Attributable to non-controlling interests €m –17 –34 17 1 15 Earnings per share € 18.97 15.53 2.44 16.13 18.73 Return on equity (RoE) % 9.2 8.4 1.3 8.1 10.0 Return on investments (RoI) % 3.2 2.8 3.2 3.2 3.2 Dividend per share2 € 9.80 9.25 8.60 8.60 8.25 Dividend payout2 €m 1,374 1,335 1,286 1,333 1,329 Share price at 31 December € 263.00 190.55 180.75 179.65 184.55 Munich Reinsurance Company’s market capitalisation at 31 December €bn 38.0 28.5 28.0 28.9 30.8 Carrying amount per share € 215.32 180.86 185.19 200.86 188.40 Investments €m 228,764 216,852 217,562 221,752 217,587 Insurance-related investments €m 9,163 8,424 9,664 9,558 9,163 Equity €m 30,576 26,500 28,198 31,785 30,966 Off-balance-sheet unrealised gains and losses3 €m 19,913 16,067 14,980 17,276 15,958 Net technical provisions €m 217,941 208,270 205,754 202,240 198,455 Balance sheet total €m 287,553 270,168 265,722 267,805 268,868 Staff at 31 December 39,662 41,410 42,410 43,428 43,554
2019 2018 2017 2016 2015 Gross premiums written €m 17,650 17,778 17,546 17,388 Investments (incl. insurance-related investments) €m 145,497 139,671 141,422 139,383 Net technical provisions €m 140,776 135,863 137,645 135,173 Combined ratio property-casualty Germany % 92.3 96.0 97.5 97.0 97.9 Combined ratio International % 94.3 94.6 95.3 98.0 Investment result €m 4,504 3,983 4,851 5,291 Consolidated result €m 440 412 273 41
Combined management report 29 Group 31 Macroeconomic and industry environment 54 Important tools of corporate management 55 Business performance 57 Financial position 69 Risk report 73 Opportunities report 83 Prospects 85 Munich Reinsurance Company (information reported on the basis of German accountancy rules) 89
Consolidated financial statements and notes 97 Consolidated balance sheet 100 Consolidated income statement 102 Statement of recognised income and expense 103 Group statement of changes in equity 104 Consolidated cash flow statement 106 Notes 107
Your company’s shares continue to provide you with strong and sustained returns. Our Total Shareholder Return continued to rank among the best in the world in 2019 in comparison with the seven leading reinsurers and European primary insurers. At the same time, Munich Re is an attractive and sustainable investment because we systematically integrate environmental, social and governance aspects into our value creation.
Dr. Joachim Wenning Chairman of Munich Reinsurance Company’s Board of Management
But that alone is not enough – there must be monetary incentives to avoid carbon emissions. In all sectors of the economy, there should be a clear price to pay for emitting greenhouses gases. At the same time, investments need a stable and reliable environment in order to generate sufficient amounts of affordable renewable energy. Provided that governments make wise and far-sighted decisions about these rules, the market economy will become the driving force behind the energy transformation necessary to protect the climate.
Strategically and financially, our Group is well on course. And it continues to gain momentum towards achieving the profit target of €2.8bn for 2020 that we set in our multi-year ambition 2018–2020. We are driving digital transformation, reducing complexity, and growing profitably. The strategic focus is working, and is paying off.
We are becoming more digital, faster, and more flexible. Our units Munich Re New Ventures and Digital Partners are opening up new digital market access for Munich Re. Digital Partners is working with numerous young, digital start-ups. Back in 2016, we established a relationship of trust and confidence with the Californian start-up Next Insurance, and we support it by providing services and assuming risks; we have also held shares in this company for several years via Munich Re Ventures.
We are also digitally enhancing our core competences. We are investing in data analytics and artificial intelligence in order to support our clients in a targeted manner – for instance, in identifying loss drivers for watermains damage, which accounts for around half of all losses in traditional residential building insurance. We help motor insurers to forecast future losses more precisely and to significantly lower their loss ratios with the help of machine learning that takes account of external weather data, accident statistics and socioeconomic data.
Responsibilities of the members of the Board of Management and their mandates on statutory supervisory boards and comparable bodies
Outside of Supervisory Board meetings, the Board of Management informed us promptly and extensively about important events in the Group, such as developments during the renewals of property-casualty reinsurance treaties, the results of electing employee representatives to the Supervisory Board pursuant to the Co-Determination Agreement, and the decision regarding the investment by ERGO Group AG in the US start-up Next Insurance, Inc. The shareholder representatives and the employee representatives met regularly with the Chairman of the Board of Management for separate discussions in preparation for the meetings.
Between meetings, Bernd Pischetsrieder (until 30 April 2019) and I (from 30 April 2019) held regular discussions with the Chairman of the Board of Management, Joachim Wenning. We discussed questions of strategic orientation, risk management, compliance and Munich Re’s current business situation. Also between meetings, the Chairman of the Audit Committee – Henning Kagermann until 30 April 2019 and Maximilian Zimmerer from 30 April 2019 – remained in close contact with Christoph Jurecka, the member of the Board of Management responsible for Group reporting.
The meeting on 29 April dealt with matters involving the Board of Management, specifically the evaluation of the bonus payments to the individual members of the Board of Management and their multi-year performance for 2016–2018. In consideration of the composition of the Board from 30 April 2019, we also undertook a self-assessment of the members of the Supervisory Board concerning their knowledge of specific fields that are important for providing advice and supervision to Munich Re. Despite numerous new members having been elected to the Supervisory Board, it was possible to retain the previous year’s good level of collective expertise on the Supervisory Board. The Supervisory Board thus possesses the appropriate diversity of qualifications, knowledge and experience to provide advice and supervision to Munich Re in a professional manner, taking account of the characteristics specific to the Company and the Group. Moreover, we received the Board of Management’s report on the status of business performance in 2019. We also used the meeting to make last-minute preparations for the Annual General Meeting, which was held the next day.
By way of a resolution adopted by written consent, the IFRS Group target for the 2019 annual bonus decided by the Supervisory Board in December 2018 was approved in February 2019.
Details of the tasks of the committees and their composition are included in the Statement on Corporate Governance on pages 18 ff. and on our website at www.munichre.com/supervisoryboard.
At its four meetings, the Standing Committee dealt with the preparation of the respective Supervisory Board meetings and, in particular, with topics of corporate governance. In addition, the Standing Committee once again carried out a review of the efficiency of the Supervisory Board’s work, and determined that overall the reporting by the Board of Management and the work of the Supervisory Board was efficient and appropriate. The Chairman of the Board of Management regularly provided information about the shareholder structure and the status of the share buy-back programme. The Standing Committee also dealt intensively with the separate Non-Financial (Group) Statement for 2018. On the basis of a corresponding resolution adopted by the full Supervisory Board, the Standing Committee commissioned Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft (EY), Munich, to perform a limited assurance engagement on the separate Non-Financial (Group) Statement for the 2019 financial year.
In addition, EY, which was selected as part of the invitation to tender for the audit mandate from the 2020 financial year, introduced itself and reported on the status of preparations for the change of auditor.
The Nomination Committee held two meetings in the period under review. After having already dealt intensively with succession planning for the Supervisory Board in six meetings in 2018, it handled the re-election of eight shareholder representatives and the election of two new candidates to the Supervisory Board in preparation for the Annual General Meeting on 30 April 2019. It also discussed the succession of the Chairman of the Supervisory Board and the Chair of the Audit Committee, and dealt with the future composition of the Supervisory Board committees. The Nomination Committee also intensively discussed the medium-term succession planning on the Supervisory Board.
There was again no need to convene the Conference Committee in the 2019 financial year.
Munich Re hosted an introductory event for new members of the Supervisory Board, where experts gave presentations on the topics corporate governance, Board remuneration, investments, accounting and risk management. In addition, members of the Supervisory Board were also offered an internal information event in 2019 by way of further training. Almost all took the opportunity to learn more about selected topics in the areas of reinsurance, Group controlling, and big data. The Company also provided the members of the Supervisory Board with electronic training material for self-study. Before they took up their appointments, new members of the Supervisory Board also received selected informational material to prepare for their new role.
In our role as Chairman of the Supervisory Board, Bernd Pischetsrieder (until 30 April 2019) and I (from 30 April 2019) 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 held by Dr. Pischetsrieder was the election of shareholder representatives to the Supervisory Board by the 2019 Annual General Meeting. The discussions that I held served primarily to exchange information across the full range of topics falling within the responsibility of the Supervisory Board.
Karl-Heinz Streibich and I were newly elected to the Supervisory Board by the Annual General Meeting. On the basis of the Co-Determination Agreement, Ruth Brown, Stephan Eberl, EvaMaria Haiduk, Stefan Kaindl, Gabriele Mücke and Manfred Rassy were elected to the Supervisory Board by the responsible bodies. The periods of office of the new and re-elected members of the Supervisory Board commenced at the end of the Annual General Meeting.
Further general information on corporate governance can be found in the Statement of Corporate Governance on pages 16 ff.
Attendance of Supervisory Board Members at meetings of the Supervisory Board of Munich Reinsurance Company and its committees in 2019
Statement on Corporate Governance pursuant to Section 289f and Section 315d of the German Commercial Code (HGB)1 including corporate governance reporting
Pursuant to Section 289f and Section 315d of the German Commercial Code (HGB), Münchener Rückversicherungs-Gesellschaft 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 includes corporate governance reporting within the meaning of the German Corporate Governance Code in the version dated 7 February 2017 (published on 24 April 2017). The remuneration report can be found on pages 36 ff. of the combined management report. More information on corporate governance can be found at www.munichre.com/cg-en.
The Board of Management The Supervisory Board 1 The Statement on Corporate Governance, including corporate governance reporting, is part of the combined management report and was not audited.
Munich Reinsurance Company has three governing bodies: the Annual General Meeting, the Board of Management, and the Supervisory Board. Their functions and powers are defined by law, the Articles of Association, the CoDetermination Agreement applicable to Munich Reinsurance Company, and by rules of procedure and internal guidelines. Employee co-determination on the Supervisory Board is governed by the Co-Determination Agreement concluded pursuant to the German Act on the Co-Determination of Employees in Cross-Border Mergers (MgVG). The principle of parity co-determination on the Supervisory Board has been strengthened by taking into account staff employed in the European Union and in the European Economic Area (EU/EEA).
The documents required by law for the Annual General Meeting and the agenda will be available on the Munich Re website with effect from the day the AGM is called. Shareholders who are unable or do not wish to attend the Annual General Meeting in person 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 to the Company proxies via the internet. In addition, shareholders may watch the whole Annual General Meeting live on the internet and change their instructions right up to the end of the general debate – provided they have issued power of attorney to the Company proxies.
Compliance The Group Compliance and Legal division (GCL) of Munich Reinsurance Company reports directly to the Chairman of the Board of Management. GCL draws up Group-wide compliance rules 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.
In order to further strengthen compliance within the Group, the compliance whistleblowing portal serves as another channel of communication to complement the independent external ombudsperson. Staff members and third parties can use the portal to anonymously report any activity that may cause reputational damage, suspected contraventions of the law, especially financial crime (such as corruption offences, and money laundering), contraventions of antitrust law, insurance supervisory law, market abuse law, data protection law, and any serious breach of associated internal rules and regulations.
The work of the Board of Management, in particular the allocation of responsibilities among the individual Board members, matters reserved for the full Board of Management, and the majority required to pass resolutions, is regulated by rules of procedure issued by the Supervisory Board. The full Board of Management decides on all matters that, either by law, or according to the Articles of Association or rules of procedure, require a resolution of the Board of Management. In particular, it is responsible for matters requiring the approval of the Supervisory Board, for items which have to be submitted to the Annual General Meeting, for tasks which constitute management functions or are of exceptional importance, and for significant personnel issues.
Meetings of the Board of Management take place as required, but generally at least once a month, and are presided over by the Chairman of the Board of Management. The adoption of a resolution requires the majority of votes cast; in the event of a tie, the Chairman has the casting vote. The members of the Board of Management cooperate closely for the benefit of the Company. On an ongoing basis, they inform each other about all important business transactions.
Three Board of Management committees ensure efficient work by the Board of Management: the Group Committee, the Reinsurance Committee, and the Strategy Committee.
Munich Re Group Annual Report 2019 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.
Subcommittees of the Board of Management Committees Both the Group Committee and the Reinsurance Committee have set up subcommittees. The Group Committee has set up the Group Investment Committee and the Group Risk Committee; the Reinsurance Committee has set up the Global Underwriting and Risk Committee as well as the Board Committee IT Investments. The members of these subcommittees also include other Board members and other senior executives from Munich Reinsurance Company and the Group. Only members of the Board of Management that are members of the main committee have voting rights on these subcommittees.
The Board of Management and the Supervisory Board work together closely and in a spirit of trust for the benefit of the Company.
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. Specific types of transaction, such as certain investments and divestments, require the Supervisory Board’s consent. The Supervisory Board’s approval is also required for sideline activities assumed by members of the Board of Management, and (within the scope of the German Corporate Governance Code) for important transactions involving members of the Board of Management or persons or undertakings closely associated with them.
Pursuant to the Articles of Association, the Supervisory Board of Munich Reinsurance Company comprises twenty members: half are shareholder representatives and are elected by the Annual General Meeting. The other ten members are elected employee representatives from Group companies in the EU and EEA.
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 should also meet regularly without the Board of Management.
The Supervisory Board is quorate if all its members have been invited to the meeting or called upon to vote, and if ten members, including the Chairman, participate in the vote. Alternatively, it is quorate if fifteen members participate in the vote. Supervisory Board resolutions are adopted by a majority of votes cast, unless the law or the Articles of Association require otherwise. In the event of a Supervisory Board vote being tied, should a second vote on the same motion also result in a tie, the Chairman of the Supervisory Board has a casting vote. The Chairman is authorised to make declarations for the Supervisory Board based on resolutions.
The Supervisory Board has set up six committees from among its members – the Standing Committee, the Personnel Committee, the Remuneration Committee, the Audit Committee, the Nomination Committee and the
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 women on the Board of Management. In addition, the Personnel Committee represents the Company in matters concerning the members of the Board of Management, and is responsible for personnel matters involving members of the Board of Management, unless these are issues that are the responsibility of the full Supervisory Board or the Remuneration Committee. This Committee approves loan transactions between the Company and members of the Board of Management and their related parties. The Personnel Committee also decides whether to approve sideline activities of members of the Board of Management, particularly mandates in supervisory boards or similar committees.
Audit Committee The Audit Committee prepares Supervisory Board resolutions on the adoption of the Company’s annual financial statements and approval of the Group financial statements. It discusses the material information underlying the Half-Year Financial Report and the quarterly reports, and receives the audit reports, other reports and statements by the external auditor. The Audit Committee also discusses the essential components of the Solvency II reporting with the Board of Management.
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 Committee has developed and adopted a list of criteria for the selection of suitable candidates for the Supervisory Board. It 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.
Principles for Responsible Investment In 2006, we became the first German company to sign the Principles for Responsible Investment (PRI). We implement the principles for sustainable investment through our asset manager MEAG, and we report annually on adherence to these principles.
Further information on these voluntary commitments is available on our Corporate Responsibility Portal at www.munichre.com/cr-en.
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 are to be achieved by 31 December 2020.
The Supervisory Board and Board of Management based these targets on the proportions of women at the respective management levels when the targets were set. Where the Act on Equal Participation of Men and Women in Private-Sector and Public-Sector Management Positions is applicable to Group companies, the target figures for the proportion of women are generally also based on the status quo at the beginning of the period. As a general principle, 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 management level reports to a manager at the first management www.munichre.com/code-of-conduct www.munichre.com/cr-en
Moreover, in accordance with the Act and internal criteria, at least 30% of seats on the Supervisory Board of Munich Reinsurance Company must be filled by women, and at least 30% by men.
On 31 December 2019, 55% of seats on the Supervisory Board of Munich Reinsurance Company were occupied by men and 45% by women, of which four women were shareholder representatives and five were employee representatives. The minimum requirements are thus met by both sets of representatives on the Supervisory Board.
Diversity concept for the Board of Management When appointing members of the Board of Management, the Supervisory Board is mindful of diversity in terms of professional and educational background, internationality, age, and gender. The aim is to ensure that the Board’s composition is as diverse as possible, complementary, and strong as a whole. Gender diversity is described in the section “Equal participation of men and women in management positions”.
Members of the Board of Management bear individual responsibility for the divisions they head, and joint responsibility for overall management of the Company. In addition to the specific knowledge and experience required for each division, all Board members must have a sufficiently broad range of knowledge and experience in all areas of our business to ensure that they can monitor each other.
The Board of Management and Supervisory Board have drawn up a Fit and Proper Policy under Solvency II rules; this policy sets out fitness and propriety requirements for Board members. Accordingly, it must be ensured that the members of the Board of Management have the necessary qualifications in their respective individual areas of responsibility. The policy also requires the Board of Management overall to have adequate qualifications, experience and expertise at least in the business, economic, market and regulatory environment, as well as the business strategy, business model, governance system and risk model of Munich Reinsurance Company, and financial and actuarial analysis.
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, and physics). 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 the following objectives concerning its composition and has defined requirements (list of criteria) regarding the competencies of its members: 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 list of criteria 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 independent member of the Audit Committee must have expertise in accounting or auditing.
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 list of criteria, 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.
Independence In implementing the German Corporate Governance Code, the Supervisory Board has also set the objective of having at least 16 independent members within the meaning of section 5.4.2 of the Code, of which at least eight must be shareholder representatives. Members of the Supervisory Board must have no relevant conflicts of interest.
During the selection process, great value is placed on the independence of the candidates. Taking into account the ownership structure, the Board is of the opinion that all 20 members meet the independence criteria within the meaning of section 5.4.2 of the Code. The Supervisory Board is not aware of any business or personal relationship between a member and the Company, its governing bodies, a controlling shareholder or an entity affiliated with such a shareholder, as a result of which a major and not only temporary conflict of interest could arise. Under this definition, the Supervisory Board assumes that the employee representatives on the Supervisory Board elected in accordance with the Act on the Co-Determination of Employees in Cross-Border Mergers (MgVG) and the CoDetermination Agreement are independent as a matter of principle.
ERGO Digital Ventures AG, Düsseldorf2 (Chair) ERGO Deutschland AG, Düsseldorf2 (Chair) ERGO Technology & Services Management AG, Düsseldorf2 (Chair)
1 As at 31 December 2019. 2 Mandate within Munich Re (Group). 3 Including responsibility for environmental, social and governance (ESG) issues.
Dr. Torsten Jeworrek (Chair) Dr. Thomas Blunck Dr. Peter Röder Chief Financial Officer for the reinsurance field of business2 Chief Risk Officer (Group)2 Head of ALM (Asset Liability Management)2 Head of CU (Corporate Underwriting)2
Board Committee IT Investments Dr. Torsten Jeworrek (Chair) Dr. Thomas Blunck Hermann Pohlchristoph Chief Financial Officer for the reinsurance field of business2 1 As at 31 December 2019. 2 No voting rights.
