coronavirus pandemic. This amount, which will not be paid out, exceeds the payments for basic remuneration that were higher than in the previous year, the 2017–2019 multi-year performance bonus, and compensation payments made instead of an employerfinanced pension. Total remuneration received by the individual members of the Board of Management is shown in the table below.
3 The multi-year performance component paid annually through and including 2017 was geared to the success of the fields of business and personal performance of the members of the Board of Management, for which three-year objectives were agreed. In addition, the Supervisory Board assessed the overall performance of the Board of Management as a whole and the individual Board members, and it also took into account developments during the appraisal period that are beyond the influence of the Board. Payment was effected in the fourth year, with 25% of the net payout amount to be invested in Munich Reinsurance Company shares that must be held for at least a two-year period.
4 The amounts paid out in 2020 were for multi-year performance 2017–2019, those paid out in 2019 were for 2016–2018. 5 Other: Nicholas Gartside does not participate in an employer-financed pension. By way of compensation for this, a conditional one-off payment will be made at the end of his appointment. In the event of his death or disability prior to the end of his term of office, this payment was approved, to be made pro rata temporis for the period until then. 6 Other: Achim Kassow does not participate in an employer-financed pension. By way of compensation for this, a conditional monthly payment was made along with other remuneration. 7 The compensation components that Markus Rieß received for his work at ERGO Group AG are included in the remuneration.
Pension entitlements Personnel expenses of €5.6m (5.7m) were incurred in the financial year to finance the pension entitlements for members of the Board of Management active in 2020. Of this, €0.6m was apportionable to defined benefit plans and around €5.0m to defined contribution plans. As a consequence of the risk transfer to an external pension insurer under the defined contribution system, the visible pension costs since 2009 are noticeably higher. The Company accepts this increase in order to avoid higher costs in future and to eliminate long-term pension-specific risks. The following defined benefits, present values, contribution rates and personnel expenses result for the individual members of the Board of Management: Pension entitlements1
Peter Röder (until 31 December 2020)11 2020 20.25 212,765 9,767,109 455,625 2019 20.25 176,860 7,936,905 435,375 Total 2020 1,241,363 36,783,324 4,979,750 2019 1,061,552 29,109,818 5,062,750 1 Where necessary, amounts have been rounded to the nearest euro. 2 In the case of Board members transferred from the old system to the new, the amount corresponds to the value of the annual vested pension at 31 December 2008. 3 Expenses for defined benefit plan, including provision for continued payment of salary for surviving dependants. 4 Entitled to occupational pension in the event of termination of employment owing to incapacity to work. 5 Entitled to a reduced occupational pension on early retirement in the event of premature or regular termination of employment. 6 Nicholas Gartside does not participate in an employer-financed pension. By way of compensation for this, a conditional one-off payment will be made at the end of his appointment. In the event of his death or disability prior to the end of his term of office, this payment will be made pro rata temporis for the period until then. 7 Entitled to a reduced occupational pension on early retirement in the event of premature termination of employment, and to an occupational pension in the event of regular termination of employment. 8 Entitled to vested benefits under the Company Pension Act in the event of premature or regular termination of employment. 9 Achim Kassow does not participate in an employer-financed pension. By way of compensation for this, an annual payment amounting to 25.5% of the target overall direct remuneration was approved, payable in monthly instalments. In the event of his death or disability prior to the end of his term of office, this payment will be made pro rata temporis for the period until then.
The basic remuneration, remuneration in kind/fringe benefits and pension expenses (sum of personnel expenses for defined benefit plans and defined contribution plans) are in accordance with German Accounting Standard No. 17 (DRS 17). There are some deviations with regard to the variable annual and multi-year remuneration components.
€ 2020 2020 (min) 2020 (max) 2019 2020 2020 (min) 2020 (max) 2019 Basic remuneration 750,000 750,000 750,000 - 358,333 358,333 358,333 1,075,000 Remuneration in kind/fringe benefits 46,036 46,036 46,036 - 15,185 15,185 15,185 48,370 Total 796,036 796,036 796,036 - 373,518 373,518 373,518 1,123,370 One-year variable remuneration
Other Total 3,366,944 2,866,944 3,866,944 3,219,459 1,036,654 536,654 1,536,654 873,888 Pension expenses 830,796 830,796 830,796 791,092 268,296 268,296 268,296 228,592 Total remuneration 4,197,740 3,697,740 4,697,740 4,010,551 1,304,950 804,950 1,804,950 1,102,480
Board member € 2020 2020 (min) 2020 (max) 2019 Basic remuneration 1,125,000 1,125,000 1,125,000 1,075,000 Remuneration in kind/fringe benefits 35,060 35,060 35,060 30,446 Total 1,160,060 1,160,060 1,160,060 1,105,446 One-year variable remuneration
Multi-year variable remuneration Multi-year bonus 2019 752,500 Multi-year bonus 2020 787,500 0 1,575,000
Other Total 2,285,060 1,160,060 3,410,060 2,180,446 Pension expenses 571,572 571,572 571,572 554,553 Total remuneration 2,856,632 1,731,632 3,981,632 2,734,999 1 Where necessary, amounts have been rounded to the nearest euro. 2 Nicholas Gartside does not participate in an employer-financed pension. By way of compensation for this, a conditional one-off payment will be made at the end of his appointment. In the event of his death or disability prior to the end of his term of office, this payment will be made pro rata temporis for the period until then. 3 Achim Kassow does not participate in an employer-financed pension. By way of compensation for this, a conditional monthly payment was made along with other remuneration. 4 Markus Rieß’ remuneration also includes compensation components and pension expenses for work at ERGO Group AG.
Multi-year variable remuneration4 Multi-year performance 2017–20192, 5 1,604,423 94 863,870 86
Basic remuneration 1,125,000 848,909 1,125,000 1,075,000 Remuneration in kind/fringe benefits 22,625 19,478 26,919 31,532 Total 1,147,625 868,387 1,151,919 1,106,532 One-year variable remuneration
Other6 573,750 411,188 Total 1,721,375 1,610,650 1,151,919 2,349,472 Pension expenses – – 574,356 548,842 Total remuneration 1,721,375 1,610,650 1,726,275 2,898,314
Basic remuneration 1,625,000 1,550,000 1,500,000 1,300,000 Remuneration in kind/fringe benefits 39,029 38,286 24,240 30,041 Total 1,664,029 1,588,286 1,524,240 1,330,041 One-year variable remuneration
Other Total 1,664,029 3,378,096 1,524,240 1,837,041 Pension expenses 876,204 854,034 765,000 663,000 Total remuneration 2,540,233 4,232,130 2,289,240 2,500,041
Basic remuneration 2,750,000 2,675,000 500,000 425,000 Remuneration in kind/fringe benefits 116,944 119,459 36,654 23,888 Total 2,866,944 2,794,459 536,654 448,888 One-year variable remuneration
Other Total 2,866,944 4,761,375 536,654 1,314,726 Pension expenses 830,796 791,092 268,296 228,592 Total remuneration 3,697,740 5,552,467 804,950 1,543,318
Basic remuneration 1,125,000 1,075,000 Remuneration in kind/fringe benefits 35,060 30,446 Total 1,160,060 1,105,446 One-year variable remuneration
Other Total 1,160,060 2,348,386 Pension expenses 571,572 554,553 Total remuneration 1,731,632 2,902,939 1 Where necessary, amounts have been rounded to the nearest euro. 2 In the 2019 Annual Report, the amounts to be paid for the 2019 annual bonus and multi-year performance 2017–2019 were recognised on the basis of the provisions, as no Supervisory Board resolution had yet been passed on the actual bonus amounts to be paid. The Annual Report for 2020 shows the actual amounts set by the Supervisory Board and to be paid out for 2019.
4 Owing to the change made in 2018 to the term of the multi-year variable remuneration component from three to four years, no multi-year component ended in 2020. 5 The multi-year performance component paid annually through and including 2017 was geared to the success of the fields of business and personal performance of the members of the Board of Management, for which three-year objectives were agreed. In addition, the Supervisory Board assessed the overall performance of the Board of Management as a whole and the individual Board members, and it also took into account developments during the appraisal period that are beyond the influence of the Board. Payment was effected in the fourth year, with 25% of the net payout amount to be invested in Munich Reinsurance Company shares that must be held for at least a two-year period.
In 2020, each member of the Supervisory Board received fixed annual remuneration of €100,000. The Chairman of the Supervisory Board received annual remuneration of €220,000, and the deputy chair annual remuneration of €150,000.
Members of the Audit Committee each received an additional €55,000; members of the Standing Committee each received an extra €15,000; and members of the Personnel and Remuneration Committees each received an additional €30,000. For members of the Supervisory Board who were on both committees, their membership on the Remuneration Committee was also covered by the fee for their membership on the Personnel Committee.
Committee chairs each received double the said amounts. No additional remuneration was paid for membership on the Nomination Committee or the Conference Committee.
The current remuneration system for members of the Supervisory Board does not contain variable remuneration components or pension benefits.
Attend- ance fees Total € € € € € € € € Nikolaus von Bomhard 2020 220,000 145,000 18,000 383,000 Chairman 2019 165,000 108,750 9,000 282,750 Anne Horstmann 2020 150,000 15,000 8,000 173,000 9,276 4,638 13,914 Deputy Chairman 2019 137,500 29,583 8,000 175,083 43,678 12,541 56,219 Ann-Kristin Achleitner 2020 100,000 115,000 17,000 232,000 2019 100,000 107,500 15,000 222,500 Kurt Wilhelm Bock 2020 33,333 5,000 3,000 41,333 (until 29 April 2020) 2019 100,000 11,250 6,000 117,250 Clement Booth 2020 100,000 8,000 108,000 2019 100,000 6,000 106,000 Ruth Brown 2020 100,000 8,000 108,000 2019 75,000 4,000 79,000 Stephan Eberl 2020 100,000 45,000 12,000 157,000 2019 75,000 33,750 5,000 113,750 Frank Fassin 2020 100,000 8,000 108,000 31,749 31,749 2019 100,000 6,000 106,000 35,000 35,000 Benita Ferrero-Waldner 2020 100,000 7,000 107,000 2019 100,000 6,000 106,000 Ursula Gather 2020 100,000 8,000 108,000 2019 100,000 6,000 106,000 Gerd Häusler 2020 100,000 15,000 8,000 123,000 2019 100,000 15,000 6,000 121,000 Eva-Maria Haiduk 2020 100,000 8,000 108,000 2019 75,000 4,000 79,000 Renata Jungo Brüngger 2020 100,000 30,000 11,000 141,000 2019 100,000 22,500 7,000 129,500
Many central banks took far-reaching measures to cushion the impact of the economic crisis and to stabilise the financial system. Within just two weeks in March, the Federal Reserve in the United States lowered its policy rate corridor by 1.5 percentage points to 0–0.25%. The Fed also resumed its bond-buying programme. The European Central Bank (ECB) increased its monthly net purchases of assets in March and launched a pandemic emergency purchase programme (PEPP), which the ECB then augmented twice during 2020. In addition, the ECB kept its interest rate for main refinancing operations at 0%. Yields on ten-year government bonds in the United States and Germany dropped to record lows in 2020. The very low yields were attributable to the policy rate cut in the USA, the expansion of bond-buying programmes by the Fed and the ECB, and many investors’ flight to safe assets. A minor recovery notwithstanding, yields in late December were still down on the start of the year. Yields on ten-year government bonds in Germany remained in negative territory.
Volatility in international financial markets was very high. Equity markets worldwide fell sharply in response to the rapid spread of the coronavirus and an escalation in the oil market’s price war. Important equity indices, such as the US Dow Jones and the DJ EURO STOXX 50, were down more than a third in mid-March from their levels at the end of 2019. Following massive intervention by central banks and pledges of extensive fiscal measures, a lot of equity markets proceeded to rebound strongly. The Dow Jones Index closed at a record high at the end of 2020, buoyed by hopes of effective COVID-19 vaccines.
It is expected that – when adjusted for inflation – global premium income in property-casualty primary insurance business was roughly the same in 2020 as in 2019. In light of the severe recessions in many countries, the economic crisis had a comparatively minor impact on premium income. Based on the estimates, premium income saw inflation-adjusted growth in the United States, Germany, South Korea and Australia. Adjusted for inflation, premium income decreased slightly in China and France, with greater decreases in Italy and India. Various price trends were evident in the renewal rounds for property-casualty reinsurance treaties, with average prices rising overall. Prices increased considerably for reinsurance cover in regions and classes of business with high claims experience. But in regions and classes of business with low claims experience, prices stagnated or rose only slightly.
Furthermore, as part of our Ambition 2025 we have adopted a broad climate protection programme featuring ambitious climate protection targets for our investments, the insurance business and our operations: The Board of Management of the Munich Re Group decided as early as 15 January 2020 to join the Net Zero Asset Owner Alliance. We have thus pledged, together with other investors, to push to meet the Paris climate targets and to successively bring our portfolio to net zero by 2050. More specifically, net greenhouse gas emissions in our investment portfolio will be reduced by 25–29% between now and 2025, before being brought down to zero by 2050. We have already stopped investing altogether in companies that generate more than 30% of their earnings from thermal coal or more than 10% of their earnings from oil sand extraction.
Furthermore, Ambition 2025 includes a new ambitious target of reducing carbon emissions and exclusively using green electricity in our own operations by 2025. Another long-term goal is to reduce Group emissions to net zero by 2030. To achieve this goal, as of 2021 we will be successively offseting the Group’s remaining carbon emissions by financing projects that remove carbon from the atmosphere.
Since 2009, we have significantly reduced the Group’s emissions by lowering our energy, water and paper use, waste and business travel as much as possible, and also by purchasing green electricity where possible. We then neutralise any remaining, unavoidable carbon emissions by purchasing carbon certificates from projects that meet high quality standards, and which avoid using fossil fuels and promote energy efficiency.
In primary insurance, data and artificial intelligence are the main elements driving digital transformation, particularly though intelligent process automation and more individualised customer service.
Further information on our endeavours is available from our corporate responsibility portal at www.munichre.com/cr-en.
Munich Re has clearly defined the organisational responsibilities for corporate governance within the Group. Our Economics, Sustainability & Public Affairs Division, which reports directly to the Chairman of the Board of Management, is responsible for drafting and implementing the guidelines on our Group’s corporate responsibility strategy. Fundamental strategic decisions are taken either directly by the Board of Management, or by one of its committees.
