Munich Re’s market capitalisation at 31 December1 €bn 28.9 30.8 28.7 28.7 24.4
Off-balance-sheet unrealised gains and losses2 €bn 17.3 16.0 17.4 8.7 11.0
Munich Re at a glance Key figures Inside front cover Quarterly figures Inside back cover Important dates Back cover
Consolidated financial statements and notes 091 Consolidated balance sheet 094 Consolidated income statement 096 Statement of recognised income and expense 097 Group statement of changes in equity 098 Consolidated cash flow statement 100
Like any shareholder, you must ask yourself from time to time: have I invested my money in the right company?
The quality of a company becomes evident not in boom years, but when things become more difficult. Munich Re has been experiencing a challenging period for some time now – due to continuing low-interest-rate policies, and the consequential intensive competition on the reinsurance markets. Since 2012, these two effects alone have had an overall negative impact of over €1bn on our profits. Nevertheless, Munich Re has posted rather good results in recent years, without having to veer away from its path of sustainable development.
At ERGO, we have also introduced changes that promise significantly higher earnings potential in the future. We expect that as from 2021 primary insurance will provide an annual contribution to profits of €600m. To make this possible, we introduced the ERGO Strategy Programme last year. From the shareholders’ perspective, we are investing around €1bn, in particular in infrastructure that is fit for the future. ERGO will have modern and more flexible IT systems, which will allow the opportunities offered by digitalisation to be utilised for the benefit of our clients. The Strategy Programme will also ensure a more efficient settlement of life insurance business, while accelerating development of new, attractive retirement provision products for our customers. These measures will be accompanied by a significant cost-cutting programme.
We reorganised our health business with effect from 1 February 2017. The reinsurance units of Munich Health were allocated to the Life Reinsurance division, and responsibility for health primary insurance business was transferred to ERGO. Munich Health had been doing well recently, and its contribution to the consolidated profit of around €140m for 2016 beat expectations. However, in recent years Munich Health has not been able to develop dynamically profitable growth. But the
So ask yourself again: have I invested my money in the right company? In my opinion, the answer is: yes, you certainly have!
Corporate governance report 014 Corporate legal structure 014 Annual General Meeting 014 Board of Management 014 Collaboration between Board of Management and Supervisory Board 015 Supervisory Board 015 Share trading and shares held by Board members 016 Governing bodies of Munich Re 016
In the financial year 2016, the Supervisory Board fulfilled all the tasks and duties incumbent upon it by law and under the Articles of Association and its rules of procedure. All members of the Supervisory Board and of the committees attended more than half of the respective meetings. We monitored the Board of Management in its conduct of the business, and gave advice on all matters of importance for the Group. No inspection measures in accordance with Section 111 (2) sentence 1 of the German Stock Corporation Act (AktG) were required at any time.
Between meetings, I held regular discussions with Nikolaus von Bomhard, Chairman of the Board of Management, about individual questions of strategic development and risk management, as well as about Munich Re’s current business situation. Also between meetings, the Chairman of the Audit Committee, Henning Kagermann, remained in close contact with Jörg Schneider, the member of the Board of Management responsible for Group reporting.
On 18 October, we discussed corporate governance issues including the results of the annual efficiency review, the adoption of amendments to the Audit Committee’s rules of procedure to accommodate the requirements of the German Audit Reform Act (AReG), and the resolution regarding the annual Declaration of Conformity. We also took a decision regarding the extension of an appointment to the Board of Management, and the Board of Management reported on Munich Health’s business performance.
Work of the committees There are five Supervisory Board committees. These are assigned certain matters for resolution and also prepare the topics which are to be addressed and decided upon by the full Supervisory Board. At each Supervisory Board meeting, information about the work of the committees was provided to the full Board by the respective Chairs of the committees.
Details of the tasks of the committees and their composition can be found in the Statement of Corporate Governance at www.munichre.com/cg-en. The members of the Supervisory Board and membership of the Supervisory Board Committees can be seen on page 17 f. and at www.munichre.com/supervisory-board.
The Nomination Committee met three times in 2016 and discussed suitable candidates for election to the Supervisory Board. In proposing nominations, the Committee took account of the objectives set by the Supervisory Board for composition of the Committee and the set of criteria, which it updated in the year under review.
There was no need to convene the Conference Committee in 2016.
Details of this can be found in the Corporate Governance Report on page 15 f.
Wolfgang Mayrhuber retired from the Supervisory Board with effect from 31 December 2016. Renata Jungo Brüngger was appointed to the Supervisory Board by an order of the Amtsgericht (Local Court) of Munich dated 3 January 2017. The Supervisory Board will propose to the 2017 Annual General Meeting of shareholders that Renata Jungo Brüngger be elected to the Supervisory Board for the remainder of Wolfgang Mayrhuber’s term of office.
Dieter Spethmann passed away on 1 February 2016. He had been a member of the Supervisory Board of Munich Re from 1976 to 1998, and was its Chairman between 1978 and 1996. Dieter Spethmann made a major contribution to Munich Re’s transition into a diversified financial services provider. We have a great deal to thank him for, and mourn the loss of an exceptional man.
Company and Group financial statements for 2016 and Solvency II reporting KPMG Bayerische Treuhandgesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft duly audited the Company and Group financial statements and the combined management report as at 31 December 2016, and issued them with an unqualified auditor’s opinion. The respective reports and the Board of Management’s proposal for appropriation of the net retained profits were subsequently submitted directly to the members of the Supervisory Board. At its meeting on 6 February 2017, the Audit Committee had the opportunity to confer in detail about the preliminary year-end figures as at 31 December 2016. On 13 March 2016, it prepared the Supervisory Board’s resolution on the adoption of the Company financial statements and the approval of the Group financial statements. To this end, the Audit Committee examined in advance the Company and Group financial statements, the combined management report and the Board of Management’s proposal for appropriation of the net retained profits. It discussed these at length with the auditor present at the meeting, and gave detailed consideration to the auditor’s reports. The Chair of the Audit Committee briefed the full Supervisory Board about the outcome of its consultations at the balance sheet meeting. In its March meeting, the Audit Committee discussed the preliminary key figures under Solvency II reporting – and the Solvency II ratio in particular – and reported on this in the plenary session.
The full Supervisory Board also reviewed the Company and Group financial statements and the combined management report, and the proposal of the Board of Management for appropriation of the net retained profits.
On the basis of this examination and having heard the auditor’s report, the Supervisory Board raised no objections to the outcome of the external audit. It approved the Company and Group financial statements on 14 March 2017. The financial statements were thus adopted. Having carefully weighed all relevant aspects, the Supervisory Board followed the proposal of the Board of Management for appropriation of the net retained profits.
Corporate governance stands for a form of responsible company management and control geared to long-term creation of value.
Efficient practices on the Board of Management and Supervisory Board, good collaboration between these bodies and with the Group’s staff, an organisational structure that fits the purpose of the Group and efficient processes for conducting business are core elements of good corporate governance. They help to secure the confidence of investors, clients, employees and the general public in our corporate activities.
The Annual General Meeting regularly reaches a resolution on the appropriation of profits and approving the actions of the Board of Management and Supervisory Board. Besides this, the Annual General Meeting elects the shareholder representatives on the Supervisory Board and, in particular, votes on changes to the Articles of Association and on individual capital measures. Certain corporate contracts also require the approval of the Annual General Meeting to become effective.
The principle of “one share, one vote” applies at the Company’s Annual General Meeting. With the aim of making it easier for shareholders to take part and exercise their voting rights, the Company provides the option of online participation at the Annual General Meeting, and a postal vote (also electronically).
Pursuant to Article 16 of the Articles of Association, the Board of Management consists of at least two members; beyond this, the number of members is determined by the Supervisory Board. When appointing the Board of Management, the Supervisory Board pays due regard to diversity. In 2016, the Board of Management of Munich Reinsurance Company had ten members, two of whom were women.
Objectives of the Supervisory Board for its composition, diversity, independence and competences
The aforementioned objectives apply to the Supervisory Board as a whole. Shareholder and employee represent- atives will each contribute towards meeting these objectives.
implementation on the basis of the compliance management system (CMS). The CMS is the methodical framework for the structured implementation of early warning, risk control, consulting and supervision functions, as well as for the monitoring of background legal conditions.
At the instigation of the Board of Management, another channel has been established to complement the external independent ombudsman and thus strengthen compliance within Munich Re: the compliance whistleblowing portal. Employees and third parties can use this portal to anonymously report activities that may cause reputational damage, suspected criminal behaviour such as bribery and corruption, and contraventions of antitrust, insider trading and data protection laws, and other violations of applicable legislation.
Munich Re Group Annual Report 2016 15Corporate governance Corporate governance report
Dr. jur. Nikolaus von Bomhard (until 26 April 2017) Chairman of the Board of Management Chairman of the Group Committee Group Development1
Group Investments Group Communications Group Compliance Group Audit Group Human Resources
Dr. oec. publ. Joachim Wenning Labour Relations Director (until 26 April 2017) Life (until 31 January 2017) Human Resources (until 26 April 2017)
Dr. rer. pol. Thomas Blunck Life and Health (since 1 February 2017) Capital Partners Digital Partners Special and Financial Risks (until 31 January 2017) Reinsurance Investments
Dr. jur. Doris Höpke Labour Relations Director (from 27 April 2017) Health (until 31 January 2017) Special and Financial Risks (from 1 February 2017) Human Resources (from 27 April 2017)
Dr. rer. nat. Torsten Jeworrek Chairman of the Reinsurance Committee Reinsurance Development Corporate Underwriting Claims Accounting, Controlling and Central Reserving for Reinsurance Information Technology Geo Risks Research/ Corporate Climate Centre
The Supervisory Board’s Nomination Committee selects candidates for the shareholder representatives based on a defined set of criteria. Besides the objectives mentioned, these criteria include a good overall understanding of the Company’s business model, sufficient time availability and special professional skills. Consequently, it must be ensured that the Supervisory Board as a whole possesses adequate knowledge, skills and experience with regard to markets, business processes, competitors, and the requirements of reinsurance, primary insurance, international health and investment, besides having an adequate knowledge of risk management, accounting, controlling and internal auditing, asset liability management, legal and regulatory affairs, compliance and tax matters.
The set of criteria also includes other personal qualities of the Supervisory Board members, such as a strong commitment to corporate governance and to a sustainable corporate strategy and business policy geared to creating long-term value for shareholders, strategic and problem- solving skills, and competence in dealing with change.
Additional requirements will be defined on a case-by-case basis for specific tasks to be handled by the Supervisory Board. The European Electoral Board, which is responsible for the election of the employee representatives, also uses a corresponding set of criteria. In addition, the specific rules for co-determination apply.
Prof. Dr. rer. nat. Dr. h.c. Ursula Gather Member since 30 April 2014 Rector of TU Dortmund University
Prof. Dr. rer. nat. Peter Gruss Member since 22 April 2009, last re-elected 30 April 2014 President and CEO of OIST Graduate University, Japan
Wolfgang Mayrhuber Member from 13 December 2002 until 31 December 2016 Chairman of the Supervisory Board of Deutsche Lufthansa AG
Andrés Ruiz Feger Member since 22 April 2009, last re-elected 30 April 2014 Employee of Munich Re, Sucursal en España, Spain
Dr. rer. pol. Markus Rieß Primary Insurance/ERGO Third Party Asset Management
Dr. jur. Jörg Schneider Chief Financial Officer Financial and Regulatory Reporting Group Controlling Corporate Finance M&A Integrated Risk Management Group Legal Group Taxation Investor and Rating Agency Relations
Dr. Ing. E. h. Dipl. Ing. Bernd Pischetsrieder Chairman Member since 17 April 2002, last re-elected 30 April 2014 Former Chairman of the Board of Management of Volkswagen AG
Prof. Dr. oec. Dr. iur. Ann-Kristin Achleitner Member since 3 January 2013, last re-elected 30 April 2014 Scientific Co-Director of the Center for Entrepreneurial and Financial Studies (CEFS) at the Technical University of Munich
Munich Re Group Annual Report 2016 17Corporate governance Corporate governance report
Standing Committee Dr. Ing. E. h. Dipl. Ing. Bernd Pischetsrieder Chair Gerd Häusler (since 1 January 2017) Prof. Dr. rer. nat. Dr. Ing. E. h. Henning Kagermann Wolfgang Mayrhuber (until 31 December 2016) Marco Nörenberg Andrés Ruiz Feger
Personnel Committee Dr. Ing. E. h. Dipl. Ing. Bernd Pischetsrieder Chair Prof. Dr. rer. nat. Dr. Ing. E. h. Henning Kagermann (since 1 January 2017) Wolfgang Mayrhuber (until 31 December 2016) Angelika Wirtz
Audit Committee Prof. Dr. rer. nat. Dr. Ing. E. h. Henning Kagermann Chair Prof. Dr. oec. Dr. iur. Ann-Kristin Achleitner (since 27 April 2016) Christian Fuhrmann Dr. iur. Anne Horstmann Dr. Ing. E. h. Dipl. Ing. Bernd Pischetsrieder Anton van Rossum (until 27 April 2016)
Dr. jur. Nikolaus von Bomhard (Chairman) ERGO Group AG2 (Chair) Munich Health Holding AG2 (Chair) Deutsche Post AG
Dr. rer. pol. Peter Röder EXTREMUS Versicherungs-AG Munich Re America Corp., USA2 (Chair) Munich Reinsurance America, Inc., USA2 (Chair)
2 Own Group company within the meaning of Section 18 of the German Stock Corporation Act. 3 Belong to the same corporate group (Hyperion group). 4 Listed on the stock exchange. 5 Belong to the same corporate group (Sanlam group).
Dr. phil. Ron Sommer – PrJSC MTS, Ukraine (Chair) Tata Consultancy Services Ltd., India
Macroeconomic and industry environment 045 Capital markets 045 Insurance industry 045
Important tools of corporate management 046 Munich Re’s management philosophy – based on value creation 046 The Group’s corporate management tools 046
Business performance 048 Board of Management’s overall assessment of the business performance and situation of the Group 048 Business performance of the Group and overview of investment performance 048 Reinsurance – Life 052 Reinsurance – Property-casualty 053 ERGO 056 ERGO Life and Health Germany 056 ERGO Property-casualty Germany 058 ERGO International 059 Munich Health 060
Financial position 061 Analysis of our capital structure 061 Technical provisions 061 Restraints on disposal 061 Capital position 062 Information in accordance with Sections 315 (4) and 289 (4) of the German Commercial Code (HGB) and explanatory report of the Board of Management 062
Risk report 066 Risk governance and risk management system 066 Significant risks 067 Solvency ratio under Solvency II 074 Other risks 074 Summary 074
Opportunities report 075 Business environment 075 Innovation and digitalisation 075 Social and economic trends 076 Expanding the limits of insurability 077
Munich Re is one of the world’s leading risk carriers and provides both insurance and reinsurance under one roof. This enables the Group to cover large stretches of the value chain in the risk market. Almost all reinsurance units operate under the uniform brand of Munich Re. ERGO Group AG (ERGO) is active in nearly all lines of life, health and property-casualty insurance. Munich Re’s investments worldwide are managed by MEAG, which also offers its expertise to private and institutional investors outside the Group. The Munich Health field of business was disbanded on 1 February 2017. For up-to-date information about Munich Re, visit www.munichre.com.
We have the relevant abilities, resources and risk expertise to originate new solutions. In close cooperation with recognised partners, we generate added value through our business solutions and initiatives.
Our voluntary commitments, such as the ten principles of the United Nations Global Compact, the Principles for Responsible Investment, and the Principles for Sustainable Insurance are the foundations of our corporate responsibility approach. In our insurance business and investment management, we proactively embrace environmental and social factors, as well as governance aspects. We have implemented a Group-wide environmental management system, and our operations have been carbon-neutral since 2015. With our social involvement, we fulfil our role as a “good corporate citizen”, focusing on projects related to our core business. All information on our endeavours is available from our corporate responsibility portal at www.munichre.com/cr-en.
The reinsurance companies of the Group operate globally and in virtually all classes of business. We offer a full range of products, from traditional reinsurance to innovative solutions for risk assumption. Our companies conduct their business from their respective headquarters and via a large number of branches, subsidiaries and affiliated companies. The reinsurance group also includes specialty primary insurers, whose business requires special competence in finding appropriate solutions. These primary insurers have the words “Risk Solutions” added to their logo.
In ERGO, we combine all Munich Re’s primary insurance activities. Some 74% (73%) of gross premiums written by ERGO derive from Germany, and 26% (27%) from international business – mainly from central and eastern European countries. ERGO has also extended its activities to Asian markets such as India, China, Vietnam, Singapore and Thailand. From 1 February 2017, responsibility for health primary insurance business was transferred from Munich Health to ERGO International.
The property-casualty reinsurance divisions Global Clients and North America handles our accounts with major international insurance groups, globally operating Lloyd’s syndicates and Bermuda companies. It also pools our know-how in the North American market and is responsible for our property-casualty subsidiaries in this region, and for international special lines business such as workers’ compensation. The three major US-based subsidiaries are Munich Reinsurance America, Inc. (Munich Re, US), The Hartford Steam Boiler Inspection and Insurance Company (HSB), and American Modern Insurance Group, Inc. (American Modern). Munich Re, US writes property-casualty reinsurance business and niche primary insurance business. The division’s reinsurance portfolio is complemented by the primary insurers HSB and American Modern, which specialise in US primary insurance products for which understanding of the exposure and client proximity are paramount.
Our Europe and Latin America Division is responsible for property-casualty business with our clients from Europe (except Germany), Latin America and the Caribbean. Branches – for example, in London, Madrid, Paris and Milan – and our Brazilian subsidiary Munich Re do Brasil Resseguradora S.A. , afford us market proximity and regional competence.
In reinsurance, we operate in life and property-casualty business. Under reinsurance, we also include specialised primary insurance activities that are handled by the reinsurance organisation and business from managing general agencies (MGAs). Munich Re does business with over 4,000 corporate clients from more than 160 countries.