Members of the Supervisory Board Seats held on statutory supervisory boards
Dr. Nikolaus von Bomhard Deutsche Post AG, Bonn (Chair)4 Athora Holding Ltd., Bermuda (Chair)6 (Chairman) Chairman of the Supervisory Board of Munich Reinsurance Company Member since 30 April 2019
Clement B. Booth Euroassekuranz Versicherungs- Hyperion Insurance Group Ltd., Member of the Board of Directors of Hyperion Insurance Group, United Kingdom Member since 27 April 2016 makler AG, Regensburg (Chair)6 United Kingdom
Ruth Brown2 – – Foreign Services Specialist at DAS Legal Expenses Insurance Member since 30 April 2019
Stephan Eberl2 – – Chair of the Staff Council of Munich Reinsurance Company Member since 30 April 2019
Frank Fassin2 ERGO Group AG, Düsseldorf3 Regional Section Head Financial Services at ver.di North Rhine-Westphalia Member since 22 April 2009
Prof. Dr. Dr. h.c. Ursula Gather thyssenkrupp AG, Essen4 – Rector of TU Dortmund University Member since 30 April 2014
Gerd Häusler Auto1 Group SE, Munich – Member of the Supervisory Board of Auto1 Group SE, Munich Member since 30 April 2014
Gabriele Sinz-Toporzysek2 ERGO Beratung und Vertrieb AG, – Employee of ERGO Beratung und Vertrieb AG Member since 30 April 2014
Karl-Heinz Streibich Dürr AG, Bietigheim-Bissingen (Chair)4 – Co-President of acatech – German Academy of Science and Engineering Member since 30 April 2019
Beate Mensch2 – – Trades Union Secretary, ver.di, Hessen Member from 30 April 2014 to 30 April 2019
Andrés Ruiz Feger2 – – Employee of Munich Re, Sucursal en España, Spain Member from 22 April 2009 to 30 April 2019
Nomination Committee Dr. Nikolaus von Bomhard (Chair) Prof. Dr. Dr. Dr. Ann-Kristin Achleitner Dr. Kurt Wilhelm Bock
This report combines the management reports of Munich Reinsurance Company and Munich Re (Group). Group 31 Group structure 31 Our brands 35 Remuneration report 36
Macroeconomic and industry environment 54 Capital markets 54 Insurance industry 54
Financial position 69 Analysis of our capital structure 69 Technical provisions 69 Restraints on disposal 70 Capital position 70 Information in accordance with Sections 315a(1) and 289a(1) of the German Commercial Code (HGB) and explanatory report of the Board of Management 70 Analysis of the consolidated cash flow statement 72
Munich Reinsurance Company (information reported on the basis of German accountancy rules) 89 Market environment and major factors of influence 89 Business performance 89 Financial position 93 Statement on Corporate Governance for the 2019 financial year pursuant to Section 289f and Section 315d of the German Commercial Code (HGB) 94 Further information 95
For almost 50 years, Munich Re has been addressing the issue of climate change, its effects on the insurance industry, and the resulting risks and opportunities. Climate change constitutes one of the greatest challenges for humanity, and demands decisive action right now in order to limit global warming to less than 2°C. Munich Re is also committed to achieving this goal set by the Paris Climate Change Conference, and undertakes to make its own, independent contribution to combating climate change (for example, by investing in renewable energies or supporting new technologies by means of new risk covers).
We see our main contribution to fighting the effects of climate change in helping new technologies break into the market for a low-carbon future – whether it be in power generation, transport, energy storage or industrial production. We offer insurance solutions in which we assume a portion of the often technology-specific risks. At the same time, we support the aim of no longer insuring coal extraction, coal-based electricity generation or oil sand extraction – assuming any individual risks are known. Furthermore, we avoid investing in securities that generate more than 30% of their earnings from coal or more than 10% of their earnings from oil sand extraction.
In addition to this underlying philosophy, we also actively involve our investors, clients and staff in stakeholder dialogue about our corporate responsibility strategy. One topic that is becoming increasingly important is digitalisation, which is creating numerous opportunities for the insurance business. It allows us to deepen our knowledge, strengthen our existing business relationships and open up new opportunities – for example, by developing innovative products and services related to the Internet of Things. To achieve this, we have been making use of strategic alliances.
The non-financial reporting requirements of the European Union’s Corporate Social Responsibility (CSR) Directive have been transposed into the German Commercial Code (HGB). The following have been identified as aspects to be reported for Munich Re and Munich Reinsurance Company within the meaning of the legal requirements: − Munich Re as a preferred employer and diversity as a strategic success factor
− Anti-corruption and bribery matters − Data protection − Corporate responsibility in insurance and investment
In ERGO, we combine all of Munich Re’s primary insurance activities. Some 69% of gross premiums written by ERGO derive from Germany, and 31% from international business – mainly from central and eastern European countries. ERGO also operates in Asian markets, particularly in India, China, and Thailand.
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. We have concentrated our efforts in this field on the United Kingdom, but are also closely monitoring other markets.
The three major US-based subsidiaries are Munich Reinsurance America, Inc., The Hartford Steam Boiler Inspection and Insurance Company (HSB), and American Modern Insurance Group, Inc. (American Modern). Munich Reinsurance America, Inc. writes property-casualty reinsurance business and niche primary insurance business. The primary insurers HSB and American Modern specialise in products for which client proximity and – like in reinsurance – risk understanding are paramount. Moreover, we pooled and realigned the activities of various specialty insurers in commercial primary insurance business in the North American market within Munich Re Specialty Insurance (MRSI). This measure enables us to leverage synergies and better tap into the business potential in this market segment. The market presence is also supported by Munich Re Specialty Group, a leading provider of marine insurance and insurance solutions for the energy industry.
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. Both operations continued to develop in 2019 – in particular with regard to digitalisation and implementation of the new business model “Hybrid customers”. Today’s clients are the focus of the new business model, and can choose from the same range of products via all online and offline channels. ERGO is thus linking various channels, such as personal consultation, internet, chat, email, telephone or even video consultation.
Munich Re Group Annual Report 2019 digitalisation. ERGO Mobility Solutions, which was set up in 2017, addresses financial services for the automobile sector and seeks to establish partnerships with vehicle manufacturers and mobility service providers. It saw great success in 2019 – not least with the setting up of a joint venture with Great Wall Motors, one of the largest Chinese automobile manufacturers.
In Europe, ERGO is concentrating mainly on expanding its market presence in Poland, the Baltic States, Greece, Spain, Austria and Belgium. By way of example, ERGO is market leader in property-casualty business in Greece, and is number two in Poland. As experienced experts, our legal protection insurers number among the leading players in each of their markets.
In Asia, ERGO is represented through joint ventures in the rapidly growing markets of India and China, as well as in Thailand. In India, ERGO is well positioned in propertycasualty 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. And in Thailand, too, our affiliate is performing well.
Digital transformation is also changing how we interact with customers. They demand excellent service online and offline, irrespective of the sales channel or product category – and they want the security of a strong brand. ERGO is making sure that it can meet these wishes and needs. The ERGO Group has made changes to its brand architecture, and positioned itself as a brand that offers most insurance products through all channels from a single source. Specifically, this means that in the course of 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 full Supervisory Board decides on the remuneration system for the Board of Management, and reviews it regularly. The Remuneration Committee, which is responsible for all remuneration matters of the members of the Board of Management, prepared the corresponding resolutions for the full Supervisory Board in the reporting year. The Remuneration Committee is composed of two independent shareholder representatives and one employee representative.
Bonus scheme spanning one calendar year 70% multi-year bonus (for 100% performance evaluation)
(Peer group: Allianz, AXA Generali, Hannover Re, SCOR, Swiss Re, Zurich Insurance Group)
As only one financial indicator each is used in the annual and multi-year bonus, the variable remuneration component is easier to understand. The IFRS consolidated result and TSR on Munich Re’s shares in comparison with the peer group are two strategically relevant key indicators that form the basis of the variable remuneration. Both indicators can be influenced by the Board of Management.
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 a loading or reduction of up to 20 percentage points on the relevant objective achieved.
Transparency is provided with regard to whether and for what reason loadings or reductions were applied and what they amounted to.
Targets for 2019 A target of €2,500m was set for 2019, with the following linear scaling for the 0–200% target corridor: €1,800m = 0% achievement of objective €2,500m = 100% achievement of objective €3,200m = 200% achievement of objective
Achievement of objectives in 2019 At its meeting in March 2020, the Supervisory Board decides about the achievement of objectives in 2019 on the basis of the IFRS consolidated result and taking into account any loadings or reductions as part of the overall performance evaluation. As the editorial deadline for the Annual Report precedes the Supervisory Board meeting, this information could not be included in the remuneration report. However, it will be made available at www.munichre.com/board-of-management/remuneration on 18 March 2020.
Deferral The run-time of the deferred multi-year bonus takes account of the nature and time horizon 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 makes up only 15% of overall remuneration.
Contractual clawback provisions requiring reimbursement of variable remuneration components already paid out are triggered in the event of a serious breach of duty. All employment contracts of the members of the Board of Management include a provision according to which, in particular pursuant to Section 93 of the German Stock
Upper remuneration limits The respective 0–200% target corridor defines an upper limit for variable remuneration paid to members of the Board of Management. Any higher achievement of objectives is capped at 200%; in this case, there is therefore also no loading as a result of the overall performance evaluation. There are caps on the maximum amounts of total remuneration and its variable components in accordance with the German Corporate Governance Code.
The TSR used in the multi-year bonus reflects the performance of Munich Re’s shares, which ensures that the interests of the Board of Management are in line with those of our shareholders. From the Company’s point of view, the continually increasing requirements in terms of insider trading law regarding the purchase and sale of shares and the rising number of inquiries – also in connection with share-based remuneration components – are compelling reasons to refrain from remuneration based on the obligation to purchase shares.
Most of the members of the Board of Management active in 2019 also hold a large number of Company shares. Moreover, participants in the multi-year performance plan 2017–2019, which will be paid out in 2020, are obliged to invest a portion of their bonus payments in Company shares.
% of basic remuneration for 2019 € € % Joachim Wenning 11,732 263.00 3,085,516.00 139 Thomas Blunck 4,541 263.00 1,194,283.00 111 Nicholas Gartside (since 18 March 2019) 0 263.00 0.00 0 Doris Höpke 3,830 263.00 1,007,290.00 94 Torsten Jeworrek 3,994 263.00 1,050,422.00 68 Christoph Jurecka 3628 263.00 954,164.00 73 Hermann Pohlchristoph 223 263.00 58,649.00 5 Markus Rieß2 3,346 263.00 879,998.00 33 Peter Röder 5,510 263.00 1,449,130.00 135 1 Last trading day in 2019. 2 As regards the overall value of the shares in relation to basic remuneration, the basic remuneration that Markus Rieß received for his work at ERGO Group AG was also taken into consideration.
No guaranteed variable remuneration (sign-on bonuses/ recruitment bonuses) As a matter of principle, the Company does not pay guaranteed variable remuneration to members of the Board of Management. We only pay sign-on/recruitment bonuses in exceptional cases and on production of corresponding evidence if a new member of the Board of Management forfeits a bonus by a previous employer. Compensation for forfeiting variable remuneration components paid by a previous employer is paid in several instalments and is tied to prerequisites for disbursement.
Severance cap and change of control Members of the Board of Management appointed before 1 January 2017 have no contractual right to severance payments. If the Board member’s activities on the Board are terminated prematurely by the Company without good cause, payments due may not exceed the equivalent of two years’ total remuneration (three years’ total remuneration in the event of acquisition of a controlling interest or change of control within the meaning of Section 29(2) of the Securities Acquisition and Takeover Act – WpÜG) and may not cover more than the remaining period of the employment contract if this 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 is based on the overall remuneration for the past financial year and, if necessary, on the probable overall remuneration for the current financial year.
As of 2009, newly appointed members of the Board have become members of a defined contribution plan. For this plan, 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.
Board members appointed before 2009 were transferred to the defined contribution plan. They kept their pension entitlement from the defined benefit plan (fixed amount in euros) existing at the date of transfer, which was maintained as a vested pension.
For their service years as of 1 January 2009, they receive an incremental pension benefit based on the defined contribution plan.
Members of the Board of Management appointed for the first time before 1 January 2019 are also members of the Munich Re pension scheme, which is a defined contribution plan.
− In the case of a combination of defined benefit plans and defined contribution plans: Vested pension from the defined benefit plan and annuity from the policy reserve under the defined contribution plan or payment of a lump sum.
Benefit: − In the case of defined contribution plans: Annuity based on the policy reserve or payment of the policy reserve as a lump sum at the date the pension benefit is claimed.
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 (previously five years) at the time of departure.
Surviving spouses and registered civil partners normally receive a pension amounting to 60% of the defined benefit or insured occupational pension; half orphans receive 20% and full orphans 40%. The total amount may not exceed the occupational pension of the Board member. If the Board member’s occupational pension was reduced owing to early retirement, benefits for surviving dependants are based on the reduced occupational pension.
Pay ratios In the reporting year, the target overall direct remuneration of the Chairman of the Board of Management was 37 (38) times the average target overall direct remuneration of all Company employees (excluding the Board of Management). The average target overall direct remuneration of all members of the Board of Management was 22 (24) times the average target overall direct remuneration of all employees (excluding the Board of Management).
Board of Management remuneration under DRS 17 Under DRS 17, remuneration for the 2019 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 Board resolution is already foreseeable. Under DRS 17, remuneration for multiyear performance 2016–2018 is recognised in the year of payment, i.e. in 2019.
Fixed and variable remuneration components The serving members of Munich Reinsurance Company’s Board of Management in 2019 received remuneration totalling €23.8m (17.4m) for fulfilment of their duties in respect of the parent company and its subsidiaries in the financial year. Total remuneration thus shows an increase of around €6.4m compared with the previous year's figure, which was adjusted for the remuneration of a Board member who left the Board at the end of 31 December 2018. The increase in total remuneration is particularly due to the fact that the Board of Management has had an additional member since March 2019, and that a member appointed during the year in 2015 was included for the first time for the entire assessment period when calculating the multi-year remuneration. Moreover, the levels of target achievement for the variable remuneration components were higher than last year. Total remuneration received by the individual members of the Board of Management is shown in the table below.
Multi-year performance2, 3 Other Total € € € € € € Joachim Wenning 2019 2,225,000 40,963 867,750 773,465 3,907,178 2018 2,225,000 39,201 692,736 646,800 3,603,737 Thomas Blunck 2019 1,075,000 33,913 419,250 793,555 2,321,718 2018 1,075,000 33,797 367,717 637,000 2,113,514 Nicholas Gartside (since 18 March 2019)4 2019 848,909 19,478 331,075 411,188 1,610,650 2018 Doris Höpke 2019 1,075,000 31,532 419,250 879,305 2,405,087 2018 1,075,000 32,273 260,092 493,675 1,861,040 Torsten Jeworrek 2019 1,550,000 38,286 604,500 1,098,580 3,291,366 2018 1,550,000 37,021 483,570 937,860 3,008,451 Christoph Jurecka 2019 1,300,000 30,041 507,000 1,837,041 2018 Hermann Pohlchristoph 2019 1,075,000 48,370 419,250 1,542,620 2018 1,012,500 49,237 319,028 1,380,765 Markus Rieß5 2019 2,675,000 119,459 165,750 1,666,785 4,626,994
Thereof for Munich Reinsurance Company 425,000 23,888 165,750 667,013 1,281,651 2018 2,462,500 120,626 328,480 471,089 3,382,695 Thereof for Munich Reinsurance Company 637,500 47,250 202,500 165,926 1,053,176 1 At the time of preparation of this report, no Supervisory Board resolution had yet been passed on the amounts to be paid for the 2019 annual bonus. The amounts shown for the annual bonus are based on estimates, i.e. the relevant provisions and any additional/reduced expenditure for the 2018 annual bonus. The amounts shown for the 2018 annual bonus comprise the respective provision for 2018 and the relevant additional/reduced expenditure for the 2017 annual performance. The actual bonus payments for 2018 can be seen in the remuneration tables “Remuneration paid in accordance with the German Corporate Governance Code” on pages 49 ff.
2 The multi-year performance component paid annually until 2017 is geared to the success of the fields of business and personal performance of the members of the Board of Management, for which three-year objectives were agreed. In addition, the Supervisory Board assesses the overall performance of the Board of Management as a whole and the individual Board members, and it also takes into account developments during the appraisal period that are beyond the influence of the Board. Payment is effected in the fourth year, with 25% of the net payout amount to be invested in Munich Reinsurance Company shares that must be held for at least a two-year period.
3 The amounts paid out in 2019 were for multi-year performance 2016–2018, those paid out in 2018 were for 2015–2017. 4 Other: Nicholas Gartside does not receive 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. 5 The compensation components that Markus Rieß received for his work at ERGO Group AG are included in the remuneration.
The variable remuneration amounts payable are listed in the table below.
Amounts payable for variable remuneration of the individual Board members in the event of 100% performance evaluation as per DRS 17 (revised 2010), corridor 0–200%
Name Annual bonus1, 3 Multi-year bonus2, 3 Total amounts payable Set in for € € € Joachim Wenning 2019 2020 697,500 1,627,500 2,325,000 2018 2019 667,500 1,557,500 2,225,000 Thomas Blunck 2019 2020 337,500 787,500 1,125,000 2018 2019 322,500 752,500 1,075,000 Nicholas Gartside (since 18 March 2019) 2019 2020 337,500 787,500 1,125,000 2018 2019 254,673 594,236 848,909 Doris Höpke 2019 2020 337,500 787,500 1,125,000 2018 2019 322,500 752,500 1,075,000 Torsten Jeworrek 2019 2020 487,500 1,137,500 1,625,000 2018 2019 465,000 1,085,000 1,550,000 Christoph Jurecka 2019 2020 450,000 1,050,000 1,500,000 2018 2019 390,000 910,000 1,300,000 Hermann Pohlchristoph (until 30 April 2020) 2019 2020 107,500 250,833 358,333 2018 2019 322,500 752,500 1,075,000 Markus Rieß4 2019 2020 150,000 350,000 500,000 2018 2019 127,500 297,500 425,000 Peter Röder 2019 2020 337,500 787,500 1,125,000 2018 2019 322,500 752,500 1,075,000 Total 2019 2020 3,242,500 7,565,833 10,808,333 2018 2019 3,194,673 7,454,236 10,648,909 1 The remuneration set for the annual bonus for 2019 is payable in 2020, that for 2020 in 2021. 2 The remuneration set for the multi-year bonus for 2019 is payable in 2023, that for 2020 in 2024. 3 Information on the assessment bases and targets for the amounts set for 2019 and 2020 is provided on pages 36 ff. 4 The ERGO Group AG remuneration system does not provide for a variable component. Markus Rieß thus only receives variable target amounts from
Board of Management remuneration under the German Corporate Governance Code As required by the provisions of the German Corporate Governance Code, the following tables show the benefits granted and remuneration paid out to individual members of the Board of Management in the year under review.