This selection process has highlighted the following issues of relevance: − Corporate responsibility in insurance and investment − Munich Re as a preferred employer and diversity as a strategic success factor − Fighting corruption and bribery − Data protection
Under the heading Corporate responsibility in insurance and investment, we have included information on the statutorily defined aspects of environmental, social and human rights issues.
The year 2020 was greatly affected by the coronavirus crisis. It had a significant effect on the issue of employee relations, which we have reported on accordingly in the sections Munich Re as a preferred employer and Diversity as a strategic success factor.
Munich Re’s business activities do not normally entail any material risks as defined in the applicable legislation (e.g. social or environmental risks). Nevertheless, risks that can be categorised as ESG risks may indirectly arise from our insurance business (e.g. through covering major infrastructure projects) or investments. Munich Re is aware of its responsibility for ESG risks and manages them accordingly (see section on Corporate responsibility in insurance and investment). Not complying with ESG standards may negatively affect Munich Re’s reputation – in addition to the potential consequences for the environment and society – and thus become a significant non-financial risk factor. As a result, risks that fall under the legislative criteria are particularly recorded in the context of the assessment of reputational risk. We identify, analyse, assess and monitor reputational risks with the aid of qualitative processes. Reputational risk committees (RRCs) in the fields of reinsurance, primary insurance and at MEAG assess concrete reputational issues and the potential reputational risks of individual transactions, and also review ESG risks. The RRCs make an accurate assessment of the likelihood and the severity of impact of a reputational event, and then decide whether the risk should be rated as critical. In the Internal Risk Report, we regularly detail the main reputational risks for Munich Re.
Management of information security risks In the area of information security, the Group Chief Information Security Officer (Group CISO) is responsible for defining, maintaining and implementing our information security strategy, through measures and projects such as launching our Group-wide risk management methodology and a consistent governance structure for information security. This enables information security risks to be consistently assessed and managed Group-wide. At the same time, the projects and measures work to continually improve information security at Munich Re, and aim to satisfy the steadily growing number of legal and regulatory requirements. We have established separate risk assessment processes and reporting lines for the issues of corruption and bribery as well as data protection, which are monitored by the Group Compliance & Legal division. We report on the various rules, procedures and measures in the Fighting corruption and bribery and Data protection sections.
Managing climate risks Munich Re has integrated climate risks into its Group risk management processes. This process includes and bundles the know-how of our scientists, underwriters, legal experts, managers and actuaries. Munich Re is subject to climate change risks as a result of the natural hazard risks it assumes in its insurance business.
We model natural catastrophe (nat cat) risks mainly based on the frequency and severity of weather-related risks. As a rule, nat cat risks that are caused by anthropogenic climate change tend to change significantly only over periods of many years. We take such climate risks into account in our risk assessment. Two examples of this are our assessment of the “USA wildfire” and “USA thunderstorm” scenarios.
Applying our corporate responsibility strategy, we systematically integrate sustainability – i.e. environmental, social and governance (ESG) – criteria when creating value in our core business. And we emphasise this by taking ESG elements into account in our Board of Management members’ variable remuneration.
In order to prevent or limit negative consequences for the environment, local communities or human rights, we have integrated ESG criteria into our risk assessment processes and investment decision-making at Group level. Moreover, Munich Re’s Board of Management has adopted a position paper confirming our commitment to respecting and upholding human rights, which is published at www.munichre.com/en/cr/documents.
We have developed Group positions and implemented mandatory guidelines and policies for our staff on the following issues: − Banned weapons: Binding policy on cluster munition and land mines; applicable in primary insurance and reinsurance; prohibition on investing in manufacturers of such weapon systems
− Fracking and mining: Position papers that explain the technologies and various extraction and mining techniques, and also provide staff with technologyspecific answers and support in assessing ESG risks; applicable in primary insurance and reinsurance
Every year, we have our activities validated externally by taking part in selected ratings issued by independent rating agencies specialising in sustainability. The ratings and results are submitted to the Board of Management, which then identifies any room for improvement and recommends corresponding measures.
Moreover, we impart the necessary ESG skills to our staff through training, lectures and a coordinator network in the reinsurance field of business. We also offer an ESG tool that contains questionnaires specially tailored to sensitive issues, and which supports our underwriters in systematically taking ESG aspects into account when assessing risks. In addition, staff who write business internationally are provided with ESG country ratings, giving them an instant overview of the most important indicators. In primary insurance, analysing ESG aspects constitutes a standard component of our product development process in personal lines business.
In addition to this successive adjustment of our insurance portfolio, which also includes interim targets for 2025, our climate protection activities are centred around “enabling”, i.e. expanding our business to promote new, climatefriendly technologies to reduce corresponding emissions.
Another of our innovative approaches is offered with the support of the European Commission (“Sustainable Energy for All” UN Initiative), together with the KfW development bank, the European Investment Bank (EIB) and the local insurer African Trade Insurance Agency. The product offers coverage for political risks that can threaten renewable energy projects in sub-Saharan Africa, for example state payment defaults on power purchase agreements, expropriation and breach of contract, or war and civil unrest. It is called the African Energy Guarantee Facility (AEGF) and offers tailored insurance solutions to make investment in energy projects easier, since the latter tend to be long-term undertakings.
At the same time, we are working toward the goal of divesting from carbon-intensive technologies, for example via our Group’s policy on thermal coal and oil sands, and our new climate strategy.
In addition to monetary considerations, our investments systematically take ESG criteria into account, which helps us to identify other risks and opportunities beyond those of classical financial analysis. We are convinced that this will lead to investment decisions that remain responsible in the long term. For this reason, Munich Re has long since committed, in our Responsible Investment Guideline, to incorporating sustainability criteria at various stages of the investment process (strategic asset allocation, choice of country and securities).
The United Nations Principles for Responsible Investment (PRI) provide a framework for sustainable action in the field of investment. The PRI standards aim to improve the general understanding of how investments affect the environment, society and corporate governance issues, and they support the PRI signatories in integrating these issues into their investment decisions. Certain reporting obligations are associated with the standards and are published in the PRI assessment. In the most recent PRI assessment in 2020, Munich Re earned the maximum number of points, achieving the top rating of “A+” in the category of Strategy and Governance. Only 39% of the 452 participating asset owners worldwide received this rating. The median rating was “A” among the relevant peer group of institutional investors. Another pillar of our corporate responsibility strategy was our joining the Net Zero Asset Owner Alliance, and incorporating its targets into our Ambition 2025.
Through our investments, we also want to promote the use of future technologies to avoid greenhouse gas emissions. Munich Re invests in renewable energy projects around the world, such as solar power plants and wind farms. Invested capital (equity and debt) in renewable energy amounted to around €1.6bn (1.6bn) as at 31 December 2020.
With our subordinated green bond, we made the commitment to invest the volume issued in climate-friendly projects, in accordance with the Green Bond Framework. We are aiming for a 36-month time horizon, and will be reporting annually inter alia on the investments made in an allocation report on our website.
The main digital training tool for all staff in reinsurance is our Digital School, a platform that offers a plethora of content and formats, allowing staff to expand their digital knowledge through independent study. Munich Re places particular emphasis on the responsible handling of data and algorithms, and has launched a global training initiative in Data Analytics for this purpose. It offers all staff in the reinsurance group the opportunity to follow a Data Analytics Curriculum in several digital steps.
A key step in transforming our learning environment was the introduction of LinkedIn Learning in mid-2020 for all staff in reinsurance. Thanks to the great flexibility and massive expansion of the topics available for virtual learning, the new platform has been extremely popular worldwide, as evidenced by the 4,300 active licenses and more than 120,000 training videos watched.
At ERGO, all classroom seminars have been transformed into virtual courses since the beginning of the coronavirus pandemic. ERGO has developed its own digital platform, the e-campus, which offers courses for independent learning. A further platform provides digital content in the areas of management, innovation and digitalisation to around 1,000 senior executives worldwide. Staff can complement their knowledge, particularly on current topics such as
Munich Re Group Annual Report 2020 digital transformation, via additional specific courses and video formats, as well as a weekly audio podcast.
Identifying and promoting top talent We have established a variety of professional-development and training programmes to manage and promote our future talent: as at 31 December 2020, nine (ten) participants are taking part in EXPLORE and 152 (147) in our Group Management Platform, two Group-wide staff development programmes. A separate programme called Hydrogen identifies top talent in reinsurance. Furthermore, as at 31 December 2020, we are offering 60 (36) graduate trainees from around the world a career in reinsurance via the International Graduate Trainee Programme.
Munich Re supports its staff who wish to benefit society. It does so through its non-profit charity, the Schinzler Foundation. The Foundation gives active and retired Munich Re staff the opportunity to volunteer on a multitude of projects in the areas of children and youth, culture, charitable work, health, environment, and science. Munich Re enables such corporate volunteering through special leave. To overcome international social implications of the coronavirus pandemic, Munich Re organised a global fund-raising campaign entitled “Together we care” and matched the amounts raised by staff; the donations were transferred to two major international organisations and various local initiatives.
Our Group-wide human resources unit develops our diversity strategy. The human resources departments in the various fields of business then ensure that the initiatives are duly implemented at our different locations.
The topic of gender issues includes creating a suitable framework for balancing family and careers, as well as various measures promoting women in the workplace. This encompasses mentoring programmes, coaching, networks for women and fathers, and tailored working models that incorporate part-time and parental leave. In order to also make its sales organisations more attractive for women, ERGO maintained its “Women in Sales” project in 2020.
At 26.1%, Munich Re exceeded the DAX 30 companies’ self-imposed goal of increasing, by the end of 2020, the number of women in management positions in Germany to 25%; we are now aiming for 40% across the Group worldwide by 2025 through our Ambition 2025. Further information on women in management in the 2020 financial year can be found in the Statement on Corporate Governance in accordance with Sections 289f and 315d of the German Commercial Code, in the section entitled Equal participation of men and women in management positions.
There is zero tolerance for corruption or bribery at Munich Re; we have therefore implemented internal processes that are designed to identify and appropriately sanction any hint of such activities. At Group level, fighting corruption is the responsibility of Group Compliance & Legal, which lays the foundation for a consistent approach across the Group. Combatting corruption is an essential component of Munich Re’s Compliance Management System (CMS), which constitutes the methodical framework for the key compliance function under Solvency II, and has been permanently established across the Group. In addition, due to its international activities, Munich Re is also subject to foreign laws such as the UK Bribery Act or the Foreign Corrupt Practices Act in the United States. Applying the “Prevent, Detect, Respond” approach, Munich Re’s compliance programme to fight corruption has been implemented on the basis of recognised, risk-based standards. The implementation of processes and structures is geared to allow a full investigation of any violations that may occur despite our reasonable measures, to sanction such violations appropriately, and to ensure that they cease.
The Code of Conduct and associated guidelines contain rules about the appropriate handling of invitations, gifts, donations and sponsorship, as well as on interacting with public officials. Facilitation payments are explicitly prohibited.
The rules of our Procurement Policy also serve to prevent conflicts of interest. Moreover, our Code of Conduct addresses money-laundering issues. The companies that are subject to the German Money Laundering Act (GWG) have been set up accordingly; officers responsible for money laundering issues, and their deputies, have been appointed where required. ERGO and MEAG have set up their own anti-money-laundering policies, containing fundamental rules for staff in Germany on preventing money laundering and terrorist financing.
In 2013, ERGO adopted the German Insurance Association’s Code of Conduct for the marketing of insurance products. Among other provisions, the Code contains measures prohibiting corruption and bribery, and ERGO’s effective implementation thereof is regularly confirmed by external auditors.
In addition, ERGO has its own Code of Conduct for independent agents. It contains the main principles of cooperation and a common understanding of how to work with customers and brokers.
Our minimum standards on preventing corruption have been summarised in our Guideline on prevention of corruption and rules for gifts and hospitality, applicable across the Group since 1 November 2020.
In the 2020 reporting year, our compliance reporting recorded no breaches of anti-corruption legislation or corresponding official proceedings, anywhere in the world.
Due to the nature of its business, Munich Re comes into contact with a large amount of data. Protecting this data is important, especially given the fact that increasing digitalisation means that many business processes include personal information. Munich Re’s reputation, and the trust of our business partners, are based on our compliance with data protection rules. For this reason, Munich Re has implemented data protection management systems in each of its fields of business. Each system takes into account the particularities of the respective field, and includes rules, processes and measures to systematically monitor and control how we handle personal data. The goal is to ensure a high standard of data protection across the Group, and to avoid fines being incurred.
Munich Reinsurance Company’s Data Protection Officer also acts as Group Data Protection Officer for the companies of the reinsurance field of business within the EU/EEA. The only exceptions are our UK subsidiaries, which, in view of Brexit, have appointed a data protection officer of their own, and Great Lakes Insurance SE. Among other tasks, the Group Data Protection Officer aims to ensure uniform compliance with the guidelines across the EU/EEA, monitors the legality of IT-supported data processing, advises the respective companies on their duties under the applicable rules, answers staff questions about data protection, and acts as a first point of contact in communications with the supervisory authorities. The Officer reports at least once a year to Munich Reinsurance Company’s Board of Management about material data protection issues and improvements to the data protection management system. MEAG and ERGO have each appointed their own Data Protection Officers, who have corresponding responsibilities and obligations.
Given its accountability, Munich Reinsurance Company has developed its own IT tool to ensure compliance with data protection rules. This “Compliance Web” is designed to use a defined process to automatically submit all ITsupported processing of personal data to IT Security and the Data Protection Officer beforehand. This allows every new or changed data processing task to be documented, checked for compliance with the legal norms, and regularly monitored. The tool also allows us to identify and track, with the help of a privacy impact assessment, any data processing that entails a high risk to a person’s rights or freedoms. ERGO also began implementing the tool in 2020.
In 2020, no material data protection event defined in the Solvency II Group Compliance Policy occurred anywhere in our Group worldwide, nor were any material proceedings for breach of data protection rules initiated.
Tools of corporate management and strategic financial objectives Munich Re’s management philosophy − Based on value creation
The aim of Munich Re’s entrepreneurial thinking and activity is to analyse risks from every conceivable angle and to assess and diversify them, creating lasting value for shareholders, clients, and staff in relation to the risks assumed. This is the aim of our active capital management and the consistent application of value and risk-based management systems.
− With value-based corporate management tools, we ensure an economic valuation and the comparability of alternative initiatives.