Focus of life reinsurance operations Our international life business is written in the Life Division. This is split into three geographical regions and one international unit responsible for global activities in the area of risk and capital management. The focus of the division’s business activities is on traditional reinsurance solutions that concentrate on the transfer of mortality risk. Moreover, we have been increasingly active in the market for living benefits p roducts. 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. Until now, we have offered this only in the United Kingdom.
North America American Family Home Insurance Company, Jacksonville, Florida American Modern Home Insurance Company, Amelia, Ohio American Modern Insurance Group, Inc., Amelia, Ohio American Western Home Insurance Company, Oklahoma City, Oklahoma Global Standards, LLC, Dover, Delaware HSB Engineering Insurance Ltd., London HSB Group, Inc., Dover, Delaware Munich Re Holding Company (UK) Ltd., London Munich Reinsurance America, Inc., Wilmington, Delaware2
Munich Reinsurance Company of Canada, Toronto, Ontario Temple Insurance Company, Toronto, Ontario The Hartford Steam Boiler Inspection and Insurance Company, Hartford, Connecticut The Princeton Excess and Surplus Lines Insurance Company, Wilmington, Delaware The Midland Company, Cincinnati, Ohio
Europe and Latin America Munich Re do Brasil Resseguradora S.A., São Paulo2
Munich Re, Madrid2 Munich Re, Milan Munich Re, Paris Munich Re, London
In Europe and Asia, ERGO is represented by life and property insurers under the ERGO brand and legal pro tection insurers under the D.A.S. brand. Of ERGO’s European companies, those in Austria, Poland, the Baltic states and Greece have a particularly strong market presence. In Greece, ERGO became the market leader in 2016 after acquiring a primary insurer there. As an experienced legal-protection specialist, D.A.S. too numbers amongst the leading players in each of its markets. With its ERGO Industrial Division, ERGO Versicherung AG services corporate clients in industrial insurance from its branches in Austria, the Netherlands, the United Kingdom, Switzerland and – since 2016 – France.
ERGO Insurance Group was given a new organisational structure in 2016. German, international, and direct and digital business are bundled in three separate units under the umbrella of the newly named ERGO Group AG. In addition to the existing ERGO International AG, two new holding companies were founded in 2016: traditional German business will be concentrated in ERGO Deutschland AG. The third pillar, ERGO Digital Ventures AG, will be responsible for all of the Group’s digital and direct activities, including ERGO Direkt business. Responsibility for the new ERGO Mobility Solutions unit will lie with ERGO Digital Ventures from 2017, given the growing significance of automotive financial services.
Great Lakes, Baar Great Lakes, Dublin Great Lakes, Milan Munich Re of Malta p.l.c., Ta’ Xbiex2
In the 2016 financial year, Munich Health had been working on further business expansion in the Asia-Pacific region via service-oriented reinsurance solutions focusing on
Munich Re Group Annual Report 2016 1 A detailed list of shareholdings can be found on page 168 ff. in the notes to the consolidated financial statements.
Apollo Munich Health Insurance Company Ltd., Hyderabad Daman – National Health Insurance Company, Abu Dhabi Daman Health Insurance – Qatar LLC, Doha, Qatar DKV Belgium S.A., Brussels DKV Seguros y Reaseguros, Sociedad Anónima Española, Saragossa Globality S.A., Luxembourg Marina Salud S.A., Alicante Munich Re Stop Loss, Inc., Wilmington, Delaware Storebrand Helse ASA, Lysaker
Great Lakes Insurance SE, Munich Münchener Rückversicherungs-Gesellschaft AG, Munich Munich Re of Malta p.l.c., Ta’ Xbiex Munich Reinsurance America, Inc., Wilmington, Delaware
− the recommendations of the German Corporate Governance Code, applicable since 5 May 2015, − the provisions of the German Remuneration Regulation for Insurance Companies (VersVergV) of 18 April 2016, and
− Article 275 of the Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).
Munich Re Group Annual Report 2016 these periods. The corridor for the achievement of the individual objectives and for the overall annual and multi-year performance is 0–200%. Payouts are made at the end of the periods under consideration. With a view to promoting a management approach that takes due account of the Company’s long-term interests, the members of the Board of Management are obliged to invest a fixed part of the paid-out variable remuneration in Munich Reinsurance Company shares.
Details of the assessment bases for the annual performance can be seen in the following table: Fixed components The fixed components of remuneration comprise basic remuneration, plus remuneration in kind and fringe benefits.
Variable remuneration The variable remuneration component is geared to the overall performance of the Group and defined divisional units, and to the personal performance of the individual members of the Board of Management. The amount depends on the extent to which the annually set objectives for annual and multi-year performance are met, and how the component “evaluation of overall performance” is assessed.
Processes have been laid down for specifying respective objectives and assessing their achievement. These processes require review by the external auditor, who checks the criteria for measuring the envisaged financial objectives and whether their achievement has been assessed in accordance with the guidelines established by the Company. The outcome is notified to the Super visory Board.
The variable remuneration for the multi-year performance is determined on the basis of evaluation by the full Supervisory Board and then paid out in the year after the three-year assessment period. Of the net payout amount, 25% must be invested in Munich Reinsurance Company shares that must be held for at least a two-year period.
1 The objectives are weighted individually according to the responsibilities of the individual Board members. 2 Further information on RORAC is provided on page 47. 3 Further information on economic earnings is provided on page 46.
– ERGO Value-based economic Economic earnings3 performance indicator Individual contribution 20%–55% to corporate success Divisional objectives Value-based economic Components of performance indicators: economic earnings3: – Property-casualty reinsurance – Value added and Munich Health – Life reinsurance – Value added by new business – Change in the value of in-force business
Other remuneration Stock option plan No stock option plans or other incentive systems are in place for the Board of Management.
Board members appointed for the first time as from 1 April 2012 are entitled to an occupational pension on retiring from active service with the Company after reaching the age of 62 or, at the latest, at the end of the calendar year in which they turn 67.
Benefit: − In the case of defined contribution plans: 80% of the insured occupational pension up to the age of 59 or 61, with subsequent occupational pension. − In the case of a combination between defined benefit plans and defined contribution plans: Vested pension from the defined benefit plan and 80% of the insured occupational pension benefit up to age 59, with subsequent occupational pension based on the defined contribution plan.
Reduced occupational pension on early retirement Board members appointed before 1 January 2017 are entitled to a reduced occupational pension on early retirement if the contract of employment is terminated as a result of non-extension or revocation of their appointment without the Board members having given cause for this through a gross violation of their duties, or at their own request. The precondition is that the Board members have already passed the age of 50, have been in the employment of the Company for more than ten years when the contract terminates, and have had their appointment to the Board of Management extended at least once.
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. − In the case of a combination between defined benefit plans and defined contribution plans: Entitlement of between 30% and 60% of pensionable basic remuneration, reduced by 2% for each year or part thereof short of the Board member’s 65th birthday; the Company not taken into account. Payments received by a Board member during a period of notice and after termination of the appointment are offset against any severance payment. There will be no right to severance payments if the Board member’s contract is terminated by the Company for good cause.
Board members appointed before 2009 were transferred to the new system. They kept their pension entitlement from the previous defined benefit plan (fixed amount in euros) existing at the date of transfer on 31 December 2008, 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.
Benefits on termination of employment Board members appointed before 2006 and entitled to an occupational pension, disability pension, reduced occupational pension or improved vested benefits continue to receive their previous monthly basic remuneration for a period of six months after retiring or leaving the Company.
Total remuneration of the Board of Management The level of the target overall direct remuneration for the individual members of the Board of Management is set by the full Supervisory Board, acting on recommendations from the Supervisory Boards Personnel Committee. Criteria for the appropriateness of compensation are the respective Board member’s duties, the Board member’s personal performance, the performance of the Board as a whole, and the financial situation, performance and future prospects of Munich Re. Other criteria are the relevant comparative benchmarks for Board remuneration and the prevailing remuneration structure at Munich Reinsurance Company. The Supervisory Board takes account of the level of Board salaries in relation to the level of salaries paid to senior managers and to general staff members over a period of time, and also determines how senior managers and general staff (pay-scale and non-pay-scale employees) are to be classified for the purpose of this comparison. The consideration of what level of remuneration is appropriate also takes into account data from peer-group (DAX 30) companies. New Board members are placed at a level which allows sufficient potential for development of the remuneration in the first three years.
Board of management remuneration is disclosed under two different sets of rules, namely German Accounting Standard No. 17 (DRS 17, revised 2010) and the German Corporate Governance Code. There are therefore deviations in individual remuneration components and total remuneration.
Vested benefits for occupational pension, disability pension and surviving dependants Vested benefits are paid upon the Board member reaching the age of 60 or 62, in the case of disability, or in the event of the Board member’s death.
Vested benefits under the Employers’ Retirement Benefits Act (BetrAVG): Board members have vested benefits under the Employers’ Retirement Benefits Act if they leave the Company before reaching the age of 60 or 62 and the pension commitment has existed for at least five years previously.
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 insured event occurs. − In the case of a combination between defined benefit plans and defined contribution plans: The entitlement under the vested pension is a proportion of the vested pension based on the ratio of actual service with the Company to the period the Board member would have worked for the Company altogether up to the fixed retirement age (m/n-tel process, Section 2 (1) of the Employers’ Retirement Benefits Act). The entitlement from the incremental pension comprises the pension benefits fully financed under the insurance contract up to the occurrence of the insured event based on the pension contributions made up to the date of leaving the Company (Section 2 (5a) of the Employers’ Retirement Benefits Act). This entitlement is paid out as an annuity or a lump sum.
Munich Re Group Annual Report 2016 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 2016 annual performance. The amounts shown for annual performance remuneration are based on estimates, i.e. the relevant provisions and the additional/reduced expenditure for 2015. For the 2015 annual performance, a total of €192,471 less was paid out than had been reserved in the financial year 2015. The additional/reduced expenditure breaks down as follows: von Bomhard –€17,564, Albo –€22,420, Arnoldussen –€70,014, Blunck –€54,474, Höpke €22,182, Jeworrek –€23,021, Rieß –€17,214, Röder –€37,674, Schneider –€14,860, Wenning €42,588. This results in the following actual bonus payments for 2015: von Bomhard €972,930, Albo €412,913, Arnoldussen €411,600, Blunck €403,200, Höpke €283,238, Jeworrek €694,260, Rieß €159,274, Röder €483,000, Schneider €675,990, Wenning €546,000. The amounts shown for the annual performance 2015 comprise the respective provision for 2015 and the relevant additional/reduced expenditure for 2014.
2 The amounts paid out in 2016 were for multi-year performance 2013–2015, those paid out in 2015 were for 2012-2014. 3 Remuneration in kind/fringe benefits for 2016 including anniversary payments.
Other: compensation, payable in four equal instalments, for the forfeited variable remuneration from the previous employer.
2 The remuneration set for multi-year performance for 2016 is payable in 2019, that for 2017 in 2020. 3 The information on the assessment bases and parameters on page 31 f. for the amounts set for 2016 also applies to the amounts set for 2017. 4 The amounts set for 2017 are granted pro rata temporis for a period of four months. 5 The compensation components that Markus Rieß received for his work at ERGO Group AG are included in the remuneration.
Total Annual Multi-year amounts Name performance1, 3 performance2, 3 payable Set in for € € €
thereof for Munich Reinsurance Company 236,250 551,250 787,500 thereof for Munich Reinsurance Company 236,250 551,250 787,500
Defined benefit plan Present value Personnel of defined expenses Financial Defined benefit as at for Name year benefit1 31 December provisions2 thereof for Munich Reinsurance Company – 14,319 10,370 2015 – – – thereof for Munich Reinsurance Company – – –
The basic remuneration, remuneration in kind/fringe benefits and pension expenses (sum of personnel expenses for defined benefit plans and defined 1 In the case of Board members transferred from the old system to the new, the amount corresponds to the value of the annual vested pension at 31 December 2008. 2 Expenses for defined benefit plan, including provision for continued payment of salary for surviving dependants. 3 Entitled to an occupational pension in the event of premature or regular termination of employment.
4 Entitled to occupational pension in the event of termination of employment owing to disability. 5 Entitled to vested benefits under the Employers’ Retirement Benefits Act in the event of premature or regular termination of employment. 6 Entitled to a reduced occupational pension on early retirement in the event of premature or regular termination of employment.
Remuneration in kind/fringe benefits 33,356 33,356 33,356 29,884 37,801 37,801 37,801 182,311
Munich Re Group Annual Report 2016 1 The compensation components and pension contributions that Markus Rieß received for his work at ERGO Group AG are included in the total remuneration. 2 Markus Rieß: Compensation, payable in four equal instalments, for the forfeited variable remuneration from the previous employer.
Markus Rieß Board member (joined 16 September 2015) Total1 thereof for Munich Reinsurance Company
4 The compensation components and occupational benefits that Markus Rieß received for his work at ERGO Group AG are included in the remuneration. 5 Markus Rieß: Compensation, payable in four equal instalments, for the forfeited variable remuneration from the previous employer.
Markus Rieß Peter Röder Board member (joined 16 Sept. 2015) Board member thereof for Munich Total4 Reinsurance Company € 2016 2015 2016 2015 2016 2015
Multi-year variable remuneration Multi-year performance 2013–20151 – – 921,690 Multi-year performance 2014–20163 – – 869,456
Anton van Rossum (until 27 April 2016) 2016 33,000 17,000 50,000
Munich Re Group Annual Report 2016 1 Plus value-added tax (USt) in each case, in accordance with the relevant provisions of the respective Group companies’ Articles of Association. 2 Including attendance fees in each case insofar as provided for under the relevant provisions of the Articles of Association.
Remuneration of Supervisory Board members for membership of supervisory boards at Munich Reinsurance Company subsidiaries, in accordance with the companies’ respective Articles of Association1
The pace of growth in the global economy slowed in 2016, weighed down by weaker economic dynamics in the USA and recessions in Brazil and Russia. China’s growth declined for a further successive year. Momentum remained solid overall in the eurozone, and Germany performed somewhat better than the eurozone average.
The European Central Bank (ECB) intensified its expansive monetary policy in 2016. It lowered the deposit rate, broadened the scope of its bond purchases, and increased the volume of its monthly purchases from €60bn to €80bn. The ECB also announced its intention to continue to buy bonds until at least December 2017, even though the volume of purchases would be reduced. By contrast, the US Federal Reserve continued its monetary tightening cycle with an interest-rate hike in December 2016.
The euro exchange rate fell slightly against most major currencies in the course of the year, and only increased substantially against the pound sterling. In terms of the annual average, the euro’s value against the US dollar remained approximately the same in 2016 compared with the previous year, while it rose slightly (3%) against the Canadian dollar and more substantially (13%) against the pound sterling. Further information on exchange rates can be found in the notes to the consolidated financial statements on page 116.
First estimates show that premium in the German insurance market was stagnant in 2016. Weighed down by developments in life insurance business, which was marked by a significant decline in single-premium business in life insurance. On the other hand, premium volume growth in property-casualty business and health insurance stayed fairly robust.
The framework for any business activity is our risk strategy, from which we derive various limitations and reporting thresholds. A key element is our economic capital resources, which we determine in accordance with the Solvency II supervisory regime, which came into force in 2016. We also observe a range of important additional conditions, including national accounting regulations, tax aspects, liquidity requirements, supervisory parameters, and rating agency requirements.
The two main corporate management tools at Group level are economic earnings and the return on risk-adjusted capital after tax (RORAC).
The starting point for value-based management is the economic value added in a fixed period which we determine based on the key corporate management tool of economic earnings. These correspond with the change in eligible own funds under Solvency II, adjusted for items that do not represent economic value added in the period – such as capital measures, and the change in regulatory restrictions.
RORAC is a mixture of accounting ratios and economic indicators. It relates the performance indicator customary in the capital markets (IFRS consolidated result) – which we adjust to eliminate the risk-free return after tax on additional available economic equity – to the necessary capital requirement. The capital requirement corresponds to 1.75 times the solvency capital requirement under Solvency II, as determined on the basis of our certified internal risk model. Information on the internal risk model is provided on page 67 ff.
The numerator in the formula comprises the published IFRS net income after deduction of risk-free interest after tax (interest rate x [1 – tax rate]) generated on capital not subject to risk within the given risk tolerance. The latter refers to the additional available economic equity. This corresponds to the surplus of eligible own funds reduced by the subordinated liabilities over the solvency capital requirement multiplied by 1.75. Any excess of liabilities over assets is not taken into consideration.
IFRS consolidated result The IFRS consolidated result is a performance measure derived from our external accounting. It serves as an important criterion for investors, analysts and the general public to assess corporate performance. With its standardised measurement basis, the IFRS consolidated result can be compared to the results of our market competitors and is thus a management tool used in Munich Re’s financial reporting.
Combined ratio The combined ratio is regularly posted for property- casualty business and international health business. Calculated as the percentage ratio of the sum of expenses for claims and benefits plus operating expenses to earned premiums (all of which are net, i.e. after reinsurance cessions), the combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio of 100% means that premium income was exactly sufficient to cover claims and costs. Expenses for claims and benefits mainly include paid claims, the change in claims provisions, and the bulk of other underwriting expenses.2 Operating expenses chiefly comprise the costs arising in the acquisition of new business and for the ongoing administration of insurance contracts.
2 Previous year’s figures adjusted owing to IAS 8; see “Changes in accounting policies and other adjustments”. 3 The RoE is calculated on the basis of the consolidated result, including the result attributable to non-controlling interests. To calculate the average equity for the year under review, we use the figures as at 31 December 2015 (€31.0bn), 31 March 2016 (€31.8bn), 30 June 2016 (€32.0bn), 30 September 2016 (€32.4bn) and 31 December 2016 (€31.8bn) as a basis.