Chairman of the Board of Management Board member € 2019 2019 (min) 2019 (max) 2018 2019 2019 (min) 2019 (max) 2018 Basic remuneration 2,225,000 2,225,000 2,225,000 2,225,000 1,075,000 1,075,000 1,075,000 1,075,000 Remuneration in kind/fringe benefits 40,963 40,963 40,963 39,201 33,913 33,913 33,913 33,797 Total 2,265,963 2,265,963 2,265,963 2,264,201 1,108,913 1,108,913 1,108,913 1,108,797 One-year variable remuneration
Multi-year variable remuneration Multi-year bonus 2018 1,557,500 752,500 Multi-year bonus 2019 1,557,500 0 3,115,000 752,500 0 1,505,000
Other1 411,188 411,188 411,188 Total 2,128,484 1,279,575 2,977,393 – 2,181,532 1,106,532 3,256,532 2,182,273 Pension expenses 548,842 548,842 548,842 548,824 Total remuneration 2,128,484 1,279,575 2,977,393 – 2,730,374 1,655,374 3,805,374 2,731,097
Board member Board member € 2019 2019 (min) 2019 (max) 2018 2019 2019 (min) 2019 (max) 2018 Basic remuneration 1,550,000 1,550,000 1,550,000 1,550,000 1,300,000 1,300,000 1,300,000 – Remuneration in kind/fringe benefits 38,286 38,286 38,286 37,021 30,041 30,041 30,041 – Total 1,588,286 1,588,286 1,588,286 1,587,021 1,330,041 1,330,041 1,330,041 – One-year variable remuneration
Multi-year variable remuneration Multi-year bonus 2018 1,085,000 – Multi-year bonus 2019 1,085,000 0 2,170,000 910,000 0 1,820,000
Multi-year variable remuneration Multi-year bonus 2018 446,250 446,250 Multi-year bonus 2019 297,500 0 595,000 297,500 0 595,000 0
2 Markus Rieß’ remuneration also includes compensation components and pension expenses for work at ERGO Group AG.
Basic remuneration 2,225,000 2,225,000 1,075,000 1,075,000 Remuneration in kind/fringe benefits 40,963 39,201 33,913 33,797 Total 2,265,963 2,264,201 1,108,913 1,108,797 One-year variable remuneration
Multi-year variable remuneration Multi-year performance 2016–20181, 3 773,465 77 793,555 79 Multi-year performance 2017–20193, 4 1,712,466 100 965,927 96
Other Total 4,846,179 3,678,466 2,494,090 2,211,952 Pension expenses 1,136,393 1,136,448 561,321 538,910 Total remuneration 5,982,572 4,814,914 3,055,411 2,750,862
Basic remuneration 848,909 – 1,075,000 1,075,000 Remuneration in kind/fringe benefits 19,478 – 31,532 32,273 Total 868,387 – 1,106,532 1,107,273 One-year variable remuneration
Basic remuneration 1,550,000 1,550,000 1,300,000 – Remuneration in kind/fringe benefits 38,286 37,021 30,041 – Total 1,588,286 1,587,021 1,330,041 – One-year variable remuneration
Other Total 3,582,779 3,132,001 1,837,041 – Pension expenses 854,034 829,982 663,000 – Total remuneration 4,436,813 3,961,983 2,500,041 –
Basic remuneration 1,075,000 1,012,500 Remuneration in kind/fringe benefits 48,370 49,237 Total 1,123,370 1,061,737 One-year variable remuneration
Multi-year variable remuneration Multi-year performance 2016–20181, 3 – Multi-year performance 2017–20193, 4 581,127 96
Other Total 2,123,747 1,353,337 Pension expenses 548,574 516,720 Total remuneration 2,672,321 1,870,057
Basic remuneration 2,675,000 2,462,500 425,000 637,500 Remuneration in kind/fringe benefits 119,459 120,626 23,888 47,250 Total 2,794,459 2,583,126 448,888 684,750 One-year variable remuneration
Multi-year variable remuneration Multi-year performance 2016–20181, 3 1,666,785 667,013 121 Multi-year performance 2017–20193, 4 1,440,609 610,234 111
Basic remuneration 1,075,000 1,075,000 Remuneration in kind/fringe benefits 30,446 31,713 Total 1,105,446 1,106,713 One-year variable remuneration
Multi-year variable remuneration Multi-year performance 2016–20181, 3 763,420 76 Multi-year performance 2017–20193, 4 965,927 96
2 At the time of preparation of this report, no Supervisory Board resolution had yet been passed on the amounts to be paid for the 2019 annual bonus, the amount shown is based on estimates and the relevant provisions posted.
3 The multi-year performance component paid annually until 2017 is geared to the success of the fields of business and personal performance of the members of the Board of Management, for which three-year objectives were agreed. In addition, the Supervisory Board assesses the overall performance of the Board of Management as a whole and the individual Board members, and it also takes into account developments during the appraisal period that are beyond the influence of the Board. Payment is effected in the fourth year, with 25% of the net payout amount to be invested in Munich Reinsurance Company shares that must be held for at least a two-year period.
5 Nicholas Gartside does not receive 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.
Remuneration of the members of the Supervisory Board in 2019 In the year under review, 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 Chairman annual remuneration of €150,000.
In case of changes in the Supervisory Board and/or its committees, the remuneration is paid on a pro-rata basis, rounded up to the next full month.
The current remuneration system for members of the Supervisory Board excludes variable remuneration components and pension benefits.
Com- mittee work Attendance fees Total € € € € € € € € Bernd Pischetsrieder2 2019 73,333 48,334 6,000 127,667 Chairman 2018 180,000 126,000 22,000 328,000 Nikolaus von Bomhard3 2019 165,000 108,750 9,000 282,750 Chairman 2018 Marco Nörenberg2 2019 50,000 5,000 2,000 57,000 11,507 11,507 Deputy Chairman 2018 135,000 13,500 7,000 155,500 35,000 35,000 Anne Horstmann 2019 137,500 29,583 8,000 175,083 43,678 12,541 56,219 Deputy Chairman since 30 April 2019 2018 90,000 45,000 15,000 150,000 52,500 7,500 60,000 Ann-Kristin Achleitner 2019 100,000 107,500 15,000 222,500 2018 90,000 72,000 20,000 182,000 Kurt Wilhelm Bock 2019 100,000 11,250 6,000 117,250 2018 67,500 3,000 70,500 Clement Booth 2019 100,000 6,000 106,000 2018 90,000 6,000 96,000 Ruth Brown3 2019 75,000 4,000 79,000 2018 Stephan Eberl3 2019 75,000 33,750 5,000 113,750 2018 Frank Fassin 2019 100,000 6,000 106,000 35,000 35,000 2018 90,000 6,000 96,000 35,000 35,000 Benita Ferrero-Waldner 2019 100,000 6,000 106,000 2018 90,000 6,000 96,000 Christian Fuhrmann2 2019 33,333 18,334 4,000 55,667 2018 90,000 45,000 15,000 150,000 Ursula Gather 2019 100,000 6,000 106,000 2018 90,000 6,000 96,000
Com- mittee work Attendance fees Total € € € € € € € € Gerd Häusler 2019 100,000 15,000 6,000 121,000 2018 90,000 13,500 7,000 110,500 Eva-Maria Haiduk3 2019 75,000 4,000 79,000 2018 Ina Hosenfelder2 2019 33,333 2,000 35,333 23,493 23,493 2018 90,000 4,000 94,000 Renata Jungo Brüngger 2019 100,000 22,500 7,000 129,500 2018 90,000 6,000 96,000 Henning Kagermann2 2019 33,333 51,666 6,000 90,999 2018 90,000 130,500 21,000 241,500 Stefan Kaindl3 2019 75,000 41,250 8,000 124,250 2018 Beate Mensch2 2019 33,333 2,000 35,333 2018 90,000 6,000 96,000 Gabriele Mücke3 2019 75,000 4,000 79,000 2018 Ulrich Plottke 2019 100,000 41,250 10,000 151,250 43,822 12,459 56,281 2018 90,000 6,000 96,000 35,000 17,500 52,500 Manfred Rassy3 2019 75,000 4,000 79,000 2018 Andrés Ruiz Feger2 2019 33,333 5,000 2,000 40,333 2018 90,000 13,500 7,000 110,500 Gabriele Sinz-Toporzysek 2019 100,000 6,000 106,000 15,000 15,000 2018 90,000 5,000 95,000 15,000 15,000 Karl-Heinz Streibich3 2019 75,000 4,000 79,000 2018 Angelika Wirtz2 2019 33,333 10,000 6,000 49,333 2018 90,000 27,000 9,000 126,000 Maximilian Zimmerer 2019 100,000 82,500 10,000 192,500 2018 90,000 6,000 96,000 Total4 2019 2,250,831 631,668 164,000 3,046,499 172,500 25,000 197,500 2018 1,912,500 486,000 183,000 2,581,500 172,500 25,000 197,500 1 Plus value-added tax (USt) in each case, in accordance with the relevant Articles of Association. 2 Member of the Supervisory Board until 30 April 2019 3 Member of the Supervisory Board from 30 April 2019 4 The previous year’s figures do not include the remuneration of members who left the Supervisory Board in the 2018 financial year.
Macroeconomic and industry environment Global economic growth in 2019 was considerably weaker than in the previous year. While the economy in the USA slowed, growth was subdued in the eurozone and Japan. China’s high growth rate decreased somewhat, and India’s rapidly growing economy slowed markedly. Growth rates remained low in Brazil and Russia. Inflation rates in developed economies were lower on average than in the previous year. In the eurozone and Japan, inflation was low.
Equity markets 31.12.2019 31.12.2018 DJ EURO STOXX 50 3,745 3,001 Dow Jones Index 28,538 23,327
Our value-based management is characterised by the following aspects: − Risk capital, i.e. the capital required to cover the risks, is the basis of our value- and risk-based management. The capital requirement corresponds to the solvency capital requirement under Solvency II, as determined on the basis of our certified internal risk model. Information on the internal risk model is provided on pages 73 ff.
Contrasting aspects have to be evaluated when selecting suitable target figures. On the one hand, the often-complex economic realities should be reflected as closely as possible in order to emphasise added value as the Group’s overriding guiding principle. On the other hand, target figures should be straightforward and understandable for investors, staff, and the public.
Gross premiums written comprise all premium income due for payment in a financial year. Increases in gross premiums written are the prime indicator of corporate growth at the Group and segment levels. However, increases in this performance metric are not an inherently meaningful target for our Group, as we must always consider premium growth as it relates to the profitability of the business we write.
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
When regarded in isolation, the combined ratio is not a sufficiently convincing metric because it does not make it possible to assess economic profitability. It is also only of limited suitability for comparing the financial performance of competitors owing to differing calculation methods and portfolio mixes. Generally, we aim to keep the combined ratio as low as possible by means of good underwriting and claims management.
This is a key indicator of investment performance for Munich Re, on the basis of external reporting. It is derived from the investment result and the average market value of our investment portfolio – including off-balance-sheet unrealised gains and losses, but excluding owner-occupied property and insurance-related loans.2 2 The calculation of RoI is explained in the table on the investment result on page 60.
Technical result €m 2,074 2,698.5 –23.1 Investment result €m 7,737 6,526.1 18.6 Result from insurance-related investments €m 1,176 –684.6 – Operating result €m 4,004 3,725.0 7.5 Currency result €m 73 –39.2 – Taxes on income €m –483 –575.6 16.1 Economic earnings €bn 7.4 1.9 391.7 Return on equity (RoE)1 % 9.2 8.4 Consolidated result €m 2,707 2,275.3 19.0 Investments €bn 228.8 216.9 5.5 Insurance-related investments €bn 9.2 8.4 8.8 Net technical provisions €bn 217.9 208.3 4.6 Equity €bn 30.6 26.5 15.4 1 The RoE is calculated on the basis of the consolidated result, including the result attributable to non-controlling interests. We use the figures as at 31 December 2018 (€26.5bn), 31 March 2019 (€29.0bn), 30 June 2019 (€29.5bn), 30 September 2019 (€31.6bn) and 31 December 2019 (€30.6bn) to calculate the average equity for the reporting year.
Munich Re’s gross premiums written, at €51,457m, were significantly higher than last year (€49,064m). This is mainly due to new reinsurance contracts and currency translation effects.
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. Operational value creation was positive in all fields of business, although major-loss expenditure in property-casualty reinsurance was randomly higher than anticipated. Likewise, the overall positive market variances contributed significantly to the high economic earnings of the financial year: the increase in share prices, the reduction in risk spreads on fixed-interest securities, the appreciation of important foreign currencies against the euro and the positive performance of investments in real estate and infrastructure more than offset adverse effects from the decline in risk-free interest rates.
The currency result was €73m (–39m); this was positively affected mainly by the performance of the US dollar. Our effective tax rate was 15.1% (20.2%), having fallen due to a number of one-off effects and being below our expected rate.
Information on events after the balance sheet date can be found in the notes to the consolidated financial statements on pages 175 f.
Loans 52,507 54,845 12,147 9,453 64,654 64,298 Other securities available for sale 151,558 139,272 14,370 6,771 151,558 139,272
The increase in unrealised gains/losses on other fixedinterest securities available for sale and loans was chiefly attributable to the lower interest rate level. The valuation reserves on equities and property increased primarily due to an overall positive market development.
1 Presentation essentially shows fixed-interest securities and loans, including deposits and cash at banks, at fair value. The approximation is not fully comparable with IFRS figures.
Our portfolio of government bonds, covered bonds and corporate bonds had a good rating structure: as at 31 December 2019, some 83% of the securities were rated AAA to A.
Our equity portfolio increased as a result of acquisitions and the overall positive market development. Our equitybacking ratio (before taking derivatives into account, and including investments in affiliated companies, associates and joint ventures at fair value) came to 7.1% (6.2%) at the end of the year. The equity-backing ratio including derivatives was 6.4% (5.2%). Besides this, we protect ourselves against accelerated inflation in an environment of continuing low interest rates by holding inflation-linked bonds with a fair value of €8.6bn (€7.6bn). Real and financial assets such as shares, property, commodities, and investments in infrastructure, renewable energies and new technologies also serve to guard against inflation. Additionally, our investments in real and financial assets have a positive diversification effect on the entire portfolio.
Investment result1 2019 RoI2 Prev. year RoI2 €m % €m % Regular income 6,751 2.8 6,586 2.8 Write-ups/write-downs of non-derivative investments –309 –0.1 –1,054 –0.5 Gains/losses on the disposal of non-derivative investments 2,779 1.1 1,582 0.7 Net balance of derivatives –717 –0.3 103 0.0 Other income/expenses –767 –0.3 –691 –0.3 Total 7,737 3.2 6,526 2.8 1 Details of the result by type of investment are shown in the notes to the consolidated financial statements on page 163. 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 2019 (3.2%) was calculated as the mean value of the investment portfolios (carrying amounts) as at 31 December 2018 (€216,852m), 31 March 2019 (€223,927m), 30 June 2019 (€226,619m), 30 September 2019 (€232,933m) and 31 December 2019 (€228,764m), and the off-balance-sheet unrealised gains and losses (excluding owner-occupied property and insurance-related loans) as at 31 December 2018 (€15,024m), 31 March 2019 (€16,556m), 30 June 2019 (€18,506m), 30 September 2019 (€20,588m) and 31 December 2019 (€18,546m).
Regular income increased slightly on the previous year, primarily due to higher amounts from dividends and private equity investments. The average reinvestment yield1 in the financial year was 2.1% (2.2%). 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.
1 The average reinvestment yield is shown as an annual rate of return. All reinvestments that are transacted in a specific reporting period and have remaining terms to maturity of more than one year are recognised at the rates of return applicable at the relevant trade dates; for securities with terms to maturity of up to one year the proportionate term to maturity is taken into account. Investments whose return cannot be calculated (e.g. equities, debt securities with variable rates, inflation-linked bonds, derivatives, real estate) or which do not the characteristics of investments (e.g. cash at banks) are not included. Hedging costs for securities in foreign currency are not considered.
Key figures 2019 Prev. year Change % Gross premiums written €m 11,716 10,849 8.0 Share of gross premiums written in reinsurance % 34.7 34.7 Technical result incl. result from reinsurance treaties with non-significant risk transfer €m 456 584 –22.0 Investment result €m 1,080 988 9.3 Operating result €m 849 930 –8.7 Consolidated result €m 706 729 –3.2
We write the majority of our business in non-euro currencies. Exchange-rate fluctuations therefore have a significant impact on premium development. The exchange-rate effects were positive in 2019. If exchange rates had remained unchanged, our premium income would have risen by 5.1%. The increase was mainly due to business expansion in Asia and in life reinsurance in North America. Premium income decreased slightly following our discontinuation of health reinsurance in the USA.
At €329m, the technical result was below the very good previous-year figure (€503m), and thus also below our expectations for this year.
This is primarily attributable to claims burdens from Australian disability business, which were only partially offset by good results in the USA and Europe.
The result was also buoyed by favourable claims experience overall (with the exception of Australia), in particular with business in the USA and Europe. The restructuring of several traditional treaties in Canada also contributed favourably to the result.
The result from the part of the business that is not posted in the technical result as a consequence of non-significant risk transfer continued to develop in a very satisfying manner. At €127m, this result was significantly higher than in the previous year (€81m), and above our expectations owing to business growth, particularly in the USA and Asia. This compensated, at least in part, for the technical result falling short of our expectations.
After the decrease in premium income in Canada in the previous year, we once again recorded an increase to €1.7bn (1.5bn), thereby retaining our leading market position in traditional business. The technical result was in line with expectations and thus again accounts for a disproportionately large contribution to the overall result. Although the technical result was adversely affected by a planned restructuring of investments, this was counterbalanced by positive effects from the restructuring of several large reinsurance treaties.
Premium generated by our business activities in Australia and New Zealand remained largely constant at €808m (827m). Our main focus here remains the rehabilitation of our existing portfolio. Claims expenditure was higher than anticipated, especially in the first half of the year. As a consequence, we conducted a comprehensive review of our reserves, which resulted in a negative impact on the result of around €200m in Q4. In the course of the year, we also had to increase our provisions for outstanding claims due to lower interest-rate levels. On balance, we posted a negative technical result.
Thereof: Major losses Percentage points 15.2 11.6 Expense ratio % 34.4 34.2 Combined ratio % 101.0 99.4 Technical result €m 1,000 1,250 –19.9 Investment result €m 2,152 1,555 38.4 Operating result €m 1,764 1,534 15.0 Consolidated result €m 1,562 1,135 37.6
Reinsurance treaty renewals in 2019 saw prices rise in regions affected by natural catastrophes. In other markets and lines of business, prices remained stable or increased slightly. Despite high losses from natural catastrophes in the previous year, the supply of reinsurance capacity remained high during the 2019 renewals. In the renewals for 2019, prices rose by approximately 0.3%. Overall, we are adhering to our profit-oriented underwriting policy.
The consolidated result and the operating result in property-casualty reinsurance improved compared with the previous year. Expenditure for major losses was up, and the technical result decreased significantly on the previous year. Adjusted for commissions, Munich Re’s customary review of provisions resulted in a reduction in the basic claims provisions for prior years of around €1,154m for the full year, which is equivalent to around 5.6 percentage points of the combined ratio. This positive development related to almost all lines in our portfolio. The safety margin in the provisions remained unchanged year on year.
Aggregate losses from natural catastrophes totalled €2,053m (1,256m) for the full year. This figure is equivalent to 10.0% (6.7%) of net earned premium. The biggest loss events of the year were Typhoons Hagibis and Faxai in Japan, for which we expect total expenditure of around €1,300m, and Hurricane Dorian, with expected losses in the region of €360m. There were also a number of thunderstorms in the USA.
At €1,071m, man-made major losses were up on the previous year (€896m), which is equivalent to 5.2% (4.8%) of net earned premiums. The number of losses above the major-loss threshold was randomly higher than in previous years. The largest individual losses were recorded in aviation/space and fire.
The investment result increased by €597m on the previous year, largely owing to lower write-downs of shares triggered by rising equity markets in the financial year and higher gains on the disposal of fixed-interest securities.
Based on premium volume, around 45% of our global property-casualty reinsurance business – including Risk Solutions – is written in North America (including Canada). Around 35% of our premium comes from Europe, of which around half is generated in the United Kingdom. Further substantial shares are contributed by Asia (about 10%), Australia/New Zealand (approximately 5%) and Latin America (approximately 5%).
In the US market, we continued to grow our existing reinsurance business with selected clients and, in addition, wrote profitable new business in the past financial year. As a result, Munich Reinsurance America Inc. posted an increase in premium volume to €4,449m (4,348m).
In Canada, we are represented in the area of non-life business by the Munich Reinsurance Company of Canada and Temple Insurance Company. Premium volume increased to €392m (313m) owing to the acquisition of the business of ERGO D.A.S.
At our Swiss subsidiary, New Reinsurance Company Ltd. (New Re), business volume in the area of property-casualty decreased to €542m (608m) owing to rigorous portfolio management.
Premium income in Japan was up on the previous year and totalled €425m (336m).
We are further expanding our business in India, where we generated an increase in premium income to €367m (206m). Thanks to our local branch, we are well positioned to continue to participate in the expected future growth potential here.
In the Caribbean, Central and South America, we still provide high capacity for the coverage of natural hazards, in particular windstorm and earthquake. Major losses from natural catastrophes in recent years (hurricanes, floods, earthquakes and wildfires) were responsible for increased demand in this field. As a result, we were not only able to defend our strong market position, but actually also raised our premium volume significantly to €1,232m (1,052m). The associated price increases once again resulted in improved margins.