Our key corporate management tools at Group level are economic earnings and the IFRS consolidated result. Together with the other tools of corporate management, they constitute the most important financial indicators of relevance for us.
In particular, economic earnings comprise the contribution to profits from our new business, and changes in the value of in-force business against the previous year’s assessment on account of technical factors. The development of eligible own funds is also considered because of the effect of capital market parameters on the assets and liabilities sides of the solvency balance sheet.
With respect to the management of economic value added, we use conceptually consistent value-based and riskcapital -based measurement approaches that are individually geared to the characteristics of each respective field of business. Our approach for property-casualty reinsurance is the adjusted result, which comprises the anticipated discounted cash flows of underwriting and an adjustment for major claims. In life and health reinsurance, we apply value added by new business and the change in value of in-force business, which are based on the solvency balance sheet. As part of our asset-liability management, we consider the excess return from our investment operations in reinsurance. The management tool of economic earnings is used directly for ERGO.
Combined ratio The combined ratio is regularly posted for propertycasualty business. Calculated as the percentage ratio of the sum of expenses for claims and benefits plus operating expenses to earned premiums (all of which are net, i.e. after reinsurance cessions), the combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio of 100% means that premium income was exactly sufficient to cover claims and costs. 1
Technical result in life and health reinsurance including the result from insurance contracts with non-significant risk transfer Owing to the long-term nature of business in life and health reinsurance, the combined ratio used in propertycasualty insurance is only of limited use in this segment. We therefore track and post the technical result for life and health reinsurance. It shows the contribution made directly to the IFRS consolidated result and separates income derived from investment risk-taking from reinsurance business in particular. Some reinsurance operations are disclosed separately from the underwriting result owing to nonsignificant risk transfer. This part of the business and its contribution to the consolidated result is a further performance indicator for the life and health reinsurance segment.
1 Expenses for claims and benefits not taken into account in the calculation of the combined ratio are set out in the table Notes on determining the combined ratio in the Notes to the consolidated financial statements.
Munich Re publishes further performance indicators within the framework of its multi-year result ambition. Given the longer time horizon of several years and the greater uncertainties related to this, the result targets published for these performance indicators take the form of anticipated corridors or minimum targets only.
2 The calculation of the RoI is described in the investment result table in the section Business performance of the Group and overview of investment performance in the chapter Business performance.
Business performance Overall assessment of the Board of Management on the business performance and situation of the Group
In property-casualty reinsurance, the combined ratio was 105.6% (100.2%). Notwithstanding the very high claims expenditure due to COVID-19, we achieved a profit of €571m (1,562m) in this segment. In life and health reinsurance, the coronavirus pandemic also led to a drop in profits. The segment contributed €123m (706m) to the consolidated profit. The technical result, including business with non-significant risk transfer (which is not recognised in the technical result), amounted to €97m (493m).
We posted a profit of €517m (440m) in the ERGO field of business, thereby almost achieving our profit target of €530m defined at the beginning of the financial year – despite the negative impact of the pandemic. ERGO Property-casualty Germany and ERGO International enjoyed a year-on-year improvement in profits of €157m (148m) and €230m (105m) respectively.
The Group’s investment result (excluding insurancerelated investments) totalling €7,398m (7,822m) is equivalent to a return on investment of 3.0% in terms of the average market value of the portfolio. Munich Re was thus able to achieve its target return on investment of around 3% – in spite of the challenging conditions and high volatility prevailing on the capital markets.
Key figures 2020 Prev. year Change % Gross premiums written €bn 54.9 51.5 6.7 Combined ratio
Technical result €m 600 2,283 –73.7 Investment result €m 7,398 7,822 –5.4 Result from insurance-related investments €m 105 1,182 –91.1 Operating result €m 1,986 3,430 –42.1 Currency result €m –200 73 – Taxes on income €m –269 –483 44.2 Economic earnings €bn –2.2 7.4 – Solvency II ratio % 208.1 237.0 Return on equity (RoE)2
Consolidated result €m 1,211 2,707 –55.3 Investments €bn 232.9 228.8 1.8 Insurance-related investments €bn 11.0 9.2 20.4 Net technical provisions €bn 221.5 217.9 1.6 Equity €bn 30.0 30.6 –1.9 Earnings per share € 8.63 18.97 –54.5 Dividend per share € 9.80 9.80 0.0 1 Previous year’s figures adjusted owing to IAS 1 and IAS 8. See the section Recognition and measurement – Changes in accounting policies and other adjustments in the Notes to the consolidated financial statements.
Economic earnings are mainly attributable to factors from new and in-force business deriving from underwriting, and to the impact of capital market parameters on assets and liabilities. Although operational value creation was positive in all segments when adjusted for COVID-19 losses, both the high pandemic-related losses and the adverse fluctuations in capital markets led to negative economic earnings in the financial year. The depreciation of important foreign currencies against the euro, widening risk spreads on interest-bearing investments and the impact on profit or loss arising from downward trends in equity markets, particularly in Q1, significantly strained economic earnings.
Munich Re issued a subordinated green bond with a volume of €1.25bn in September. This bond will mature on 26 May 2041 and is callable for the first time in 2030. It pays a fixed rate of 1.25% p.a. until 26 May 2031, and a variable rate thereafter. The green bond meets the criteria for classification as regulatory Tier 2 capital under Solvency II, as well as the current requirements for full recognition as rating capital. In light of the repayment options provided by our outstanding subordinated bonds in 2021 and 2022, this issue allows us to optimise our capital structure.
Deposits retained on assumed reinsurance 7,980 7,938 0 0 7,980 7,938 Other investments 4,800 5,144 0 0 4,800 5,144 Total 232,950 228,764 37,247 33,085 252,789 247,310 1 Including on- and off-balance-sheet unrealised gains and losses.
The fair value of our investment portfolio increased mainly as a result of falling interest rates, with negative effects coming most notably from the development of exchange rates and a smaller equity portfolio. Our portfolio continues to be dominated by fixed-interest securities and loans.
The increase in unrealised gains/losses on other fixedinterest securities available for sale and loans was chiefly attributable to the lower interest-rate level.
At around 32%, our investment in covered bonds remained focussed on German securities. We also held bonds from France (21%) and the United Kingdom (10%) in our portfolio.
The regional weighting of corporate bonds in our portfolio was 33% for the USA and 39% for the eurozone.
Our investment in bank bonds is limited and at the reporting date amounted to 2% of our portfolio of fixedinterest securities. Financial instruments from states in southern Europe made up 5% of this portfolio. Most of our bank bonds were senior bonds (91%), i.e. bonds that are not subordinated or subject to loss participation. Subordinated bonds and loss-bearing bonds made up 9% of our bank bond holdings.
The portfolio of structured credit products at fair value totalled 2% of the overall portfolio of interest-bearing securities as at the reporting date. This asset class is composed of securitised receivables (asset-backed securities or mortgage-backed securities), e.g. securitisations of real estate finance or consumer credit. Around 52% of our structured credit products had a rating of AAA.
Investment result1 2020 RoI2 Prev. year RoI2 €m % €m % Regular income 6,273 2.5 6,751 2.8 Write-ups/write-downs of non-derivative investments –1,957 –0.8 –309 –0.1 Gains/losses on the disposal of non-derivative investments 3,698 1.5 2,779 1.1 Net balance of derivatives 74 0.0 –717 –0.3 Other income/expenses –690 –0.3 –681 –0.3 Total 7,398 3.0 7,822 3.2 1 Details of the result by type of investment are shown in the Notes to the consolidated income statements, (34) Investment result. 2 Annual % return on the mean value of the investment portfolio (RoI) measured at market value as at the quarterly reporting dates. The overall investment portfolio used to determine the return for 2020 (3.0%) was calculated as the mean value of the investment portfolios (carrying amounts) as at 31 December 2019 (€228,764m), 31 March 2020 (€227,949m), 30 June 2020 (€230,080m), 30 September 2020 (€232,252m) and 31 December 2020 (€232,950m), and the off-balance-sheet unrealised gains and losses (excluding owner-occupied property and insurance-related loans) as at 31 December 2019 (€18,546m), 31 March 2020 (€19,246m), 30 June 2020 (€19,778m), 30 September 2020 (€19,676m) and 31 December 2020 (€19,839m).
Regular income decreased on the previous year, primarily due to lower interest and dividend income. The average reinvestment yield1 in the financial year was 1.5% (2.1%). Due to the low interest rates in the reporting year, yields on new investments remained lower than the average return on our existing portfolio of fixed-interest investments.
Key figures 2020 Prev. year Change % Gross premiums written €m 12,707 11,716 8.5 Share of gross premiums written in reinsurance % 34.0 34.7 Technical result incl. result from reinsurance treaties with non-significant risk transfer €m 97 493 –80.3 Investment result €m 846 1,097 –22.9 Operating result €m 225 849 –73.5 Consolidated result €m 123 706 –82.6
Year-on-year growth in premium primarily derived from Europe and Asia, and to a lesser extent also from North America. The increase in premium in Europe was aided by the conclusion of two new longevity treaties, one of which was written outside the United Kingdom for the very first time. The ongoing strong demand for financially motivated reinsurance also contributed to the development in premium income.
Overall, Iosses attributable to COVID-19 totalled €370m. This figure comprises losses incurred in the reporting year; it does not include provisions for losses that may be incurred in 2021. The expenditure is dominated by mortality covers in the USA. In the United Kingdom, losses in mortality business that were attributable to COVID‑19 were offset by positive effects in our longevity business. Likewise, in Canada part of the expenditure was compensated for by lower benefit payments in health business. In total, the negative impact on the result was in the low double-digit million euro range. Australian disability business was also slightly impacted by claims notifications. As claims may be reported to us with delay, we recognised additional provisions. Expenditure in Africa was a single-digit million amount. We did not post significant COVID-19-related losses in continental Europe and Asia.
Munich Re Group Annual Report 2020 small size of these markets, their share of our global business is modest (less than 5% in total).
Gross premium in the USA increased by 2.7% to around €2.9bn (2.9bn). We therefore continue to be one of the most important reinsurers in this market, which is the largest worldwide. The segment’s technical result fell short of expectations chiefly on account of COVID-19-related loss expenditure, additional negative mortality and reserving effects attributable to the US portfolio. We continue to be very satisfied with the development of our new business, both in terms of volume and profitability.
Premium income was extremely gratifying in Europe, where it totalled €3.3bn (2.8bn), with €1.5bn (1.8bn) stemming from the United Kingdom and Ireland, and a further €715m (597m) from Germany. This growth was bolstered by financially motivated reinsurance and the expansion of our longevity business. The technical result was higher than expected, in particular owing to favourable claims experience in continental Europe.
Premium generated by our business activities in Australia and New Zealand was up slightly to €824m (808m), benefiting from the impact of premium increases under contracts in force. Our main focus here remains the rehabilitation of our existing portfolio. The technical result – adjusted for COVID-19-related losses – slightly exceeded our expectations. We profited from positive effects from our rehabilitation measures and from fewer lapses than we had anticipated in 2019. By contrast, claims expenditure was higher than we expected.
Premium income in property-casualty reinsurance increased by 11.4% compared with the previous year. Changes in exchange rates had a negative impact on premium development. Approximately 11% of the portfolio is written in euros and 89% in foreign currency, of which 55 percentage points is in US dollars and 11 percentage points in pounds sterling. If exchange rates had remained the same, premium volume would have risen by 13.1% year on year.
The substantial increase in premium volume was due to an expansion of business across almost all lines and regions. The main drivers were the expansion of, and new business with, selected clients in North America and selective growth in continental Europe, in the United Kingdom, and in Asia and Australia. Fire and liability were the primary sources of growth.
At €3,784m, man-made major losses were much higher than in the previous year (€1,071m). This figure is equivalent to 16.8% (5.2%) of net earned premium. Owing to COVID-19-related burdens, the number of losses above the major-loss threshold was much higher than in previous years. COVID-19 resulted in claims expenditure in many lines of business – amounting to around €3,066m in total – and particularly affected the cancellation-of-events and business interruption reinsurance lines.
The combined ratio deteriorated significantly to 105.6% (100.2%) on account of higher major-loss expenditure in 2020. Paid claims and the change in claims provisions totalled €16,860m (€13,701m), along with net operating expenses of €6,978m (€6,910m), compared with net earned premiums of €22,566m (20,566m).
At Munich Reinsurance America Inc., we further optimised our reinsurance portfolio, in particular thanks to a more restrictive underwriting policy in liability business. This led to lower premium volume. We were in a position to expand our business in our newly combined primary insurance unit Munich Re Specialty Insurance (MRSI). Overall, premium volume totalling €4,138m was down on the previous year (€4,449m).
In Canada, we are represented by the Munich Reinsurance Company of Canada and Temple Insurance Company. Premium volume was expanded further thanks to good market conditions. The year’s result was adversely affected by a local hail event in the province of Alberta.
Despite the still-difficult market environment, premium volume increased significantly year on year to €8,299m (7,234m) in the United Kingdom and in continental Europe. In many markets, the increase was driven by the targeted development of business with selected clients and additional profitable new business. The highest growth was achieved in the United Kingdom, Germany, Spain and Italy. In Germany, for instance, premium income rose to €752m (608m).
At our Swiss subsidiary, New Reinsurance Company Ltd. (New Re), business volume in the area of property-casualty increased markedly to €816m (542m). This growth benefited from the expansion of existing client relationships and profitable new business with traditional and structured products.
Premium income in Australia and New Zealand was expanded significantly to €1,073m (954m).
India continued on its path to growth, with premium income climbing to €427m (367m).
In the Caribbean as well as in Central and South America, we still provide high capacity for the coverage of natural hazards, in particular windstorms and earthquakes. The increased demand owing to major losses from natural catastrophes (hurricanes, floods, earthquakes and wildfires) in recent years remained at a high level in 2020. We took systematic advantage of this situation to further improve our portfolio. This enabled us to grow the already high premium volume attained in recent years to €1,244m (1,232m) and to achieve a further margin improvement.
Premium in aviation and space business grew appreciably to €734m (595m). In spite of the loss of earnings triggered by COVID-19, premium was up thanks to price increases, especially at the beginning of the year, in the wake of numerous major losses in the previous year. The result was gratifying.
For the ERGO Life and Health Germany segment, information about the German life, health and Digital Ventures operations is provided below. Approximately 59% of the segment’s gross premiums written derives from the Health Germany division, around 32% from Life Germany and approximately 9% from Digital Ventures.