Key figures 2016 Prev. year Change % Gross premiums written €bn 48.9 50.4 –3.0 Combined ratio
Reinsurance property-casualty % 95.7 89.7 ERGO Property-casualty Germany % 97.0 97.9 ERGO International % 99.0 104.7 Munich Health1 % 98.5 99.9
Result from insurance-related investments €m 326 140 132.6 Operating result €m 4,025 4,819 –16.5 Taxes on income €m –760 –476 –59.8 Risk-adjusted capital (RORAC) % 10.9 11.5 Economic earnings €bn 2.3 5.3 –57.7 Return on equity (RoE)3 % 8.1 10.0 Consolidated result €m 2,581 3,122 –17.3
We generated more than half of our gross premiums written in reinsurance. Munich Re’s premium volume was down in the reporting year because of negative currency translation effects, reduced shares in large-volume treaties, and the sale of ERGO Italia.
Economic earnings were attributable to factors from new and in-force business deriving from underwriting, and to the effects from changes in capital market parameters. With regard to the latter, we benefited especially from positive effects from foreign currencies, reduced risk spreads for fixed-interest securities, and higher share prices. Persistently low interest rates had a contrary effect, especially at ERGO. Operational value creation at ERGO was impacted by negative one-off effects in connection with the Strategy Programme, but for the rest of the Group it was gratifying.
In the year under review, our effective tax rate was 22.7% (13.2%), which is within the range of 20–25% expected for the Group.
Information on events after the balance sheet date can be found on page 167.
Other securities at fair value through profit or loss 2,672 2,551 0 0 2,672 2,551
Deposits retained on assumed reinsurance 5,240 7,253 0 0 5,240 7,253 1 Including on- and off-balance-sheet unrealised gains and losses.
Our portfolio of government bonds, covered bonds and corporate bonds has a good rating structure: As at 31 December 2016, some 85% of securities were rated AAA to A.
In the period under review, we expanded our portfolio of government and corporate bonds, but reduced our investments in covered bonds, bank bonds, and cash.
Covered bonds 24% (24%) Corporate bonds 11% (10%) Cash positions/other 4% (4%) Structured products (credit structures) 2% (2%) Bank bonds 3% (3%) Policy and mortgage loans 3% (3%)
The negative balance from write-ups and write-downs and losses on the disposal of derivatives improved significantly on the previous year. This improvement stems mainly from interest-rate derivatives (particularly from the ERGO interest-rate hedging programme) and from commodity derivatives. Our equity derivatives showed higher losses than in the previous year. The total return on our equity portfolio including equity derivatives was 2.6% (5.2%).
1 Details of the result by type of investment are shown on page 155 in the notes to the consolidated financial statements. 2 Return in % p.a. on the average value of the investment portfolio at the quarterly reporting dates. The overall investment portfolio used to determine the return for 2016
Write-ups/write-downs of non-derivative investments –400 –0.2 –754 –0.3 Gains/losses on the disposal of non-derivative investments 2,603 1.1 2,693 1.1 Net gains on derivatives –713 –0.3 –1,226 –0.5 Other income/expenses –586 –0.2 –548 –0.2
We write the majority of our business in non-euro currencies, with 33% of premium generated in Canadian dollars and 27% in US dollars. Currency translation effects therefore have a significant impact on premium development. If exchange rates had remained unchanged, our premium income would only have fallen by 2.6%, because a large treaty was renewed at a reduced volume with effect from 2016.
The prolonged low-interest-rate phase and sluggish economies in many of our key markets had some impact on our clients’ business, and curbed demand for reinsurance. In addition, we saw a further increase in competition in several markets. In Asia and the USA, our new business again developed positively. The conclusion of a number of large new treaties, particularly in Canada and Australia, will not be fully reflected in premium income until 2017.
The technical result showed a notable improvement on the previous year, and exceeded our expectations. Claims experience was impacted by high expenditure for single mortality claims with high sums insured, but was nevertheless within the range of normal volatility. The result also benefited overall from a number of one-off and reserving effects. Geographically speaking, North America and the European markets were the main contributors to the gratifying result, but Asia also again delivered a solid share to the overall result. Business in the USA and Australia largely developed in line with our expectations.
The investment result was appreciably below the prior year’s level, mainly on account of lower interest income on deposits resulting from the termination of contracts and decreased gains on the disposal of equities.
Key figures 2016 Prev. year Change % Gross premiums written €m 10,001 10,536 –5.1 Share of gross premiums written in reinsurance % 35.9 37.3 Share of international business in gross premiums written % 96.2 96.7 Technical result €m 487 335 45.4 Investment result €m 629 898 –29.9
In the USA, our subsidiary Munich American Reassurance Company posted an increase in gross premium income to €2.6bn (2.5bn). We therefore continue to be one of the leading reinsurers in the world’s largest market. The technical result showed an improvement on the prior year, especially owing to a number of reserving effects that were positive overall. Claims expenditure was within the normal range of random fluctuation, but somewhat exceeded our expectations chiefly on account of expenditure for several high mortality claims. We are very satisfied with new business performance, both in terms of volume and profitability.
Premium income in Europe fell to €1.9bn (2.1bn), of which €1.3bn (1.2bn) was from our branch in the United Kingdom, and a further €382m (344m) from Germany.
Reinsurance – Property-casualty Key figures 2016 Prev. year Change % Gross premiums written €m 17,826 17,680 0.8 Share of gross premiums written in reinsurance % 64.1 62.7 Share of international business in gross premiums written % 96.8 96.2 Loss ratio % 63.3 57.0
Premium income in property-casualty reinsurance increased slightly by 0.8% compared with the previous year. Changes in exchange rates had a negative impact on premium development. Approximately 11% of the portfolio is written in euros and 89% in foreign currency, of which 51 percentage points is in US dollars and 13 percentage points in pounds sterling. If exchange rates had remained the same, premium volume would have risen by 3.0% year on year.
The increase in our premium volume was largely attributable to the selective underwriting of attractive new business – for example, in the form of structured large-volume treaties tailored to meet individual client requirements. These business opportunities arose worldwide and in all lines of business, especially in casualty and property reinsurance. In addition, we were able to generate organic growth with important business partners. Our success in generating business is based on our long-term client relationships and our comprehensive expertise, which is highly appreciated by our clients. In keeping with our profit- oriented underwriting policy, we reduced our portfolio in areas in which risk-adequate prices, terms and conditions could no longer be achieved. This mainly concerned marine business, which is particularly subject to pricing pressure in selected areas, and direct industrial business, which is also facing difficult market conditions. Our specialty primary insurer American Modern Insurance Group Inc. (American Modern) decided to stop selling a product that had been offered through the banking channel.
The 2016 renewals took place in a market environment that was nearly unchanged compared with the previous year. There was sufficient reinsurance capacity in all classes of business. Prices therefore remained under pressure, but to a lesser degree than in previous years. Treaty terms and conditions and demand for reinsurance coverage also showed some signs of stabilisation.
In Asia, our premium income climbed to €1,008m (910m). New business continued to develop very well. With our broad diversification, we are in a position to benefit from the growth potential in the region by providing client and market-specific solutions. The technical result was within the expected range, albeit somewhat lower than the record level achieved the previous year.
At our subsidiary Munich Reinsurance Company of Australasia Ltd., which writes our life reinsurance business in Australia and New Zealand, premium income increased to €729m (658m). After achieving a break-even result in the previous year, we posted a deficit in 2016, largely owing to declining interest rates and randomly higher claims expenditure. The rehabilitation of disability business, which had given rise to losses from 2011 to 2014, has largely been completed. A new large-volume treaty concluded in the third quarter will not have a full impact on premium volume or the result until 2017.
The consolidated result in property-casualty reinsurance decreased compared with the previous year. The operating result, which comprises the technical result and investment result, was also down year on year. The expenditure for major losses was up on 2015, and the technical result declined compared with an especially good prior-year figure. Adjusted for commissions, Munich Re’s customary review of reserves resulted in a reduction in the claims provisions for prior years of around €900m for the full year, which is equivalent to around 5.5 percentage points of the combined ratio. This positive development related to almost all lines in our portfolio. The safety margin in the reserves remained unchanged year on year.
Overall major-loss expenditure totalled €1,542m (1,046m) after retrocession and before tax, which was above the previous year’s level, but nevertheless below expectations. Run-off profits were higher than the reserve strengthening for major losses from previous years.
At €613m, man-made major losses were down on the previous year (€897m) and somewhat below expectations. This figure is equivalent to 3.6% (5.3%) of net earned premiums. Development was marked by a variety of individual events, including fire, explosion, marine and liability losses.
The decline in the investment result is mainly attributable to lower gains on the disposal of equities. In addition, we realised a positive one-off effect from the acquisition of almost all the shares of 13th & F Associates Limited Partnership Columbia Square, Washington, D.C. (13th & F) in the previous year.
Our individual core markets and selected special lines Based on premium volume, around 40% of our global property-casualty reinsurance business including Risk Solutions is written in North America (including Canada). Around 35% of our premium comes from Europe, of which more than half is generated in the United Kingdom. Further substantial shares are contributed by Asia (about 10%), Australia/New Zealand (approximately 5%) and Latin America (approximately 5%).
In the US market, we wrote additional profitable liability business. The pressure on prices for natural hazards cover in reinsurance persisted. Premium income at The Hartford Steam Boiler Inspection and Insurance Company increased to €993m (968m). We expanded our product range of cover solutions for the Internet of Things (IoT), also by enhancing our know-how through acquisitions. American Modern posted a decline in premium to €1,215m (1,279m). We decided at the beginning of the year to discontinue selling a product through the banking channel. In addition, Munich Reinsurance America, Inc. contributed a premium volume of €2,410m (2,463m).
European business is dominated by property business and UK motor business. In the United Kingdom, we kept our premium volume stable at €3,266m (3,263m). If the exchange rates had remained unchanged, however, the premium volume would have increased. This increase was mainly attributable to the expansion of our primary insurance activities and to rate increases in motor business.
In Japan, premium income was slightly up on the previous year; it totalled €292m (271m).
In the Caribbean and in Latin America, we still provide high capacity for the coverage of natural hazards, in particular windstorm and earthquake. We were able to hold our strong market position, with margins remaining adequate. Premium volume even increased to €770m (663m).
In the specialty lines of business, the market environment is also characterised by intense competition.
At €989m (992m), premium income in agricultural business remained largely stable – despite a decline in commodity prices – owing to the expansion of business in Asia and Norway.
Marine business – including the Munich Re Syndicate – is heavily exposed to pricing pressure in selected segments. For this reason, we gave up some business, and premium volume consequently declined year on year by 27.6% to €553m (764m).
In credit and bond reinsurance, premium income amounted to €529m – roughly the same level as in the previous year (€530m). The pressure on rates in traditional credit business was offset by profitable new business in specialty and niche segments.
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 2016, we structured a client transaction worth US$ 200m. In addition, Capital Partners placed a catastrophe bond transaction totalling US$ 190m (Queenstreet XII ReE DAC) and a sidecar transaction amounting to US$ 360m (Eden Re II Ltd., Series 2016) in the capital markets for its own purposes.
The decline in overall premium income and gross premiums written is mainly due to lower regular premium volume and reduced income from single- premium business in life insurance.
Key figures 2016 Prev. year Change €m €m % Total premium income1 3,735 4,016 –7.0 Gross premiums written 2,988 3,214 –7.0 Technical result –12 –115 89.5 Operating result 215 6 >1,000.0 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.
Munich Re Group Annual Report 2016 adjusted for this effect, supplementary insurance not conducted like life insurance grew substantially by 17.2%. In comprehensive health insurance, premium volume was roughly on a par with the same period last year (+0.5%).
The fall in the technical result is partly due to lower income from technical interest. The investment result fell slightly to €1,230m (1,320m), with the negative effects principally deriving from falls in the derivative result from equity hedging and lower regular income. The operating result was positively affected by policyholder participation in one-off non-operating effects.
Life insurance accounts for around 44% of premium income in this segment. Approximately 42% of the premium income derives from direct health insurance, and around 14% from direct property-casualty insurance
The weakening of premium volume here is mainly due to the decrease in regular premium income from capital products in life insurance and the discontinuation of single-premium annuity business. In addition, the decline was attributable to the termination of a large property treaty. Growth in the health sector could partly compensate for this. In terms of annual premium equivalent, new business volume in life insurance was 2.9% below last year‘s level.
New business direct life Germany 2016 Prev. year Change €m €m %
Key figures 2016 Prev. year Change €m €m % Total premium income 5,179 5,202 –0.4 Gross premiums written 5,179 5,202 –0.4 Technical result 291 337 –13.7
(143m), one negative contributing factor being diminished regular income. All in all, the operating result increased slightly.
The technical result in 2016 was higher than in the previous year. The investment result declined at €120m
ERGO International 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.
Key figures 2016 Prev. year Change % Total premium income1 €m 4,032 4,382 –8.0 Gross premiums written €m 3,664 3,947 –7.2 Share of gross premiums written by ERGO % 22.8 23.9 Loss ratio % 59.1 65.3 Expense ratio % 39.9 39.4 Combined ratio % 99.0 104.7 Technical result €m –132 33 –
Overall, ERGO International posted a decline in total premium income and gross premiums written because of a reduction in premium volume in life insurance business. Adjusted to eliminate currency translation effects, gross premiums written in the ERGO International segment would have decreased by 4.2% compared with the same period last year. The most significant negative currency translation effects were seen in Poland, Turkey and the UK.
At the end of May 2016, ERGO entered the Thai insurance market for the first time and bought 40% of the shares in Thaisri Insurance. Thailand’s property-casualty insurance market is expected to see annual premium growth of 7% by 2020, and is profitable with a net combined ratio of just over 90%. Thaisri Insurance specialises mainly in motor business and property insurance.
On 3 June 2016, ERGO extended its commitment to the Indian market and increased its share in HDFC ERGO to 48.7%. HDFC ERGO also bought 100% of the shares in L&T General Insurance Company Ltd. (LTGI). HDFC ERGO has thus gained access to further sales channels, and now ranks third among private insurance companies in the Indian property insurance market.
In mid-December 2016, our Belgian life insurer announced that it was planning to stop writing new business. Due to a challenging capital market environment, the profitability of Belgian life insurance business has declined considerably in the last few years. Moreover, ERGO is a relatively small player in the Belgian market. In future, ERGO will be focusing on servicing existing clients and increasing efficiency by streamlining its processes. This could possibly involve closing down the sales organisations in Belgium and Luxembourg, and cutting about 200 jobs.
There was a decline in the technical result in the ERGO International segment. This negative development was significantly influenced by life insurance business. The decline was attributable to the results in Italy, Belgium and Austria and, in Belgium and Austria, due partly to a review of underwriting assumptions involving a downward adjustment of expected future profits in view of low interest rates. There was a year-on-year improvement in the result in property-casualty business. The investment result was significantly better than in the previous year, due for the most part to higher gains on disposals of interest-bearing securities. The operating result and the consolidated result increased overall.
In international property-casualty business, the combined ratio improved year on year, particularly in Turkey, in the UK and in Poland. Paid claims and the change in claims provisions totalling €1,282m (1,373m), along with net operating expenses of €866m (828m), compared to net earned premiums of €2,169m (2,103m).
The increase in equity was attributable not only to the consolidated result but also to a rise in the reserve for currency translation adjustments and to higher net unrealised gains, which derived mainly from our fixed- interest securities available for sale. The dividend payment and share buy-back programme had a lowering effect on equity.
Development of Group equity 31.12.2016 Prev. year Change €m €m % Issued capital and capital reserve 7,417 7,418 0.0
Consolidated result attributable to equity holders of Munich Reinsurance Company 2,580 3,107 –17.0 Non-controlling interests 269 298 –9.7
As at 31 December 2016, Munich Reinsurance Company’s share capital of €587,725,396.48 was divided into 161,053,897 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.
Restrictions on voting rights or the transfer of shares The listed registered shares are subject to transfer restrictions. The issuing of restrictedly transferable registered shares by Munich Reinsurance Company dates back to the Company’s foundation in 1880. Restricted transferability means that these shares may be transferred to another holder only with the Company’s consent, which, according to Article 3 (2) of Munich Reinsurance Company’s Articles of Association, is granted at the Company’s discretion. Since the share- trading processes have been made very efficient, the consent requirement does not lead to any delays in entry in the register. In recent decades, it has been granted without exception. Contractual agreements are in place with the members of the Board of Management providing for two or four-year minimum holding periods for the shares of the Company they have to purchase as part of share-based remuneration programmes.
Like other shareholders, employees of Munich Reinsurance Company exercise their control rights in accordance with statutory provisions and the Articles of Association.
− Under Article 4 (2) of the Articles of Association, the Board of Management is authorised to increase the share capital at any time up to 22 April 2020 by an amount of up to €10m by issuing new shares against cash contribution (Authorised Capital 2015). The subscription right of shareholders is excluded insofar as this is necessary to allow the shares to be issued to employees of Munich Reinsurance Company and its affiliated companies.
Based on our underwriting guidelines, our reinsurance agreements generally include a clause that grants both parties to the agreement a right of extraordinary cancellation in the event that “the other party merges with another company or its ownership and control undergoes a material change”. Such or similar clauses are typical of the industry. They are also common in joint venture or cooperation agreements between shareholders of a joint investment company. Munich Reinsurance Company’s Long-Term Incentive Plan also provides for special exercise options in the event of a change of control.
Analysis of the consolidated cash flow statement Our primary insurance and reinsurance operations have a significant influence on Munich Re’s cash flow. We generally first collect the premiums for the risks assumed and do not make payments until later, when claims need to be settled. Cash flow statements of insurance companies are therefore of limited relevance. The cash flow statement is adjusted to eliminate the effects of fluctuations in exchange rates and changes in the entities consolidated.