In agricultural reinsurance, we grew our premium volume to €495m (440m), mainly thanks to expanded business with a major client. Claims experience was higher than expected owing to extreme weather and crop conditions in the USA and China, leading to a deterioration in the combined ratio compared with the previous year.
Thanks to a positive market environment, premium income in direct industrial business, which we operate in our Corporate Insurance Partner unit, rose to €722m (554m). The result saw an improvement compared with the previous year. In mid-2019, the Corporate Insurance Partner unit and facultative business were pooled in the new Facultative & Corporate unit.
The Capital Partners unit offers our clients a broad spectrum of structured, individual reinsurance and capital market solutions. We also use this unit’s services for our own purposes in order to buy retrocession cover on the basis of our defined risk strategy. In the year under review, we structured client transactions worth US$ 470m. In addition, Capital Partners placed a sidecar transaction amounting to US$ 700m in the capital markets for its own purposes.
In the ERGO Life and Health Germany segment, German direct business was renamed Digital Ventures in 2019. Furthermore, ERGO Direkt Lebensversicherung AG from the Digital Ventures division was merged with ERGO Vorsorge Lebensversicherung AG in the Life Germany division with retroactive effect from 1 January 2019.
Gross premiums written in the segment decreased slightly in the financial year 2019. The decline was attributable to the planned reduction of the portfolio in the Life Germany operations, adjusted for the effects of the merger. The Health Germany and Digital Ventures operations increased their gross premiums written. In Health Germany, premium growth was mainly driven by supplementary insurance and travel insurance. Premium growth in Digital Ventures – adjusted for the effects of the merger – chiefly derived from supplementary dental insurance. The segment’s total premium income was up on the previous year.
The decline in the consolidated result was attributable to the lower technical result.
For the ERGO Life and Health Germany segment, information about the German life, health and Digital Ventures operations is provided below.
Key figures 2019 Prev. year Change €m €m % Total premium income1 3,907 3,433 13.8 Gross premiums written 2,913 2,831 2.9 Technical result –21 136 – Operating result 271 407 –33.4 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.
The increase in gross premiums written was the result of the merger mentioned above. Without this effect, the figure would have been down on the previous year. The decrease 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 up on the previous year’s level. The increase was a result of the merger totalling €388m and a one-time accounting effect from a rate change in the amount of €319m. Both effects had a significant impact on new business as well: we saw growth in both regular-premium and singlepremium new business. The increase was significant also in terms of annual premium equivalent (APE, see also the following table), which is the performance measure customary among investors.
New business Life Germany 2019 Prev. year Change €m €m % Regular premiums 198 184 7.6 Single premiums 797 405 97.0 Total 995 589 69.1 Annual premium equivalent1 1 The annual premium equivalent corresponds to the regular premium income plus 10% of single-premium volume.
The technical result declined, largely because the 2018 figure had benefited from a one-off effect. The investment result in the past financial year was €2,368m (2,172m); the increase was attributable to higher regular income thanks to the merger, higher gains on disposals, and lower writedowns of equities, among other factors. To finance the additional interest reserve (ZZR – to be built up only in single-entity financial statements under German GAAP), we realised more valuation reserves compared with 2018. The operating result decreased overall.
Key figures 2019 Prev. year Change €m €m % Gross premiums written 5,560 5,448 2.1 Technical result 224 326 –31.3 Operating result 369 324 13.7
The lower technical result was mainly attributable to higher claims expenditure. The investment result rose, particularly due to higher gains on disposals and lower write-downs of equities, to €1,539m (1,236m). Overall, the operating result was up on the previous year.
The technical result and the investment result decreased by 25.3% and 89.9% respectively, mainly due to the merger. Altogether, the operating result decreased year on year.
Key figures 2019 Prev. year Change % Gross premiums written €m 3,500 3,377 3.6 Share of gross premiums written by ERGO % 19.8 19.0 Loss ratio % 60.3 62.5 Expense ratio % 32.0 33.4 Combined ratio % 92.3 96.0 Technical result €m 303 166 83.2 Investment result €m 157 133 18.4 Operating result €m 408 228 78.9 Consolidated result €m 148 45 230.5
As regards premium income, our most important classes of business in the ERGO Property-casualty Germany segment were motor insurance and personal accident insurance. They respectively accounted for around 19% and 17% of the segment’s gross premiums written.
Gross premiums written developed favourably year on year, mainly on account of growth in fire and property insurance and third-party liability insurance of 7.9% each. Other classes of business – above all marine and engineering – also saw an increase of 6.2% in gross premiums written compared with the previous year, as did motor insurance, at 2.2%. By contrast, gross premiums written were down 2.2% in personal accident insurance and 0.4% in legal protection insurance.
At 3.7 percentage points below the previous year’s figure, the combined ratio for 2019 was very good, reaching its lowest level since 2011. Both the loss ratio and expense ratio improved year on year. Paid claims and the change in claims provisions totalled €2,025m (2,033m), along with net operating expenses of €1,077m (1,087m), compared with net earned premiums of €3,362m (3,252m).
The investment result was up on 2018, largely thanks to higher gains from the disposal of equities and interestbearing investments.
The increase in the consolidated result was chiefly attributable to the higher technical result.
With regard to the segment’s gross premiums written, property-casualty insurance accounted for around 57%, health for about 29% and life insurance for approximately 14%. Our biggest markets are Poland, accounting for approximately 31% of the premium volume, Belgium (approx. 18%) and Spain (approx. 17%).
At €698m (843m), gross premiums written in international life insurance business were down by 17.2% on the previous year. This was due not just to portfolio optimisation, but also to lower premium income in Belgium, where we already stopped taking on new business in 2017. Total premium income fell by 16.9% to €934m (1,123m).
New business Life International 2019 Prev. year Change €m €m % Regular premiums 82 61 34.0 Single premiums 364 265 37.2 Total 446 326 36.6 Annual premium equivalent1 118 88 35.0 1 The annual premium equivalent corresponds to the regular premium income plus 10% of single-premium volume.
The technical result decreased compared with the previous year. Lower results in life insurance – especially in Belgium, due to higher impairment losses on deferred acquisition costs owing to the low-interest environment – could not be offset by the positive performance of health and property-casualty business.
Overall, the consolidated result remained at the previous year’s good level.
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 (78% of the balance sheet total). Equity (11% of the balance sheet total) and bonds classified as strategic debt (1% of the balance sheet total) are the most important sources of funds.
Development of Group equity 31.12.2019 Prev. year Change €m €m % Issued capital and capital reserve 7,421 7,418 0.0 Retained earnings 12,804 13,201 –3.0 Other reserves 7,510 3,440 118.3 Consolidated result attributable to equity holders of Munich Reinsurance Company 2,724 2,310 18.0 Non-controlling interests 117 131 –11.0 Total 30,576 26,500 15.4
The higher Group equity is mainly attributable to the good consolidated result and the increase in valuation reserves on fixed-interest securities and shares. The dividend payout and share buy-backs had an adverse impact.
Through active capital management, we strive to ensure that Munich Re’s capital satisfies all applicable standards. In addition to the capital requirements determined using our internal risk model, more far-reaching requirements by regulatory authorities, rating agencies and our key insurance markets must be met. The Solvency II ratio is a fundamental measure of Munich Re’s capital strength. Further information on this ratio can be found on page 81 in the risk report. We aim to ensure that our financial strength is such that it enables us to take advantage of profitable opportunities for growth, is not significantly affected by normal fluctuations in capital market conditions, and remains at a reasonable level even in the wake of major loss events or substantial falls in the stock markets. At the same time, we also define an appropriate level of Group own funds as one which does not lastingly exceed that which is required. Excess capital is returned to our shareholders via dividends and share buy-backs. In practice, capital repatriation comes up against limits because German commercial law (the German Commercial Code; HGB) forces our parent, Munich Reinsurance Company, to maintain the claims equalisation provision in local GAAP accounting at a level that exceeds the economic requirements. This restricts the revenue reserves and profit distribution possibilities, but stabilises results in years with high claims expenditure. As at 31 December 2019, Munich Reinsurance Company’s claims equalisation provision totalled €9.3bn. Additional information can be found under Munich Reinsurance Company (information reported on the basis of German accountancy rules) on pages 93 f.
Between 2006 and 2019, we returned a total of €28.9bn to our shareholders. In March 2019, the Board of Management launched another share buy-back programme. We intend to repurchase shares again, up to a maximum purchase price of €1bn by the Annual General Meeting on 29 April 2020. During the reporting year, we had bought back shares with a total volume of €963m.
As at 31 December 2019, Munich Reinsurance Company’s share capital of €587,725,396.48 was divided into 144,317,861 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.
Statutory regulations and provisions of the Articles of Association regarding appointment and dismissal of members of the Board of Management, and concerning amendments to the Articles of Association
Company are listed below. In all such cases, a resolution of the Annual General Meeting is required that has been adopted by at least a three-quarter majority of the share capital represented in the vote. Where these resolutions are concerned, the Company’s Articles of Association again do not provide for other (i.e. higher) majorities or further requirements. Pursuant to Article 14 of the Articles of Association and Section 179(1) sentence 2 of the Stock Corporation Act, the Supervisory Board is empowered to make amendments to the Articles of Association which affect only the wording.
The powers of the members of the Board of Management are defined in Sections 71 and 76–94 of the Stock Corporation Act (AktG). The Board of Management has the following powers to issue and buy back shares: − The Annual General Meeting of 25 April 2018 authorised the Company, pursuant to Section 71(1) no. 8 of the Stock Corporation Act, to buy back shares until 24 April 2023 up to a total amount of 10% of the share capital. The shares acquired plus other own shares in the possession of the Company, or attributable to the Company pursuant to Sections 71d and 71e of the Stock Corporation Act may at no time amount to more than 10% of the share capital. In accordance with the provisions of the authorisation, the shares may be acquired in various ways. The Board of Management is authorised to use shares thus acquired for all legally permissible purposes, in particular those specified in the authorisation, whilst excluding subscription rights. Among other things, the Board of Management is empowered under Section 71(1) no. 8 of the Stock Corporation Act to retire the shares without requiring further approval from the Annual General Meeting. By resolution of 19 March 2019, the Board of Management decided to utilise this authorisation to acquire own shares. Around 2.9 million shares had been acquired by 31 December 2019 at a purchase price of approximately €660m.
− The Annual General Meeting of 23 April 2015 authorised the Board of Management to issue, with the consent of the Supervisory Board, in one or more issues up to 22 April 2020, convertible bonds, bonds with warrants, profit participation rights, profit participation certificates or combinations of such instruments (hereinafter collectively referred to as “bonds”) for a maximum nominal amount of €3bn with or without a limited term to maturity. Shareholders are generally entitled to a subscription right in respect of these bonds, but the Board of Management is authorised, with the consent of the Supervisory Board, to exclude this subscription right in the cases specified in the authorisation. The holders of such bonds may be granted conversion rights, warrants or conversion obligations in respect of shares issued by the Company up to a maximum amount of €117m of the
In the consolidated cash flow statement, the consolidated profit of €2,707m is used as the starting point for determining the cash inflows from operating activities. The consolidated result is also adjusted by €11,816m to take account of the higher technical provisions. The net gains on the disposal of investments – which in adjusting the consolidated profit have to be deducted from the cash flows – are essentially attributable to the disposal of securities available for sale.
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. It is approved by the Board of Management, and discussed with the Audit Committee of the Supervisory Board as a material element of the own risk and solvency assessment (ORSA) process.
Our implementation of risk management at the operational level embraces the identification, analysis and assessment of all material risks. This provides a basis for risk reporting, the control of limits and monitoring.
Our general definition of risk is possible future developments or events that could result in a negative deviation from the Group’s prognoses or targets. We classify risks as “significant” if they could have a long-term adverse effect on Munich Re’s assets, financial situation or profitability. We have applied this definition consistently to each business unit and legal entity, taking account of its individual riskbearing capacity. In doing so, we differentiate between risks depicted in our internal model and other risks.
The SCR is the amount of eligible own funds that Munich Re needs to have available, with a given risk tolerance, to cover unexpected losses in the following year. It corresponds to the value at risk of the economic profit and loss distribution over a one-year time horizon with a confidence level of 99.5%, and thus equates to the economic loss for Munich Re that, given unchanged exposures, will be exceeded each year with a statistical probability of 0.5%. Our internal model is based on
Other information about the changes in the different risk categories and details about risk concentrations can be found in the following sections.
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,
Munich Re Group Annual Report 2019 and credit classes of insurance, together with special lines also allocated to property-casualty. Additional information on risks in property-casualty insurance can be found in the Notes to the consolidated financial statements on pages 167 ff.
We limit our risk exposure by setting limits not only for natural catastrophe risks, for example, but also for potential man-made losses. Our experts develop scientifically sound scenarios for possible natural events that quantify the probability of occurrence and damage potential. Based on these scenarios, the potential effects on our portfolio are determined using stochastic models.
As well as analysing the stress scenarios, we also look 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.
Another measure for controlling underwriting risks is the targeted cession of a portion of our risks to other carriers via external reinsurance or retrocession. Most of our companies have intra-Group and/or external reinsurance and retrocession cover.
Solvency capital requirement – Property-casualty The increase in capital requirements by 15.7% at Group level is mainly a consequence of the further increase in business exposed to natural hazards in the reinsurance field of business (including specialised primary insurance business) in line with our business strategy.
Basic losses 3,895 3,894 393 368 –243 –264 Large and accumulation losses 8,282 7,003 153 192 –108 –141 Subtotal 12,177 10,896 545 559 Diversification effect –3,403 –3,340 –111 –134 Total 8,774 7,557 434 425 –375 –347
→ Group 31.12.2019 Prev. year Change €m €m €m % Basic losses 4,044 3,997 47 1.2 Large and accumulation losses 8,327 7,053 1,274 18.1 Subtotal 12,371 11,051 1,320 11.9 Diversification effect –3,537 –3,417 –120 –3.5 Total 8,833 7,634 1,199 15.7
Risk modelling attributes probabilities to potential modified assumptions, and produces a complete profit and loss distribution. We use primarily historical data extracted from our underlying portfolios to calibrate these probabilities, and additionally apply general mortality rates for the population to model the mortality trend risk. To enable us to define appropriate parameters for the modelling of the range of areas in which we operate, portfolios with a homogeneous risk structure are grouped together. We then aggregate the individual profit and loss distributions taking account of the dependency structure to obtain an overall distribution.
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 insurance, most long-term contracts include the possibility and/or obligation to adjust premiums. Practically, however, there are limits to the resilience of policyholders.
Reinsurance ERGO Diversification Group 31.12.2019 Prev. year 31.12.2019 Prev. year 31.12.2019 Prev. year 31.12.2019 Prev. year €m €m €m €m €m €m €m €m
Market risk We define market risk as the risk of economic losses resulting from price changes in the capital markets. It includes equity risk, general interest-rate risk, specific interest-rate risk, property-price risk and currency risk. The general interest-rate risk relates to changes in the basic yield curves, whereas the specific interest-rate risk arises from changes in credit risk spreads – for example, on euro government bonds from various issuers, or on corporate bonds. We also include in market risk the risk of changes in inflation rates and implicit volatilities (cost of options). Fluctuations in market prices affect not only our investments, but also the underwriting liabilities – especially in life insurance. Due to the long-term interestrate guarantees given in some cases and the variety of options granted to policyholders in traditional life insurance, the amount of the liabilities can be highly dependent on conditions in the capital markets.
Market risks are modelled by means of Monte Carlo simulation of possible future market scenarios. We revalue our assets and liabilities for each simulated market scenario, thus showing the probability distribution for changes to basic own funds.
We use appropriate limit and early-warning systems in our asset-liability management to manage market risks. Derivatives such as equity futures, options and interest-rate swaps – which are used mainly for hedging purposes – also play a role in our management of the risks. The impact of options is taken into account in the calculation of solvency capital requirements. Information on derivative financial instruments can be found in the Notes to the consolidated financial statements on pages 140 ff.
1 The liabilities mainly refer to technical provisions under Solvency II
In the reinsurance field of business, the market value of interest-sensitive investments as at 31 December 2019 was €71,0bn (€67.8bn). Measured in terms of modified duration, the interest-rate sensitivity of those investments was 6.5 (5.0), while the modified of the liabilities1 was 6.3 (5.8). A decrease in interest rates of one basis point would increase available own funds by ca. €11.8m (4.0m).
In the ERGO field of business, the fair value of interestsensitive investments was €134.4bn (127.8bn). The modified duration was 9.4 (8.8) for interest-sensitive investments and 10.1 (9.2) for liabilities. A decrease in interest rates of one basis point would decrease available own funds by approximately €12.5m (7.6m). This resulted in exposure to falling interest rates arising mainly out of the long-term options and guarantees in life insurance business.
Property risk As a consequence of increases in market values of our property portfolio, property risk is increasing.
Currency risk The currency risk is rising, primarily due to an increase in US dollar positions.
% 31.12.2019 Prev. year AAA 0.6 0.0 AA 21.9 27.8 A 36.6 31.2 BBB and lower 6.8 8.5 No rating available 34.1 32.6
Further information on the risks arising out of receivables relating to insurance business can be found in the Notes to the consolidated financial statements on page 142.
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. Additional expansion of human resources in cyber security is also envisaged.
Liquidity risk Our objective in managing liquidity risk is to ensure that we are in a position to meet our payment obligations at all times. To guarantee this, the liquidity position at our units is continuously monitored and subject to stringent requirements for the availability of liquidity. The short-term and medium-term liquidity planning is submitted to the Board of Management on a regular basis.
The liquidity risk is managed within the framework of our holistic risk strategy, with the Board of Management defining limits on which minimum liquidity requirements for our operations are based. These risk limits are reviewed annually, and compliance with the minimum requirements is continuously monitored. Using quantitative risk criteria, we ensure that Munich Re has sufficient liquidity available to meet its payment obligations even under adverse scenarios, with the liquidity position being assessed both for insurance catastrophe scenarios and for adverse situations in the capital markets.
Further information on liquidity risks in life and health insurance business and in property-casualty business can be found in the Notes to the consolidated financial statements on pages 165 ff. and 167 ff.
Solvency II ratio1 31.12.2019 Prev. year Change Eligible own funds2 €m 41,544 35,995 5,549 Solvency capital requirement €m 1 Eligible own funds excluding the application of transitional measures for technical provisions; including the application of transitional measures for technical provisions, the own funds amounted to €48.1bn (€43.2bn); Solvency II ratio: 274% (295%).
2 Economic earnings increased the eligible own funds as at the reporting date by a total of around €7.4bn. At the same time, the dividend approved by the Board of Management and proposed to the Annual General Meeting for the 2019 financial year and the potential 2019/2020 share buy-back had a reducing effect of approximately €2.4bn. There is also a further €0.5bn for other measures.
The further course of the trade dispute between the USA and China and the threat of a possible pandemic in connection with the Coronavirus currently represent significant risk factors for global economic development. Slower global growth would pose new challenges for export-dependent countries, especially many emerging markets. In geopolitical terms, the focus remains on the large number of major conflicts and trouble spots which – if they escalate – could have perceptible consequences not only at a regional level, but also globally. These include the conflict between the USA and North Korea, the various crises in the Middle East, and a possible intensification of the USA’s confrontation with Iran or Russia. With respect to global capital markets, each of these crises has the potential to dramatically increase uncertainty and volatility, at least in the short term.
Global players such as Munich Re are subject to increased fiscal pressure nationally and internationally, as well as a higher audit intensity. This trend is likely to become event stronger given the political spotlight on the taxation of international enterprises.
As part of the normal course of business, Munich Re companies are involved in court, regulatory and arbitration proceedings in various countries. The outcome of pending or impending proceedings is neither certain nor predictable. However, we believe that none of these proceedings will have a significant negative effect on the financial position of Munich Re.