The technical result in the ERGO Life and Health Germany segment was up on the previous year, in particular because the previous year had been impacted by a one-off effect in Life Germany, and because of lower claims expenditure in Digital Ventures. The investment result was down year on year, mainly due to higher impairment losses on equities, above all in the Health Germany division. The negative impact was partly offset by an improved net balance of derivatives and higher gains on disposals. Overall, our hedging strategy proved effective in 2020’s volatile capital market environment.
The decline in the consolidated result was attributable to a lower investment result and currency result.
Key figures 2020 Prev. year Change €m €m % Total premium income1 3,515 3,907 –10.0 Gross premiums written 2,858 2,913 –1.9 Technical result 23 –4 – Operating result 232 133 75.1 1 Total premium income includes not only gross premiums written but also savings premiums for unit-linked life insurance and capitalisation products in accordance with the applicable statutory accounting guidelines.
Gross premiums written in 2020 were slightly down on the previous year. This was attributable in particular to lower regular premium income owing to the ongoing portfolio reduction, which could not be sufficiently offset by premium income from new products. Total premium income was significantly down on the previous year. The reduction was mainly due to a positive, one-off accounting effect of €346m in the previous year, which had arisen from a rate change. This effect also had a significant impact on new business. In terms of annual premium equivalent (see table below), which is the performance measure customary among investors, our new business volume saw a decrease which would have amounted to 4.4% without the one-off effect.
The technical result remained nearly constant despite COVID-19. The investment result fell to €1,041m (1,539m), especially due to higher impairment losses on equities amidst the volatile capital market environment. Overall, the operating result was down on the previous year.
Gross premiums written were up year on year thanks to health insurance business, which saw 5.6% growth supported by our supplementary dental insurance plans. Gross premiums written in property-casualty business were also up, by 1.7 %.
At 94.7% (93.4%), the 2020 combined ratio for propertycasualty business was up 1.3 percentage points on the previous year, in particular on account of a higher expense ratio.
Gross premiums written were significantly up on the previous year. The increase was mainly attributable to substantial growth (16.7%) in the other classes of business, in particular engineering and marine, and 6.8% growth in fire and property insurance. Growth in gross premiums written was also posted in third-party liability insurance (4.4%) and motor insurance (4.0%). By contrast, gross premiums written were down by 0.2% in legal protection insurance, and by 1.4% in personal accident insurance.
The technical result remained nearly constant compared with the previous year, and was at a very good level despite the challenges posed by the COVID-19 pandemic. The slight decrease was mainly attributable to organic premium growth and favourable cost development. On the claims side, COVID-19-related losses from business closure and event insurance were partly compensated for by lower losses in personal lines business, especially in motor, and lower major losses, both from natural catastrophes and man-made.
The combined ratio for 2020 slightly exceeded the previous year’s figure by 0.1 percentage points, and thus remained at a very good level. While the expense ratio improved considerably year on year, the 2020 loss ratio was adversely affected by COVID-19, among other factors. Paid claims and the change in claims provisions totalled €2,209m (2,025m), along with net operating expenses of €1,089m (€1,077m), compared with net earned premiums of €3,570m (3,362m).
The investment result increased compared with the previous year. An improved net balance of derivatives and higher gains on disposals more than offset higher impairment losses on equities in a volatile capital market environment caused by the coronavirus pandemic.
The consolidated result was up on the previous year thanks to an improved investment result and an increase in the other operating result.
With regard to the segment’s gross premiums written, property-casualty insurance accounted for around 56%, health for about 31% and life insurance for approximately 13%. Our biggest markets are Poland, accounting for approximately 31% of the premium volume, Spain (approx. 19%) and Belgium (approx. 18%).
At €639m (698m), gross premiums written in international life insurance business were down by 8.4% on the previous year. Negative development in Belgium, where we stopped writing new business already in 2017, and a decline in new business in Austria due to COVID-19 contributed to this outcome. Total premium income was down by 7.8% year on year to €861m (934m).
New business Life International 2020 Prev. Year1 Change €m €m % Regular premiums 64 61 3.7 Single premiums 96 156 –38.5 Total 159 217 –26.6 Annual premium equivalent2 73 77 –4.9 1 Previous year’s figures have been adjusted. 2 The annual premium equivalent corresponds to the regular premium income plus 10% of single-premium volume.
Overall, the consolidated result increased substantially year on year, among other factors thanks to an improved technical result and a positive one-off effect from a merger of two shareholdings in India.
Our primary insurance and reinsurance operations have a significant influence on the structure of our balance sheet: as we have consistently geared our Group towards value creation in its core business, investments serve to cover technical provisions (76% of the balance sheet total). Equity (10% of the balance sheet total) and bonds classified as strategic debt (2% of the balance sheet total) are the most important sources of funds.
Development of Group equity 31.12.2020 Prev. year Change €m €m % Issued capital and capital reserve 7,432 7,421 0.2 Retained earnings 13,568 12,804 6.0 Other reserves 7,683 7,510 2.3 Consolidated result attributable to equity holders of Munich Reinsurance Company 1,211 2,724 –55.5 Non-controlling interests 100 117 –14.4 Total 29,994 30,576 –1.9
Debt leverage 31.12.2020 Prev. year Change €m €m % Strategic debt1 5,320 4,172 27.5 Group equity 29,994 30,576 –1.9 Total 35,314 34,748 1.6 Debt leverage % 15.1 12.0 1 The main components of our strategic debt are subordinated liabilities, and bonds and notes issued (see the relevant sections of the Notes to the consolidated financial statements).
Reinsurance business accounts for approximately 35% of technical provisions; around 65% comes from primary insurance. In contrast to liabilities under loans and securities issued, we cannot foresee with certainty how high our liabilities from underwriting business will be and when they will arise. This applies especially to reinsurance. Whereas in property insurance a major portion of the provisions is generally paid out within two to three years, in life or liability insurance substantial amounts may still be due decades after the contracts were concluded. The currency distribution of our provisions reflects the global orientation of our Group. Besides the euro, our main currencies are the US dollar, pound sterling, the Canadian dollar and the Australian dollar.
Since we are an international (re)insurance group, some of our financial resources are subject to restraints on disposal. Supervisory authorities in some countries, for example, require foreign reinsurers to establish premium and reserve deposits to the benefit of primary insurers, or set up trustee accounts or guarantees with certain financial institutions. At the reporting date, restraints on disposal applied to investments with a volume of €10.1bn (9.8bn). In addition, there were contingent liabilities. Information on these can be found in the Notes to the consolidated financial statements under (48) Contingent liabilities, other financial commitments.
As at 31 December 2020, Munich Reinsurance Company’s share capital of €587,725,396.48 was divided into 140,098,931 registered, no-par-value, fully paid shares. The rights and obligations deriving from these shares follow from the applicable statutory requirements and the Company’s Articles of Association. With respect to the Company, the only parties deemed shareholders in accordance with Section 67 of the German Stock Corporation Act (AktG) are those entered as such in the Company’s register of shareholders.
Munich Reinsurance Company has not been notified, nor has it otherwise learned, about any direct or indirect shareholdings in the Company that exceeded 10% of the voting rights as at 31 December 2020.
− The Annual General Meeting of 29 April 2020 authorised the Board of Management to issue, with the consent of the Supervisory Board, in one or more issues until 28 April 2025, subordinated or non-subordinated convertible bonds, bonds with warrants, profit participation rights, profit participation certificates or combinations of such instruments, with or without a limited term to maturity, which may grant the holders or creditors conversion rights, warrants or conversion obligations in respect of shares of the Company up to a maximum proportional amount of the share capital of €117m (hereinafter referred to as “bonds”), with a total nominal amount of up to €5bn. Shareholders are generally entitled to a subscription right in respect of these bonds, but the Board of Management is authorised, with the consent of the Supervisory Board, to exclude this subscription right in the cases specified in the authorisation.
Based on our underwriting guidelines, our reinsurance agreements generally include a clause that grants both parties to the agreement a right of extraordinary cancellation in the event that “the other party merges with another company or its ownership and control undergoes a material change”. Such or similar clauses are typical of the industry. They are also common in joint venture or cooperation agreements between shareholders of a joint investment company.
Consolidated cash flow statement 2020 Prev. year Change €m €m % Cash flows from operating activities 7,219 9,493 –24.0 Cash flows from investing activities –6,135 –6,919 11.3 Cash flows from financing activities –323 –2,496 87.1 Cash flows for the financial year 761 78 875.6
The cash outflows for financing activities stem mainly from the dividend payment in 2020, the share buy-back programme and the issue of the new subordinated green bond.
Overall in the year under review, cash – which encompasses cash with banks, cheques and cash in hand – rose by €761m (including currency effects) to €5,620m. There were items pledged as security and other restrictions on title amounting to €8m (11m).
Organisational structure Munich Re has set up a governance system as required under Solvency II. The main elements of this system are the risk management, compliance, audit and actuarial functions. At Group level, risk management is part of the Integrated Risk Management division (IRM) and reports to the Group Chief Risk Officer (Group CRO). In addition to the Group functions, there are risk management units in the fields of business, each headed up by its own CRO.
Risk governance Our risk governance ensures that an appropriate risk and control culture is in place by clearly assigning roles and responsibilities for all material risks. Risk governance is supported by various committees at Group and field-ofbusiness level. The Board of Management must consult the risk management function on major decisions to be taken.
Defining the risk strategy The risk strategy, which is aligned with Munich Re’s business strategy, defines where, how and to what extent we are prepared to incur risks. The further development of our risk strategy is embedded in the annual planning cycle, and hence in our business planning. The risk strategy is approved by the Board of Management, and discussed with both the Audit Committee of the Supervisory Board and the full Supervisory Board as a material element of the own risk and solvency assessment (ORSA) process.
Risk identification is performed by means of appropriate processes and indicators, which are complemented by expert opinions. At Munich Re, the early identification of risks is primarily operationalised using the emerging risk process. We define emerging risks as new or sudden trends or events that are characterised by a high degree of uncertainty in terms of occurrence probability, expected loss amount, and/or possible effects on Munich Re.
Reinsurance ERGO Diversification 31.12.2020 Prev. year 31.12.2020 Prev. year 31.12.2020 Prev. year €m €m €m €m €m €m Property-casualty 9,306 8,774 559 434 –452 –375 Life and health 6,082 5,525 1,332 1,215 –418 –380 Market 5,617 6,257 6,635 5,975 –1,522 –2,152 Credit 2,762 2,500 2,614 1,867 –167 –161 Operational risk 796 706 648 565 –259 –220 Other 1 466 435 313 235 Subtotal 25,029 24,197 12,102 10,291 Diversification effect –9,283 –8,836 –1,235 –1,158 Tax –2,989 –2,793 –902 –787 Total 12,758 12,568 9,965 8,347 –3,543 –3,383
Property-casualty underwriting risk The property-casualty risk category encompasses the underwriting risks in the property, motor, third-party liability, personal accident, marine, aviation and space, and credit classes of insurance, together with special lines also allocated to property-casualty. Further risk-relevant
Underwriting risk here is defined as the risk of insured losses being higher than our expectations. The premium and reserve risks are significant components of the underwriting risk. Premium risk is the risk of future claims payments relating to insured losses that have not yet occurred being higher than expected. Reserve risk is the risk of technical provisions established being insufficient to cover losses that have already been incurred. In measuring loss provisions, we follow a cautious reserving approach and assess uncertainties conservatively. In every quarter, we also compare notified losses with our loss expectancy, in order to sustain a high level of reserves.
Our internal model considers the resulting accumulationrisk scenarios to be independent events. Munich Re’s greatest natural hazard exposure lies in the scenarios “Atlantic Hurricane” and “Earthquake North America”. Our estimates of exposure for the coming year to the peak scenarios for a return period of 200 years are €6.7bn (6.3bn) for Atlantic Hurricane and €6.0bn (5.9bn) for Earthquake North America (before tax, retained).
As part of our regular validation, we look in particular at the sensitivity of results produced by the risk model for large and accumulation losses to changes in the return periods or loss amounts for events, or a change in the business volumes written. We also consider the effect of changes of dependency assumptions on the results.
Life primary insurance products in particular, and a large part of our health primary insurance business, are longterm in nature, and the results they produce are spread over the entire duration of the policies. This can mean that negative developments in risk drivers with long-term effects sustainably reduce the value of the insurance portfolio (trend risks). The risk drivers mortality and disability are dominated by the life and health reinsurance segment, particularly by exposure in North America and the Asia-Pacific region. We also underwrite longevity risk in the life and health reinsurance segment, especially in the United Kingdom. The longevity risk driver can additionally be found in the products marketed by ERGO in Germany, together with typical risks related to policyholder behaviour, such as the lapse risk. To a lesser extent, we write risks connected with the increase in treatment costs, which arise in the ERGO field of business in particular.
For primary insurance, substantial risk minimisation is achieved through product design. In case of adverse developments, parts of the provision for premium refunds – which are recognised and reversed in profit or loss – are of great significance for risk-balancing. In health primary
Limits are laid down for the pandemic scenarios, which affect the portfolio in the shorter term, and the longevity scenarios with their longer-term effect in conformity with the risk strategy. We continue to analyse the sensitivity of the internal model to the input parameters on a regular basis. This relates to the interest rate, the biometric risk drivers and customer behaviour.
The losses incurred thus far as a result of the coronavirus pandemic are in line with the solvency capital requirement for the life and health reinsurance segment. We will consider this in the validation of the underlying models.
Reinsurance ERGO Diversification Group 31.12.2020 Prev. year 31.12.2020 Prev. year 31.12.2020 Prev. year 31.12.2020 Prev. year €m €m €m €m €m €m €m €m Health 247 304 713 602 –61 –51 899 855 Mortality 4,544 4,025 223 247 –15 –16 4,753 4,255 Disability 3,362 2,970 445 418 –30 –22 3,777 3,366 Longevity 1,214 985 662 641 –30 –26 1,846 1,600 Other 524 484 524 484 Diversification –3,809 –3,242 –710 –694 –4,802 –4,200 Total 6,082 5,525 1,332 1,215 –418 –380 6,996 6,359
The increased equity risk in the ERGO field of business was primarily a consequence of lower interest rates, which in turn led to a reduction in the risk buffer available to life insurance companies and thus could be seen in this risk category as well.