In 2016, via its subsidiary MR RENT-Investment GmbH, Munich Re acquired 100% of the voting shares in the solar park company Lynt Farm Solar Ltd, and in the windpark Wind Farms Västra. Via its subsidiaries ERGO Austria International AG and ERGO Versicherung AG, Munich Re also acquired 100% of the voting shares in ERGO ASIGURARI. Via ERGO International AG, we also acquired 100% of the voting shares in ATE Insurance. Via its subsidiary Munich American Holding Corporation, Munich Re acquired 100% of the voting shares in the structured entity Financial Reassurance Company 2010, Ltd., which then changed its name to Munich Re Life Insurance Company of Vermont. Via its subsidiary HSB Group, Munich Re acquired 100% of the voting shares in Meshify Inc. In the cash flow statement, we have reduced the purchase prices by the cash held by the companies acquired.
These risk appetites are based on the capital and liquidity available and on our earnings target, and they provide a frame of reference for the Group’s operating divisions.
Implementation of strategy and the risk management cycle The risk appetite defined by the Board of Management is reflected in our business planning and integrated into the management of our operations. If capacity shortages or conflicts with the limit system or regulations arise, defined escalation and decision-making processes are followed. These have been designed to ensure that the interests of the business are reconciled with risk management considerations.
Risk identification is performed by means of appropriate processes and indicators, which are complemented by expert opinions and assessments by selected, highly experienced managers. Our early identification of risks also covers emerging risks, i.e. those that change or arise as a result of legislative, socio-political, scientific or technological changes, and that may have unidentified or unquantified effects on our portfolio. The degree of uncertainty as to the extent of damage and probability of occurrence is high for these risks.
Risk analysis and assessment are carried out at the highest level in IRM on the basis of a consolidated Group view. Overall, IRM ensures that a quantitative and qualitative assessment of all risks at consolidated Group level is provided, and that it considers possible interactions between risks.
The actual risk limits are derived from the risk strategy. Taking the defined risk appetite as a basis, limits, rules and any risk-reducing measures required are approved and implemented. We also have a comprehensive early- warning system that draws our attention to any potential shortages of capacity.
− Whole portfolio criteria: They relate to the entire port folio of risks and are designed to protect our capital and limit the likelihood of an economic loss for the year. Of particular importance is the financial strength criterion. This is based on the capital adequacy ratio for Solvency II, which is the ratio of eligible own funds to the solvency capital requirement. Information on this ratio can be found on page 74. Another important performance criterion we use is the assessment of our financial strength by the main agencies that rate us. Our objective is the second-highest rating category.
Control and monitoring systems Our internal control system (ICS) is an integrated system for managing operational risks that covers all risk dimensions and areas of the Group. It addresses Group management requirements, while complying with local regulations. For each field of business, the ICS delivers a risk map at process level, thereby systematically linking every step in a process to the significant risks and the controls relating to them. By making our risk situation transparent in this way, we can focus on and react to weaknesses. This enables us to identify operational risks at an early stage, locate control shortcomings immediately and take effective remedial action. Controls performed for the ICS at entity level are based on COSO (Committee of Sponsoring Organizations of the Treadway Commission), a recognised internal control standard in the finance industry. IT-level controls are based on COBIT (Control Objectives for Information and Related Technology), an internationally recognised framework for IT governance.
Diversification Group 31.12.2016 Prev. year 31.12.2016 Prev. year Change €m €m €m €m €m %
The solvency capital requirement was €1,781m higher than for the previous year. This increase was due mainly to developments in the capital markets, particularly the continuing fall in interest rates and depreciation of the euro as against all important currencies, as well as updates to our model in order to better report negative interest rates.
Property-casualty underwriting risk The property-casualty risk category encompasses the underwriting risks in the property, motor, third-party liability, personal accident, marine, aviation and space, and credit classes of insurance, together with special lines also allocated to property-casualty. Additional information on risks in property-casualty insurance can be found in the notes to the consolidated financial statements on page 159 ff.
incurred. In measuring loss provisions, we follow a cautious reserving approach and assess uncertainties conservatively. In every quarter, we also compare notified losses with our loss expectancy, in order to ensure that the level of reserves always remains high.
We differentiate between losses involving a cost exceeding €10m in one field of business (major losses), losses affecting more than one risk or more than one class of insurance (accumulation losses), and all other losses (basic losses). For basic losses, we calculate the risk of subsequent reserving being required for existing risks within a year (reserve risk) and the risk of under-rating (premium risk). To achieve this, we use explicit analytical methods (in the reinsurance field of business) and simulation-based approaches (in the ERGO field of business) that are based on standard reserving procedures, but take into account the one-year time horizon. The calibration for these methodologies is based on our own historical loss and run-off data. Appropriate homogeneous segments of our property-casualty portfolio are used for the calculation of the reserve and premium risks. To aggregate the risk to whole-portfolio level, we apply correlations that take account of our own historical loss experience.
Solvency capital requirement – Property-casualty The solvency capital requirement for property-casualty rose by €423m, due mainly for large and accumulation losses to the appreciation of the US dollar against the euro, which led to an increase in exposure and therefore also in the risk in euro terms for some major natural hazard scenarios. This risk can also be seen with respect to basic losses.
Life and health underwriting risk The underwriting risk is defined as the risk of insured benefits payable in life or health insurance business being higher than expected. Of particular relevance are the biometric risks and the customer behaviour risks, for example lapses and lump-sum options. We differentiate between risks that have a short-term or long-term effect on our portfolio. In addition to the simple risk of random fluctuations resulting in higher claims expenditure in a particular year, the adverse developments with a short-term impact that we model notably include the risk of claims in excess of actuarial estimates that could arise on the occurrence of rare but costly events such as pandemics. More information on the risks in life and health insurance can be found in the notes to the consolidated financial statements on page 157 ff.
Life primary insurance products in particular, and a large part of our health primary insurance business, are long-term in nature, and the results they produce are spread over the entire duration of the policies. This can mean that countervailing developments in risk drivers with long-term effects reduce the value of the insurance portfolio (trend risks). The risk drivers mortality and disablement are dominated by the reinsurance field of business, particularly by exposure in North America. By contrast, the biometric longevity risk is mainly to be found in the products marketed by ERGO in Germany, together with typical risks from customer behaviour, such as the lapse risk. To a lesser extent, there are morbidity risks in health insurance, and risks connected with the increase of treatment costs in the ERGO and Munich Health field of business.
In primary insurance, there is substantial risk minimisation through product design. In case of adverse developments, parts of the provision for premium refunds – which is recognised and reversed in profit or loss – are of great significance for risk-balancing. In health primary insurance, there is also a possibility of adjusting – or an obligation to adjust – premiums for most long-term contracts. Practically, however, there are limits to the resilience of policyholders.
Munich Re Group Annual Report 2016 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 remeasure our assets and liabilities for every market scenario simulated.
Solvency capital requirement – Market Equity risk The higher equities position after derivatives compared with the previous year is reflected in a rise in the solvency capital requirement.
Interest-rate risk The fall in the general and specific interest-rate risk in the reinsurance field of business results from reduced interest-rate sensitivity of equity because of improved duration matching between investments and liabilities or the moderate reduction in credit exposure. The interest-rate risk rose considerably in the ERGO field of business. Most of this increase is due to the continued fall in interest rates in the eurozone. In addition, the improved accounting for negative interest-rate scenarios in the internal risk model contributed to an increase in the interest-rate risk.
We use a cross-balance-sheet counterparty limit system valid throughout the Group to monitor and control our Group-wide credit risks. The limits for each counterparty (a group of companies or country) are based on its financial situation as determined by the results of our fundamental analyses, ratings and market data, and the risk appetite defined by the Board of Management, and the utilisation of limits is calculated on the basis of credit- equivalent exposure (CEE). There are also volume limits for securities lending and repurchase transactions. Group-wide rules for collateral management, for example for OTC derivatives and catastrophe bonds issued, enable the associated credit risk to be reduced. Exposure to issuers of interest-bearing securities and CDSs in the financial sector is limited by a financial sector limit at Group level.
In monitoring the country risks, we do not simply rely on the usual ratings, but perform independent analyses of the political, economic and fiscal situation in the most important of the countries issuing paper in which we might potentially invest. Our experts also evaluate and draw conclusions from movements in the market prices of the bonds or derivatives issued by the countries concerned. On this basis, and taking account of the investment requirements of the fields of business in the respective currency areas and countries, limits or actions that are mandatory throughout the Group for investments and the insurance of political risks are approved by the Group Investment Committee.
We manage credit default risk in retrocession and external reinsurance with the assistance of limits determined by the Retro Security Committee. Our reserves ceded to reinsurers were assignable to the following rating categories as at 31 December 2016: Further information on the risks arising out of receivables relating to insurance business can be found in the notes to the consolidated financial statements on page 136.
Property risk As a consequence of improved diversification of the property portfolio, there has been a slight fall in property risk.
Currency risk The increase in currency risk results from a moderate increase in existing foreign currency exposures, and was exacerbated by the depreciation of the euro.
Strategic risk We define strategic risk as the risk of making wrong business decisions, implementing decisions poorly, or being unable to adapt to changes in the operating environment. The existing and new potential for success in the Group and the fields of business in which it operates creates strategic risks, which we manage by carrying out risk analyses for significant strategic issues and regularly monitoring the implementation of measures regarded as necessary. The Chief Risk Officer is also involved in operational business planning and the processes for company mergers and acquisitions.
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. We also optimise the availability of liquidity in the Group by means of internal funding. Through stringent requirements regarding the availability of liquidity, which in particular also comply with supervisory rules, we ensure that every unit is able to meet its payment obligations. 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. In addition, the quantitative risk criteria we have introduced ensure that Munich Re will have sufficient liquid funds available even in the event of a loss equal to the solvency capital requirement. 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 157 ff. and 159 ff.
Solvency capital requirement – Credit The credit risk is €127m lower than in the previous year. This was due mainly to restructuring of the investment portfolio in the reinsurance field of business. There was a reduction in the exposure to government bonds from countries on the periphery of the eurozone and to bank bonds, and in the exposure to credit default swaps. In turn, there was an increase in the exposure to long-term US government bonds.
We use scenario analyses to quantify operational risks. These analyses are produced or updated annually by experienced staff from the fields of business and affected companies. The results are fed into the modelling of the solvency capital requirement for operational risks and are validated using various sources of information, such as the ICS and internal and external loss data.
Solvency capital requirement – Operational risk The solvency capital requirement for operational risk increased by €352m as at 31 December 2016, because of an updated assessment of some scenarios, mainly in the area of cyber risk.
Across Europe, there is a trend towards increases in corporate taxes from higher tax rates and expansion of the assessment basis, and discussions continue about introducing a financial transaction tax in Europe. Demands for more transparency about global corporate tax burdens and tax activities are also increasing. This could lead to changes being introduced worldwide at the national legislative level which may result in increased tax charges for globally operating companies. Munich Re cannot exclude that higher tax charges might result from these discussions.
For years, regulation has been growing in scale and complexity, a fact that requires enhanced efforts and is increasingly and permanently tying up resources at Munich Re. The economic and regulatory perspectives do not tally in many areas, resulting in differing management requirements that may trigger contradictory corporate management signals.
But developments in individual states mean that there are still considerable political risks in the eurozone. As a reaction to the announcement that the UK will leave the EU, the pound has depreciated considerably against both the euro and the US dollar. Uncertainty surrounding Brexit negotiations could have other negative consequences (such as a further depreciation of the pound, recession in the UK, deterioration of the current account of EU countries).
Solvency II ratio 31.12.2016 Prev. year Change Eligible own funds1 €m 40,6672 40,687 –19 Solvency capital 1 The capital measures included in the eligible own funds amounted to –€2.3bn in the year under review and mainly concern the dividend payment and share buy-backs.
Markets increasingly shaped by digitalisation and changes in client behaviour call for flexibility in terms of coverage and solutions. The requisite shift towards new, innovative products, services and processes is supported by our cooperation with young and creative start-ups.
As one of the world’s leading reinsurers, we support and partner our cedants in shaping the digital transformation. For example, we offer various products for automated underwriting and policy issuance. Small and medium- sized insurers, in particular, appreciate being able to integrate life and disability insurance covers into their own product offering using our white-label solution. We have made substantial investments in the last few years to create a state-of-the-art data infrastructure and advanced analytical tools, with the aim of using big data analytics even more systematically for our own business and making them available to our clients within the limits prescribed by data protection laws. We access a wide variety of data throughout the world and combine it with our risk management capabilities and industry know ledge. Building on the experience of our US subsidiary The Hartford Steam Boiler Inspection and Insurance Company (HSB) in the field of sensor technology, we are developing innovative insurance solutions for the Internet of Things together with our industrial clients. Our newly established Digital Partners unit is working together with start-ups and digital companies to develop innovative solutions. Our global presence and ability to create practicable IT tools and assume almost any type of risk are what sets us apart from the bulk of our competitors in a dynamically growing market.
Munich Re Group Annual Report 2016 asset manager, MEAG. We also see growth potential in the coverage of longevity risk, although we are adopting a very prudent and selective approach here, given the difficulties involved in robust trend estimates. Rising life expectancy combined with population growth, medical progress and the growing importance of prevention and disease management programmes provide us with far-reaching opportunities as a global health insurer, reinsurer and service provider to address a broad range of diverse customer and client needs, and expand our business.
We expect climate change to lead to an increase in weather-related natural catastrophes in the long term, with the impact from weather extremes such as floods or seasonal water shortages varying from one region to another. Our risk-management competences and highly developed risk models allow us to better assess these risks and to develop new solutions for our primary insurance and reinsurance clients. One example is crop failure insurance based on public-private partnerships, where demand is growing strongly as the challenges of feeding a growing world population and the consequences of climate change are increasing farmers’ need to protect themselves against financial risks.
In the present economic environment, the population dynamics and a growing demand for old-age provision present challenges and opportunities for life insurance and reinsurance. As a primary insurer, we are addressing the rising demand for private provision products in an environment characterised by volatile capital markets and sustained low interest rates. As a reinsurer, we are a competent partner for life primary insurance companies thanks to our tailored range of asset protection solutions, and we successfully develop integrated reinsurance and financial solutions for life insurers in cooperation with our
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
Initially, expenditure for the implementation of ERGO’s Strategy Programme and strains owing to capital market volatility in the first quarter made it necessary to reduce the result target to €2.3bn. Good development in both subsequent quarters caused us to restore the predicted consolidated result to “well over €2.3bn”. In spite of high major-loss expenditure in the fourth quarter, we achieved this, posting €2.6bn and thus returning to the original result corridor forecast.
Our long-term objective of a 15% return on our risk- adjusted capital (RORAC) after tax across the cycle of the insurance and interest-rate markets is difficult to achieve in the ongoing environment of very low interest rates on low-risk investments. For the 2016 financial year, we generated RORAC of 10.9%; the return on total IFRS capital (return on equity, ROE) was 8.1%.
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, as well as the special features of IFRS accounting, also make 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.
In the 2016 financial year, the reinsurance field of business generated gross premiums of €27.8bn – a figure in the upper range of our target corridor of €26–28bn. Gross premiums written in life reinsurance totalled €10.0bn – despite reduced shares in large-volume treaties and negative currency translation effects – thus equally coming in above expectations, which had been in the
The Munich Health field of business was integrated into the reinsurance and ERGO fields of business on 1 February 2017. The reinsurance part of Munich Health was merged with life reinsurance, and the health primary insurance part was transferred to ERGO International. As a consequence of this reorganisation, the life reinsurance segment was renamed Life and Health Reinsurance. The forecasts for 2017 shown in the table take account of the changes in Group structure. In comparing the prospects for 2017 with the figures for the 2016 financial year, the data for 2016 was aggregated in line with the new segmentation.
A combined ratio of 95.7% in property-casualty reinsurance presented a significant improvement on the initially envisaged ratio of around 98%. Since fewer major losses than expected occurred in the first months of the year, we reduced our forecast for the combined ratio to 95%. Above all, we did not quite meet the adjusted combined ratio targeted due to higher-than-expected expenditure for major natural catastrophe losses in the fourth quarter. A contrary effect derived from the release of provisions for basic losses in prior years. For the financial year 2016, we released loss reserves of around €1.1bn.
At €2.5bn, the consolidated result for 2016 in the reinsurance field of business surpassed our original expectations of €1.9–2.4bn.
Overall premium income in the ERGO field of business amounted to €17.2bn, and was in the lower range of our €17–18bn target corridor for 2016. By contrast, gross premiums written came to €16.0bn, at the upper end of our projected range of €15.5–16bn.
ERGO Life and Health Germany posted total premium income of €10.0bn; our outlook had been only slightly higher at “just over €10bn”. At €9.2bn, gross premiums written were within the €9–9.5bn range envisaged. For the Life Germany segment, we had forecast overall premium volume of €3.5–4bn for the 2016 financial year, and at €3.7bn we achieved this target. We had aimed for a slight increase in gross premiums to €5–5.5bn for the Health Germany segment, and at €5.2bn we fell within our target corridor here.
Also, we are still seeing slight pressure on prices, albeit with a declining trend: the renewal negotiations at 1 January 2017 were again marked by an oversupply of reinsurance capacity and good capitalisation of most market players. In January, treaties with a volume of just under €9bn – about half of our treaty business in property-casualty reinsurance – were up for renewal. The premium volume generated by renewed business fell by 5% to €8.5bn. Here, we were able to partially offset price and cycle-management-related decreases in business volume by writing attractive new business (again including customised solutions for individual primary insurers).
On balance, we had to accept a slight decline of 0.5% in the price level for the renewed portfolio as a whole. On an international scale, price reductions were seen mainly in natural catastrophe business – with the downward momentum slowing in North America – and in marine and aviation business. By contrast, the price level in liability remained stable, while that in credit and bond business also declined marginally. The fact that the price erosion for Munich Re was comparatively moderate underscores the importance of our consistently profit-oriented underwriting policy, and recognises the importance that individual clients are increasingly attaching to stable reinsurance relationships. Munich Re’s comprehensive service and financial strength are valued more highly than an ever lower price.