In accordance with the prescribed processes, our Board committees explicitly defined the risk appetite for significant risk categories in the year under review, and quantified it with key figures. We determined and documented the risk appetite across the Group hierarchy and communicated it throughout the Group. During the whole of 2019, risk exposures were regularly quantified and compared with the risk appetite. We assess Munich Re’s risk situation to be manageable and under control.
We expect climate change to lead to an increase in weather-related natural catastrophes in the long term. This growing loss potential will result in greater demand for primary insurance and reinsurance products. Our expertise in dealing with natural hazard risks 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, pandemic 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. It follows that 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. The pronounced volatility of the capital markets and exchange rates also makes this difficult. Thus, there may be significant fluctuations in the investment result, currency result and consolidated result, despite the fact that our assets are geared to the characteristics of our liabilities.
The 2019 investment result generated a return of 3.2% in relation to the average market value of our portfolio. This figure is higher than the original target return on investment of around 3%, due in particular to high gains on disposal of fixed-interest securities and equities.
For the 2019 financial year, we set the target for economic earnings at “over €2.5bn”, which we significantly exceeded. Economic earnings totalled €7.4bn, with the high level primarily due to positive operating variances for in-force business in reinsurance and at ERGO, as well as variances attributable to favourable capital market developments. The increase in share prices, the reduction in risk spreads on fixed-interest securities, the appreciation of important foreign currencies against the euro, and the positive performance of investments in real estate and infrastructure significantly offset adverse effects from the decline in risk-free interest rates.
At the beginning of the financial year, we had forecast gross premiums written of around €31bn in the reinsurance field of business. After the good performance in the first three quarters, we raised the forecast to over €31bn. At €33.8bn, we significantly exceeded the forecast. Favourable exchange rate developments and in particular expanding our business in Asia had a positive effect on life and health reinsurance. Premium volume in property-casualty reinsurance significantly exceeded our expectations thanks to the expansion of business in nearly all segments and regions.
At the beginning of the year, we had forecast a technical result (including the result from business with nonsignificant risk transfer) of €500m for life and health reinsurance. The result of €456m did not meet this target. This is primarily attributable to claims burdens from Australian disability business, which were only partially offset by good results in the USA and Europe.
The combined ratio envisaged for property-casualty reinsurance at the beginning of the financial year was 98% of net earned premiums. With a combined ratio of 101.0% for the financial year, we did not meet this target. This was mainly due to high major losses in the financial year, which
Munich Re Group Annual Report 2019 at a share of 15.2% of net earned premiums was significantly above the major loss expectation of 12% of net premiums.
At €2.3bn, the consolidated result for 2019 in reinsurance was above our forecast, which we had raised from around €2.1bn to over €2.1bn after the good performance in the first three quarters.
At the beginning of the year, as part of the ERGO Strategy Programme we had set a profit target of around €400m for the ERGO field of business. With an annual result of €440m, we exceeded this target. The main reason was pleasing development in the ERGO Life and Health Germany segment.
2020 Gross premiums written €bn 52 Technical result life and health reinsurance1 €m 550 Combined ratio property-casualty reinsurance % 97 Combined ratio ERGO Property-casualty Germany % 92 Combined ratio ERGO Property-casualty International % 94 Return on investment2 % 3 Consolidated result €bn 2.8 Economic earnings €bn over 2.8 1 Including the result from business with non-significant risk transfer. 2 Excluding insurance-related investments.
As at 1 January 2020, around two-thirds of the non-life reinsurance business was up for renewal, representing a premium volume of €10.2bn. Total premium volume written increased by 4.4% to around €10.7bn. Thanks to our excellent client relationships and our expertise, we were able to tap into attractive business opportunities across all regions and classes of business. These involved the expansion of existing client relationships as well as new business.
The renewals at 1 April 2020 (above all in Japan) and 1 July 2020 (parts of the portfolio in the USA, Australia and Latin America) will involve the renegotiation of a premium volume of around €5.3bn in reinsurance treaty business. It is Munich Re’s expectation that the market environment will improve in the April renewals, as treaties in regions with significant claims burden in 2019, such as Japan, will then be renegotiated.
Gross premiums written in the ERGO field of business in 2020 should be around the previous year’s level at just over €17.5bn. We expect a higher consolidated result for the ERGO field of business than in the previous year – around €530m in 2020.
Assuming a normal claims experience, we are aiming for a combined ratio of around 94% in the ERGO International segment.
In the period from May 2019 to the end of February 2020, we repurchased shares with a value of €847m; another €153m is to be used for share buy-backs before the Annual General Meeting in April 2020. We are using this measure to return capital that we do no need to shareholders. Despite the buy-backs, our good capital position will allow us to continue paying attractive dividends and selectively utilising opportunities for profitable growth.
Munich Reinsurance Company (information reported on the basis of German accountancy rules) For the 2019 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.
Gross premium volume in life and health reinsurance in 2019 was much higher than in the previous year. Gross premium rose by 14.6% to €8,041m (7,014m), chiefly on account of business growth in Asia and the persistently high demand for financially motivated reinsurance. If exchange rates had remained unchanged, our premium income in life and health reinsurance would have increased by 12.3%.
Owing to further major loss events, aggregate natural catastrophe losses were significantly higher than in the previous year and totalled €1,884m (€599m). In terms of net earned premium, aggregate natural catastrophe losses accounted for 13.3 (4.7) percentage points of the loss ratio.
The combined ratio, which reflects the relation of claims and costs to net earned premiums, came to 98.4% (95.3%), mainly owing to the above effects.
The technical result is significantly below the level of the previous year. This was mainly due to negative impacts from our Australian disability business.
Combined ratio % 98.8 97.0 Underwriting result before claims equalisation provision and similar provisions €m
Combined ratio % 57.8 4.5 Underwriting result before claims equalisation provision and similar provisions €m
Combined ratio % 97.0 106.7 Underwriting result before claims equalisation provision and similar provisions €m
Combined ratio % 166.3 86.0 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 new business and business growth. The underwriting result before claims equalisation provision, which in the previous year had shown a profit, moved into negative territory, largely owing to a substantial year-on-year increase in major-loss expenditure.
Combined ratio % 77.8 94.8 Underwriting result before claims equalisation provision and similar provisions €m
Other classes 2019 Prev. year Change % Gross premium written €m
Combined ratio % 96.0 92.3 Underwriting result before claims equalisation provision and similar provisions €m
Premium income increased year on year, mainly due to business growth. The combined technical result of these other classes of business decreased compared with the previous year, primarily due to higher major-loss expenditure.
Both the European Central Bank (ECB) and the US Federal Reserve pivoted their monetary policy during 2019. The ECB cut the interest rate for deposits. In addition, the Bank resumed making monthly net purchases as part of its asset purchase programme. The Fed lowered its policy rate corridor three times in 2019, and ended its balance-sheet reduction programme. Yields on government bonds were impacted by monetary policy easing, weaker economic growth, lower inflation, and political risks – particularly the trade war between the United States and China. Yields on ten-year German government bonds dropped to a new alltime low at one point in the year – and remained in negative territory at the end of 2019. There was an even greater decline in yields on ten-year US government bonds.
At the end of 2019, the euro exchange rate was lower than in the previous year against the US dollar, the Canadian dollar and the pound sterling. Compared with the previous year, the average value of the euro in 2019 was much lower against the US dollar and the Canadian dollar, and slightly lower against the pound sterling. Because of ongoing uncertainty about Brexit, the pound sterling fluctuated considerably throughout 2019.
In the 2019 financial year, Munich Reinsurance Company’s return on investment (including deposits retained on assumed reinsurance) totalled 4.1% (3.3%) on the basis of carrying amounts.
The increase in tax expenses compared to the previous year is attributable to the German parent company’s higher tax burden from previous years and higher taxes incurred by the branches for the current year.
In the 2019 financial year, Munich Reinsurance Company generated net retained profits of €1,414m (1,383m) according to German accountancy rules (HGB). Including these net retained profits, the Company’s revenue reserves amounted to €3,474m (4,283m) as at the reporting date, of which €523m (465m) is subject to a restriction on distribution. The distributable funds thus amount to €2,951m (3,818m).
The shareholders’ equity of Munich Reinsurance Company as determined under German accountancy rules is protected effectively against the risk of loss arising from a random accumulation of losses by the claims equalisation provision totalling €9,261m (8,479m). 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 increased dividend of €9.80 per share for the 2019 financial year, or €1,374m in total, from Munich Reinsurance Company’s net retained profits.
As at 31 December 2019, 96% of our fixed-interest securities were investment-grade, and around 89% were rated “A” or better.
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.
If, in a given financial year, loss ratios in individual classes of business are significantly in excess of the long-term average (which amounts to 15 years in most classes), the claims equalisation provision is reduced and the aboveaverage loss expenditure is largely offset. According to current calculations, it is expected that – given normal claims expenditure in the 2020 financial year – the allocations to the claims equalisation provision, which have an adverse impact on the result, will be slightly lower.
The balance sheet item “claims equalisation provision and similar provisions” increased by €795m to €9,837m (9,043m) in the 2019 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 credit €480m (81m), third-party liability €226m (190m), personal accident €174m (82m), motor €164m (150m), engineering €145m (37m) and marine €40m (–41m).
By contrast, due to negative results a total of –€337m (152m) in fire and –€109m (103m) in the other classes of business were withdrawn from the claims equalisation provision.
Statement on Corporate Governance for the 2019 financial year pursuant to Section 289f and Section 315d of the German Commercial Code (HGB)
The projections by Munich Reinsurance Company about the future development of its business are essentially subject to the same influences as the reinsurance life and health and reinsurance property-casualty segments presented in the consolidated financial statements. You will find this information on page 85.
The investment result of Munich Reinsurance Company is expected to remain largely stable in the 2020 financial year. For regular income, we expect a moderate decrease in income from affiliated companies.
As things stand at present, we expect the German GAAP (HGB) result in 2020 to be higher than in the reporting year.
Assets 115 A Intangible assets 115 B Investments 115 C Insurance-related investments 117 D Ceded share of technical provisions 118 E Receivables 118 F Cash at banks, cheques and cash in hand 118 G Deferred acquisition costs 118 H Deferred tax assets 118 I Other assets 118 J Assets held for sale 118
Equity and liabilities 119 A Equity 119 B Subordinated liabilities 119 C Gross technical provisions 119 D Gross technical provisions for unit-linked life insurance 121 E Other provisions 121 F Liabilities 121 G Deferred tax liabilities 121 H Liabilities related to assets held for sale 121
Other information 171 41 Parent 171 42 Related parties 171 43 Personnel expenses 171 44 Mid-Term Incentive Plan 171 45 Remuneration report 172 46 Number of staff 172 47 Auditor‘s fees 172 48 Contingent liabilities, other financial commitments 173 49 Significant restrictions 174 50 Leasing 174 51 Events after the balance sheet date 175 52 Earnings per share 175 53 Proposal for appropriation of profit 175
5,989 5,851 138 2.4 II. Investments in affiliated companies, associates and joint ventures (5)
Notes 31.12.2019 Prev. year Change €m €m €m €m % A. Equity (17) I. Issued capital and capital reserve 7,421 7,418 3 0.0 II. Retained earnings 12,804 13,201 –397 –3.0 III. Other reserves 7,510 3,440 4,070 118.3 IV. Consolidated result attributable to Munich Reinsurance
–411 78 Income and expense recognised directly in equity (I + II) 3,661 –1,659 Total recognised income and expense 6,369 616 Thereof: Attributable to Munich Reinsurance Company equity holders
Total recognised income and expense 0 0 Change in shareholdings in subsidiaries 0 0 Change in consolidated group 0 0 Dividend 0 0 Purchase of own shares –21 0 Retirement of own shares 21 0 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 –6,919 –95 Inflows from increases in capital and from non-controlling interests 0 0 Outflows to ownership interests and non-controlling interests –957 –1,015 Dividend payments –1,336 –1,287 Change from other financing activities –204 963
Thereof: Cash not attributable to disposal group3 4,994 4,986 Cash attributable to disposal group 12 164 Restricted cash 11 12
Additional information Income tax paid (net) – included in the cash inflows from operating activities –392 –638 Dividends received 792 700 Interest received 5,359 5,225 Interest paid –406 –315 1 Previous year’s figures adjusted due to the alignment of the breakdown within cash inflows with the balance sheet presentation. 2 Cash mainly comprises cash at banks. 3 For a definition of the disposal group, see Assets − J Assets held for sale.
In preparing the consolidated financial statements, we have to use our judgement in applying accounting policies and to make estimates and assumptions that affect the year-end items shown in the consolidated balance sheet, the consolidated income statement and the disclosures on contingent liabilities.
Cycle (12/2017): Amendments to IAS 12, Income taxes; IAS 23, Borrowing costs; IFRS 3, Business combinations; and IFRS 11, Accounting for Acquisitions of Interests in Joint Operations
− Amendments to IAS 19 (rev. 2/2018), Plan Amendment, Curtailment or Settlement
The amendments will have little effect or no material effect on Munich Re, except for the Amendments to IFRS 16 described below.
Munich Re applies IFRS 16, Leases using the modified retrospective approach. We consequently did not, in the 2019 financial year, adjust the comparative information for the 2018 financial year. The first-time application affects leasing agreements hitherto classified as operating leases. Short-term leases with terms shorter than 12 months (and with no option to buy), and lease agreements in which the asset underlying the agreement is of low value, are not recognised in the financial statements. Furthermore, Munich Re is exercising its option to report lease and nonlease components uniformly according to IFRS 16.
Munich Re does not apply IFRS 16 to agreements not recognised as leases under IAS 17, Leases, and IFRIC 4, Determining Whether an Arrangement Contains a Lease.
The leasing liabilities are measured at the present value of the remaining lease payments and discounted at Munich Re’s incremental borrowing rate as at 1 January 2019. The weighted average incremental borrowing rate applied to the lease obligations as at 1 January 2019 was 2%.
Due to the close interlinking of underwriting liabilities and investments of insurance companies, it is essential to have an aligned measurement of these line items in the balance sheet in order to prevent balance sheet distortions. The IASB therefore published an amendment standard to IFRS 4, Insurance Contracts, in September 2016. As a reinsurance group, this gives the possibility of postponing the first-time application of IFRS 9 until 2021.
On the current further discussions of IFRS 9 in conjunction with IFRS 17, Insurance Contracts, see “Standards or changes in standards not yet entered into force”.
Government bonds Germany 6,609 6,513 96 11 11 0 Rest of EU 29,922 28,471 1,451 91 92 –2 USA 17,524 14,975 2,549 0 0 0 Other 21,326 17,780 3,546 40 55 –15 Corporate debt securities 46,898 43,345 3,553 1,092 1,520 –428 Other 8,213 10,975 –2,762 394 358 36
Non-fixed-interest securities Equities 0 0 0 13,286 10,180 3,106 Investment funds Equity funds 0 0 0 453 530 –77 Bond funds 0 0 0 1,818 1,463 355 Real estate funds 0 0 0 328 321 7 Other 0 0 0 3,552 2,683 869
Other investments Deposits with banks 3,775 3,219 556 0 0 0
Ratings for investments that meet the cash flow requirement €m 31.12.2019 Prev. year AAA 65,957 64,792 AA 53,106 51,811 A 24,722 23,149 BBB 23,622 21,231 Lower 5,765 5,572 No rating 1,121 1,070 Total 174,293 167,625
From a Group perspective, investments not low in credit risk – i.e. rated BB or lower, and measured at amortised cost under IAS 39 – made up a negligible share of overall investments.
Munich Re Group Annual Report 2019 for previous years pursuant to IAS 1.41. Because the currency result is of particular significance on account of our international business operations, we have stated it separately since the first quarter of 2019. In addition, we no longer disclose impairment losses on goodwill separately; we instead allocate them to “Other non-operating result”.
Non-current interest liabilities in connection with subordinated bonds were hitherto shown under Other liabilities, but are now allocated to Subordinated liabilities as a result of a change in presentation in accordance with IAS 1.41. The respective items of the previous year were not adjusted because the change in presentation is of minor importance.
Interest on deposits from ceded reinsurance will no longer be considered in the calculation of income from technical interest for the ERGO Life Germany segment. The respective items have been adjusted accordingly. The change has been implemented retroactively in line with IAS 8.41.
The adjustments affect the consolidated income statement for the year 2018 as follows: Consolidated income statement 2018 as originally recognised
IFRS 9 envisages an expected loss model for recognising impairments, by which – unlike under the current incurred loss model of IAS 39 – expected losses are anticipated before they arise and must be accounted for as an expense. There is to be only one model for recognising impairments that is to be used for all financial assets falling under the impairment rules of IFRS 9.
We established a Group-wide project to ensure that the necessary implementation processes are taken in a timely manner.
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 manner; in addition, the rules require extensive new disclosures in the Notes to the consolidated financial statements. The new standard will replace IFRS 4, Insurance Contracts.
IFRS 17 is applicable to all primary insurance contracts, reinsurance contracts and investment contracts written with a discretionary participation in surplus. The valuation rules are mainly based on a “building block approach”, which is made up of a fulfilment value (discounted expected future cash flows and an explicit risk margin) and a contractual service margin. Under certain conditions, a simplified measurement approach is permitted for short-term contracts. The general measurement model in adjusted form is to be applied to primary insurance contracts with a participation in surplus and to ceded reinsurance.
− Amendments to IAS 1 (rev. 01/2020), Classification of Liabilities AS Current or Non-Current
A list of all our shareholdings can be found in the section “List of shareholdings as at 31 December 2019 in accordance with Section 313(2) of the German Commercial Code (HGB)”.
Cash flows arising from losing control €m 2019 Prev. year Total consideration for losing control 99 149 Non-cash consideration for losing control 0 0 Cash consideration for losing control 99 149 Cash over which control was lost –157 –77 Total –59 72
On 31 July 2019, Munich Re acquired 100% of the voting shares in Arsenal Insurance Corporation (Arsenal), Carmel, Indiana, USA via its subsidiary Munich Re Digital Partners US Holding Corporation, Wilmington, Delaware, USA. Following the transaction, Arsenal was renamed American Digital Title Insurance Company, Denver, Colorado, USA, and its registered office relocated. This enterprise is licensed as a title insurer in the states of Indiana and Colorado. The acquisition offers Munich Re the opportunity to conduct title insurance business in the USA.
Securitisation vehicles Munich Re invests in debt 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.
Land and buildings shown under investments comprise property used by third parties and are carried at cost. Maintenance expenses are recognised as an expense. Structural measures equivalent to 5% or more of the historical cost of a building are generally assessed with regard to whether they have to be capitalised. Buildings are depreciated on a straight-line basis in accordance with the component approach, depending on the weighted useful life for their specific building class. The underlying useful lives mainly range between 40 and 57 years. If the recoverable amount of land and buildings falls below their carrying amount, the carrying amount is written down to the recoverable amount.
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. Write-downs for impairments are made in cases where the repayment of a loan can no longer be expected.
In the case of Level 1, valuation is based on unadjusted quoted prices in active markets for identical financial assets which Munich Re can refer to at the balance sheet date. If a quoted price in an active market is available, this should always be used. 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. This is only permissible insofar as no observable market data is available. The inputs used reflect Munich Re’s assumptions regarding the factors which market players would consider in their pricing. We use the best available information for this, including 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 affiliated companies, associates and joint ventures measured at fair value, and insurance derivatives.
In the case of loans, bank borrowing, liabilities from financial transactions, and bond and note liabilities not traded on an active market, we have decided on a case-by-case basis to which level of the fair value hierarchy to allocate the respective fair values.
Other insurance-related investments are not utilised for asset-liability management. They include insurance-linked derivatives, derivatives to hedge variable annuities, weather and commodity derivatives, and physical gas. Insurance-linked derivatives include derivatives embedded in variable annuities, the derivative components of natural catastrophe bonds and from securitisations of mortality and morbidity risks, individually structured insurancelinked derivatives, and derivative components which are separated from their host insurance contract in accounting. Insurance-linked derivatives also include retrocessions in the form of derivatives to hedge insurance risks assumed. 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. Other insurance-related investments are accounted for at fair value, and we recognise changes in value in profit or loss. For physical gas, the fair value is reduced by estimated costs to sell.