Interest-rate risk In the reinsurance field of business, the general interestrate risk remained nearly unchanged. The increase in the specific interest-rate risk was, on the one hand, attributable to the higher market values of these exposures and, on the other, to the fact that the highly volatile credit risk spreads observed in 2020 and caused by the coronavirus pandemic led to an increased risk assessment.
In the ERGO field of business, the fair value of interestsensitive investments was €139.6bn (134.4bn). The modified duration was 10.1 (9.4) for interest-sensitive investments and 10.3 (10.1) for liabilities. A decrease in interest rates of one basis point would decrease available own funds by approximately €5.6m (12.5m). This resulted in exposure to falling interest rates arising mainly out of the long-term options and guarantees in life insurance business.
We manage credit default risk in retrocession and external reinsurance with the assistance of limits determined by the Retro Security Committee. Our reserves ceded to reinsurers were assignable to the following rating categories as at 31 December: Ceded share of technical provisions according to rating
% 31.12.2020 Prev. year AAA 3.2 0.6 AA 24.5 21.9 A 41.3 36.6 BBB and lower 7.2 6.8 No rating available 23.7 34.1
Further information on the risks arising out of receivables relating to insurance business can be found in the Notes to the consolidated financial statements, (12) Other receivables.
Solvency capital requirement – Credit The solvency capital requirement increased by 23.9% at Group level. The increase was mainly attributable to lower interest rates, as a result of which the market values of fixed-interest securities rose. Moreover, the risk buffers available to our life insurance companies decreased, leaving more credit risk with the shareholder. We also assessed the simultaneous occurrence of negative scenarios more conservatively on the basis of historical market data.
A key component of the ICS lies in ensuring the reliability of annual financial statements at both consolidated and solo-undertaking level, and the identification, management and control of risks arising out of the accounting process. The Group has established an accounting manual and a system providing information on changes to rules applied throughout the Group. Financial accounting and reporting are subject to materiality thresholds to ensure that the cost of the internal controls performed is proportionate to the benefits derived. The risks that are significant from a Group perspective for our financial reporting are covered by the ICS and are reviewed by the risk carriers on a regular basis.
Solvency capital requirement – Operational risk At Group level, the solvency capital requirement increased by 12.8% owing to a more conservative assessment in selected scenarios.
Strategic risk We define strategic risk as the risk of making wrong business decisions, implementing decisions poorly, or being unable to adapt to changes in the operating environment. Existing and new potential for success in the Group and the fields of business in which it operates creates strategic risks, which we manage by carrying out risk analyses for significant strategic issues and regularly monitoring the implementation of measures deemed necessary. The Group Chief Risk Officer is involved in both the strategic and operational business planning as well as in significant company sales, mergers and acquisitions.
The Group Chief Information Security Officer (Group CISO), a function that is assigned to risk management, is responsible for the central and Group-wide coordination and control of all activities involving information security risks. Security risk committees have also been set up in the fields of business to assess and manage security risks. The members of the security risk committees are managers from operational units (e.g. IT Security), the control functions (for example: risk management, information security, data protection) and representatives of the divisional units and central divisions.
To further improve cyber security, we are working on initiatives both specific to and across the fields of business to ensure a level of protection in line with our information security strategy. An additional expansion of human resources is also envisaged.
The liquidity risk is managed within the framework of our holistic risk strategy, with the Board of Management defining limits on which minimum liquidity requirements for our operations are based. These risk limits are reviewed annually, and compliance with the minimum requirements is continuously monitored. Using quantitative risk criteria, we ensure that Munich Re has sufficient liquidity available to meet its payment obligations even under adverse scenarios, with the liquidity position being assessed both for extreme insurance scenarios and for adverse situations in the capital markets.
Further information on liquidity risks in life and health and property-casualty insurance business can be found in the Notes to the consolidated financial statements, (39) Disclosures on risks from life and health insurance business, and (40) Disclosures on risks from propertycasualty insurance business.
The eligible own funds as at the balance sheet date take into account deductions for the dividend of €1.4bn agreed by the Board of Management and proposed to the Annual General Meeting for the 2020 financial year.
The further development of the coronavirus pandemic constitutes the greatest risk factor by far for global economic development. If it is not possible to contain the virus with the help of the vaccines, there is also a chance that states will be unable to sustain their support measures. The resultant economic weakness would likely be driven to a greater extent by endogenous factors, such as growing unemployment and company insolvencies – which would have an adverse impact, at least temporarily, on markets for high-risk assets, as occurred last year. Moreover, prolonged restrictions on society and mobility could also contribute to greater political uncertainty.
In the medium term, there is also a risk of a split in the global technological and economic space driven by the geopolitical conflict between China and the USA. We constantly analyse the potential impact that developments of this sort may have on our risk profile.
A number of political risks persist in the eurozone. The economic damage caused by the pandemic could stoke political crises and, coupled with the disintegrative tendencies sparked by Brexit, lead to an EU crisis. The resultant uncertainty would put a strain on EU assets. Thanks to the cohesion signal sent by the introduction of the EU’s recovery instrument, NextGenerationEU, this risk has faded into the background. Given the sharp increase in sovereign debt, however, risks related to a significant increase in refinancing costs exist – for example, in the event of an unexpectedly rapid rise in inflation or the flaring up of national political risks. Higher credit spreads and possible falls in ratings would lead to corresponding declines in market values for the bonds of the affected countries, among other things. Furthermore, the beginning “communitisation” of sovereign debt could lead to German government bonds losing their safe-haven status in the medium term, which would also involve falls in market values.
The exit negotiations between the EU and the United Kingdom have been concluded, and the United Kingdom officially left the EU and entered a transition period on 31 January 2020. With the EU-UK Trade and Cooperation Agreement, the rules were laid down for the future relationship starting on 1 January 2021. The Agreement is initially applied on a provisional basis; final ratification by the European Parliament is expected to take place by the end of April 2021. The United Kingdom has left the EU single market and the customs union. Duty-free and quotafree trade in goods remains possible, though the trade in services has been negatively affected. There will be no more “passporting rights” for financial services, for example.
A number of Munich Re insurance and reinsurance units conduct business in the United Kingdom, and the UK’s departure from the EU has implications for that business. We have already adapted our local organisations to the direct effects of Brexit. These preparation measures enable Munich Re to continue to write business in the UK. As things stand at present, we do not expect the Trade and Cooperation Agreement to have any significant negative direct or indirect effects overall on Munich Re’s assets, liabilities, financial position or results.
We assume that by the end of 2021 the global economy will return to its level prior to the coronavirus pandemic. Full recovery from the recession is likely to take longer in many European economies. The pace of recovery will depend significantly on how the pandemic plays out, and on vaccination possibilities and fiscal policy measures. However, if the important macroeconomic parameters that are especially relevant to us improve even more strongly, additional business opportunities will open up for us. Stronger economic growth tends to have a positive impact on the demand for insurance cover, and it triggers higher premium volume in most classes of insurance. In addition, the coronavirus pandemic has caused many reinsurance and primary insurance clients to recognise that they need increased risk protection. The need for first-class medical care and cover against unforeseeable risks was brought home to consumers, and this could have a positive effect on demand for insurance products, in particular private health insurance.
Economic dynamics, which have been positive for a long period, and the low degree of insurance penetration in many developing and emerging markets represent opportunities for profitable expansion and for the further diversification of our business portfolio. ERGO’s activities, in particular in India and China, are an example of this.
In addition, we expect the hard market in international property insurance to continue for some years, and it will bring numerous opportunities for profitable growth, especially in our reinsurance and industrial insurance portfolios.
Digitalisation is increasingly transforming the markets, and the continuous changes in customer behaviour are demanding greater flexibility in providing access, coverage and solutions, as well as in our underlying internal structures. Driving digital transformation therefore remains one of Munich Re’s strategic priorities.
We are continually adjusting our internal structures and processes to reduce complexity and costs, while at the same time seizing the opportunities that digital transformation offers. We are attempting to automate as much as possible, along the entire value chain and across all units. We want to deliver what our clients and we ourselves expect in terms of quality, rapidity, and security, while continuing to increase efficiency. This applies not just to traditionally clientfocused areas such as sales and contract administration, but also for example to the digitalisation of our asset management.
We are taking account of increasing demand for digital products in our research and development activities. At ERGO, for example, we have heavily invested in the development of new technologies, such as robotics and artificial intelligence (AI) solutions. In doing so, we intend to make our processes and operations more efficient and intelligent, and thus enhance our customers’ positive experience.
Besides expanding our own digital expertise, we also plan to focus our growth activities on strategic acquiring or partnering with different promising technology companies. By integrating the services offered by our Internet of Things subsidiary Relayr and by cooperating with key players on the industrial IoT market, we are driving new business models, such as Equipment-as-a-Service and Production-as-a-Service, and are helping shape the transformation of the manufacturing industry. Successful examples include the new partnership with the machine tools manufacturer Trumpf, in which we are combining risk solutions, IoT technology and financing, thus enabling
An ageing population coupled with frequently diminishing state benefits are leading to increasing demand for life and health insurance, which we are catering to with our broad spectrum of products in life primary insurance. MEAG is also playing a key role in this respect with its investment expertise. Moreover, advances in medicine and the increasing significance of prevention in primary insurance are providing us with a host of possibilities for satisfying our clients’ most diverse needs and binding them to Munich Re, as well as for expanding our business. In life reinsurance, we also offer our clients integrated reinsurance and financing solutions.
Ecologically and socially sustainable action is becoming more and more important for the insurance industry. Our many different activities in this context offer us the opportunity to be perceived as an attractive partner for clients, investors and staff, and to address societal expectations. Further information is available in our combined non-financial statement.
We expect climate change to lead to an increase in weather-related natural catastrophes in the long term – despite the global efforts made. This growing loss potential will result in greater demand for primary insurance and reinsurance products. Our expertise in dealing with natural hazard risks allows us to calculate competitive prices for traditional covers, and to develop new solutions for our primary insurance and reinsurance clients.
Together with our clients, we strive to expand the boundaries of insurability in many ways and offer our customers new and enhanced types of cover. For example, in cyber insurance we are now offering our clients diverse coverage concepts for risks and damage caused by faulty product software and cyber attacks. In addition, we are in the process of expanding our palette of integrated cyber services to include preventative measures and the recovery of lost data, in order to better support our customers before, during and after a potential cyber disruption. At the same time, we are developing a broad spectrum of insurance covers for those risks that are rapidly becoming as important as the traditional ones in a changing world: for example, performance guarantees for alternative energy and motors, risks from artificial intelligence and algorithms, parametric risks, or agro and entrepreneurial risks.
Prospects Our predictions for the forthcoming development of our Group are based on planning figures, forecasts and expectations. Consequently, the following outlook merely reflects our imperfect assumptions and subjective views. We do not accept any responsibility or liability in the event that they are not realised in part or in full.
It is not only the obvious fluctuations in the incidence of major losses that make an accurate forecast of IFRS results impossible. Despite the fact that our assets are geared to the characteristics of our liabilities, forecasts are also made more difficult by the pronounced volatility of the capital markets and exchange rates. There remains a high level of uncertainty, as it is still unclear how the coronavirus pandemic will play out.
Target 2020 Gross premiums written €bn 52 54 54.9 Technical result life and health reinsurance1 €m 550 over 100 97 Combined ratio property-casualty reinsurance % 97 106 105.6 Combined ratio ERGO Property-casualty Germany % 92 92 92.4 Combined ratio ERGO Property-casualty International % 94 94 92.7 Return on investment2 % 3 3 3.0 Consolidated result €bn 2.8 1.2 1.2 Economic earnings €bn over 2.8 withdrawn –2.2 1 Including the result from reinsurance treaties with non-significant risk transfer. 2 Excluding insurance-related investments.
Owing to the coronavirus pandemic, we were not able to realise all of the targets we originally set ourselves for 2020. Indeed, we retracted some of the targets during the first half-year. With the exception of economic earnings, updated forecasts were published for all previously retracted targets on 1 December 2020.
At the beginning of the year, we had projected a consolidated result of around €2.8bn for the 2020 financial year. On 31 March 2020 we announced that, given the losses already incurred in connection with the cancellation or postponement of major events and the high levels of uncertainty regarding further consequences of COVID-19, Munich Re would not meet its profit guidance of €2.8bn for the whole of 2020. On 1 December 2020, we published a revised profit guidance of €1.2bn for the 2020 financial year. At €1.2bn, we attained this target.
For the 2020 financial year, we had originally set the target for economic earnings at “over €2.8bn”. Owing to the pandemic, we retracted the Group economic earnings target and, in light of the ongoing high level of uncertainty throughout the year, we did not issue a forecast. Economic earnings amounted to –€2.2bn in 2020. Besides major-loss expenditure being higher than expected owing in particular to COVID-19 losses, this result can be attributed to the negative influence of the capital markets. The depreciation of foreign currencies against the euro, the widening of risk spreads on interest-bearing investments, and the impact of falling share prices in Q1 in particular put a strain on economic earnings. While the decline in risk-free euro interest rates had an adverse impact on ERGO, the fall in risk-free interest rates in all material currency areas positively affected the Group’s overall economic earnings
At the beginning of the financial year, we had forecast gross premiums written of around €34bn in the reinsurance field of business. Following pleasing performance in the first two quarters, we raised the forecast to around €36bn. At €37.3bn, we significantly exceeded this forecast, despite adverse exchange rate developments. Growth in life and health reinsurance primarily derived from Europe and Asia, and to a lesser extent also from North America. The increase in premium in Europe was aided by the conclusion of two new longevity treaties, one of which was written outside the United Kingdom for the very first time. The ongoing strong demand for financially motivated reinsurance also contributed to the development in premium income. In property-casualty reinsurance, business grew significantly across almost all lines and regions. The main drivers were the expansion of, and new business with, selected clients in North America and selective growth in continental Europe, in the United Kingdom, and in Asia and Australia.
The combined ratio envisaged for property-casualty reinsurance at the beginning of the financial year was 97% of net earned premiums. Upon publication of the Q1 results in May, this target was also retracted. On 1 December 2020, we published our revised forecast of 106%. At 105.6%, the combined ratio for the financial year was slightly better than the adjusted expectation at the end of 2020. Amounting to 20.8% of net earned premiums, major-loss expenditure significantly surpassed our majorloss expectation of 12% of net premiums. Man-made major losses were a significant contributory factor, with COVID19 -related expenditure amounting to €3,066m.