Gross premium in reinsurance as a whole should be in the range of €31–33bn overall in 2017, i.e. below last year’s figure, although currency translation effects could potentially have a considerable impact on this estimate. We project that the consolidated result for 2017 in reinsurance will total between €1.8bn and €2.2bn. Compared with the result in 2016, this would be a reduction by as much as €0.7bn, attributable over the rest of the year to normal major-loss expenditure, the reduction in prices in property -casualty reinsurance, and the pressure on our investment income owing to continuing low market interest rates. In addition, in 2016 we benefited from positive currency translation effects that were not included in our forecast for 2017.
For 2017, we expect gross premiums written in life and health reinsurance to be in the region of €13–14bn. The technical result plus the result from reinsurance treaties without sufficient risk transfer is expected to amount to at least €450m, thus remaining below last year’s figure. The result from reinsurance treaties without sufficient risk transfer is recognised under “other operating result” and thus forms part of the non-technical result.
Gross premiums written €bn 48–50 Technical result life and health reinsurance1 €m at least 450 Combined ratio property-casualty reinsurance % 97 Combined ratio ERGO Property-casualty Germany % 99 Combined ratio ERGO Property-casualty International % 98 Return on investment2 % around 3
It is our expectation that the Group’s gross premiums written for 2017 will be in the range of €48–50bn; the median value is roughly at the previous year’s level. Over the long term, we want to grow profitably with innovative business.
For 2017, we expect the economic earnings to be in the same range as the IFRS result forecast. Our projection is based on the assumption of stable capital markets and unchanged modelling parameters, and a normal major-loss incidence over the rest of the year. While economic earnings for 2016 were adversely affected above all by the ERGO Strategy Programme, we are anticipating that this will have less of an impact in 2017. Further information on our economic earnings management tool can be found on page 46.
For our investments, we expect interest-rate levels to remain low in 2017, and hence to generate lower regular income from reinvestment of fixed-interest securities and loans. As in the previous year, we want to incrementally increase our widely diversified investments and investment commitments in infrastructure and property. We also intend to only minimally change our moderate equity-backing ratio of 6.1%, so that write-down risks will continue to be limited. Regular income from our investments should come to 2.7%, or at least 0.1 percentage points lower than last year. Overall, we expect the investment result to be lower than last year at some €7bn, equivalent to an annual return on investment of around 3%.
The consolidated profit is likely to fall short of the good result in 2016, because the decline in reinsurance is larger than the increase in primary insurance. Added to this, there is exceptionally high political and macroeconomic uncertainty overall, in all markets relevant to us. Nevertheless, we still envisage a consolidated result for 2017 of €2.0–2.4bn. The effective tax rate should equal
In the Life and Health Germany segment, our total premium income should amount to slightly less than €10bn, and gross premiums written are expected to be in the range of €9bn.
The economic market environment remains challenging for German life business. For 2017, we anticipate a decline in single-premium volume and a decline in regular- premium new business. We expect overall premium volume in the Life Germany segment to decrease to around €3.5bn, partly owing to the shrinking portfolio, with gross premiums written in the range of €2.5–3bn.
Gross premiums written for direct business in Germany in 2017 should remain at the previous year’s level of around €1bn. Decreases in life insurance and in property-casualty business will probably be largely offset by renewed growth in health insurance in the ongoing year .
Gross premiums written in the segment Property-casualty Germany should be somewhat over €3bn. We also intend to further expand personal lines business, which is marked by a highly competitive environment, and to strengthen our market position in commercial and industrial insurance lines. The combined ratio in property-casualty business in Germany should be around 99%, provided major losses remain within normal bounds.
We aim to achieve gross premiums written of just under €5bn for the ERGO International segment in 2017, and generate overall premium volume of about €5.5bn, with uncertainty concerning the demand for single-premium business in life insurance. In health business, we project a slight rise in premium. We should see premium income at around the same level as last year in property-casualty business. Contingent upon major losses being within normal bounds, we are aiming for a combined ratio of around 98%.
Munich Re Group Annual Report 2016 with regard to intangible assets, investments, financial instruments, individual underwriting assets and liabilities, and deferred taxes.
Market environment and major factors of influence The macroeconomic and industry environment of Munich Reinsurance Company essentially corresponds to that of the Group. Further information on this can be found on page 45.
For the 2016 financial year, Munich Re again utilised the option of publishing a combined management report in accordance with Section 315 (3) 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.
Condensed income statement for Munich Reinsurance Company 2016 Prev. year Change €m €m % Earned premiums for own account 20,976 21,172 –0.9 Interest on technical provisions for own account 418 448 –6.7 Other underwriting income for own account 5 5 0 Claims incurred for own account –14,795 –14,086 –5.0 Change in other technical provisions for own account –147 –600 75.5 Expenses for premium refunds for own account –3 –4 25.0 Operating expenses for own account –5,851 –5,748 –1.8 Other underwriting expenses for own account –8 8 –
Other expenses –585 –879 33.4 Non-technical result 3,866 1,359 184.5 Operating result before tax 4,071 1,876 117.0 Taxes on income and profit, and other taxes –659 702 – Profit for the year 3,411 2,578 32.3 Profit brought forward from previous year 48 47 2.1 Transfers from other revenue reserves 0 0 0 Appropriations to revenue reserves –1,706 –1,249 –36.6 Net retained profits 1,754 1,376 27.5
Munich Re Group Annual Report 2016 approach to determining and adjusting loss provisions. Major-loss expenditure totalling €1,249m (903m) after retrocession and before tax was higher than in the previous year, but nevertheless remained below expectations. As in the previous year, 2016 was marked by a large number of major losses, but there were no exceptional individual events.
The technical result showed a notable improvement on the previous year, and thus exceeded our expectations. Claims experience was satisfactory – despite high expenditure for single mortality claims at the beginning of the year. The result also benefited overall from a number of one-off and
In property-casualty reinsurance, we posted a marginal increase in premium income of 0.1% to €12,659m (12,646m) in 2016. Negative currency translation effects were largely offset by the selective underwriting of attractive new business – for example, in the form of structured large-volume treaties tailored to meet individual client requirements. In addition, we were able to realise organic growth with important business partners. Our success in generating business is based on our long-term client relationships and our comprehensive expertise, which is highly appreciated by our clients. In keeping with our profit-oriented underwriting policy, we reduced our portfolio in areas in which risk-adequate prices, terms and conditions could no longer be achieved. If currency exchange rates had remained unchanged, premium volume would have increased by 2.8%. Renewal negotiations for reinsurance treaties continued to take place under market conditions largely unchanged from the previous year, and were again characterised by an oversupply of reinsurance capacity and good capitalisation of most market players. Prices therefore remained under pressure, but to a lesser degree than in previous years. Treaty terms and conditions and demand for reinsurance coverage also showed trends towards stabilisation.
Marine 2016 Prev. year Change % Gross premiums written €m 392 471 –16.8 Combined ratio % 111.5 65.5 Underwriting result before claims equalisation provision and similar provisions €m –40 143 –
In the year under review, we posted significantly reduced premium income in health reinsurance. This was chiefly attributable to a large-volume treaty that was renewed at a reduced volume in 2016, and to negative currency translation effects. The result was down slightly compared with the previous year.
Personal accident 2016 Prev. year Change % Gross premiums written €m 198 183 8.2 Combined ratio % 31.5 72.3 Underwriting result before claims equalisation provision and similar provisions €m 120 42 185.7
We subsume the remaining classes of property reinsurance under other classes of business: burglary, plate glass, hail (including agricultural reinsurance), water damage, contingency, windstorm, livestock and householders’ and homeowners’ comprehensive reinsurance – as well as credit and fidelity guarantee reinsurance.
Premium income increased appreciably year on year, essentially because of the generation of additional business in the UK. The combined technical result of these other classes of business showed a marginal loss in the financial year, whereas in 2015 we had recorded a profit. The result deteriorated year on year, mainly because of higher commissions.
The marginal decline in premium income in fire reinsurance was largely attributable to negative foreign exchange effects. We posted a gratifying profit before claims equalisation provision in the 2016 financial year, although the figure was significantly lower than in the previous year. Much higher major-claims expenditure and reduced loss reserve releases were mainly responsible for this development.
Fire 2016 Prev. year Change % Gross premiums written €m 3,551 3,579 –0.8 Combined ratio % 83.7 66.4 Underwriting result before claims equalisation provision and similar provisions €m 497 1,012 –50.9
The significant improvement in the investment result was largely attributable to a positive balance from write-ups and write-downs and to the disposal of a financial asset in a subsidiary of Munich Reinsurance Company for the purpose of optimising Munich Re’s structure taking into account tax and commercial law aspects.
Other provisions 1,908 1,920 –0.6 Deposits retained on retroceded business 2,057 2,728 –24.6
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 a claims equalisation provision totalling €10,126m (9,764m). Given our robust capitalisation according to all calculation methods, we intend – subject to the approval of the Annual General Meeting – to pay our shareholders a dividend that is €0.35 higher than in the previous year at €8.60 per share, or a total of €1,338m, from Munich Reinsurance Company’s net retained profits for the 2016 financial year.
As at 31 December 2016, 96% of our fixed-interest securities were investment-grade and around 89% were rated “A” or better.
The target or maximum amount allowed for the claims equalisation provision, which is essentially calculated on the basis of earned premiums and the standard deviation of the loss ratio in the respective class of insurance, determines the amount of the annual non- performancerelated allocation to the claims equalisation provision. The performance-related change in the claims equalisation provision is added to this figure in years in which claims experience is favourable (i.e. when the random occurrence of claims is below average), whereas amounts are withdrawn in years in which claims experience is adverse (i.e. the random occurrence of claims is above average).
The balance sheet item “claims equalisation provision and similar provisions” increased by €391m to €10,645m (10,254m) in the 2016 financial year. Owing to the positive results, we were able to strengthen the claims equalisation provision by significant amounts in some classes of business – especially in other classes where the allocation amounted to €259m (94m) and in liability to €209m (348m), and the amounts concerned for other areas were €82m (37m) for accident and €66m (–82m) for motor.
Equity1 €m 2016 Prev. year Issued capital 573 573 Capital reserve 6,845 6,845 Revenue reserves 2,821 2,083 Net retained profits 1,754 1,376
By contrast, owing to a decrease in the maximum amounts allowed – or to poor business performance – the claims equalisation provision was reduced in some classes of business: by €116m in fire (+€210m), by €48m in credit (€81m), by €37m in aviation (+€105m), by €35m in marine (€37m), and by €18m in engineering (+€53m).
The current level of the claims equalisation provision is 100% of the legally stipulated maximum amount in the liability, motor, aviation, marine and accident classes of business, and more than 50% in fire, credit, and engineering.
Munich Reinsurance Company has submitted the Statement on Corporate Governance in accordance with Section 289a of the Commercial Code (HGB), and in accordance with Section 315 (5) HGB with respect to the Group, and has made them publicly accessible on its website. The Statements have been combined and can be found at www.munichre.com/cg-en.
The business performance of Munich Reinsurance Company is largely subject to the same risks and opportunities as the performance of the reinsurance field of business presented in the consolidated financial statements. Munich Reinsurance Company generally participates in the risks of its shareholdings and subsidiaries in accordance with its respective percentage interest held. Munich Reinsurance Company is integrated in the Group-wide risk management system and internal control system of the Group. Further information is provided in the risk report on page 66 ff. and in the opportunities report on page 75 ff.
89Combined management report Munich Reinsurance Company Information reported on the basis of German accountancy rules
The projections by Munich Reinsurance Company about the future development of its business are 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 79 f.
Against this background, Munich Reinsurance Company should post gross premium of around €24bn in 2017 – assuming that exchange rates remain constant. We expect the combined ratio to be around 97% of net earned premium. An accurate forecast is not possible, partly due to the obvious fluctuations in the incidence of major losses. Taking the preceding financial year as a basis and assuming average claims experience for 2017, we project that the technical result before claims equalisation provision will be at a slightly lower level than in the year under review.
Fi na nc ia l s ta te m en ts a nd n ot es 91Consolidated financial statements and notes
Notes to the consolidated financial statements Application of International Financial Reporting Standards (IFRSs) 101 Declaration of Conformity with the German Corporate Governance Code in accordance with Section 161 of the German Stock Corporation Act (AktG) 101 Recognition and measurement 101 Consolidation 104
93Consolidated financial statements Contents 11 Ceded share of technical provisions 136 12 Other receivables 136 13 Deferred acquisition costs 137 14 Deferred tax 138 15 Other assets 139 16 Non-current assets and disposal groups held for sale and sold during the reporting period 140
Notes to the consolidated balance sheet – Equity and liabilities 18 Fair value hierarchy of liabilities 141 19 Subordinated liabilities 142 20 Unearned premiums 143 21 Provision for future policy benefits 144 22 Provision for outstanding claims 144 23 Other technical provisions 147 24 Gross technical provisions for unit-linked life insurance 147 25 Other provisions 148 26 Bonds and notes issued 151 27 Deposits retained on ceded business 152 28 Other liabilities 152
Disclosures on risks from insurance contracts 157 38 Risks from life and health insurance business 157 39 Risks from property-casualty insurance business 159
Other information 41 Related parties 163 42 Personnel expenses 163 43 Mid-Term Incentive Plan 163 44 Remuneration report 164 45 Number of staff 164 46 Auditor’s fees 164 47 Contingent liabilities, other financial commitments 165 48 Significant restrictions 165 50 Events after the balance sheet date 167 51 Earnings per share 167 52 Proposal for appropriation of profit 167
B. Investments I. Land and buildings, including buildings on third-party land (3) 4,444 4,317 126 2.9 II. Investments in affiliated companies, associates and joint ventures (5) 1,711 1,278 434 33.9 Thereof: Associates and joint ventures accounted for using the equity method 1,565 1,125 440 39.1
D. Ceded share of technical provisions (11) 3,669 4,327 –658 –15.2 E. Receivables I. Current tax receivables 623 569 54 9.5
Notes 31.12.2016 Prev. year Change €m €m €m €m % A. Equity (17) I. Issued capital and capital reserve 7,417 7,418 –1 0.0
IV. Consolidated result attributable to Munich Reinsurance Company equity holders 2,580 3,107 –527 –17.0 V. Non-controlling interests 269 298 –29 –9.7
Thereof: Attributable to Munich Reinsurance Company equity holders 2,580 3,107 –527 –17.0 Attributable to non-controlling interests (17) 1 15 –14 –96.4
Earnings per share (53) 16.13 18.73 –2.60 –13.9 1 Previous year’s figures adjusted owing to IAS 8; see “Changes in accounting policies and other adjustments”.
Gains (losses) recognised in equity 345 1,420 Recognised in the consolidated income statement 0 0
Purchase/sale of own shares –21 0 0 –970 0 0 0 0 0 –991
Purchase/sale of own shares –20 0 0 –1,006 0 0 0 0 0 –1,026
Total recognised income and expense 0 0 –44 0 256 347 –7 2,580 –8 3,125 Change in shareholdings in subsidiaries 0 0 15 0 0 0 0 0 –19 –4
Consolidated cash flow statement for the financial year 2016 €m 2016 Prev. year Consolidated result 2,581 3,122
II. Cash flows from investing activities –1,284 –1,030 Inflows from increases in capital and from non-controlling interests 0 0 Outflows to ownership interests and non-controlling interests –974 –1,005 Dividend payments –1,330 –1,295 Change from other financing activities –227 –37
Effect of exchange-rate changes on cash and cash equivalents –5 169 Cash at the beginning of the financial year 4,041 2,912 Cash at the end of the financial year 3,353 4,041
Thereof: Cash not attributable to disposal group1 3,353 3,955 Cash attributable to disposal group 0 86
Discretionary judgement and estimates are of significance for the following items in particular and are described in more detail in the respective explanatory notes: − Consolidated group − Goodwill and other intangible assets − Fair values and impairments of financial instruments − Deferred acquisition costs − Technical provisions − Pension provisions − Deferred tax − Contingent liabilities
Changes in accordance with the rules of IAS 8 necessitated the retrospective adjustment of the figures from the consolidated balance sheet for the financial years 2014 and 2015, and of the consolidated income statement and relevant items of the notes to the consolidated financial statements for the year 2015 (see section “Changes in accounting policies and other adjustments”). The other previous-year figures have been calculated on the same basis as the figures for the financial year 2016.
Particularly in primary insurance and reinsurance, the use of estimates for measuring technical provisions is of substantial significance, given that measurement is invariably based on models, and the development of future cash flows from insurance contracts cannot be conclusively predicted. But judgements and estimates play a significant role with respect to other items as well.
Declaration of Conformity with the German Corporate Governance Code in accordance with Section 161 of the German Stock Corporation Act (AktG)
In November 2016, the Board of Management and Supervisory Board of Munich Reinsurance Company published an updated Declaration of Conformity with the German Corporate Governance Code in accordance with Section 161 of the German Stock Corporation Act (AktG), and made this Declaration permanently available to shareholders on the internet at www.munichre.com/cg-en.
Consolidated balance sheet 31.12.2014 Changes due as originally to adjustments recognised in 2014 31.12.2014 €m Assets H. Deferred tax assets 7,606 –7,385 221 Equity and liabilities G. Deferred tax liabilities 9,776 –7,385 2,391
These amendments have little or no material effects on Munich Re.
The IASB took account of these concerns, and published an amendment standard to IFRS 4, Insurance Contracts in September 2016. This gives a defined circle of insurance companies the possibility of postponing the first-time application of IFRS 9 to 2021. In the interim period, companies would have to make additional investment disclosures in order to ensure a degree of comparability with companies that would already be applying IFRS 9. Munich Re is currently planning to make use of this option.
IFRS 15 (5/2014), Revenue from Contracts with Customers, governs the time and amount of revenue to be recognised by an entity. As revenues from insurance contracts and financial instruments do not fall under the new standard, this standard is immaterial for accounting our core business, and no material effects are expected after it is implemented. In April 2016, the IASB published Clarifications to IFRS 15 Revenue from Contracts with Customers. These clarifications are also of no particular relevance to Munich Re. The provisions of IFRS 15 are mandatory for financial years beginning on or after 1 January 2018.