Current tax receivables are accounted for in accordance with local tax regulations and other receivables at amortised cost. The impairment test of our receivables is performed in a two-stage process, firstly at the level of individual items, and then on the basis of groups of similar receivables. The impairment is recognised as an expense. If, in a subsequent period, the reasons for the impairment cease to apply, the impairment is reversed, with impact on the income statement. The resultant carrying amount may not exceed the original amortised cost.
Under retained earnings, we show the profits which consolidated companies have earned and retained since becoming part of Munich Re, and income and expenses resulting from changes in the consolidated group. In addition, the adjustment amount resulting from changes in accounting policies for earlier periods not included in the consolidated financial statements is recognised in the opening balance of the retained earnings for the earliest prior period reported. Retained earnings also include effects from the remeasurement of defined benefit plans.
Own shares are deducted from equity. The purchase, sale or retirement of these shares is recognised in equity items, without impact on profit or loss.
Unearned premiums are accrued premiums already written for future risk periods. For primary insurance, these premiums are calculated separately for each insurance policy pro rata temporis; for reinsurance, nominal percentages are used in some cases where the data for a calculation pro rata temporis is not available. The posting of unearned premiums is restricted to short-term underwriting business; i.e. property-casualty business and parts of accident and health business. In the case of long-term business, a provision for future policy benefits is established.
The provision for future policy benefits in long-term underwriting business is posted for the actuarially calculated value of obligations arising from policyholders’ guaranteed entitlements. As well as life insurance, this concerns portions of health and personal accident insurance, insofar as the business is conducted like life insurance. Measurement is usually based on the prospective method, by determining the difference between the present values of future benefits and future premiums. The biometric actuarial assumptions used for their calculation include, in particular, assumptions relating to mortality, disability and morbidity, as well as assumptions regarding interest-rate development, lapses and costs. These are estimated on a realistic basis at the time the insurance contracts are concluded, and they include adequate provision for adverse deviation to make allowance for the risks of change, error and random fluctuations.
In primary insurance, measurement is generally carried out individually for each risk. In German life primary insurance, biometric actuarial assumptions based on the tables of the German Association of Actuaries (Deutsche Aktuarvereinigung e.V.) are used. We mostly use the tables of the national actuarial associations for the rest of primary insurance business. The actuarial interest rate employed for discounting in life primary insurance is limited by the respective maximum actuarial interest rate prescribed by the supervisory authorities. In health primary insurance, discount rates are chosen that reflect the best estimate of expected investment income, less a safety margin.
Liability adequacy test All technical provisions are regularly subjected to a liability adequacy test in accordance with IFRS 4. If current experience shows that the provisions posted on the basis of the original assumptions – less the related deferred acquisition costs and the present value of the related premiums – are inadequate to cover the expected future benefits, we adjust the relevant technical provisions with recognition in profit or loss and disclose this under impairment losses in the Notes to the consolidated balance sheet; see Notes to the consolidated balance sheet – Assets (2) Other intangible assets, Assets (13) Deferred acquisition costs, and Equity and liabilities (21) Provision for future policy benefits. The appropriateness of unearned premiums and of the provision for outstanding claims is assessed in relation to the realistically estimated future amount to be paid. The appropriateness of the provision for future policy benefits is assessed on the basis of realistic estimates of the actuarial assumptions, the proportional investment result and – for contracts with participation in surplus – future profit sharing.
This item encompasses the provision for future policy benefits in life primary insurance where policyholders bear the investment risk themselves (unit-linked life insurance). The value of the provision for future policy benefits essentially corresponds to the fair value of the relevant investments shown under Assets – C Insurance-related investments – Investments for policyholders under unitlinked life insurance contracts. Changes in this provision are fully recognised in the technical result. Insofar as these changes derive from unrealised gains and losses from alterations in the fair values of the related investments, they are matched by opposite changes of the same amount in the insurance-related investment result.
Munich Re’s presentation currency is the euro (€). Our subsidiaries largely recognise differences resulting from the translation into their respective national currencies in profit or loss. The thus converted net assets of foreign subsidiaries whose national currency is not the euro are then translated using the year-end exchange rates, and results using quarterly average exchange rates. Any exchange differences arising in the process are recognised in equity.
We have identified five segments to be reported: − Life and health reinsurance (global life and health reinsurance business)
− ERGO Property-casualty Germany (German propertycasualty insurance business, excluding Digital Ventures)
For the sake of transparency, the currency result is shown separately in the segment income statement as of the beginning of the first quarter of 2019, see also “Changes in accounting policies and other adjustments”.
Life and health Property-casualty €m 2019 Prev. year 2019 Prev. year Gross premiums written 11,716 10,849 22,091 20,437 1. Net earned premiums 10,540 9,868 20,566 18,618 2. Income from technical interest 652 637 1,215 1,144 3. Net expenses for claims and benefits –8,580 –7,855 –13,714 –12,140 4. Net operating expenses –2,283 –2,146 –7,066 –6,372 5. Technical result (1–4) 329 503 1,000 1,250 6. Investment result 1,080 988 2,152 1,555 7. Insurance-related investment result 30 17 65 3 8. Other operating result 62 58 –238 –130 9. Deduction of income from technical interest –652 –637 –1,215 –1,144 10. Non-technical result (6–9) 520 427 763 284 11. Operating result 849 930 1,764 1,534 12. Other non-operating result –10 –26 –47 –80 13. Currency result 47 27 149 19 14. Net finance costs –39 –36 –128 –48 15. Taxes on income –142 –168 –176 –289 16. Consolidated result 706 729 1,562 1,135 1 Previous year’s figures adjusted owing to IAS 1 and IAS 8; see “Changes in accounting policies and other adjustments”. 2 You will find this information as a downloadable Excel file in the financial supplement under www.munichre.com/results-reports.
Germany International 2019 Prev. year 2019 Prev. year 2019 Prev. year 2019 Prev. year 9,238 9,345 3,500 3,377 4,912 5,057 51,457 49,064 9,191 9,301 3,362 3,252 4,621 4,696 48,280 45,735 4,196 2,737 75 76 591 73 6,729 4,667 –11,701 –9,955 –2,056 –2,075 –3,633 –3,091 –39,685 –35,116 –1,415 –1,530 –1,077 –1,087 –1,408 –1,451 –13,249 –12,587 271 552 303 166 171 228 2,074 2,699 3,916 3,502 157 133 430 348 7,737 6,526 751 –493 0 0 330 –212 1,176 –685 –61 –34 22 6 –39 –48 –254 –148 –4,196 –2,737 –75 –76 –591 –73 –6,729 –4,667 410 238 105 62 131 14 1,930 1,027 681 790 408 228 302 242 4,004 3,725 –305 –275 –212 –171 –92 –87 –665 –639 –41 –82 –24 –13 –59 10 73 –39 –23 –43 –5 –20 –27 –49 –222 –196 –127 –127 –19 21 –19 –12 –483 –576 187 264 148 45 105 103 2,707 2,275
Germany International 2019 Prev. year 2019 Prev. year 2019 Prev. year 2019 Prev. year 2,902 2,922 99 92 349 360 5,387 5,230 –60 –36 –17 –9 –23 –16 –161 –125 –52 –52 –45 –43 –70 –83 –344 –351 286 115 129 88 116 138 1,093 827 –347 –149 –107 –83 –154 –187 –1,347 –976 28 44 0 2 15 27 207 187
Investments in non-current assets per segment1 €m 2019 Prev. year Life and health reinsurance 53 190 Property-casualty reinsurance 276 1,043 ERGO International Germany 332 241 ERGO property-casualty Germany 193 151 ERGO International 73 62 Total 926 1,688 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.
Australia 1,697 1,987 China 1,435 985 Japan 1,381 1,366 South Korea 300 284 Others 1,215 877 6,029 5,499 Africa, Middle East
Changes in goodwill €m 2019 Prev. year Gross carrying amount at 31 Dec. previous year
Accumulated amortisation and impair- ment losses at 31 Dec. previous year
Currency translation differences 37 81 Additions 1 245 Disposals 0 0 Reclassifications 0 0 Amortisation and impairment losses –1 –6 Carrying amount at 31 Dec. financial year
Accumulated amortisation and impair- ment losses at 31 Dec. financial year
For the detailed planning phase (four years), we expected a moderate rise in premium income with an improved combined ratio.
Cost-of-equity rates derived using the Capital Asset Pricing Model (CAPM) were used as discount rates. Calculations were made after consideration of normalised taxes. In the table, for disclosure purposes, a corresponding discount rate before tax is given in each case. Sensitivity analyses were performed for the discount rates, growth rates and distributable target results. No impairments have been identified.
Reclassifications 0 0 –2 0 –4 –5 Impairment losses reversed 0 0 0 0 0 0 Amortisation and impairment losses
Gross carrying amount at 31 Dec. financial year 1,319 1,299 483 462 1,556 1,343
Reclassifications 0 0 0 0 0 0 Impairment losses reversed 0 0 0 0 0 7 Amortisation and impairment losses
Carrying amount at 31 Dec. previous year 15 18 1,161 1,105 Currency translation differences 0 0 26 0 Additions
Reclassifications 0 –1 –7 –6 Impairment losses reversed 0 0 0 7 Amortisation and impairment losses
Amortisation –2 –3 –196 –200 Impairment losses 0 0 –1 –1
Carrying amount at 31 Dec. financial year 21 15 1,240 1,161 Accumulated amortisation and impairment losses at 31 Dec. financial year
Subsequent acquisition costs 38 26 Business combinations 0 0 Other 307 672
The fair value of investment property at the balance sheet date amounted to €11,589m (10,620m). The portfolio managed by the Group is measured by valuers within the Group, and the portfolio managed by third parties is valued by external valuers. Property is allocated to Level 3 of the fair value hierarchy; see Assets – B Investments – Determining fair values. Determining the sustainability of cash inflows and outflows, taking into account the market conditions at the property location, is material for measurement. The fair value is determined individually per item by discounting the future cash flow as at the measurement date. Depending on the type of property and its individual opportunity/risk profile, discount rates of 1.2% to 3.5% are used for residential buildings and 1.0% to 6.3% for office buildings and commercial property.
The reclassifications mainly include the land and buildings that are classified as held for sale.
All assets recognised at fair value are allocated to one of the fair value hierarchy levels of IFRS 13, as are those assets which are not recognised at fair value in the balance sheet but for which a fair value has to be disclosed in the Notes. Information on the criteria for allocation to the individual levels of the fair value hierarchy can be found under Assets – B Investments – Determining fair values. Regularly, at each reporting date, we assess whether the allocation of our assets to the levels of the valuation hierarchy is still appropriate. If changes in the basis of valuation have occurred – for instance, if a market is no longer active or the valuation was performed using inputs requiring another allocation – we make the necessary adjustments.
Cat bond (host) Theoretical price Interest-rate curve Present-value method Mortgage loans
Equity forwards Theoretical price Listing of underlying shares Money-market interest rate Dividend yield
Interest-rate risks Interest-rate swaps Theoretical price CSA/swap curve Present-value method Swaptions/interest-rate guarantee
CMS steepeners Theoretical price OIS/swap interest-rate curve Issuer-specific spreads Volatility skew Correlation matrix
Swaption notes Theoretical price At-the-money volatility matrix and skew Swap curve Money-market interest-rate curve Sector-, rating- or issuer-specific yield rate curve
The inputs requiring consideration in measuring variable annuities are derived either directly from market data (in particular volatilities, interest-rate curves and currency spot rates) or from actuarial data (especially biometric and lapse rates). The lapse rates used are modelled dynamically and range between 0.5% and 50%, depending on the specific insurance product and current situation of the capital markets. Compared with the relevant market risk inputs for the determination of fair values, the impact on the fair value of an increase or decrease in lapse rates would be immaterial. The assumptions with regard to mortality are based on published mortality tables, which are adjusted with a view to the target markets and the actuaries’ expectations. The impact of these and other non-observable assumptions is not material. The dependency between different capital market inputs is modelled by correlation matrices. Where the valuation of these products is not based on observable inputs, which is usually the case, we allocate them to Level 3 of the fair value hierarchy.
Among the associates and joint ventures accounted for using the equity method, there is only one company for which a quoted market price is available. This price amounts to €86m (96m) and is allocated to Level 1 of the fair value hierarchy.
In the financial year, we made changes to the allocation of certain credit structures to a specific level of the fair value hierarchy. Thanks to an improved supply of market data, we reallocated these structures from Level 3 to Level 2. There were no other changes to the allocation of the individual levels of the fair value hierarchy. The minor transfer amounts relating to Level 3 of the fair value hierarchy are adjustments to our Group requirements.
Gains (losses) recognised in the consolidated income statement are shown in the investment result or insurancerelated investment result, while gains (losses) recognised in equity are shown in the statement of recognised income and expense for the 2019 financial year under “Unrealised gains and losses on investments, Gains (losses) recognised in equity”. Gains (losses) recognised in the consolidated income statement that are attributable to investments recognised at the end of the financial year are shown in the statement of recognised income and expense for the 2019 financial year under “Unrealised gains and losses on investments, Recognised in the consolidated income statement”.
Other securities at fair value through profit or loss Held for trading, and hedging derivatives1 324 1,939 0 2,263 Designated as at fair value through profit or loss 182 363 0 545
Other securities at fair value through profit or loss Held for trading, and hedging derivatives1 545 1,680 1 2,226 Designated as at fair value through profit or loss 167 242 0 410
Investments in associates and joint ventures measured at fair value €m 2019 Prev. year 2019 Prev. year Carrying amount at 31 Dec. previous year 177 171 36 34 Gains and losses –16 –15 8 0
Acquisitions 50 34 2 19 Disposals –13 –14 –9 –19 Transfer to Level 3 4 0 0 2 Transfer out of Level 3 –8 0 –8 0 Changes in the fair value of derivatives 0 0 0 0 Carrying amount at 31 Dec. financial year 194 177 29 36 Gains (losses) recognised in the income statement that are attributable to investments shown at the end of the financial year –14 –21 0 –3
Munich Re Group Annual Report 2019 5 Investments in affiliated companies, associates and joint ventures
In the financial year, shares of losses of associates and joint ventures amounting to €0m (1m) were not recognised in the balance sheet. Overall, losses not recognised in the balance sheet totalled €4m (4m).
Further information about affiliated companies, associates and joint ventures can be found in Other information (48) Contingent liabilities, other financial commitments, (49) Significant restrictions, and in the List of shareholdings as at 31 December 2019 pursuant to Section 313(2) of the German Commercial Code (HGB).
Carrying amounts €m 31.12.2019 Prev. year Mortgage loans 6,792 6,326 Loans and advance payments on insurance policies 220 239 Other loans 45,495 48,280 Total 52,507 54,845
The fair value of the loans is based on recognised valuation techniques in line with the present-value principle and taking observable market inputs into account; see (4) Hierarchy for the fair value measurement of assets. The fair value totalled €64,654m (64,298m) at the reporting date.
Munich Re Group Annual Report 2019 7 Other securities available for sale
Approximately 40% of the corporate debt securities are covered bonds or government-guaranteed bank issues. The remaining portfolio is composed of securities issued by companies outside the banking sector, with each individual risk making up less than 1%, bonds issued by banks and state central savings banks, and asset-backed securities/mortgage-backed securities. The asset-backed securities/mortgage-backed securities are largely rated A or better. Assets pledged as security and other restrictions on title amount to €8,518m (8,015m). Of the securities shown, €2,389m (1,910m) had been loaned to third parties. Loaned securities are not derecognised, as the main resultant risks and rewards remain with Munich Re. Of the €14,370m (6,771m) in unrealised gains and losses, €6,223m (2,565m) has been recognised in equity (other reserves), after deduction of provisions for deferred premium refunds, deferred taxes, non-controlling interests, and consolidation and currency translation effects.
Other securities available for sale also include participating interests pursuant to Section 271(1) of the German Commercial Code (HGB).
Corporate debt securities 47,990 44,865 2,873 943 45,117 43,921 Other 8,607 11,333 1,236 811 7,371 10,522 132,120 124,095 10,738 4,953 121,381 119,142 Non-fixed-interest securities Shares 13,287 10,181 2,837 1,246 10,450 8,935 Investment funds
Securities at fair value through profit or loss comprise securities of €2,236m (2,206m) held for trading as well as securities and loans of €545m (410m) designated as at fair value through profit or loss.
For securities designated as at fair value through profit or loss, items pledged as security and other restrictions on title amount to €0m (30m).
Rating of fixed-interest securities according to fair value €m 31.12.2019 Prev. year AAA 2 25 AA 49 43 A 49 44 BBB 29 25 Lower 2 1 No rating 235 95 Total 367 232
The insurance-related investments include investments for unit-linked life insurance contracts of €7,726m (7,533m) and other insurance-related investments of €1,437m (891m).
Derivative financial instruments are used by Munich Re to manage and hedge against interest-rate, currency, and other market risks. This is done at the Group companies within the framework of individual supervisory regulations and additional internal company guidelines. Given the daily collateral-adjustment process, the risk of default is practically non-existent in the case of products traded on the stock exchange and for centrally cleared and secured OTC derivatives. Unsecured OTC products, on the other hand, harbour a theoretical risk in the amount of the replacement costs. Therefore, Munich Re selects only topquality counterparties for such transactions, and exchanges collateral daily on the basis of current fair values.
Although the derivatives used by Munich Re essentially serve to hedge against risks, only an amount of €27m (18m) meets the requirements of IAS 39 for hedge accounting.
Deposits retained on assumed reinsurance serve directly as collateral for technical provisions covering business assumed and may not be used by cedants independently. The credit risk is therefore limited. The amount of and changes in deposits retained on assumed reinsurance derive from the values for the changes in the related technical provisions for the reinsured business. Deposits retained on assumed reinsurance business thus do not have a fixed maturity date, and their release is generally dependent on the run-off of the corresponding provisions.
Other investments comprise deposits with banks totalling €3,776m (3,219m), investments in renewable energies amounting to €646m (662m), physical gold of €409m (372m), and forestry investments of €313m (265m). Deposits with banks include receivables of €156m (130m) from borrowers under repurchase agreements that have been booked by us as the lender.
Of the amounts held on deposit with banks, €3,770m (3,216m) is due within one year. With these deposits, the fair values largely correspond to the carrying amounts. Assets pledged as security and other restrictions on title amount to €12m (13m) for deposits with banks.
Development of investments in renewable energies €m 2019 Prev. year Gross carrying amount at 31 Dec. previous year
Ceded share of technical provisions €m 31.12.2019 Prev. year Unearned premiums 443 390 Provision for future policy benefits 1,525 823 Provision for outstanding claims 2,902 3,005 Other technical provisions 67 46 Total 4,937 4,263
Of the amounts receivable on primary insurance business, €890m (747m) is apportionable to receivables from insurance agents. The miscellaneous receivables include receivables of €7,273m (5,297m) resulting from contracts with non-significant risk transfer, which do not fall within the scope of IFRS 4.
Assets pledged as security and other restrictions on title amount to €82m (73m).
Given that the majority of other receivables, i.e. a total of €14,189m (11,878m), have a period to maturity of less than one year, the fair values largely correspond to the carrying amounts.
As at 31 December 2019, our accounts receivable on ceded reinsurance business were split between the following ratings (based on those of Standard & Poor’s): Rating of accounts receivable €m 31.12.2019 Prev. year AAA 34 0 AA 61 42 A 23 44 BBB and lower 9 10 No external rating 42 90
Of all our receivables on underwriting business at the balance sheet date, €460m (371m) were outstanding for more than 90 days. The average defaults of the last three years amounted to €1,209m (864m).