The forecast consolidated result in reinsurance was €2.3bn. This target was also retracted upon publication of the Q1 results. On 1 December, we announced our revised forecast of €0.7bn. We attained this target, achieving a consolidated result of €0.7bn.
Owing to fragile macroeconomic developments, volatile capital markets and the unclear future of the pandemic, all forecasts are subject to considerable uncertainty.
For 2021, we estimate that the Group’s gross premiums written will total around €55bn.
Overall, we expect an annual return on investment of more than 2.5%.
For the 2021 financial year, we predict economic earnings of over €2.8bn. The higher target figure compared with the envisaged IFRS result is chiefly due to new business, in particular in the life and health reinsurance segment. In economic metrics, the corresponding profit fully materialises at the start of the treaty, and thus earlier than in IFRS. This projection is based on the assumption of stable conditions and capital markets, unchanged modelling parameters and – with the exception of COVID-19 – normal major-loss incidence. Deviations from these assumptions may have a different impact on economic earnings than on IFRS accounting. Further information on economic earnings as a management tool can be found in the section entitled Tools of corporate management and strategic financial objectives.
In life and health reinsurance, we anticipate COVID-19related losses of around €200m in 2021. Overall, we expect to see a distinctly growing result contribution and we anticipate a technical result, including reinsurance treaties with non-significant risk transfer, of around €400m.
We expect a combined ratio of around 96% in propertycasualty reinsurance, with COVID-19-related losses of around €300m. Adjusted for these expected losses related to COVID-19, the combined ratio would be around 95%.
The reinsurance renewals as at 1 January 2021 once again took place in a very competitive market environment. The capacity of reinsurers and capital market participants in the renewals remained high. Prices for the Munich Re portfolio increased by 2.4%. Economic profitability was negatively impacted by the sustained low level of interest rates.
Gross premiums written in the ERGO field of business in 2021 should be around the previous year’s level at approximately €17.5bn. We anticipate that COVID-19 will have a negative impact on the result amounting to €90– 100m after tax. Despite the impact of COVID-19, we predict that the 2021 consolidated result will be at roughly the same level as in 2020, i.e. around €500m.
Assuming that major losses remain within normal bounds, we are aiming for a combined ratio of around 93% in the ERGO International segment.
Munich Reinsurance Company (information reported on the basis of German accountancy rules) For the 2020 financial year, Munich Re again utilised the option of publishing a combined management report in accordance with Section 315(5) in conjunction with Section 298(2) of the German Commercial Code (HGB). Supplementary to our Munich Re (Group) reporting, this section provides details on the performance of Munich Reinsurance Company.
The business performance of Munich Reinsurance Company improved in the 2020 financial year compared to the previous year, chiefly thanks to lower expenditure for natural catastrophe losses, even though 2020 saw significant COVID-19-related losses (totalling around €2,800m) in a large number of classes of business, in particular event cancellation and business interruption. As a result, major losses were much higher than in the previous year, and significantly exceeded our original expectations. By contrast, the release of loss reserves for prior accident years, which we were able to make following a review of our reserving position, made a positive contribution to the underwriting result before claims equalisation provision.
Gross premium volume in life and health reinsurance was higher in 2020 than in the previous year. Gross premium rose by 5.3% to €8,470m (8,041m), chiefly on account of new business in the UK. If exchange rates had remained unchanged, our premium income in life and health reinsurance would have increased by 6.3%.
The underwriting result before claims equalisation provision amounted to –€488m in the 2020 financial year, compared with a profit of €162m in the previous year. This decline in the result was essentially due to extremely high major-loss expenditure in comparison with the previous year. Furthermore, our customary review of provisions for the full year resulted in a lower reduction in the provisions for claims from prior years. Over the years, the safety margin in the provisions has remained unchanged at a high level.
At €196m (1,884m), aggregate losses from natural catastrophes were significantly lower than in the previous year, accounting for 1.3 (13.3) percentage points of the loss ratio in terms of net earned premiums. In property-casualty reinsurance, man-made major losses were up significantly year on year, totalling €3,323m (790m) – mostly owing to very high COVID-19-related losses. This is equivalent to 21.4 (5.6) percentage points of net earned premium.
The combined ratio, which reflects the relation of claims and costs to net earned premiums, came to 103.5% (98.4%) overall, mainly owing to the above effects.
In life reinsurance, the rise in premium income was chiefly attributable to new business from longevity treaties in the UK. The technical result was significantly above the level of the previous year. The previous year’s result had chiefly been burdened by losses from our Australian disability business; this impact was significantly reduced in the reporting year.
Combined ratio % 98.3 98.8 Underwriting result before claims equalisation provision and similar provisions €m
Personal accident 2020 Prev. year Change % Gross premiums written €m
Combined ratio % 127.9 57.8 Underwriting result before claims equalisation provision and similar provisions €m
Third-party liability 2020 Prev. year Change % Gross premiums written €m
Combined ratio % 106.3 79.2 Underwriting result before claims equalisation provision and similar provisions €m
Premium income in aviation reinsurance, which comprises the aviation and space classes, saw an increase in the financial year because of improved rates. The underwriting result before claims equalisation provision, which in the previous year had shown a loss, moved into positive territory, largely owing to a substantial year-on-year decrease in major-loss expenditure.
Other classes 2020 Prev. year Change % Gross premiums written €m
Combined ratio % 111.0 96.0 Underwriting result before claims equalisation provision and similar provisions €m
In the 2020 financial year, Munich Reinsurance Company’s return on investment (including deposits retained on assumed reinsurance) totalled 6.4% (4.1%) on the basis of carrying amounts.
Investment result €m 2020 Prev. year Regular income 3,192 2,351 Write-ups and write-downs –559 301 Realised gains/losses on the disposal of investments
In the 2020 financial year, Munich Reinsurance Company’s investment result was up by €1,768m, mainly due to an increase in gains on disposal resulting from property contributions to affiliated companies of Munich Reinsurance Company, taking into account organisational, tax and commercial law aspects.
Munich Reinsurance Company generated a profit of €3,180m (1,492m), appreciably up on the previous year’s figure. The lower technical result was more than offset by a significantly improved investment result and lower tax expenditure.
In the 2020 financial year, Munich Reinsurance Company generated net retained profits of €1,632m (1,414m) according to German accountancy rules (HGB). Including these net retained profits, the Company’s revenue reserves amounted to €4,930m (3,474m) as at the reporting date, of which €640m (523m) is subject to a restriction on distribution. The distributable funds thus amount to €4,290m (2,951m).
The shareholders’ equity of Munich Reinsurance Company as determined under German accountancy rules is protected against the risk of loss arising from a random accumulation of losses by the claims equalisation provision totalling €10,020m (9,261m). Given our robust capital position according to all calculation methods, we intend – subject to the approval of the Annual General Meeting – to pay our shareholders an unchanged dividend of €9.80 per share for the 2020 financial year, or €1,373m in total, from Munich Reinsurance Company’s net retained profits.
Pursuant to German commercial and company law, dividends and share buy-backs may only be paid out of profits and revenue reserves. Besides the expenses and income incurred in the current year, changes in the claims equalisation provision also have a significant influence on the level of profits for the year.
The balance sheet item “claims equalisation provision and similar provisions” increased by €772m to €10,609m (9,837m) in the 2020 financial year. Owing to the positive results, we had to allocate significant amounts to the claims equalisation provision in some classes of business – especially in third-party liability €363m (226m), other classes of business a total of €218m (–109m), engineering €134m (145m), motor €61m (164m), fire €61m (–337m) and aviation €43m (0m).
The current level of the claims equalisation provision is 100% of the legally stipulated maximum amount allowed in the motor class of business, and more than 50% in fire, third-party liability, credit, engineering, marine and personal accident business.
Munich Reinsurance Company has submitted the Statement of Corporate Governance in accordance with Section 289f of the Commercial Code (HGB), and the Group Statement of Corporate Governance in accordance with Section 315d of the Commercial Code. The statements have been combined and can be found in the section on corporate governance. Pursuant to Section 317(2) sentence 6 of the Commercial Code, the audit of statements by the auditors is limited to whether or not this has been done. The combined Statement on Corporate Governance can be found on the Munich Re website at www.munichre.com/cg-en.
The business performance of Munich Reinsurance Company is largely subject to the same risks and opportunities as the performance of the reinsurance field of business presented in the consolidated financial statements. Munich Reinsurance Company generally participates in the risks of its shareholdings and subsidiaries in accordance with its respective percentage interest held. Munich Reinsurance Company is integrated in the Group-wide risk management system and internal control system of the Group. Further information is provided in the risk report and the opportunities report.
The principles regarding the structure and design of the compensation system of Munich Reinsurance Company correspond to those of the Group. Further information is provided in the remuneration report.
Munich Reinsurance Company has branches in Australia, China, France, the United Kingdom, Hong Kong, India, Italy, Japan, Canada, Malaysia, New Zealand, Singapore, Spain and South Korea.
Munich Reinsurance Company anticipates further COVID19 -related losses in 2021, though to a much lesser degree than in 2020. Owing to fragile macroeconomic developments, volatile capital markets and the unclear future of the pandemic, all forecasts are subject to considerable uncertainty.
Munich Reinsurance Company should post gross premium of around €26bn in the 2021 financial year – assuming that exchange rates remain constant. We expect the combined ratio to be around 96% of net earned premium. An accurate forecast is not possible, partly due to the obvious fluctuations in the incidence of major losses. Assuming average claims experience and significantly lower COVID19 -related losses, we project that the overall underwriting result before claims equalisation provision for the 2021 financial year will be better than in the reporting year.
The investment result of Munich Reinsurance Company is expected to decrease substantially in the 2021 financial year, as we expect significantly lower gains on disposals as well as a reduction in regular income.
As things stand at present, we expect to achieve an adequate German GAAP (HGB) result in 2021, although it is likely to be considerably lower than in the reporting year.
Consolidated balance sheet 116 Consolidated income statement 118 Statement of recognised income and expense 119 Group statement of changes in equity 120 Consolidated cash flow statement 122
Notes to the consolidated financial statements 123 Application of International Financial Reporting Standards (IFRSs) 123 Declaration of Conformity with the German Corporate Governance Code in accordance with Section 161 of the German Stock Corporation Act (AktG) 123 Recognition and measurement 123 Consolidation 129
Equity and liabilities 137 A Equity 137 B Subordinated liabilities 137 C Gross technical provisions 137 D Gross technical provisions for unit-linked life insurance 138 E Other provisions 138 F Liabilities 139 G Deferred tax liabilities 139 H Liabilities related to non-current assets held for sale 139
Segment reporting 141 Segment assets 142 Segment equity and liabilities 142 Segment income statement 144 Other segment disclosures 144 Notes on determining the combined ratio 146 Notes on determining the return on equity (RoE) 146 Non-current assets by country 147 Investments in non-current assets per segment 147 Gross premiums written 147
09 Deposits retained on assumed reinsurance 160 10 Other investments 160 11 Ceded share of technical provisions 161 12 Other receivables 161 13 Deferred acquisition costs 162 14 Deferred tax 162 15 Other assets 164 16 Non-current assets held for sale 164
Notes to the consolidated balance sheet − Equity and liabilities 166 17 Equity 166 18 Hierarchy for the fair value measurement of liabilities 167 19 Subordinated liabilities 169 20 Unearned premiums 169 21 Provision for future policy benefits 170 22 Provision for outstanding claims 170 23 Other technical provisions 173 24 Gross technical provisions for unit-linked life insurance 173 25 Other provisions 174 26 Bonds and notes issued 178 27 Deposits retained on ceded business 178 28 Other liabilities 178 29 Liabilities from financing activities 178
6,539 5,989 550 9.2 II. Investments in affiliated companies, associates and joint ventures (5)
Income from associates and joint ventures accounted for using the equity method 155 207 –52 –25.0 7. Insurance-related investment result (35) 105 1,182 –1,077 –91.1 8. Other operating income (36) 1,168 1,178 –9 –0.8 9. Other operating expenses (36) –2,016 –2,290 274 12.0 10. Deduction of income from technical interest –5,270 –6,745 1,475 21.9 11. Non-technical result (6– 10) 1,386 1,147 239 20.8 13. Other non-operating result (37) –83 –91 8 9.3 14. Currency result (37) –200 73 –272 – 15. Net finance costs (37) –223 –222 –1 –0.7 16. Taxes on income (38) –269 –483 213 44.2 17. Consolidated result 1,211 2,707 –1,496 –55.3 Thereof: Attributable to Munich Reinsurance Company equity holders 1,211 2,724 –1,513 –55.5 Attributable to non-controlling interests (17) 0 –17 17 99.0 1 Previous year’s figures adjusted owing to IAS 1 and IAS 8; see section Changes in accounting policies and other adjustments. 2 You can download this information as an Excel file; please refer to the Financial Supplement under www.munichre.com/results-reports.
Group statement of changes in equity for the 2020 financial year
Balance at 31.12.2018 573 6,845 Allocation to retained earnings 0 0 Consolidated result 0 0 Income and expense recognised directly in equity 0 0
II. Cash flows from investing activities –6,135 –6,919 Inflows from increases in capital and from non-controlling interests 0 0 Outflows to ownership interests and non-controlling interests –359 –957 Dividend payments –1,388 –1,336 Change from other financing activities 1,424 –204
Effect of exchange-rate changes on cash and cash equivalents –134 –57 Cash at the beginning of the financial year 4,994 4,986 Cash at the end of the financial year 5,620 5,006
Thereof: Cash not attributable to disposal group2 5,615 4,994 Cash attributable to disposal group 5 12 Restricted cash 8 11
Munich Re’s consolidated financial statements have been prepared on the basis of the International Financial Reporting Standards (IFRSs), as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315e(1) of the German Commercial Code (HGB).
The consolidated income statement and the segment income statement for the 2019 financial year have been adjusted retroactively (see the section entitled Changes in accounting policies and other adjustments). The other previous-year figures have been calculated on the same basis as the figures for the 2020 financial year.
− Amendments to IFRS 3 (rev. 10/2018), Definition of a Business
− Amendments to IAS 1 and IAS 8 (rev. 10/2018), Definition of Material
− Amendments to IFRS 9, IAS 39 and IFRS 7 (rev. 9/2019) with regard to the effects of the IBOR reform (Phase 1)
− Amendments to IFRS 16 (rev. 5/2020), Leases – COVID19 -Related Rent Concessions
The high-rise office building at 330 Madison Avenue in New York City acquired on 28 February 2020 was recognised in Q2 2020 as the acquisition of an asset because the fair value of the gross assets acquired was almost entirely attributable to the property. This had no impact on the balance sheet in the Annual Report as at 31 December 2019, in which the acquisition was disclosed as an event after the balance sheet date in the notes to the financial statements.