In January 2016, the IASB published the new IFRS 16 (1/2016), Leases. Under the new rules, lessees will in future be required to account for most of their leases in their balance sheets. They will consequently have to recognise a right-of-use asset and a lease liability. There will be no distinction any more between finance and operating leases, but for the lessor accounting will remain largely unchanged compared with the current rules. We do not expect the new rules to have any material effects on the consolidated financial statements of Munich Re. The standard is mandatory for financial years beginning on or after 1 January 2019.
IFRS 9 and IFRS 15 were adopted into European law in November and September 2016 respectively. The adoption of IFRS 16 is still outstanding.
The IASB has also published amendments to the following standards that have not yet been adopted into European law: − Amendments to IFRS 10 and IAS 28 (rev. 9/2014), Sale or Contribution of Assets between an Investor and its Associate or Joint Venture − Amendments to IAS 7 (rev. 1/2016), Disclosure Initiative − Amendments to IAS 12 (rev. 1/2016), Recognition of Deferred Tax Assets for Unrealised Losses − Amendments to IFRS 2 (rev. 6/2016), Classification and Measurement of Share-based Payment Transactions − Amendments to IAS 40 (rev. 12/2016), Transfers of Investment Property − Amendments published as part of the “Annual Improvements to IFRSs 2014–2016 Cycle”, (rev. 12/2016) − IFRIC 22 (12/2016), Foreign Currency Transactions and Advance Consideration.
The consolidated financial statements include Munich Reinsurance Company and all the entities over which Munich Reinsurance Company directly or indirectly exercises control (subsidiaries).
Cash flows arising from obtaining control €m 2016 Prev. year Total consideration for obtaining control –428 –81 Non-cash consideration for obtaining control 0 –1 Cash consideration for obtaining control –428 –80 Cash over which control was obtained 32 13 Total –397 –67
Other assets 189 5 Technical provisions (net) –723 0 Other liabilities –167 –106
Cash flows arising from losing control €m 2016 Prev. year Total consideration for losing control 294 37 Non-cash consideration for losing control 0 0 Cash consideration for losing control 294 37 Cash over which control was lost –59 –1
The acquisitions are part of our infrastructure investment strategy (including renewable energies and new technologies).
On 19 July 2016, via its subsidiaries ERGO Austria International AG, Vienna, Austria, and ERGO Versicherung AG, Vienna, Austria, Munich Re acquired 100% of the voting shares in ERGO ASIGURARI S.A., Bucharest, Romania, for cash. ERGO ASIGURARI offers a broad spectrum of property-casualty insurance products, with a focus on the motor own damage, personal accident, liability and fire classes of business. Through the acquisition of ERGO ASIGURARI S.A., ERGO is consistently pursuing its international growth strategy, developing new sales channels and entering the Romanian property-casualty insurance market with its attractive growth opportunities.
IFRS fair values of the assets and liabilities at the acquisition date €m ATE Munich Re Insurance Vermont Purchase price 83.0 302.5 Assets acquired
the structured entity. For debt securities and the securitisation of underwriting risks, the emission volume (nominal value) is used as an indicator for measuring the size of the structured entity. The size of the funds refers to both the issued volume of the securitisation vehicles set up by Munich Re and that of those securitisation vehicles in which Munich Re has invested.
Goodwill resulting from the first-time consolidation of subsidiaries is tested for impairment at least annually. We additionally carry out ad-hoc impairment tests if there are indications of impairment. For impairment testing, the goodwill is allocated to the cash-generating units or groups of cash-generating units expected to derive benefit from the synergies of the business combination. To ascertain whether there is any impairment, the carrying amount (including allocated goodwill) of a cash-generating unit or group of cash-generating units is compared with that unit’s or group’s recoverable amount. The recoverable amount is the greater of the fair value less costs of disposal and the value in use. If this recoverable amount is lower than the carrying amount, a write-down for impairment is made on the goodwill. To determine the recoverable amount, numerous assumptions are required which may lead to significant differences in value. Information on the key assumptions is provided in the Notes to the consolidated balance sheet – Assets (1) Goodwill. Sensitivity analyses of changes to the key assumptions – which we consider realistic – are performed as part of the impairment tests. If as a result of these analyses the recoverable amount has fallen below the carrying amount, this is reported in the above-mentioned note.
The other intangible assets mainly comprise acquired insurance portfolios, acquired and internally developed software, and acquired sales networks, client bases and brand names.
Acquired insurance portfolios are recognised at their present value on acquisition (PVFP – present value of future profits). This is determined as the present value of expected profits from the portfolio acquired, without consideration of new business and tax effects. The acquired insurance portfolios are amortised in accordance with the realisation of the profits from the insurance portfolios underlying the PVFP calculation. They are regularly tested for impairment using a liability adequacy test as per IFRS 4; see Equity and liabilities C – Gross technical provisions. Write-downs are recognised under operating expenses.
Internally developed and other software, acquired sales networks, client bases and brand names are carried at cost. Internally developed and other software is amortised on a straight-line basis at a rate of 20–33% over its useful life – three to five years – or in exceptional circumstances at a rate of at least 10% over a period of up to ten years. The useful lives and depreciation rates of the acquired sales networks and client bases are as a rule 2–17 years or 6–50% respectively, and those of the brand names 1–30 years or 3–100%; the items in question are generally amortised on a straight-line basis. Depreciations and amortisations are distributed in the consolidated income statement between investment expenses, expenses for claims and benefits and operating expenses. If it is not possible to allocate these to the functional areas, they are shown under “other non-operating result”. Impairments or impairment losses reversed are recognised if required.
In the case of loans, bank borrowing 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.
Owing to their leverage effect, changes in individual inputs may significantly affect the fair value shown for instruments measured under Level 3. If we make such adjustments in measuring fair value in the individual case, we explain the resultant effects.
Net investment result The net investment result comprises regular income, income from write-ups, gains and losses on the disposal of investments, other income, write-downs of investments, management expenses, interest charges and other expenses. Regular income and expenses from investments not measured at fair value through profit or loss are calculated in accordance with the effective interest method, i.e. any premiums or discounts are deducted from or added to the acquisition costs, with impact on profit or loss, until maturity.
Determining fair values IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. All investments and other items that are recognised at fair value, and such investments and other items for which a fair value is disclosed solely in the notes, are allocated to one of the fair value hierarchy levels of IFRS 13, which provides for three levels.
Investments for unit-linked life insurance contracts Investments for policyholders under unit-linked life insurance are measured at fair value. Unrealised gains or losses from changes in fair value are included in the insurance-related investment result. They are matched by corresponding changes in the technical provisions (see Equity and liabilities D – Gross technical provisions for unit-linked life insurance), which are included in the technical result.
The share of technical provisions for business ceded by us is determined from the respective technical provisions in accordance with the terms of the reinsurance agreements; see Equity and liabilities – C Gross technical provisions. Appropriate allowance is made for the credit risk.
Deferred acquisition costs comprise commissions and other variable costs directly connected with acquisition or renewal of insurance contracts. In accordance with IFRS 4, we do not use shadow accounting for deferred acquisition costs in life primary insurance. In life business and long-term health primary insurance, acquisition costs are recognised and amortised over the duration of the contracts. In determining the amount of amortisation, we take into account an actuarial interest rate and changes resulting from the disposal or withdrawal of contracts from the portfolio. In property-casualty business, shortterm health primary insurance and health reinsurance, the deferred acquisition costs are amortised on a straight-line basis over the average term of the policies, from one to five years.
Assets held for sale are assets that can be sold in their current condition and whose sale is highly probable. The item may comprise individual assets or groups of assets, including the matching liabilities. We account for assets held for sale at fair value less sales cost, provided the fair value is lower than the carrying amount. They are no longer depreciated. Measurement of financial instruments remains unchanged; the only difference is how they are disclosed.
The item issued capital and capital reserve contains the amounts that the equity holders of Munich Reinsurance Company have paid in on shares. The issued capital comprises the subscribed capital less the accounting value of own shares held by Munich Reinsurance Company at the balance sheet date. The capital reserve contains gains from the sale of own shares by Munich Reinsurance Company.
Under retained earnings, we show the profits which consolidated companies have earned and retained since becoming part of Munich Re, and income and expenses resulting from changes in the consolidated group. In addition, the adjustment amount resulting from changes in accounting policies for earlier periods not included in the consolidated financial statements is recognised in the opening balance of the retained earnings for the earliest prior period reported. Retained earnings also include the effects from remeasurement of defined benefit plans. Own shares held by Munich Re subsidiaries at the balance sheet date have been deducted directly from retained earnings.
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, the future profit sharing.
In primary insurance, measurement is generally carried out individually for each risk. For German life primary insurance, biometric actuarial assumptions based on the tables of the German Association of Actuaries (Deutsche Aktuarvereinigung e. V.) are used. We also largely 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.
This item includes provisions for post-employment benefits and similar obligations. Under defined contribution plans, the companies pay fixed contributions to an insurer or a pension fund. This fully covers the companies’ obligations. Under defined benefit plans, the staff member is promised a particular level of retirement benefit either by the companies or by a pension fund. The companies’ contributions needed to finance this are not fixed in advance. If pension obligations are covered by assets held by a legally separate entity (e.g. a fund or a contractual trust agreement in the form of a two-way trust) – assets that may only be used to cover the pension commitments given and are not accessible to creditors – the pension obligations are shown less the amount of these plan assets. If the fair value of the assets exceeds the related outsourced pension commitments, this reimbursement right is recognised under “other receivables”.
1 Previous year’s figures adjusted owing to IAS 8; see “Changes in accounting policies and other adjustments”.
C. Gross technical provisions for unit-linked life insurance contracts 0 0 0 0 5,341 5,157 0 0 3,088 3,044 1 1 8,429 8,201
IV. Other securities 1. Available for sale 19,202 18,806 57,889 56,781 49,726 46,527 4,515 4,702 12,566 11,268 3,945 3,459 147,843 141,543 2. At fair value through profit or loss 52 59 340 340 1,710 1,519 21 63 542 531 7 39 2,672 2,551
V. Deposits retained on assumed reinsurance 3,334 5,546 1,436 1,341 34 31 21 5 0 0 415 331 5,240 7,253
D. Ceded share of technical provisions 824 1,489 2,004 2,031 17 19 128 103 587 522 109 164 3,669 4,327
B. Gross technical provisions I. Unearned premiums 19 21 6,265 6,238 204 198 465 495 1,568 1,446 462 444 8,984 8,841 II. Provision for future policy benefits 11,206 12,924 26 26 86,676 85,867 440 429 8,564 8,209 1,196 1,118 108,108 108,572 III. Provision for outstanding claims 8,042 7,376 42,355 42,060 2,841 2,792 4,254 4,080 2,412 2,233 1,458 1,215 61,362 59,756
Investments in non-current assets per segment1 €m 2016 Prev. year Life reinsurance 332 55 Property-casualty reinsurance 570 637 ERGO Life and Health Germany 251 151 ERGO Property-casualty Germany 46 87 ERGO International 159 71 Munich Health 17 16
Other underwriting income –7 –7 –5 –5 –20 –14 0 0 Change in remaining technical provisions and other underwriting expenses3 0 0 0 4 1 2 0 0
Changes in goodwill €m 2016 Prev. year Gross carrying amount at 31 Dec. previous year 4,303 4,124 Accumulated impairment losses at 31 Dec. previous year –1,513 –1,061 Carrying amount at 31 Dec. previous year 2,790 3,063 Currency translation differences 45 179
Cash-generating unit or group of Property-casualty ERGO cash-generating units reinsurance segment Property-casualty Germany segment
Basis for calculating the Value in use Value in use recoverable amount
Key assumptions regarding the planning In the detailed planning phase (three years), For the detailed planning phase (four years), calculation (at the time of planning) we expected largely constant premium we expected a slight rise in premium income income with a higher combined ratio. with an improved combined ratio.
Munich Re Group Annual Report 2016 environment. After the detailed planning phase, we estimate the target results achievable long term on the basis of the last adjusted planning year and taking into account growth rates and RoI derived from macroeconomic forecasts.
Assets pledged as security and other restrictions on title amount to €127m (156m).
Amortisation –2 –2 –25 –27 –13 –14 Impairment losses –2 0 –24 –12 –7 0
Carrying amount at 31 Dec. financial year 36 38 158 192 222 258 Accumulated amortisation and impairment losses at 31 Dec. financial year –199 –196 –576 –534 –76 –60 Gross carrying amount at 31 Dec. financial year 235 234 733 726 298 318
Miscellaneous Total Internally developed Other €m 2016 Prev. year 2016 Prev. year 2016 Prev. year Gross carrying amount at 31 Dec. previous year 0 0 88 87 4,189 4,037 Accumulated amortisation and impairment losses at 31 Dec. previous year 0 0 –55 –47 –3,018 –2,817 Carrying amount at 31 Dec. previous year 0 0 33 40 1,171 1,220
Munich Re Group Annual Report 2016 3 Land and buildings, including buildings on third-party land
The fair value of investment property at the balance sheet date amounted to €6,857m (6,590m). The portfolio managed by the Group is measured by valuers within the
Development of investments in land and buildings, including buildings on third-party land €m 2016 Prev. year Gross carrying amount at 31 Dec. previous year 5,538 4,929 Accumulated depreciation and impairment losses at 31 Dec. previous year –1,220 –1,197 Carrying amount at 31 Dec. previous year 4,317 3,732 Currency translation differences 5 11 Additions
Property pledged as security and other restrictions on title amount to €853m (730m). Contractual commitments to acquire property amount to €46m (33m).
Munich Re Group Annual Report 2016 mortgage-backed securities and collateralised loan obligations). In the case of external fund units, market quotes are not available on a regular basis; rather, net asset values (NAVs) are provided by the asset managers. With regard to the latter, the quality of the market quotes available from market data providers is insufficient, so we use broker valuations. With these investments, we thus do not perform our own valuations using inputs not based on observable market data. We regularly subject the valuations supplied to plausibility tests on the basis of comparable investments.
The other investments allocated to Level 3 are mainly external fund units (in particular, private equity, real estate and funds that invest in a variety of assets that are subject to theoretical valuation) as well as relatively illiquid credit structures (especially commercial
Investments not measured at fair value Loans 0 66,257 1,000 67,257
Other securities at fair value through profit or loss Held for trading, and hedging derivatives1 244 2,090 0 2,335 Designated as at fair value through profit or loss 188 169 0 357
Further information about affiliated companies, associates and joint ventures can be found in Other information (47) Contingent liabilities, other financial commitments, (48) Significant restrictions, and in the List of shareholdings as at 31 December 2016 pursuant to Section 313 (2) of the German Commercial Code (HGB).
Insurance-related investments Total €m 2016 Prev. year 2016 Prev. year Carrying amount at 31 Dec. previous year 1,052 109 6,198 5,330
Gains (losses) recognised in the income statement 119 58 134 45 Gains (losses) recognised in equity 3 11 70 315
Carrying amounts Unrealised gains/losses Amortised cost €m 31.12.2016 Prev. year 31.12.2016 Prev. year 31.12.2016 Prev. year Fixed-interest securities Government bonds
Non-fixed-interest securities Shares 11,174 9,381 2,327 1,844 8,847 7,537 Investment funds 6 Loans
The insurance-related investments include investments for unit-linked life insurance contracts of €8,428m (8,229m) and other insurance-related investments of €1,130m (934m).
As at 31 December 2016, Munich Re held collateral for derivatives in the form of securities with a rating of at least AA. The fair value of this collateral amounts to €785m (1,100m). The collateral received is subject to a title transfer collateral arrangement, but is not re-sold or pledged.
Rating of fixed-interest securities according to fair values €m 31.12.2016 Prev. year
Securities at fair value through profit or loss comprise securities of €2,270m (2,193m) held for trading and securities of €402m (357m) designated as at fair value through profit or loss.
The securities held for trading are made up of fixed- interest securities totalling €18m (30m), non-fixed- interest securities totalling €68m (56m) and derivatives held for trading amounting to €2,184m (2,107m). The securities designated as at fair value through profit or loss comprise €179m (165m) assignable to fixed-interest securities and €223m (193m) to non-fixed interest securities. Some €10m of the securities at fair value through profit or loss is due within one year.
Munich Re Group Annual Report 2016 balance sheet date. In the 2016 financial year, the following changes in value were recognised in the consolidated income statement: –€63m for the hedging instruments and +€66m for the relevant underlyings.
Cash flow hedges play a role in countering fluctuations that may be caused, for example, by variable interest payments. Munich Re uses cash flow hedges chiefly to hedge against interest-rate risks, with interest-rate swaps being the main instruments employed. Changes in the fair value of the hedging instrument are recognised directly in equity for this purpose. Only when the actual cash inflow or outflow takes place – as a result of the hedged circumstance – is the relevant equity item reversed with recognition in profit or loss. The change in fair value assignable to the ineffective portion of the hedging was negligible at the reporting date. At the balance sheet date, there is an equity item of –€8m (–1m) from cash flow hedges. The net fair value of the derivatives falling into this category amounted to €28m (36m) at the balance sheet date.
Although the derivatives used by Munich Re essentially serve to hedge against risks, only an amount of €59m (130m) meets the requirements of IAS 39 for hedge accounting.
Disclosure of derivatives by balance sheet item €m 31.12.2016 Prev. year Qualifying for Fair value hedge accounting Balance sheet item No Investments, other securities, designated as at fair value through profit or loss 2,184 2,107Positive
Of the amounts receivable on primary insurance business, €485m (477m) is apportionable to receivables from insurance agents. The miscellaneous receivables include receivables of €1,968m (587m) resulting from contracts without significant risk transfer, which do not fall within the scope of IFRS 4.
Assets pledged as security and other restrictions on title amount to €54m (52m).
Given that the vast majority of other receivables, i.e. a total of €11,636m (10,677m) have a period to maturity of less than one year, the fair values largely correspond to the carrying amounts.