Deferred acquisition costs €m 31.12.2019 Prev. year Gross 9,664 9,466 Ceded share –393 –254 Net 9,272 9,212
The impairment losses comprise impairment losses and reversals of impairment losses stemming from changes in the assumptions underlying the calculations which require an adjustment in the measurement. Impairment changes were –€85m (0m) in the life and health reinsurance segment, –€11m (+37m) in the property-casualty reinsurance segment, –€1m (–160m) in the ERGO Life and Health Germany segment and –€63m (–2m) in the ERGO International segment.
The deferred acquisition costs of the disposal group amounting to –€9m (–85m) are recognised under Changes in consolidated group/Other.
The deferred tax assets and liabilities recognised in the consolidated balance sheet concern the following balance sheet items: Deferred tax 31.12.2019 Prev. year €m Assets Liabilities Assets Liabilities Assets A. Intangible assets 140 138 141 154 B. Investments 2,111 3,459 1,994 2,345 C. Insurance-related investments 1 16 1 5 E. Receivables 37 261 51 136 I. Other assets 387 939 311 496 Total assets 2,676 4,813 2,498 3,136
Equity and liabilities C. Net technical provisions 3,169 4,761 3,045 4,625 E. Other provisions 1,309 270 908 238 F. Liabilities 462 12 214 21 Total equity and liabilities 4,940 5,043 4,167 4,884
No deferred taxes were posted for temporary differences of €125m (57m) in connection with investments in subsidiaries and associates, also referred to as outside basis differences. Likewise, no deferred tax assets were recognised on deductible temporary differences of €214m (196m) due to lack of recoverability.
The available tax loss carry-forwards and tax credits are broken down as follows: Tax loss carry-forwards and tax credits 31.12.2019 Prev. year €m
Not expiring 2,226 285 2,511 1,483 301 1,784 2,226 285 2,511 1,483 301 1,784 Loss carry-forwards from capital losses
These mainly comprise property, plant and equipment, with owner-occupied property totalling €2,127m (2,178m), and operating and office equipment amounting to €234m (219m). Advance payments on insurance amounted to €293m (303m), derivatives totalled €27m (20m), and miscellaneous deferred items came to €158m (177m).
Operating and office equipment Other Total 2019 2019 2019 2,019 Gross carrying amount at 31 Dec. previous year 3,348 962 28 4,338 Accumulated amortisation and impairment losses at 31 Dec. previous year –1,170 –743 –25 –1,938 Carrying amount at 31 Dec. previous year 2,178 219 4 2,400 Currency translation differences 6 2 0 8 Additions
Impairment losses reversed 6 0 0 6 Depreciation and impairment losses
Prev. year Prev. year Prev. year Prev. year Gross carrying amount at 31 Dec. previous year 3,494 1,000 31 4,525 Accumulated amortisation and impairment losses at 31 Dec. previous year –1,214 –760 –24 –1,998 Carrying amount at 31 Dec. previous year 2,280 241 7 2,527 Currency translation differences 6 –1 0 5 Additions
Impairment losses reversed 58 0 0 58 Depreciation and impairment losses
The expenditures recognised in the carrying amount for assets in the course of construction totalled €12m (5m) for property and €14m (14m) for plant and equipment. Commitments to acquire property total €4m (10m) and commitments to acquire plant and equipment €14m (6m).
As at 1 December 2019, rights of use from leases amount to €375m. These mainly comprise rights to use land and buildings of €352m. Additions to rights of use in the 2019 financial year came to €116m. The depreciation expense shown under other comprehensive income in the consolidated income statement came to €82m in 2019.
Moreover, one of the investment properties held by MR Beteiligungen 18. GmbH & Co. Immobilien KG, Grünwald, and six of the investment properties held by Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft, München, were classified as held for sale. No value adjustments were required in the process. The sale of all the properties occurred at the end of February 2020.
The subsidiary ERGO Sigorta A.S., Istanbul was sold and deconsolidated in the third quarter of 2019. Besides this, ERGO Életbiztosító Zrt, Budapest, and the portfolio of the Hungarian branch of ERGO Versicherung Aktiengesellschaft, Vienna, were sold in the same period. Four properties of Victoria Lebensversicherung Aktiengesellschaft, Düsseldorf, and another property held by several ERGO insurance companies were also sold. All of the properties had previously been held for investment purposes by the respective companies.
ERGO Poist’ovňa a.s., Bratislava, and the portfolio of the Irish branch of DAS Legal Expenses Insurance Company Limited, Bristol, were also sold in Q4 2019.
In our segment reporting, we disclose how the non-current assets held for sale are allocated between the segments. Transactions between the disposal group and the Group’s continuing operations continued to be fully eliminated. The assets and liabilities of the disposal group and assets held for sale are shown in the following table: Non-current assets and disposal groups held for sale €m 31.12.2019 Prev. year Assets Land and buildings, including buildings on third-party land
Other securities available for sale 108 288 Other investments 8 16 Other assets of the disposal group 207 622 Total assets 400 1,029 Liabilities Gross technical provisions 159 749 Other liabilities of the disposal group 20 74 Total liabilities 179 823
All of the “other securities available for sale” shown in the table were allocated to Level 2 of the fair value hierarchy.
The total share capital of €587,725,396.48 at 31 December 2019 is divided into 144,317,861 no-par-value registered shares, each fully paid up and carrying one vote. The number of shares in circulation was as follows: Development of shares in circulation
Composition of the authorised capital €m 31.12.2019 Authorised Capital 2015 (until 22 April 2020) 10 Authorised Capital 2017 (until 25 April 2022) 280 Total 290
Composition of contingent capital €m 31.12.2019 Contingent Capital 2015 (until 22 April 2020) 117 Total 117
Derivatives 139 788 652 1,579 Total 139 788 652 1,579 Liabilities not measured at fair value Subordinated liabilities 4,002 55 2 4,059 Bonds and notes issued 354 0 0 354 Amounts due to banks 0 101 463 564 Other liabilities from financial transactions 0 388 32 419 Total 4,356 544 497 5,397
Only derivatives with a negative fair value are currently recognised at fair value. Of these, we allocate the insurance derivatives to Level 3 of the fair value hierarchy.
The following table presents the reconciliation from the opening balances to the closing balances for these insurance-linked derivatives: Reconciliation for liabilities allocated to Level 3
Gains (losses) recognised in the consolidated income statement are shown in the insurance-related investment result, while gains (losses) recognised in equity are shown in the statement of recognised income and expense for the 2019 financial year in the item “Unrealised gains and losses on investments, Gains (losses) recognised in equity”. Gains (losses) recognised in the consolidated income statement that are attributable to liabilities shown at the end of the financial year are shown in the statement of recognised income and expense for the 2019 financial year under “Unrealised gains and losses on investments, recognised in the consolidated income statement”.
The fair value of the subordinated liabilities at the balance sheet date amounted to €4,348m (4,059m). For the Munich Reinsurance Company bonds, we take the stock market prices as fair values. For the other subordinated liabilities, we determine the fair values using net presentvalue methods with observable market inputs.
Munich Reinsurance Company, Munich, 6.625% until 2022, thereafter floating, £450m, Bonds 2012/2042
– – – – 7 7 HSB Group Inc., Delaware, LIBOR +91 BP, US$ 76m, Bonds 1997/2027 20 Unearned premiums
The item “Changes in consolidated group/Other” includes unearned premiums of the disposal group totalling €0m (−124m).
Munich Re Group Annual Report 2019 21 Provision for future policy benefits
Health 36,954 35,460 Property-casualty 652 678 Reinsurance 26 26 ERGO 627 652 Total 112,302 111,147
In the ERGO Life and Health segment, there was an adjustment in 2019 to the assumptions regarding future lapses, expenses, and long-term interest-rate levels that are geared to the long-term regular return on investments. The provision for future policy benefits increased as a result of these adjustments.
Development of gross provision for future policy benefits €m 2019 Prev. year Status at 31 Dec. previous year 111,147 108,956 Currency translation differences 341 92 Changes in consolidated group/Other 2,825 745 Changes
The change shown under “Changes in consolidated group/Other” contains €280m (360m) in savings premiums for capitalisation products and €644m (548m) for reclassifications from the provision for premium refunds. It also includes the provision for outstanding claims of the disposal group amounting to –€17m (–130m).
Provision for outstanding claims €m 31.12.2019 Prev. year Gross 70,875 66,356 Ceded share –2,902 –3,005 Net 67,973 63,352
Gross provision by type €m 31.12.2019 Prev. year Annuity claims provision 7,914 7,333 Case reserve 26,102 25,697 IBNR reserve 36,859 33,326 Total 70,875 66,356
Total claims expenses 17,750 –574 17,176 16,191 –634 15,558 Unwinding of discount 40 –1 39 48 –2 46 Less payments
Date ≤ 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total 31 Dec. 2009 41,708 31 Dec. 2010 32,936 8,700 31 Dec. 2011 27,181 5,680 11,844 31 Dec. 2012 23,529 3,937 7,824 8,818 31 Dec. 2013 21,484 3,316 5,526 5,650 8,815 31 Dec. 2014 18,640 2,735 3,996 4,023 5,812 9,016 31 Dec. 2015 16,288 2,149 3,316 3,348 4,525 6,183 8,598 31 Dec. 2016 14,351 1,595 2,395 2,963 3,541 4,681 5,956 9,221 31 Dec. 2017 13,703 1,335 2,248 2,670 2,977 3,795 4,402 6,457 12,731 31 Dec. 2018 12,298 1,037 1,799 2,191 2,418 3,145 3,399 4,819 8,500 12,386 31 Dec. 2019 10,408 913 1,432 1,820 2,096 2,719 2,834 3,820 6,421 8,592 14,135 55,190
€m Accident year Date ≤ 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total 31 Dec. 2009 53,838 31 Dec. 2010 53,118 13,517 31 Dec. 2011 52,226 13,707 17,594 31 Dec. 2012 51,079 13,585 17,745 14,520 31 Dec. 2013 50,588 13,669 17,459 14,301 14,409 31 Dec. 2014 49,641 13,698 17,043 14,096 14,630 14,324 31 Dec. 2015 48,728 13,496 16,918 13,883 14,586 14,351 13,587 31 Dec. 2016 48,380 13,270 16,446 13,848 14,291 14,328 13,640 14,486 31 Dec. 2017 48,210 13,140 16,418 13,748 14,190 14,117 13,429 14,324 17,667 31 Dec. 2018 47,495 12,971 16,124 13,488 13,917 13,851 13,219 14,366 17,693 17,907 31 Dec. 2019 46,377 12,915 15,855 13,254 13,765 13,668 13,068 14,196 17,563 18,773 18,928 198,362 Net run-off result 7,461 603 1,739 1,266 644 656 519 290 104 –866 n/a 12,415 Change 2018 to 2019 1,118 56 269 234 151 183 151 170 130 –866 n/a 1,597
Breakdown of other technical provisions €m 31.12.2019 Prev. year Provision for premium refunds based on national regulations
Provision for deferred premium refunds 10,957 8,041 Thereof resulting from unrealised gains and losses on investments (recognised directly in equity)
4,788 4,788 Provision for profit commissions 611 593 Other 132 132 Total (gross) 21,011 17,314
Of the provision for premium refunds based on national regulations, €79m (78m) is apportionable to propertycasualty insurance. The provision for deferred premium refunds is established solely for life and health insurance.
Development of provision for deferred premium refunds €m 2019 Prev. year Status at 31 Dec. previous year 8,041 9,709 Changes in consolidated group 216 0 Change resulting from unrealised gains and losses on investments (recognised directly in equity)
We recognise a provision for the disposal group of €150m (–165m) in the item “Changes in consolidated group/Other”.
The present value of obligations under defined benefit pension plans amounts to €7,067m (5,921m), and the plan assets to be deducted total €3,746m (3,301m). Defined benefit plans comprise the following main plans: Munich Reinsurance Company’s pension obligations account for €1,677m (1,521m) of the present value of obligations under defined pension plans and €1,908m (1,710m) of plan assets. The actuarial gains from changes in demographic assumptions amounting to €271m primarily arise from the changeover to updated biometric actuarial assumptions. The portfolio transfer owing to the restructuring of the Munich Re pension plan in 2019 led to minor one-off expenses recognised in profit or loss. The obligations include disability and old-age pensions, and pensions for surviving dependants. The amount of the pensions generally depends on salary and length of service. The defined benefits granted up to 31 December 2007 are financed through a fund. New members on or after 1 January 2008 receive pension commitments in the form of defined contribution plans financed by means of intra-Group insurance contracts securing the obligations under pension schemes. The fund and insurance contracts have been grouped in a contractual trust agreement (CTA).
The pension obligations of Munich Reinsurance America, Inc. account for €749m (661m) of the present value of obligations under defined benefit plans, and €562m (484m) of plan assets. The obligations include pensions for employees and surviving dependants. The amount of the pensions generally depends on includable compensation and length of service. The plan is financed through a fund and pension provisions. The plan was closed to new members effective 1 January 2006 and to all remaining members effective 31 December 2011. With effect from 1 January 2012, all members now receive pension commitments in the form of defined contribution plans. There are also retiree medical-care benefit obligations.
Development of the present value of the defined benefit obligations €m 2019 Prev. year Status at 31 Dec. previous year 5,921 5,924 Currency translation differences 47 35 Changes in consolidated group –1 –1 Current service cost 124 145 Past service cost 38 9 Gains and losses from plan settlements –6 0 Contributions by plan participants 3 3 Interest expense 127 121 Payments –163 –145 Payments from plan settlements –11 –4 Transfer of obligations –2 0 Actuarial gains/losses: Change in demographic assumptions
The present value of medical-care benefit obligations amounted to €324m (274m) at the balance sheet date.
% 2019 Prev. year Discount rate 1.2 2.2 Future increases in entitlement/salary 1.8 1.8 Future pension increases 1.5 1.5 Medical cost trend rate 3.5 3.6
% 31.12.2019 Prev. year No quoted market price in an active market
There was an effect of €17m (12m) resulting from the asset ceiling on overfunded defined benefit plans.
Funded status of defined benefit plans €m 31.12.2019 Prev. year Obligations funded through provisions
Plan assets –3,746 –3,301 Assets from the defined benefit plan 412 365 Effect of asset ceiling 17 12 Other –2 –6
Other 57 –2 Balance at 31 Dec. financial year 3,748 2,992
Breakdown of expenses booked in the financial year €m 2019 Prev. year Net interest cost 41 44 Service cost 160 156 Other –1 1 Total 200 201
The actual return on plan assets amounts to €428m (27m), and the actual gains on reimbursements to €53m (0m).
Contractual period to maturity of pension obligations €m 31.12.2019 Prev. year Up to one year 167 156 Over one year and up to five years 762 730 Over five years and up to ten years 1,076 1,031 Over ten years and up to twenty years 2,514 2,503 Over twenty years 5,519 6,058 Total 10,038 10,478
Miscellaneous provisions €m Prev. year Additions Withdrawals Reversal Other changes 31.12.2019 Restructuring 459 22 –86 –17 –17 361 Commissions 180 2,072 –2,054 –5 0 193 Multi-year variable compensation 111 79 –31 –3 –4 152 Early retirement benefits/semi-retirement 101 49 –15 0 14 149 Salary obligations and other remuneration for desk and field staff
Breakdown of bonds and notes issued €m A.M. Best Fitch Moody’s S&P 31.12.2019 Prev. year Munich Re America Corporation, Wilmington, 7.45%, US$ 334m, Senior Notes 1996/2026 a A+ A2 A− 297 292 Total 297 292
Breakdown of other liabilities €m 31.12.2019 Prev. year Amounts payable on primary insurance business
The accounts payable on primary insurance business mainly contain liabilities towards policyholders resulting from accumulated participation in surplus, premium deposits and insurance contracts with non-significant risk transfer.
Of the amounts due to banks, €78m (93m) is attributable to bank borrowing by Group companies acquired by Munich Re under its infrastructure investment strategy.
The miscellaneous liabilities contain liabilities of €5,166m (3,989m) resulting from reinsurance contracts with nonsignificant risk transfer, derivative financial instruments with a negative fair value of €604m (631m), and negative fair values totalling €1,122m (948m) for insurance-linked derivatives and hedging derivatives of variable annuities. The miscellaneous liabilities also include €26m (21m) for social security and €32m (148m) for interest and rent.
Remaining terms of the other liabilities according to undiscounted contractual cash flows €m 31.12.2019 Prev. year Up to one year 9,154 9,516 Over one year and up to two years 463 163 Over two years and up to three years 2,495 271 Over three years and up to four years 267 172 Over four years and up to five years 61 2,062 Over five years and up to ten years 2,338 1,391 Over ten years 1,183 711 Total 15,961 14,288
Munich Re Group Annual Report 2019 29 Liabilities from financing activities
Balance at 31 Dec. prev. year 674 602 3,980 3,068 0 0 0 0 4,654 3,670 Adjustment at 1 Jan. 2019 as a result of IFRS 16
Cash changes –118 71 0 893 –86 0 0 0 –204 963 Non-cash changes
In the life and health reinsurance segment, the income from technical interest in life reinsurance business corresponds to the risk-free interest on our technical provisions. For deposited provisions, income from technical interest corresponds to the agreed interest rate. In health reinsurance business, the interest on long-term reinsurance treaties corresponds to the contractually agreed allocations of interest. For short-term reinsurance business, the income from technical interest is calculated on the basis of the risk-free interest on technical provisions at the relevant national interest rate.
Ceded share Claims and benefits paid 1,058 851 Change in technical provisions
The change in the provision for future policy benefits (net) contains €1,044m (–733m) in unrealised gains/losses from unit-linked life insurance. Expenses for claims and benefits include expenses for policyholders’ bonuses. Of these expenses, €1,231m (1,194m) is for the allocation to the provision for premium refunds on the basis of national regulations, €10m (–111m) for the change in the provision for deferred premium refunds recognised in the income statement, and €293m (47m) for direct crediting. The other technical result for life primary insurance mainly includes interest on policyholders’ accumulated credit.
Administrative expenses –3,325 –3,027 Change in deferred acquisition costs and contingent commissions, amortisation and impairment losses on acquired insurance portfolios 8 20 Gross operating expenses –13,809 –13,105
€m 2019 Prev. year Land and buildings, including buildings on third-party land
Loans 2,070 2,092 Other securities available for sale Fixed-interest 4,214 3,408 Non-fixed-interest 1,475 389 Other securities at fair value through profit or loss
Held for trading Fixed-interest 0 0 Non-fixed-interest 15 –6 Derivatives –595 246
Write-downs of non-derivative investments €m 2019 Prev. year Land and buildings, including buildings on third-party land
Loans –21 –21 Other securities available for sale –345 –968 Other securities at fair value through profit or loss
Other investments –41 –56 Total –575 –1,315 35 Insurance-related investment result
Insurance-related investment result €m 2019 Prev. year Result from investments for unit-linked life insurance contracts
Thereof: Interest and similar income 239 135 Write-ups of other operating assets 25 83
Other operating expenses –1,347 –976 Thereof: Interest and similar charges –156 –117 Write-downs of other operating assets
Other non-operating result, currency result and net finance costs €m 2019 Prev. year Other non-operating result –665 –639 Currency result 73 –39 Net finance costs –222 –196
The other non-operating result is unrelated to the conclusion, administration or settlement of insurance contracts or the administration of investments. It essentially comprises the other non-technical result of −€560m (−507m), write-downs of €46m (47m) on other intangible assets, and restructuring expenses of €60m (90m).
Net finance costs by financing instrument €m 2019 Prev. year Subordinated bonds of Munich Reinsurance Company, Munich
Main components of tax expenses/income €m 2019 Prev. year Current tax for financial year −673 −893 Current tax for other periods 114 550 Deferred tax resulting from the occurrence or reversal of temporary differences
Tax for prior years 273 586 Trade tax adjustments −1 −1 Other −85 −88
The effective tax burden is the ratio between the “taxes on income shown” and the “result before taxes on income (after “other tax”)”. In the 2019 financial year, there was a tax burden of 15.1% (previous year: 20.2%).