Munich Re is exercising the option to defer application of IFRS 9, Financial Instruments, until the introduction of IFRS 17, Insurance Contracts, in order to prevent accounting mismatches from arising from the measurement of underwriting liabilities and investments. As a consequence of deferring the introduction of IFRS 9, we must make additional disclosures until we apply the standard for the first time. This will make it possible to compare our presentation of investments and other financial instruments with those of companies that already apply IFRS 9.
In the meantime, there have been no changes to our business activities that would necessitate a reassessment.
Cash flow requirement met Cash flow requirement not met €m 31.12.2020 Prev. year Change 31.12.2020 Prev. year Change Loans
Non-fixed-interest securities Equities 0 0 0 10,484 13,286 –2,802 Investment funds Equity funds 0 0 0 660 453 207 Bond funds 0 0 0 1,677 1,818 –141 Real estate funds 0 0 0 334 328 6 Other 9 0 8 3,821 3,552 269
Other securities at fair value through profit or loss Held for trading 15 16 0 2,415 2,220 195 Securities designated as at fair value through profit and loss
Insurance contracts without significant risk transfer 0 0 0 10,405 7,272 3,133 Other insurance-related investments 0 0 0 3,489 1,438
Cash at banks, cheques and cash in hand 5,615 4,994 621 0 0 0
Ratings for investments that meet the cash flow requirement €m 31.12.2020 Prev. year AAA 65,159 65,957 AA 54,636 53,106 A 24,433 24,722 BBB 26,692 23,622 Lower 7,981 5,765 No rating 886 920 Total 179,787 174,092
Amendments were made to the way we account for project costs, innovation costs and Finance Division costs, in particular in order to show ongoing and one-time expenditure in a more transparent and consistent way. This resulted in reclassifications in the consolidated income statement and segment income statement and in an adjustment of the previous year’s figures in line with IAS 1.41. Moreover, the calculation of income from technical interest in the ERGO Life Germany division was developed further, in particular with regard to the consistent allocation of reinsurance. The previous year’s figures were adjusted in line with IAS 8.14. Neither change had an impact on the result.
Change due to adjustments according to IAS 1 and IAS 8 in 2019 2019 €m 2. Income from technical interest 6,729 16 6,745 4. Operating expenses Gross –13,809 193 –13,616 Net –13,249 193 –13,056 5. Technical result 2,074 209 2,283 6. Investment result 7,737 85 7,822 7. Insurance-related investment result 1,176 6 1,182 8. Other operating income 1,093 85 1,178 9. Other operating expenses –1,347 –943 –2,290 10. Deduction of income from technical interest –6,729 –16 –6,745 11. Non-technical result 1,930 –783 1,147 12. Operating result 4,004 –574 3,430 13. Other non-operating result –665 574 –91
Material effects on Munich Re as a result of the coronavirus pandemic are mentioned in the combined management report and the Notes. We have subjected all relevant items in the consolidated balance sheet to an appropriate test, including in particular goodwill and fixed-interest securities. With regard to the effects on the technical provisions, please refer to the section Segment reporting and to (21) Provisions for future policy benefits, (22) Provisions for outstanding claims and (32) Expenses for claims and benefits; the effects on our investments are described in (3) Land and buildings, including buildings on third-party land, (7) Other securities available for sale, and (8) Other securities at fair value through profit or loss and insurancerelated investments. The analyses conducted did not identify any material impact on further items of the consolidated balance sheet.
Unless otherwise stated, Munich Re intends to initially apply all new standards or amendments to standards that are not yet effective as at the mandatory effective date for entities whose registered office is in the European Union. The relevant dates for mandatory initial application are shown in the following list of new standards.
IFRS 9 (7/2014), Financial Instruments, supersedes the IAS 39 requirements relating to recognition and measurement of financial instruments. In future, financial assets will be categorised on the basis of contractual cash flow characteristics and the business model according to which the asset is managed. Accordingly, they are subsequently measured at amortised cost, at fair value outside profit or loss, or at fair value through profit or loss.
For financial liabilities, there are no changes in the measurement rules except that if the fair value option is applied, value changes attributable to a change in the entity’s credit risk must in future be recognised outside profit or loss, provided that this does not create or increase an accounting mismatch.
IFRS 9 sets out an expected loss model for recognising impairment losses, under which – unlike under the current IAS 39 incurred loss model – expected losses are anticipated before they arise and must be recognised as an expense. There will only be one model for recognising impairment losses. It must be used consistently for all financial assets falling under the IFRS 9 impairment rules.
The requirements are effective for financial years beginning on or after 1 January 2018. As an insurance company, we are exercising the option under IFRS 4 to defer initial application of IFRS 9 in order to implement it at a later date together with IFRS 17. For more information, please see the comments on IFRS 17 below and the section Changes in accounting policies and other adjustments.
In IFRS 17 (5/2017), Insurance Contracts, the IASB has for the first time published a standard that governs the recognition, measurement and disclosure of insurance contracts in a comprehensive and uniform manner. The rules require extensive new disclosures in the notes to the financial statements. The new standard will replace IFRS 4, Insurance Contracts.
Measurement is not made at the individual contract level, but on the basis of portfolios that are subdivided into specified groups based on their profitability and on contracts concluded in annual cohorts. Nearly all cash flows resulting from the rights and obligations under the insurance contracts must be taken into account, which by implication means that certain items currently shown separately in our financial statements will not be included in future.
IFRS 17 contains an option regarding the recognition of changes in value because of amendments to financial inputs. The option allows for recognition either in the income statement or directly in equity. It can be exercised at individual portfolio level.
In June 2020, a number of substantive amendments to IFRS 17 were published that are geared to improving the quality of the standard and its applicability. For example, it is now possible in many cases for cedants to recognise immediate income from the accounting of reinsurance contracts if these contracts provide cover for loss-producing, underlying primary insurance contracts. In addition, the revised IFRS 17 now provides for a mandatory effective date for financial years beginning on or after 1 January 2023. At the same time, the amendment to IFRS 4 also resulted in a deferral until 2023 of the mandatory initial application of IFRS 9 for those insurance undertakings that do not yet apply this standard, as a result of which the simultaneous initial application of the two standards is still possible.
IFRS 17 will involve fundamental changes to the recognition of insurance and reinsurance contracts and related processes. As the required adjustments involve a considerable amount of work, shortly after the initial publication of the new requirements we set up an implementation project based on preparatory analyses conducted from an early stage in which all the relevant units of reinsurance and primary insurance are involved. Through intense and interdisciplinary cooperation across all units, we continuously ensure that the characteristics of our individual insurance lines of business are considered and implemented in our central IT solution. This includes extensive tests conducted with regard to the accounting of insurance contracts under IFRS 17 and the accounting of financial instruments under IFRS 9.
In August 2020, the IASB published amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (rev. 8/2020) with regard to the effects of the IBOR reform (Phase 2). These new requirements must be applied with effect from 2021, but we will not implement the amendment to IFRS 9 until the initial application of this standard in 2023. In particular, they include rules on how to recognise the adjustments to contractual cash flows that must be made as a result of this amendment. At the same time, disclosures must be made in the notes to the financial statements that enable an assessment of the type and scope of the risks arising from the change in reference rates. Companies must also disclose how they will handle the transition to the new reference rates. We anticipate only minor effects from this transition.
− Amendments published under the project Annual Improvements to IFRSs, 2018–2020 (rev. 5/20) Cycle: amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards; amendments to IFRS 9, Financial Instruments; IFRS 16, Leases; and IAS 41, Agriculture
− IAS 16 (rev. 5/2020), Property, Plant and Equipment – Proceeds before Intended Use
− IAS 37 (rev. 5/2020), Provisions, Contingent Liabilities and Contingent Assets – Cost of Fulfilling a Contract
Munich Reinsurance Company directly or indirectly holds all, or a clear majority of, the voting rights in most of the entities included in the consolidated group.
Cash flows and net assets from obtaining and losing control of consolidated subsidiaries or other operations are shown in the tables: Cash flows arising from obtaining control €m 2020 Prev. year Total consideration for obtaining control –2 –5 Non-cash consideration for obtaining control
Net assets disposed of €m 31.12.2020 Prev. year Goodwill 0 0 Other intangible assets 0 –5 Investments –8 –415 Cash 0 –157 Other assets –3 –208 Technical provisions (net) 5 557 Other liabilities 2 81 Total –5 –147
A distinction is made between investment funds in which Munich Re invests on its own behalf within the framework of its investment activities and investment funds in which Munich Re invests as part of its insurance-related investments. Investment funds are mainly financed by issuing redeemable shares or units. Some of the investment funds are managed by MEAG MUNICH ERGO AssetManagement GmbH, others by fund managers outside the Group. In the table below, we also report under investment funds all investments in infrastructure, forestry, private equity and other investments.
Munich Re invests in asset-backed securities that are issued by securitisation vehicles which are not set up by Munich Re. Furthermore, Munich Re uses securitisation vehicles to issue catastrophe bonds, and it also invests in third-party catastrophe bonds. Securitisation vehicles are self-financed by issuing securities.
In order to protect its own portfolio, Munich Re uses alternative risk transfer in addition to traditional retrocession. Under this process, underwriting risks are transferred to the capital markets with the assistance of securitisation vehicles.
Munich Re also invests in the area of catastrophe risks, for example in various securities whose repayment and interest is generally linked to the occurrence of natural catastrophes. The securities are issued by securitisation vehicles which as a matter of general policy are not set up by Munich Re.
For investment funds, including investments in infrastructure, forestry, private equity and other investments, as well as insurance-related investments, the carrying amount gives an indication of the size of the structured entity. For assetbacked securities and the securitisation of underwriting risks, the emission volume (nominal value) is used as an indicator for measuring the size of the structured entity. The size of the funds refers to both the issued volume of the securitisation vehicles set up by Munich Re and that of those securitisation vehicles in which Munich Re has invested.
Normally, the maximum exposure to loss in the case of investments for unit-linked life insurance contracts is also the carrying amount of the interests. However, this investment is held for the benefit of policyholders who bear the investment risk.
MEAG MUNICH ERGO Kapitalanlagegesellschaft mbH also manages fund assets for private clients and institutional investors, for which it receives a management fee. The management fees are recognised as an expense in the consolidated income statement.
The maximum exposure to loss relates to the loss of future management fees. Fund management activities generated income of €46m (43m) in the financial year. The value of fund assets under management provides information about the size of the unconsolidated structured entities. As at 31 December 2020, the managed fund assets amounted to €4,612m (4,622m), and Munich Re itself also holds a small interest in these funds.
Available for sale 4,685 0 3,659 306 8,650 At fair value through profit or loss 0 0 0 0 0
Deposits retained on assumed reinsurance 0 0 0 934 934 Insurance-related investments 0 7,620 0 0 7,620 Ceded share of technical provisions 0 0 0 109 109 Non-current assets held for sale 0 7 0 0 7 Total assets 4,840 7,627 3,659 1,350 17,476 Technical provisions 0 0 0 1 1 Other liabilities 0 0 0 1 1 Total equity and liabilities 0 0 0 2 2 Size of structured entity 4,840 7,627 75,710 8,114 96,291
Securiti- sation vehicles – Underwriting risks Total €m Prev. year Prev. year Prev. year Prev. year Prev. year Loans 201 0 0 0 201 Other securities 0
Available for sale 4,136 0 3,251 382 7,769 At fair value through profit or loss 0 0 0 0 0
Deposits retained on assumed reinsurance 0 0 0 869 869 Insurance-related investments 0 7,145 0 0 7,145 Ceded share of technical provisions 0 0 0 98 98 Non-current assets held for sale 1 10 0 0 11 Total assets 4,338 7,155 3,251 1,349 16,094 Technical provisions 0 0 0 0 0 Other liabilities 0 0 0 3 3 Total equity and liabilities 0 0 0 3 3 Size of structured entity 4,338 7,155 65,456 8,054 85,004
Acquired insurance portfolios are recognised at their present value on acquisition (PVFP – present value of future profits). This is determined as the present value of expected profits from the portfolio acquired, without consideration of new business and tax effects. The acquired insurance portfolios are amortised in accordance with the realisation of the profits from the insurance portfolios underlying the PVFP calculation. They are regularly tested for impairment using a liability adequacy test as per IFRS 4 (see Equity and liabilities C – Gross technical provisions). Write-downs are recognised under operating expenses.
Loans are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are measured at amortised cost in accordance with the effective interest method.
Securities at fair value through profit or loss comprise securities held for trading and securities classified as at fair value through profit or loss. Securities held for trading mainly include all derivative financial instruments with positive fair values which we have acquired to manage and hedge risks but which do not meet the requirements of IAS 39 for hedge accounting. The securities that are designated as at fair value through profit or loss include embedded derivatives that must be separated. In addition, loan portfolios are managed based on the fair value of the entire portfolio, which is why it was also designated as at fair value through profit or loss.
In the case of Level 1, valuation is based on quoted prices in active markets for identical financial assets which Munich Re can refer to at the valuation date. The financial instruments we have allocated to this level mainly comprise equities, equity funds, exchange-traded derivatives, and exchange-traded subordinated liabilities.
For assets allocated to Level 3, we use valuation techniques that are also based on unobservable inputs – which influences valuation both immaterially and materially. The inputs used reflect Munich Re’s assumptions regarding the factors which market players would consider in their pricing. To this end, we use the best available market information, supplemented with internal company data. The assets allocated to this level of the fair value hierarchy largely comprise land and buildings and real estate funds. Funds that mainly invest in theoretically valued instruments, and investments in infrastructure and in private equity are also allocated to Level 3, along with investments in subsidiaries, associates and joint ventures measured at fair value, as well as insurance derivatives and derivative components of variable annuities.
In the case of loans, bank borrowing, liabilities from financial transactions, and bond and note liabilities not traded on an active market, we decide on a case-by-case basis to which level of the fair value hierarchy to allocate the respective fair values.
Investment result The investment result comprises regular income, income from reversals of impairments, gains and losses on the disposal of investments, other income, impairment losses on investments, management expenses, interest charges and other expenses. Regular income and expenses from investments not measured at fair value through profit or loss are calculated in accordance with the effective interest method, i.e. any premiums or discounts are spread over the period of maturity, with impact on profit or loss.