Breakdown of other receivables €m 31.12.2016 Prev. year Amounts receivable on primary insurance business 1,306 1,281 Accounts receivable on reinsurance business 5,901 5,389 Interest and rent 2,464 2,570 Miscellaneous receivables 4,248 2,582
Development of tangible assets in renewable energies €m 2016 Prev. year Gross carrying amount at 31 Dec. previous year 645 589 Accumulated depreciation and impairment losses at 31 Dec. previous year –148 –119 Carrying amount at 31 Dec. previous year 496 470 Changes due to currency translation –22 7 Additions
Ceded share of technical provisions €m 31.12.2016 Prev. year Unearned premiums 317 343 Provision for future policy benefits 862 1,176 Provision for outstanding claims 2,491 2,807 Other technical provisions –1 1
Development of gross deferred acquisition costs €m 31.12.2016 Prev. year Status at 31 Dec. previous year 9,428 9,555 Currency translation differences –44 116 Change in consolidated group/Other 90 –80 New deferred acquisition costs 3,823 2,667 Changes
Tax loss carry-forwards and tax credits 31.12.2016 Prev. year For which For which For which For which deferred deferred deferred deferred tax assets tax assets tax assets tax assets are are not are are not €m recognised recognised Total recognised recognised Total Corporation tax loss carry-forwards
Expiring in up to three years 0 0 0 6 63 69 Expiring in over three years and up to ten years 0 0 0 0 0 0 Expiring in over ten years 0 0 0 0 0 0
These mainly comprise owner-occupied property totalling €2,374m (2,402m), and plant and equipment of €272m
Reclassification –14 –1 0 –15 Carrying amount at 31 Dec. financial year 2,374 272 11 2,657 Accumulated depreciation and impairment losses at 31 Dec. financial year –1,179 –765 –24 –1,967 Gross carrying amount at 31 Dec. financial year 3,554 1,038 34 4,625
Owner- Operating occupied and office €m property equipment Other Total Prev. year Prev. year Prev. year Prev. year Gross carrying amount at 31 Dec. previous year 3,561 1,032 42 4,635 Accumulated depreciation and impairment losses at 31 Dec. previous year –1,137 –758 –34 –1,929 Carrying amount at 31 Dec. previous year 2,424 274 8 2,706
Reclassification –20 –2 –3 –25 Carrying amount at 31 Dec. financial year 2,402 289 8 2,699 Accumulated depreciation and impairment losses at 31 Dec. financial year –1,178 –760 –25 –1,963 Gross carrying amount at 31 Dec. financial year 3,580 1,049 33 4,662
The “other reserves” include €2,195m (1,848m) from currency translation and –€8m (–1m) resulting from valuation of cash flow hedges. In addition, “other reserves” contain unrealised gains and losses distributed between the different items as follows: Composition of contingent capital €m 31.12.2016 Contingent Capital 2015 (until 22 April 2020) 117 Total 117
Composition of equity €m 31.12.2016 Prev. year Issued capital 573 573 Capital reserve 6,845 6,845 Retained earnings 14,890 14,110 Other reserves 6,628 6,032 Consolidated result attributable to Munich Reinsurance Company equity holders 2,580 3,107 Non-controlling interests 269 298 Total equity 31,785 30,966
16 Non-current assets and disposal groups held for sale and sold in the reporting period
Reductions Acquisition of shares for retirement (share buy-back programme) –5,880,769 –5,734,275
Unrealised gains and losses €m 31.12.2016 Prev. year Unconsolidated affiliated companies, associates and joint ventures not accounted for using the equity method 90 81 Associates and joint ventures accounted for using the equity method 80 91 Other securities available for sale
Less Provision for deferred premium refunds recognised in equity –5,609 –4,868 Deferred taxes recognised in equity –1,381 –1,406 Non-controlling interests –16 –19 Consolidation and currency translation effects –297 –168
The non-controlling interests are mainly minority interests in individual companies of the primary insurance group. We disclose direct minority interests in special funds and in partnerships under “other liabilities”. In the financial year 2016, there were no significant changes in the percentage interest held in consolidated subsidiaries.
Tax effects in the income and expenses recognised directly in equity 2016 Prev. year €m Before tax Tax After tax Before tax Tax After tax
Unrealised gains and losses on investments 241 25 265 –2,401 580 –1,821 Change resulting from equity method measurement 12 0 12 –40 0 –40 Change resulting from cash flow hedges –2 1 –1 1 0 1 Remeasurements of defined benefit plans –108 32 –76 379 –113 266
Liabilities not measured at fair value Subordinated liabilities 4,856 63 2 4,921 Bonds and notes issued 402 0 0 402 Amounts due to banks 0 168 268 436
Other liabilities at fair value through profit or loss €m 31.12.2016 Prev. year Carrying amount at 31 Dec. previous year 413 276 Gains and losses –90 –166
Gains (losses) recognised in the income statement –82 –137 Gains (losses) recognised in equity –7 –29
Disposals –92 –145 Transfer to Level 3 2 0 Transfer out of Level 3 0 0 Change in the fair value of derivatives 0 0 Carrying amount at 31 Dec. financial year 545 413 Gains (losses) recognised in the income statement that are attributable to liabilities shown at the end of the financial year –71 –123 19 Subordinated liabilities
Munich Re Group Annual Report 2016 21 Provision for future policy benefits
In the ERGO Life and Health Germany segment, there was an adjustment in 2016 to the assumptions regarding future lapses, future administration expenses, and to long-term interest-rate levels that are geared to the long-term regular return on investments. This resulted in an increase to the provision for future policy benefits.
Gross provision for future policy benefits according to type of insurance cover €m 31.12.2016 Prev. year
The annuity claims provision involves periodic payments for occupational and other disability cases and is usually due long term. A major part of this provision is established in the life reinsurance and life primary insurance segment for future annuity payments; a small part refers to provisions for annuities in personal accident, liability and workers‘ compensation insurance. The biometric actuarial assumptions are selected using appropriate actuarial principles. Provisions for annuity claims are calculated as the present value of the expected future payments. The discount rates used are presented in the Disclosures on risks from insurance contracts under (38) Disclosures on risks from life and health insurance business and (39) Disclosures on risks from property-casualty insurance business.
In the life reinsurance segment, the measurement assumptions were adjusted in the financial year. These adjustments led to a reduction in the provision for outstanding claims.
Gross provision by type €m 31.12.2016 Prev. year Annuity claims provision 7,222 6,755 Case reserve 24,895 24,391 IBNR reserve 29,245 28,610
The claims expenses for the financial year show payments made for the financial year and expenses for posting the claims reserve in that year. The provisions set up for claims from previous years are regularly updated using best estimates based on exposure and claims information and past claims experience. The respective change is shown under “claims expenses for previous years”. In the financial year, most sectors experienced comparatively low claims-reporting activity from previous years, which had a positive influence on the ultimate-loss projection.
Reinsurance ERGO % 31.12.2016 Prev. year 31.12.2016 Prev. year Up to one year 32.2 31.6 34.0 34.8 Over one year and up to five years 44.9 43.1 39.4 38.8 Over five years and up to ten years 12.5 13.7 14.8 15.0 Over ten years and up to fifteen years 4.6 5.2 5.0 5.9
Development of the claims reserve in the property-casualty segment1 2016 Prev. year Ceded Ceded €m Gross share Net Gross share Net Balance at 31 Dec. previous year 48,218 –2,208 46,009 45,752 –2,109 43,643
Changes in consolidated group/Other 0 0 0 –148 15 –133 Claims expenses
Total payments –14,294 491 –13,803 –13,136 525 –12,611 Balance at 31 Dec. financial year 48,877 –2,235 46,643 48,218 –2,208 46,009 1 Comprises the segments property-casualty reinsurance, ERGO Property-casualty Germany and the property-casualty section of the ERGO International segment.
31 Dec. 2006 40,303 31 Dec. 2007 33,129 8,361 31 Dec. 2008 27,599 5,658 9,660 31 Dec. 2009 23,561 4,194 6,438 9,306 31 Dec. 2010 20,523 3,237 4,600 5,909 9,220 31 Dec. 2011 17,803 2,633 3,645 4,014 6,012 12,453 31 Dec. 2012 15,896 2,033 3,007 3,344 4,168 8,191 9,185 31 Dec. 2013 14,806 1,740 2,622 2,939 3,493 5,754 5,900 9,210 31 Dec. 2014 13,464 1,456 2,032 2,237 2,880 4,168 4,197 6,084 9,497 31 Dec. 2015 12,164 1,144 1,728 1,730 2,267 3,436 3,487 4,712 6,499 9,082 31 Dec. 2016 10,618 1,103 1,503 1,514 1,673 2,480 3,080 3,673 4,909 6,289 9,749 46,591
The ultimate loss of an accident year comprises all payments made for that accident year up to the reporting date, plus the claims reserve at the reporting date. Given complete information regarding all losses incurred up to the balance sheet date, the ultimate-loss status for each accident-year period would remain the same. In practice, however, the ultimate-loss status (based on estimates) is exposed to fluctuations that reflect the growth in knowledge about the claims cases. Changes in the consolidated group, especially new acquisitions or the composition of segments to be reported, can also have an influence on the ultimate-loss status.
The ceded share of “other technical provisions” amounts to –€1m (1m), of which €1m (1m) is apportionable to the ceded share of the provision for premium refunds based on national regulations.
Development of provision for deferred premium refunds €m 2016 Prev. year Status at 31 Dec. previous year 9,190 10,622 Changes in consolidated group –337 0 Change resulting from unrealised gains and losses on investments (recognised directly in equity) 748 –1,509 Change resulting from other remeasurements (recognised in profit or loss) 553 77 Status at 31 Dec. financial year 10,155 9,190
The above change resulting from unrealised gains and losses on investments reflects the proportional allocation to expected future policyholders‘ bonuses of the change in fair values that occurred in the past year.
Development of gross provisions €m 2016 Prev. year Balance at 31 Dec. previous year 8,201 7,837 Changes in consolidated group/Other 47 63 Savings premiums 659 862 Unrealised gains/losses on fund asset 178 233 Withdrawal for expenses and risk –59 –81 Withdrawal for benefits –597 –713 Balance at 31 Dec. financial year 8,429 8,201
Provisions for post-employment benefits Munich Re companies generally give pension commitments to their employees in the form of defined contribution plans or defined benefit plans. Special regional economic, legal and tax features are taken into account. The type and amount of the pension obligations are determined by the conditions of the respective pension plan. The pension commitments comprise obligations towards active members or retired members with vested benefits, and current pension payments. Defined benefit plans are funded internally through provisions for post-employment benefits, and externally through funds and insurance contracts concluded to cover the benefit obligations.
Munich Reinsurance Company‘s pension obligations account for €1,550m (1,408m) of the present value of obligations under defined pension plans and €1,718m (1,441m) of plan assets. The obligations include disability and old-age pensions, and pensions for surviving dependants. The amount of the pensions generally depends on salary and length of service. The 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).
For the financial year 2017, capital transfers of €103m (89m) to plan assets are expected.
The reimbursement rights derive from insurance concluded to cover the benefit obligations.
There was an effect of €9m (0m) resulting from the asset ceiling on overfunded defined benefit plans.
Change in the reimbursement rights for defined benefit plans €m 2016 Prev. year Balance at 31 Dec. previous year 252 247 Interest income 5 4 Return excluding interest income 10 –17 Contributions by the employer 18 17 Contributions by plan participants 0 1 Payments –8 –8 Transfer of assets 0 0
Pension obligations are measured using assumptions about future developments. The consolidated companies used the following actuarial assumptions (weighted- average values): Munich Re uses generally recognised biometric actuarial assumptions, adjusted as a rule to take account of company-specific circumstances. The average remaining life expectancy of a 65-year-old plan participant is 24.3 years for women and 24.1 years for men.
% 31.12.2016 Prev. year Active members 52 50 Deferred members 14 14
% 2016 Prev. year Discount rate 2.2 2.5 Future increases in entitlement/salary 1.9 1.9 Future pension increases 1.4 1.4 Medical cost trend rate 4.3 4.0
Change in the fair value of plan assets for defined benefit plans €m 2016 Prev. year Balance at 31 Dec. previous year 2,847 2,741 Currency translation differences –19 71 Changes in consolidated group 0 0 Interest income 79 70 Return excluding interest income 322 –98 Contributions by the employer 75 56 Contributions by plan participants 5 6 Payments –54 –57 Payments from plan settlements –6 0 Transfer of assets 0 0
Breakdown of the fair value of plan assets for defined benefit plans
Breakdown of expenses booked in the financial year €m 2016 Prev. year Net interest income or expense 52 49 Service cost 162 171
The actual gains on plan assets amount to €400m (actual losses of €28m), and the actual gains on reimbursements to €15m (actual losses of 13m).
An increase or decrease in the following essential actuarial assumptions has an impact on the present value of defined benefit obligations: Contractual period to maturity of pension obligations €m 31.12.2016 Prev. year Up to one year 157 147 Over one year and up to five years 690 666 Over five years and up to ten years 996 947 Over ten years and up to twenty years 2,536 2,397 Over twenty years 6,852 6,501
Decrease in medical cost trend rate by 100 BP –42 –33 Increase in mortality rate by 10 % –163 –134 Decrease in mortality rate by 10 % 172 145
Multi-year variable compensation 145 36 –41 –10 1 131 Salary obligations and other remuneration for desk and field staff 122 97 –95 –2 0 122
Of the amounts due to banks, €127m is attributable to bank borrowing by Group companies acquired by Munich Re under its infrastructure investment strategy including renewable energies and new technologies.
The income from technical interest is the amount earned by assumed insurance business from the mainly risk-free investment of assets covering the technical provisions. The deposits retained on ceded business are also taken into account as a basis for the technical interest. Thus the portion of investment income corresponding to the deposit interest expense is included as a component in the calculation of the technical interest and reallocated to the technical result.
The change in the provision for future policy benefits (net) contains €178m (233m) in unrealised gains/losses from unit-linked life insurance. Expenses for claims and benefits include expenses for policyholders’ bonuses. Of this, €985m (903m) is for the allocation to the provision for premium refunds on the basis of national regulations, €208m (75m) for the change in the provision for deferred premium refunds recognised in the income statement, and €166m (87m) for direct crediting. The other technical result for life primary insurance mainly includes interest on policyholders’ accumulated credit.
Ceded share Claims and benefits paid 1,188 1,199 Change in technical provisions
Provision for future policy benefits –33 –210 Provision for outstanding claims –420 147 Provision for premium refunds 0 2
Net Claims and benefits paid –34,785 –35,273 Change in technical provisions
Provision for future policy benefits –354 –762 Provision for outstanding claims –1,219 –1,106 Provision for premium refunds –1,969 –1,364
Thereof: Interest income 70 103 Write-ups of other operating assets 33 57
The result for land and buildings includes rental income of €405m (393m). The expenses for the management of investments include running costs and expenses for repair and maintenance of property totalling €69m (65m). We earned interest income of €2,063m (2,098m) on loans. Other securities available for sale produced regular income of €3,755m (4,145m), while derivatives generated €114m (137m). Interest expenses on non-derivative investments amounted to €12m (13m), administrative expenses to €375m (361m), and other expenses to €86m (81m).
Munich Re Group Annual Report 2016 36 Other non-operating result, impairment losses on goodwill and net finance costs
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 2016 financial year, there was a tax burden of 22.7% (previous year: 13.2%).
Munich Re’s reporting is based on various legal regulations governing risks it is exposed to as a result of its business operations: In the notes to the financial statements, risks from insurance contracts must be reported in accordance with IFRS 4 and risks from financial instruments in accordance with IFRS 7. Further disclosures on risks are required in the management report under Section 315 (2) no. 2 of the German Commercial Code (HGB) and German Accounting Standard no. 20 (DRS 20) for management reports.
If provisions are covered by deposits retained on assumed reinsurance, the interest is directly secured by an inflow of investment income generally guaranteed by the cedants. Consequently, for provisions for which at least the discount rate is guaranteed by the cedants, there is no interest-rate risk. As in the previous year, cedants provide an interest- rate guarantee for all deposits retained.
Besides this, in German health primary insurance, discount rates of 1.5–3.5% are applied for calculating the provision for premium loadings and the provision for future premium reductions, which are both part of the provision for premium refunds and total €4,981m (4,882m). These discount rates can be altered in the case of a premium adjustment.
In primary insurance, the discount rates relevant for the portfolio in calculating the provision for future policy benefits and the provision for outstanding claims are as follows: Discount rates used for provisions – Primary insurance (gross)
Life Health Total €m 31.12.2016 Prev. year 31.12.2016 Prev. year 31.12.2016 Prev. year
Premium risk The degree of exposure to premium risks differs according to class of business and also between primary insurance and reinsurance. On the basis of the loss ratios and combined ratios of past years shown in the following table, conclusions can be drawn about the historical volatilities in the different classes of business and about possible interdependencies. The differences in volatility are due equally to fluctuations in claims expenditure and fluctuations in the respective market- price level for the covers granted.
In the pricing of risks assumed in the accident, fire and marine lines of business, and also in sections of engineering reinsurance and in primary insurance, there is a high degree of sensitivity regarding the underlying assumptions about natural catastrophes. The following table therefore shows the combined ratios for property- casualty reinsurance including and excluding natural catastrophe losses.
2 The figure for 2011 is not adjusted for relief of 1.4 percentage points from economic risk transfer to the capital markets.
Thereof losses from natural catastrophes –929 –149 –537 –764 –1,284 Thereof other accumulation losses –613 –897 –625 –925 –515
Reserve risk The provision for outstanding claims is subject to the risk that actual claims settlement may be less than or exceed the amount reserved.