In reinsurance, we use the following discount rates for the provision for future policy benefits and the provision for outstanding claims:
In life primary insurance, an implicit or explicit interestrate guarantee is granted for the majority of contracts over their whole duration, based on a fixed interest rate applying at the time the contract is concluded. This exposes the insurance to an interest-guarantee risk. The discount rate used to calculate the provision for future policy benefits is identical with the guaranteed interest rate for the majority of contracts in our portfolios. An appropriate minimum return needs to be earned in the long term from the investment result (possibly also with assistance from the technical result) for the contractually guaranteed benefits. Given that the investments, as a rule, have a shorter duration than the insurance commitments, there is a reinvestment risk. As regards premiums yet to be received, the investment of these amounts involves a certain amount of risk. We counter these risks using our asset-liability management. In long-term health primary insurance, a discount rate is also used for calculating the provision for future policy benefits. However, this rate can generally be altered by way of premium adjustment. For short-term business, there is no direct interest-rate risk.
Life Health Total €m 31.12.2019 Prev. year 31.12.2019 Prev. year 31.12.2019 Prev. year Without discount rate 4,231 4,422 1,624 1,568 5,854 5,990 Discount rate ≤ 2.0% 6,805 6,057 2,142 842 8,947 6,898 2.0% < discount rate ≤ 3.0% 21,563 21,803 14,246 13,315 35,809 35,118 3.0% < discount rate ≤ 4.0% 30,989 31,929 14,612 11,387 45,601 43,316 4.0% < discount rate ≤ 5.0% 889 1,006 4,963 9,072 5,852 10,078 Discount rate > 5.0% 2 2 0 2 2 3 Total 64,478 65,219 37,587 36,184 102,066 101,403
Premiums, loss ratios and combined ratios by class of business 2019 2018 2017 2016 2015 Gross premiums written in €m Reinsurance
Liability 3,703 3,384 3,013 2,911 2,869 Accident 416 372 393 316 274 Motor 5,291 5,367 3,978 3,943 3,707 Marine, aviation, space 1,617 1,388 1,268 1,308 1,546 Fire 5,064 4,761 4,308 4,375 4,238 Engineering 1,453 1,315 1,311 1,438 1,550 Credit and surety 787 657 634 641 617 Other classes of business 3,760 3,192 2,938 2,895 2,877
Primary insurance 6,771 6,694 6,531 6,135 5,985 Loss ratio in %
Liability 100.5 105.7 119.3 107.4 104.3 Accident 106.9 51.0 94.2 99.2 121.7 Motor 100.4 103.3 107.9 100.9 99.7 Marine, aviation, space 115.1 75.1 81.8 92.3 80.2 Fire 102.6 98.5 137.8 86.3 70.2 Engineering 90.1 95.1 107.8 93.1 89.2 Credit and surety 63.7 89.0 101.8 110.8 109.0 Other classes of business 106.0 107.4 105.9 90.3 88.6
Liquidity risk For Munich Re, liquidity risks could arise if the cash outflow for insurance claims payments and the costs related to the business were to exceed the cash inflow from premiums and investments. The following table shows that in the past calendar years the liquidity situation in underwriting has always been positive. Besides this, we also have extensive, sufficiently liquid investments available to fulfil our liquidity obligations.
€m 2019 2018 2017 2016 2015 Premiums received 28,857 27,130 24,293 23,786 23,511 Claims payments for financial year –5,091 –5,901 –5,360 –5,882 –5,659 Claims payments for previous years –9,846 –8,873 –6,675 –8,545 –7,619 Costs –9,668 –9,234 –8,093 –7,719 –7,501 Balance 4,252 3,122 4,165 1,639 2,731
The Group parent is Münchener RückversicherungsGesellschaft Aktiengesellschaft in München (Munich Reinsurance Company Joint-Stock Company in Munich), Königinstrasse 107, 80802 München.
In addition to its function as a reinsurer, the parent also fulfils the function of holding company for the Group.
Expenses for employees’ pensions –270 –238 Total –3,674 –3,559 44 Mid-Term Incentive Plan
In the financial year 2019, expenses of €38m (23m) were recognised for the Mid-Term Incentive Plans. The provision at the reporting date amounted to €71m (42m).
Number of rights (for 100% achievement of objectives) on 31 December 2017 31,509 31,268 0 0 Number of rights (for 100% achievement of objectives) on 1 January 2018 31,509 31,268 0 0
Number of rights (for 100% achievement of objectives) on 31 December 2018 31,509 31,268 27,872 0 Number of rights (for 100% achievement of objectives) on 1 January 2019 31,509 31,268 27,872 0
Number of rights (for 100% achievement of objectives) on 31 December 2019 0 31,241 27,768 26,651 45 Remuneration report
The members of Munich Reinsurance Company’s Board of Management received remuneration totalling €23.8m (20.5m). The total remuneration of Munich Reinsurance Company’s Supervisory Board amounted to a total of €3.2m (2.8m); this figure includes €0.2m (0.2m) for reported remuneration for membership of supervisory boards at other Group companies.
Payments to retired members of the Board of Management or their surviving dependants totalled €12.4m (10.9m). Included in this amount is compensation in the amount of €0.8m paid to a former member of the Board of Management for a post-contractual non-competition agreement.
All other disclosures on the remuneration, the structure of the remuneration system and share ownership by members of the Board of Management can be found in the management report under the remuneration report. Information on share trading by Board members is provided in the Statement on Corporate Governance.
The number of staff at year-end totalled 18,790 (19,191) in Germany and 20,872 (22,219) in other countries.
Breakdown of number of staff 31.12.2019 Prev. year Reinsurance 12,362 12,324 ERGO 27,300 29,086 Total 39,662 41,410 47 Auditor’s fees
Other services essentially relate to quality assurance support and consulting services in connection with accounting issues, the introduction of regulatory requirements or of new accounting standards, each based on solutions and concepts produced by us. In addition, the auditor conducted an audit of the appropriateness of the structuring of parts of the internal control system.
In accordance with the German Insurance Supervision Act (VAG), all German life and health insurers of our Group are obliged to be members of a protection fund. For life insurers, the protection fund can levy special contributions of up to one per mille of total net technical provisions, in addition to a regular contribution of 0.2 per mille of total net technical provisions. For the health insurers, there is no pre-financing, but the fund may levy special contributions of up to two per mille of net technical provisions to fulfil its functions. This could give rise to a potential payment obligation of €166m (166m) at Group level. The functions and powers of the statutory protection fund for life insurance rest with Protektor Lebensversicherungs-AG, and those of the statutory protection fund for health insurance with Medicator AG.
Munich Re as lessee Please see Notes to the consolidated balance sheet – Assets (15) Other assets and Notes to the consolidated balance sheet – Equity and liabilities (28) Other liabilities for information on rights of use and lease liabilities.
Future minimum lease payments under operating leases €m 31.12.2019 Prev. year Up to one year 341 264 Over one year and up to five years 1,040 772 Over five years 765 682 Total 2,145 1,718
There were several finance leases for property at the balance sheet date, which are listed in the following table: Due dates 31.12.2019 Prev. year €m Gross investment Interest element
Minimum lease payments of over five years 70 56 14 71 56 15 Total minimum lease payments 73 57 16 74 57 17 Unguaranteed residual values 41 32 10 41 32 9 Total 114 88 26 115 89 25
On 30 January 2020, Munich acquired 100% of the voting shares in the wind park company FW Żary sp. z o.o., Warsaw, Poland via its subsidiary MR RENT-Investment GmbH, Munich. The company has concluded a general contractor agreement for the turnkey construction of a wind park in Poland, with completion scheduled for 2021.
On 16 January 2020, via its subsidiary MR Gotham LP, Delaware, Munich Re signed an agreement to purchase around 20% of the voting shares in Astoria Power Partners Holding LLC, Delaware. Astoria Power Partners Holding LLC, indirectly holds 100% of the voting rights in Astoria Energy I and 55% of the shares in Astoria Energy II. The two combined-cycle power stations in the New York City borough of Queens have a combined total power generation capacity of 1.2 gigawatts and are a cornerstone of energy supply security in Greater New York. The transaction is subject to approval by the competent authorities and is scheduled for completion in the first half of 2020.
On 28 February 2020, Munich Re acquired a high-rise office building at 330 Madison Avenue in New York City via its subsidiary 330 Madison Associates LLC, Dover, Delaware, USA, as an investment. The investment has a preliminary fair value of €0.8bn, and constitutes a business pursuant to IFRS 3 as it includes the assumption of contracts to manage the building. As part of the transaction, a mortgage with a preliminary fair value of €0.4bn was taken over from the seller. The purchase price was €0.8bn, of which €0.4bn was paid in cash and €0.4bn stems from the assumed mortgage.
A new coronavirus that originated in China (Covid-19) has been spreading across the world since early January 2020. From today’s perspective, Munich Re does not expect the consequences of the coronavirus to have any overall material effect on the annual result. However, the more this virus spreads, the greater the impact could be on Munich Re. Even in the very unlikely scenario of a worldwide pandemic equivalent to a 200-year event, Munich Re would face a maximum of €1.4bn in life and health insurance claims – similar in scope to a medium-sized natural catastrophe in property-casualty reinsurance. Mainly driven by the insurance of major events, such a scenario could also lead to losses in the medium-to-high triple-digit-million euro range in property-casualty reinsurance. Munich Re does not currently anticipate a global recession in the financial markets. The impact of falling equity markets would be partially offset by hedging, and current capital market forecasts show that any potential negative effect on results would be limited. If a worldwide pandemic with the aforementioned effects were to occur, more far-reaching upheavals on the capital markets and more significant implications for the result would be expected.
Earnings per share 2019 Prev. year Consolidated result attributable to Munich Reinsurance Company equity holders €m 2,724 2,310 Weighted average number of outstanding shares 143,638,536 148,703,565 Earnings per share € 18.97 15.53
The number of outstanding shares decreased by 4,336,780 (5,462,053) over the course of the 2019 financial year, essentially due to the share buy-back programme.
Munich Reinsurance Company’s net retained profits for 2019 according to its financial statements prepared on the basis of German GAAP accounting amount to €1,414,315,037.80. The Board of Management will propose to shareholders at the Annual General Meeting that these net retained profits be used for payment of a dividend of €9.80 per dividend-bearing share, with the remaining amount being carried forward to new account.
Consolidated subsidiaries 13th & F Associates Limited Partnership, Washington, D.C.4 98.0000 1440 New York Ave. Associates LP, Dover, Delaware 100.0000 330 Madison Associates LLC, Dover, Delaware 100.0000 330 Madison Holdings LLC, Dover, Delaware 100.0000 40, Rue Courcelles SAS, Paris 100.0000 Adelfa Servicios a Instalaciones Fotovoltaicas S.L., Santa Cruz de Tenerife 100.0000 AEVG 2004 GmbH i. L., Frankfurt am Main4 0.0000 AGRA Gesellschaft für landwirtschaftliche Entwicklung und Beteiligung mbH, Berlin 100.0000 ALICE GmbH, Düsseldorf 100.0000 ALLYSCA Assistance GmbH, Munich 100.0000 American Alternative Insurance Corporation, Wilmington, Delaware 100.0000 American Digital Title Insurance Company, Denver, Colorado 100.0000 American Family Home Insurance Company, Jacksonville, Florida 100.0000 American Modern Home Insurance Company, Amelia, Ohio 100.0000 American Modern Home Service Company, Amelia, Ohio 100.0000 American Modern Insurance Company of Florida Inc., Jacksonville, Florida 100.0000 American Modern Insurance Group Inc., Amelia, Ohio 100.0000 American Modern Lloyds Insurance Company, Dallas, Texas 100.0000 American Modern Property & Casualty Insurance Company, Cincinnati, Ohio 100.0000 American Modern Select Insurance Company, Amelia, Ohio 100.0000 American Southern Home Insurance Company, Jacksonville, Florida 100.0000 American Western Home Insurance Company, Oklahoma City, Oklahoma 100.0000 ArztPartner almeda AG, Munich 100.0000 Atena Uslugi Informatyczne i Finansowe S.A., Sopot 100.0000 ATU Landbau GmbH & Co. KG, Munich1 94.9000 Bagmoor Holdings Limited, London 100.0000 Bagmoor Wind Limited, London 100.0000 Bell & Clements (Bermuda) Ltd., Hamilton, Bermuda 100.0000 Bell & Clements (London) Ltd., London 100.0000 Bell & Clements (USA) Inc., Reston, Virginia 100.0000 Bell & Clements Inc., Reston, Virginia 100.0000 Bell & Clements Ltd., London 100.0000 Bridgeway Insurance Company, Amelia, Ohio 100.0000 Cannock B.V., Leidschendam 100.0000 Cannock Chase Holding B.V., Amsterdam 100.0000 Cannock Connect Center B.V., Brouwershaven 100.0000 Cannock Outsourcing B.V., The Hague 62.5000
Cannock PurChase B.V., The Hague 100.0000 Cannock-EDR Holding B.V., Amsterdam 100.0000 Ceres Demetra GmbH, Munich 100.0000 Closed Joint Stock Company «ERGO» Insurance Company, Minsk 93.1172 Comino Beteiligungen GmbH, Grünwald 100.0000 Consumer Loan Underlying Bond (CLUB) Certificate Issuer Trust I Series 2018-17, San Francisco, California 95.0000 Consumer Loan Underlying Bond (CLUB) Certificate Issuer Trust I Series 2018-24, San Francisco, California 95.0000 Consumer Loan Underlying Bond (CLUB) Certificate Issuer Trust I Series 2018-31, San Francisco, California 95.0000 Consumer Loan Underlying Bond (CLUB) Certificate Issuer Trust I Series 2019-05, San Francisco, California 95.0000 Consumer Loan Underlying Bond (CLUB) Certificate Issuer Trust I Series 2019-10, San Francisco, California 95.0000 Consumer Loan Underlying Bond (CLUB) Certificate Issuer Trust I Series 2019-40, San Francisco, California 95.0000 Consumer Loan Underlying Bond (CLUB) Certificate Issuer Trust I Series 2019-47, San Francisco, California 95.0000 Corion Pty Ltd, Sydney 100.0000 Cornwall Power (Polmaugan) Limited, London 100.0000 Countryside Renewables (Forest Heath) Limited, London 100.0000 D.A.S. Defensa del Automovilista y de Siniestros – Internacional S.A. de Seguros y Reaseguros, Barcelona 100.0000 D.A.S. Hellas Insurance Company of Legal Protection S.A., Athens 100.0000 D.A.S. Jogvédelmi Biztosíto Részvénytársaság, Budapest 100.0000 D.A.S. Rechtsschutz Aktiengesellschaft, Vienna 100.0000 D.A.S. Société anonyme belge d’assurances de Protection Juridique, Brussels 100.0000 D.A.S. Towarzystwo Ubezpieczen Ochrony Prawnej S.A., Warsaw 100.0000 Daman Health Insurance – Qatar LLC, Doha 100.0000 Dansk Demetra ApS, Frederiksberg C 100.0000 DAS Holding N.V., Amsterdam 51.0000 DAS Law Limited, Bristol 100.0000 DAS Legal Expenses Insurance Co., Ltd., Seoul 100.0000 DAS Legal Expenses Insurance Company Limited, Bristol 100.0000 DAS Legal Finance B.V., Amsterdam 100.0000 DAS MEDICAL ASSIST LIMITED, Bristol 100.0000 DAS Nederlandse Rechtsbijstand Verzekeringmaatschappij N.V., Amsterdam 100.0000 DAS Services Limited, Bristol 100.0000 DAS UK Holdings Limited, Bristol 100.0000 Digital Advantage Insurance Company, Providence, Rhode Island 100.0000 Digital Affect Insurance Company, New York City, New York 100.0000 Digital Edge Insurance Company, Wilmington, Delaware 100.0000
Digital Porte Inc., Toronto, Ontario 100.0000 DKV Belgium S.A., Brussels 100.0000 DKV Deutsche Krankenversicherung Aktiengesellschaft, Cologne 100.0000 DKV Pflegedienste & Residenzen GmbH, Cologne 100.0000 DKV Seguros y Reaseguros S.A. Española, Saragossa 100.0000 DMS QIAIF Platform ICAV (FIVE LABS Subfonds), Dublin 100.0000 DWS Concept SICAV (Subfonds Institutional Fixed Income, Inhaber-Anteile I4D), Luxembourg 100.0000 DWS Concept SICAV (Subfonds Institutional Fixed Income, Inhaber-Anteile I5D), Luxembourg 100.0000 DWS Concept SICAV (Subfonds Institutional Fixed Income, Inhaber-Anteile I6D o.N.), Luxembourg 100.0000 DWS Concept SICAV (Subfonds Institutional Fixed Income, Inhaber-Anteile I7D o.N.), Luxembourg 100.0000 DWS Concept SICAV (Subfonds Institutional Fixed Income, Inhaber-Anteile I8D o.N.), Luxembourg 100.0000 E&S Claims Management Inc., Reston, Virginia 100.0000 EIG Co., Wilmington, Delaware 100.0000 ERGO ASIGURARI DE VIATA S.A., Bucharest 100.0000 ERGO ASIGURARI S.A., Bucharest 100.0000 ERGO Austria International AG, Vienna 100.0000 ERGO Beratung und Vertrieb AG, Düsseldorf 100.0000 ERGO Deutschland AG, Düsseldorf 100.0000 ERGO Digital Ventures AG, Düsseldorf 100.0000 ERGO DIREKT Versicherung AG, Fürth 100.0000 ERGO Életbiztosító Zrt, Budapest 100.0000 ERGO Elfte Beteiligungsgesellschaft mbH, Düsseldorf 100.0000 ERGO Fund I LP, Dover, Delaware1 100.0000 ERGO Generales Seguros y Reaseguros S.A., Madrid 100.0000 ERGO Group AG, Düsseldorf 100.0000 ERGO Grubu Holding A.Ş., Istanbul 100.0000 ERGO Grundstücksverwaltung GbR, Düsseldorf1 100.0000 ERGO Insurance Company S.A., Athens 100.0000 ERGO Insurance N.V., Brussels 100.0000 ERGO Insurance Pte. Ltd., Singapore 100.0000 ERGO Insurance SE, Tallinn 100.0000 ERGO International Aktiengesellschaft, Düsseldorf 100.0000 ERGO International Services GmbH, Düsseldorf 100.0000 ERGO Invest SIA, Riga 100.0000 ERGO Krankenversicherung AG, Fürth 100.0000 ERGO Lebensversicherung Aktiengesellschaft, Hamburg 100.0000 ERGO Life Insurance SE, Vilnius 100.0000 ERGO Life S.A., Grevenmacher 100.0000 ERGO Neunte Beteiligungsgesellschaft mbH, Düsseldorf 100.0000 ERGO Partners N.V., Brussels 100.0000 ERGO Pensionsfonds Aktiengesellschaft, Düsseldorf 100.0000 ERGO Pensionskasse AG, Düsseldorf 100.0000 ERGO Poist’ovna a.s., Bratislava 100.0000 ERGO pojišt’ovna, a.s., Prague 100.0000 ERGO Private Capital Dritte GmbH & Co. KG, Düsseldorf 100.0000 ERGO Private Capital Gesundheit GmbH, Düsseldorf 100.0000 ERGO Private Capital Komposit GmbH & Co. KG, Düsseldorf 100.0000 ERGO Private Capital Leben GmbH & Co. KG, Düsseldorf 100.0000 ERGO Private Capital Vierte GmbH & Co. KG, Düsseldorf 100.0000 ERGO Private Capital Zweite GmbH & Co. KG, Düsseldorf 100.0000 ERGO Reiseversicherung AG, Munich 100.0000 ERGO Technology & Services Management AG, Düsseldorf 100.0000