IAS 39.59 contains a list providing objective evidence of impairment of financial assets. In addition, IAS 39.61 states that, for equity investments, a significant or prolonged decline in the fair value of the investment below its acquisition cost is objective evidence of impairment. These rules are given more concrete form by means of internal guidelines. For equities quoted on the stock exchange, we assume a significant decline in fair value if the market price at the review date is at least 20 % below the average purchase price or has been lower than this amount for at least six months. In the case of fixed-interest securities and loans, the main basis for establishing impairment is an indication of substantial financial difficulty on the part of the issuer, the current market situation or media reports on the issuer.
Munich Re Group Annual Report 2020 have to be separated as measured at fair value through profit or loss in order to achieve an appropriate accounting statement. Insurance risks are defined as risks which – in a modified form – can also be covered by an insurance contract within the meaning of IFRS 4.
Deferred acquisition costs comprise commissions and other variable costs directly connected with acquisition or renewal of insurance contracts. In life business and longterm health primary insurance, deferred acquisition costs are recognised and amortised over the period of cover in accordance with the anticipated recognition of income. In determining the amount of amortisation, we take into account an actuarial interest rate and changes resulting from the disposal or withdrawal of contracts from the portfolio. In property-casualty business, short-term health primary insurance and health reinsurance, the deferred acquisition costs are customarily amortised on a straightline basis over the average term of the policies, from one to five years.
Other reserves primarily contain unrealised gains and losses resulting from the recognition at fair value of other securities available for sale and from interests in unconsolidated affiliated companies, and in associates and joint ventures not accounted for using the equity method. In addition, they include unrealised gains and losses from the measurement of associates and joint ventures using the equity method. Differences resulting from the currency translation of foreign subsidiaries’ figures, and remeasurement gains/losses from the hedging of cash flows are also shown under other reserves.
Technical provisions are shown as gross figures in the balance sheet, i.e. before deduction of the ceded share (see the explanatory remarks on Assets – D Ceded share of technical provisions). The ceded share is calculated and accounted for on the basis of the individual reinsurance agreements. Acquisition costs for insurance contracts are recognised and amortised over the terms of the contracts (see Assets – G Deferred acquisition costs).
The measurement of technical provisions is based on US GAAP FAS 60 (life primary insurance without performance-related participation in surplus, health primary insurance and the bulk of reinsurance treaties), FAS 97 (life primary insurance based on the universal life model, unit-linked life insurance and life reinsurance for assumed business based on FAS 97) and FAS 120 (life primary insurance with performance-related participation in surplus).1 Credit insurance contracts are accounted for in accordance with the rules of IFRS 4.
Pension obligations are recognised in accordance with IAS 19, Employee Benefits, using the projected unit credit method. The calculation includes not only the pension entitlements and current pensions known at the end of the reporting period, but also their expected future development. The assumptions for the future development are determined on the basis of the circumstances in the individual countries.
The discount rate applied to the pension obligations is based on the yields for long-term high-quality corporate bonds.
We offset financial assets and financial liabilities if the necessary requirements are met in accordance with IAS 32 and doing so is legally enforceable.
Current tax liabilities comprise current taxes on income of the individual companies, based on their respective national taxation. Other tax liabilities are shown under “other liabilities”.
Australian dollar 0.6307 0.6262 0.6133 0.6118 0.5965 0.5959 0.6174 0.6167 0.6230 0.6273 Canadian dollar 0.6415 0.6870 0.6436 0.6420 0.6554 0.6750 0.6843 0.6810 0.6652 0.6621 Pound sterling 1.1172 1.1801 1.1076 1.1050 1.1272 1.1601 1.1623 1.1086 1.1440 1.1464 Polish zloty 0.2194 0.2352 0.2220 0.2251 0.2219 0.2313 0.2334 0.2315 0.2336 0.2325 Swiss franc 0.9246 0.9200 0.9279 0.9300 0.9424 0.9371 0.9126 0.9122 0.8874 0.8835 US dollar 0.8173 0.8909 0.8383 0.8553 0.9079 0.9073 0.9032 0.8993 0.8899 0.8806 Yen 0.0079 0.0082 0.0080 0.0081 0.0084 0.0083 0.0083 0.0084 0.0081 0.0080 Yuan renminbi 0.1250 0.1279 0.1266 0.1236 0.1281 0.1300 0.1282 0.1282 0.1304 0.1305
At the beginning of Q1 2020, we reclassified Group-wide costs in the segment income statement in line with the consolidated income statement without impact on the result (see also Changes in accounting policies and other adjustments). The figures from the previous year were adjusted in line with IAS 1.41.
Income and expenses from intra-Group loans are shown unconsolidated under Other non-operating result for the segments concerned. These are otherwise shown after elimination of intra-Group transactions and shareholdings.
Life and health Property-casualty €m 31.12.2020 Prev. year 31.12.2020 Prev. year A. Intangible assets 280 319 2,099 2,316 B. Investments I. Land and buildings, including buildings on third-party land 183 190 2,937 2,369 II. Investments in affiliated companies, associates and joint ventures 48 48 1,848 1,827 Thereof: Associates and joint ventures accounted for using the equity method 25 27 1,749 1,761 III. Loans 518 471 595 536 IV. Other securities 1. Available for sale 22,806 22,661 50,496 50,533 2. At fair value through profit or loss 84 83 990 897 22,890 22,744 51,486 51,431 V. Deposits retained on assumed reinsurance 4,835 4,791 3,111 3,082 VI. Other investments 416 722 2,381 2,858 28,890 28,967 62,358 62,103 C. Insurance-related investments 2,921 1,070 461 290 D. Ceded share of technical provisions 2,074 1,529 2,557 2,732 E. Non-current assets held for sale 1 10 17 157 F. Other segment assets 17,865 14,826 14,368 13,852 Total segment assets 52,031 46,721 81,860 81,449
Germany International 31.12.2020 Prev. year 31.12.2020 Prev. year 31.12.2020 Prev. year 31.12.2020 Prev. year 173 199 1,279 1,170 174 175 4,005 4,180
Germany International 2020 Prev. year 2020 Prev. year 2020 Prev. year 2020 Prev. year 9,030 9,238 3,677 3,500 4,861 4,912 54,890 51,457 9,066 9,191 3,570 3,362 4,560 4,621 51,223 48,280 3,180 4,212 68 75 249 591 5,270 6,745 –10,511 –11,701 –2,254 –2,056 –3,318 –3,633 –43,077 –39,685 –1,382 –1,415 –1,089 –1,077 –1,289 –1,408 –12,815 –13,056 353 287 294 303 202 171 600 2,283 3,605 3,916 175 157 425 430 7,398 7,822 24 751 0 0 57 330 105 1,182 –354 –354 –147 –174 –137 –124 –848 –1,112 –3,180 –4,212 –68 –75 –249 –591 –5,270 –6,745 95 102 –39 –91 96 45 1,386 1,147 448 389 255 212 298 217 1,986 3,430 –48 –12 –28 –16 4 –6 –83 –91 –161 –41 1 –24 2 –59 –200 73 –22 –23 –6 –5 –27 –27 –223 –222 –86 –127 –64 –19 –48 –19 –269 –483 130 187 157 148 230 105 1,211 2,707
Germany International 2020 Prev. year 2020 Prev. year 2020 Prev. year 2020 Prev. year 2,702 2,902 89 99 315 349 4,944 5,387 –44 –60 –11 –17 –16 –23 –136 –161 –53 –52 –47 –45 –65 –70 –326 –344 239 335 141 141 106 140 1,168 1,178 –594 –688 –288 –315 –242 –264 –2,016 –2,290 26 28 0 0 58 15 155 207
Property-casualty Germany International2 €m 2020 Prev. year 2020 Prev. year 2020 Prev. year Net earned premiums 22,566 20,566 3,570 3,362 3,289 3,309 Net expenses for claims and benefits –16,866 –13,714 –2,254 –2,056 –2,105 –2,129 Net operating expenses –6,978 –6,910 –1,089 –1,077 –988 –1,012
Fire brigade tax and other expenses 21 17 18 20 34 28 Expenses for premium refunds 0 0 34 26 2 2 Other underwriting income –11 –8 –26 –4 –13 –16 Change in other technical provisions and other underwriting expenses
Non-current assets by country1 €m 31.12.2020 Prev. year Germany 7,265 7,322 USA 3,901 3,507 UK 546 554 France 427 429 Sweden 359 368 Spain 276 312 Poland 241 242 Malta 161 194 Italy 161 174 Austria 156 142 Belgium 131 131 Switzerland 92 93 Netherlands 90 94 Denmark 77 54 Portugal 71 71 Finland 63 64 Canada 53 56 Lithuania 52 53 Others 108 104 Total 14,230 13,963 1 The non-current assets mainly comprise intangible assets (especially goodwill) and our owner-occupied and investment property, as well as investments in renewable energy.
Germany 13,662 13,285 UK 5,692 5,193 Poland 1,557 1,593 Spain 1,626 1,473 Belgium 931 904 Others 5,611 5,189 15,440 14,482 Asia and Australasia
Our general assumption was that there would be moderate upward movement on the equity markets and a stable interest-rate level.
Carrying amount at 31 Dec. previous year 346 373 24 44 471 317 Currency translation differences –17 15 0 0 –12 2 Additions
Disposals Loss of control 0 0 0 0 0 0 Other 0 0 –2 –5 –2 –5
Reclassifications 0 0 0 –2 –1 –4 Impairment losses reversed 0 0 0 0 0 0 Amortisation and impairment losses
Carrying amount at 31 Dec. previous year 29 29 118 143 232 240 Currency translation differences –2 1 –5 2 –8 5 Additions
Reclassifications 0 0 0 0 0 0 Impairment losses reversed 0 0 0 0 0 0 Amortisation and impairment losses
Amortisation –1 –2 –177 –196 Impairment losses 0 0 –29 –1
Carrying amount at 31 Dec. financial year 19 21 1,223 1,240 Accumulated amortisation and impairment losses at 31 Dec. financial year
Intangible assets pledged as security and other restrictions on title amounted to €94m (107m). Commitments to acquire intangible assets totalled €46m (82m).
Reclassifications mainly related to property reclassified as held for sale, and formerly owner-occupied property now recognised as investment property.
Interest-rate currency swaps Theoretical price Swap and CSA curve1 Currency spot rates
Currency forwards Theoretical price Currency spot rates Currency forward rates/ticks Money-market interest-rate curve
Theoretical price Fair values of cat bonds Historical event data Interest-rate curve
Theoretical price Biometric rates and lapse rates Volatilities Interest-rate curve Currency spot rates
Commodity options Theoretical price Listing of underlying Effective volatilities Money-market interest-rate curve Cost of carry
CMS floaters with variable cap Theoretical price Swap curve Issuer-specific spreads Volatility matrix and skews
CMS steepeners Theoretical price Swap curve Issuer-specific spreads Volatility matrix and skews Correlation matrix
Convergence bonds Theoretical price Swap curve Issuer-specific spreads Volatility matrix Correlation matrix
FIS loans against borrower’s note Theoretical price At-the-money volatility matrix and skew Swap curve Sector-, rating- or issuer-specific yield curve
Theoretical market price Biometric rates and lapse rates Historical event data Interest-rate curve Currency spot rates
Insurance derivatives are mostly allocated to Level 3 of the fair value hierarchy, as observable market inputs are often not available. The decision is made on a case-by-case basis, taking into account the characteristics of the instrument concerned. If no observable market inputs are available for customised insurance derivatives, the presentvalue method on the basis of current interest-rate curves and historical event data is used.
Allocation of investments (including insurance-related investments) to levels of the fair value hierarchy €m Level 1 Level 2 Level 3 Total Investments measured at fair value Investments in affiliated companies measured at fair value 0 0 212 212 Investments in associates and joint ventures measured at fair value 0 0 55 55 Other securities available for sale
Other securities at fair value through profit or loss Held for trading, and hedging derivatives1 264 2,181 4 2,449 Designated as at fair value through profit or loss 175 322 0 497
Other investments 0 10 302 313 Insurance-related investments 5,251 3,257 655 9,163 Total 19,394 137,933 6,738 164,064 Investments not measured at fair value Loans 0 54,369 10,275 64,644 Total 0 54,369 10,275 64,644 1 Including hedging derivatives of €19m (27m) accounted for under “Other assets”.
Fixed-interest Non-fixed-interest €m 2020 Prev. year 2020 Prev. year Carrying amount at 31 Dec. previous year 1,443 3,137 4,114 3,410 Gains and losses 98 225 –192 –18
Gains (losses) recognised in the consolidated income statement 93 83 –112 –29 Gains (losses) recognised in equity 5 142 –79 11
Acquisitions 266 1,192 1,115 1,200 Disposals –114 –510 –571 –470 Transfer to Level 3 0 0 1 0 Transfer out of Level 3 0 –2,602 0 –8 Changes in the fair value of derivatives 0 0 0 0 Carrying amount at 31 Dec. financial year 1,693 1,443 4,468 4,114 Gains (losses) recognised in the consolidated income statement that are attributable to investments shown at the end of the financial year 93 84 –144 –31
Insurance-related investments Total €m 2020 Prev. year 2020 Prev. year Carrying amount at 31 Dec. previous year 455 233 6,537 7,249 Gains and losses 757 83 637 336
Munich Re Group Annual Report 2020 5 Investments in affiliated companies, associates and joint ventures
Reversed impairment losses with respect to associates and joint ventures amounted to €20m (46m). They are distributed between the following segments: €20m (45m) is apportionable to property-casualty reinsurance, and €0m (1m) to life and health reinsurance.
In the financial year, shares of losses of associates and joint ventures amounting to €17m (0m) were not recognised in the balance sheet. Overall, losses not recognised in the balance sheet totalled €21m (4m).
Aggregated financial information on investments in associates and joint ventures accounted for using the equity method €m 31.12.2020 Prev. year Overall result for the year after tax from continued operations
Carrying amounts €m 31.12.2020 Prev. year Mortgage loans 7,342 6,792 Loans and advance payments on insurance policies 201 220 Other loans 44,401 45,495 Total 51,944 52,507
Rating of Other loans on the basis of amortised cost €m 31.12.2020 Prev. year AAA 24,025 26,834 AA 14,100 13,259 A 2,149 1,902 BBB or lower 3,445 2,743 No rating 682 756 Total 44,401 45,495