Claims payments for financial year –5,882 –5,659 –5,495 –5,617 –5,968 Claims payments for previous years –8,545 –7,619 –8,193 –7,388 –8,898 Costs –7,719 –7,501 –7,298 –7,024 –6,839
Interest-rate risks Economically, an interest-rate risk derives from the need to earn a return on the investments covering the provision that is commensurate with the discount rate used in measuring the provision. In balance sheet terms, the interest-rate risk affects only those parts of the technical provisions that are discounted and for which an inflow of investment income from deposits retained is not secured from cedants in at least the same amount. For discounting technical provisions, we use the interest rates shown in the table below.
The following personnel expenses are included in the operating expenses, in the expenses for claims and benefits (for claims adjustment) and in the investment result: Breakdown of personnel expenses €m 2016 Prev. year Wages and salaries –2,849 –2,804 Social security contributions and employee assistance –522 –516 Expenses for employees’ pensions –234 –288 Total –3,605 –3,608 43 Mid-Term Incentive Plan
Since 1 January 2009, Munich Reinsurance Company has set up medium-term incentive plans, each with a term of three years. Eligible for participation in these cash-settled share-based remuneration plans are senior management in Munich. The participants receive performance share units (PSUs). In the fourth year after plan commencement, participants are entitled to a bonus payment dependent on the achievement of value-based performance targets and the increase in the total shareholder return (TSR).
Munich Health 2,546 2,485 1 Thereof fees totalling €9,342k for KPMG Bayerische Treuhandgesellschaft AG Wirtschaftsprüfungs gesellschaft Steuerberatungsgesellschaft.
Incentive Incentive Incentive Incentive Plan 2013 Plan 2014 Plan 2015 Plan 2016
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 €149m (146m) 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.
The German public auditor responsible for carrying out the audit within the meaning of Section 24a (2) of the Professional Statutes of German Accountants/ Certified Auditors (Berufssatzung WP/vBP) is Dr. Frank Ellenbürger. He first took charge of the audit of the Company and Group financial statements for the financial year ending 31 December 2013.
Estimates and judgements are necessary for contingent liabilities where the likely impact cannot be clearly determined. This is the case, for example, with respect to contingent liabilities in legal disputes. Like the evaluation process for other provisions, the assessment is made by experts in the affected units on the basis of the best estimate. Contingent liabilities are stated unless the experts estimate that the possibility of an outflow of resources is remote.
Munich Re as lessee The operating leases mainly concern offices and business premises of the Group, IT infrastructure, and land. They include extension options as well as restrictions regarding the agreement of subleases. In the period under review, minimum lease payments of €104m (108m) and contingent lease payments of €10m (9m) were recognised as an expense.
Future minimum lease payments under operating leases €m 31.12.2016 Prev. year Up to one year 205 205 More than one year and up to five years 575 514 More than five years 501 415
Due dates 31.12.2016 Prev. year Gross Interest Net Gross Interest Net €m investment element investment investment element investment Minimum lease payments up to one year 0 0 0 0 0 0 Minimum lease payments of more than one year and up to five years 2 1 1 2 0 2 Minimum lease payments of more than five years 72 56 15 72 56 16
Munich Re Group Annual Report 2016 50 Events after the balance sheet date
The acquisition is part of our infrastructure investment strategy (including renewable energies and new technologies).
The retrospective adjustment of the previous year’s figures did not result in a change to the earnings per share in the previous year (see Recognition and measurement – Changes in accounting policies and other adjustments). The number of outstanding shares decreased by 5,880,298 (5,732,416) over the course of the financial year 2016, essentially owing to the share buy-back programme.
Munich Reinsurance Company’s net retained profits for 2016 according to its financial statements prepared on the basis of German GAAP accounting amount to €1,753,507,758.53. 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 €8.60 per dividend-bearing share, with the remaining amount being carried forward to new account.
The following disclosures relate to our aggregated directly and indirectly held shareholdings (pursuant to Section 16 (2) and (4) of the German Stock Corporation Act – AktG) in entities included in consolidation and in participating interests (as defined in Section 271 (1) of the German Commercial Code).
Bell & Clements Inc, Reston, Virginia 100.0000 Bell & Clements Ltd, London 100.0000 Bos Incasso B.V., Groningen 89.7640 Calibre Commercial Insurance Pty Ltd, Sydney 90.0000 Calliden Insurance Pty Limited, Sydney 100.0000 Cannock Chase B.V., Leidschendam 100.0000 Cannock Chase Holding B.V., Amsterdam 85.8300 Cannock Chase Purchase B.V., The Hague 100.0000 Cannock Connect Center B.V., Brouwershaven 100.0000 Ceres Demetra GmbH, Munich 100.0000 Comino Beteiligungen GmbH, Grünwald 100.0000 Compagnie Européenne d’Assurances, Paris 100.0000 Corion Pty Limited, 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 Allgemeine RechtsschutzVersicherungs -AG, Athens 100.0000 D.A.S. Jogvédelmi Biztosíto Részvénytársaság, Budapest 100.0000 D.A.S. Luxemburg Allgemeine RechtsschutzVersicherung S.A., Strassen 100.0000 D.A.S. Oigusabikulude Kindlustuse AS, Tallinn 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 99.9524 Daman Health Insurance – Qatar LLC, Doha, Qatar 100.0000 DAS Assistance Limited, Bristol 100.0000 DAS Holding N.V., Amsterdam 51.0000 DAS Law Limited, Bristol 100.0000 DAS Legal Expenses Insurance Co., Ltd., Seoul 100.0000 DAS Legal Expenses Insurance Company Limited, Bristol 100.0000 DAS Legal Finance B.V., Amsterdam 100.0000 DAS Legal Protection Insurance Company Ltd., Toronto, Ontario 100.0000 DAS MEDICAL ASSIST LIMITED, Bristol 100.0000 DAS Nederlandse Rechtsbijstand Verzekeringmaatschappij N.V., Amsterdam 100.0000 DAS Rechtsschutz-Versicherungs-AG, Lucerne 100.0000 DAS Services Limited, Bristol 100.0000 DAS UK Holdings Limited, Bristol 100.0000 DB Platinum IV SICAV (Subfonds Institutional Fixed Income, Inhaber-Anteile I2D), Luxembourg4 100.0000
IDEENKAPITAL Metropolen Europa GmbH & Co. KG, Düsseldorf 72.3477 iii, Munich4 100.0000 IK Einkauf Objekt Eins gmbH & Co. KG, Düsseldorf 100.0000 IK Einkauf Objektmanagement GmbH, Düsseldorf 100.0000 IK Einkaufsmärkte Deutschland GmbH & Co. KG, Düsseldorf 52.0387 IK Premium Fonds GmbH & Co. KG, Düsseldorf 100.0000 IK Premium Fonds zwei GmbH & Co. KG, Düsseldorf 100.0000 IKFE Properties I AG, Zurich 63.5708 Imofloresmira – Investimentos Imobiliarios S.A., Lisbon 100.0000 Insurance Company “ERGO Life” Ltd., Moscow 100.0000 IRIS Capital Fund II German Investors GmbH & Co. KG, Düsseldorf 85.7143 ITERGO Informationstechnologie GmbH, Düsseldorf 100.0000 Joint Stock Insurance Company ERGO, Minsk 92.3114 JSC “ERV Travel Insurance”, Moscow 100.0000 K & P Pflegezentrum Uelzen IMMAC Renditefonds GmbH & Co. KG, Düsseldorf 84.8445 KA Köln.Assekuranz Agentur GmbH, Cologne 100.0000 Kapdom-Invest GmbH, Moscow 100.0000 KS SPV 23 Limited, London 100.0000 Landelijke Associatie van Gerechtsdeurwaarders B.V., Groningen4 89.7640 LEGIAL AG, Munich 100.0000 Lietuva Demetra GmbH, Munich 100.0000 LifePlans Inc., Waltham, Massachusetts 100.0000 LifePlans LTC Services, Inc., Toronto, Ontario 100.0000 Lloyds Modern Corporation, Dallas, Texas 100.0000 Longial GmbH, Düsseldorf 100.0000 Lynt Farm Solar Limited, London 100.0000 MAGAZ FOTOVOLTAICA S.L.U., Alcobendas 100.0000 Mandaat B.V., Druten 100.0000 Marina Salud S.A., Alicante 65.0000 Marina Sp.z.o.o., Sopot 100.0000 MEAG ANGLO CELTIC Fund, Munich4 100.0000 MEAG ATLAS, Munich4 100.0000 MEAG Benedict, Munich4 100.0000 MEAG Cash Management GmbH, Munich 100.0000 MEAG EDK Quantum, Munich4 100.0000 MEAG EDL CurryGov, Munich4 100.0000 MEAG EDL EuroValue, Munich4 100.0000 MEAG EDS AGIL, Munich4 100.0000 MEAG ERGO Belgium Equities, Munich4 100.0000 MEAG ESUS 1, Munich4 100.0000 MEAG EUR Global 1, Munich4 100.0000 MEAG Euro 1, Munich4 100.0000 MEAG Euro 2, Munich4 100.0000 MEAG EURO-FONDS, Munich4 100.0000 Meag Eurostar (Spezialfonds), Munich4 100.0000 MEAG EURO-Yield, Munich4 100.0000 MEAG FlexConcept – Basis, Luxembourg4 100.0000 MEAG FlexConcept – Eurobond, Luxembourg4 100.0000 MEAG FlexConcept – Wachstum, Luxembourg4 100.0000 MEAG GBP Global-STAR, Munich4 100.0000
Munich Reinsurance Company of Africa Ltd, Johannesburg 100.0000 Munich Reinsurance Company of Australasia Ltd, Sydney 100.0000 Munich Reinsurance Company of Canada, Toronto, Ontario 100.0000 MunichFinancialGroup GmbH, Munich 100.0000 Munichre General Services Limited, London 100.0000 Munichre New Zealand Service Ltd., Auckland 100.0000 N.M.U. (Holdings) Limited, Leeds 100.0000 Neckermann Versicherung AG, Nuremberg 100.0000 New Reinsurance Company Ltd., Zurich 100.0000 Nightingale Legal Services Ltd., Bristol 100.0000 NMU Group Limited, London 100.0000 Northern Marine Underwriters Limited, Leeds 100.0000 OIK Mediclin, Wiesbaden4 70.7073 Pan Estates LLC, Wilmington, Delaware 100.0000 Princeton Eagle West (Holding) Inc., Wilmington, Delaware 100.0000 Princeton Eagle West Insurance Company Ltd., Hamilton, Bermuda 100.0000 Private Aktiengesellschaft “Europäische Reiseversicherung”, Kiev 99.9999 Renaissance Hotel Realbesitz GmbH, Vienna 60.0000 Roanoke Group Inc., Schaumburg, Illinois 100.0000 Roanoke Insurance Group Inc., Schaumburg, Illinois 100.0000 Roanoke International Brokers Limited, London 100.0000 Scout Moor Group Limited, London 100.0000 Scout Moor Holdings (No. 1) Limited, London 100.0000 Scout Moor Holdings (No. 2) Limited, London 100.0000 Scout Moor Wind Farm (No. 2) Limited, London 100.0000 Scout Moor Wind Farm Limited, London 100.0000 Silvanus Vermögensverwaltungsges. mbH, Munich 100.0000 Solarpark Fusion 3 GmbH, Düsseldorf 100.0000 Solomon Associates Limited, Farnborough 100.0000 Sopockie Towarzystwo Ubezpieczen Ergo Hestia Spolka Akcyjna, Sopot 100.0000 Sopockie Towarzystwo Ubezpieczen na Zycie Ergo Hestia Spolka Akcyjna, Sopot 100.0000 Specialty Insurance Services Corp., Amelia, Ohio 100.0000 SunEnergy & Partners S.r.l., Bressanone 100.0000 Temple Insurance Company, Toronto, Ontario 100.0000 The Atlas Insurance Agency, Inc., Amelia, Ohio 100.0000 The Boiler Inspection and Insurance Company of Canada, Toronto, Ontario 100.0000 The Hartford Steam Boiler Inspection and Insurance Company of Connecticut, Hartford, Connecticut 100.0000 The Hartford Steam Boiler Inspection and Insurance Company, Hartford, Connecticut 100.0000 The Midland Company, Cincinnati, Ohio 100.0000 The Polytechnic Club, Inc., Hartford, Connecticut 100.0000 The Princeton Excess and Surplus Lines Insurance Company, Wilmington, Delaware 100.0000 Tir Mostyn and Foel Goch Limited, London 100.0000 UAB Agrofondas, Vilnius 100.0000 UAB Agrolaukai, Vilnius 100.0000
MR Beteiligungen 2. EUR AG & Co. KG, Grünwald2 100.0000 MR Beteiligungen 3. EUR AG & Co. KG, Grünwald2 100.0000 MR Beteiligungen EUR AG & Co. KG, Grünwald2 100.0000 MR Beteiligungen GBP AG & Co. KG, Grünwald2 100.0000 MR Beteiligungen USD AG & Co. KG, Grünwald2 100.0000 MR ERGO Beteiligungen GmbH, Grünwald 100.0000 MR Infrastructure Investment GmbH, Munich 100.0000 MR RENT UK Investment Limited, London 100.0000 MR RENT-Investment GmbH, Munich 100.0000 MR Solar GmbH & Co. KG, Nuremberg 100.0000 MR SOLAR SAS DER WELIVIT SOLAR ITALIA SRL, Bolzano 100.0000 MSP Underwriting Ltd., London 100.0000 MU068 MR Placem (FCP), Munich4 100.0000 Munich American Holding Corporation, Wilmington, Delaware 100.0000 Munich American Life Reinsurance Company, Atlanta, Georgia 100.0000 Munich American Reassurance Company, Atlanta, Georgia 100.0000 Munich Atlanta Financial Corporation, Atlanta, Georgia 100.0000 Munich Health Alpha GmbH, Munich3 100.0000 Munich Health Daman Holding Ltd., Abu Dhabi 51.0000 Munich Health Holding AG, Munich3 100.0000 Munich Health North America, Inc., Wilmington, Delaware 100.0000 Munich Holdings Ltd., Toronto, Ontario 100.0000 Munich Holdings of Australasia Pty. Ltd., Sydney 100.0000 Munich Life Management Corporation Ltd., Toronto, Ontario 100.0000 Munich Mauritius Reinsurance Co. Ltd., Port Louis 100.0000 Munich Re America Corporation, Wilmington, Delaware 100.0000 Munich Re America Services Inc., Wilmington, Delaware 100.0000 Munich Re Automation Solutions Limited, Dublin 100.0000 Munich Re Capital Limited, London 100.0000 Munich Re do Brasil Resseguradora S.A., São Paulo 100.0000 Munich Re Holding Company (UK) Ltd., London 100.0000 Munich Re Life Insurance Company of Vermont, Burlington, Vermont 100.0000 Munich Re of Malta Holding Limited, Ta’ Xbiex 100.0000 Munich Re of Malta p.l.c., Ta’ Xbiex 100.0000 Munich Re Reserve Risk Financing, Inc., Dover, Delaware 100.0000 Munich Re Service Corp., Toronto 100.0000 Munich Re Stop Loss, Inc., Wilmington, Delaware 100.0000 Munich Re Syndicate Hong Kong Ltd., Hong Kong 67.0000 Munich Re Syndicate Labuan Limited, Labuan 100.0000 Munich Re Syndicate Limited, London 100.0000 Munich Re Syndicate Middle East Ltd., Dubai 100.0000 Munich Re Syndicate Singapore Ltd., Singapore 100.0000 Munich Re Trading LLC, Wilmington, Delaware 100.0000 Munich Re UK Services Limited, London 100.0000 Munich Re Weather & Commodity Risk Holding, Inc., Wilmington, Delaware 100.0000 Munich Reinsurance America, Inc., Wilmington, Delaware 100.0000
UAB Agrovalda, Vilnius 100.0000 UAB Agrovesta, Vilnius 100.0000 UAB G.Q.F., Vilnius 100.0000 UAB Sietuve, Vilnius 100.0000 UAB Ukelis, Vilnius 100.0000 UAB Vasaros Brizas, Vilnius 100.0000 UAB VL Investment Vilnius 5, Vilnius 100.0000 UAB VL Investment Vilnius 6, Vilnius 100.0000 UAB VL Investment Vilnius 7, Vilnius 100.0000 UAB VL Investment Vilnius 8, Vilnius 100.0000 UAB VL Investment Vilnius 9, Vilnius 100.0000 UAB VL Investment Vilnius 1, Vilnius 100.0000 UAB VL Investment Vilnius 10, Vilnius 100.0000 UAB VL Investment Vilnius 2, Vilnius 100.0000 UAB VL Investment Vilnius 3, Vilnius 100.0000 UAB VL Investment Vilnius 4, Vilnius 100.0000 UAB VL Investment Vilnius, Vilnius 100.0000 UK Wind Holdings Ltd, London 100.0000 Unión Médica la Fuencisla, S.A., Compañía de Seguros, Zaragoza 100.0000 US PROPERTIES VA GmbH & Co. KG, Düsseldorf4 46.0939 Van Arkel Gerechtsdeurwaarders B.V., Leiden4 100.0000 VHDK Beteiligungsgesellschaft mbH, Düsseldorf 100.0000 VICTORIA Asien Immobilienbeteiligungs GmbH & Co. KG, Munich 100.0000 VICTORIA Italy Property GmbH, Düsseldorf 100.0000 VICTORIA Lebensversicherung Aktiengesellschaft, Düsseldorf 100.0000 VICTORIA US Property Investment GmbH, Düsseldorf 100.0000 VICTORIA Vierte Beteiligungsgesellschaft mbH, Düsseldorf 100.0000 Victoria Vierter Bauabschnitt GmbH & Co. KG, Düsseldorf 100.0000 Vorsorge Lebensversicherung Aktiengesellschaft, Düsseldorf 100.0000 VORSORGE Luxemburg Lebensversicherung S.A., Grevenmacher 100.0000 welivit GmbH, Düsseldorf 100.0000 welivit Solarfonds GmbH & Co. KG, Düsseldorf 100.0000 welivit Solarfonds S.a.s. di welivit Solar Italia S.r.l., Bolzano 100.0000 WFB Stockholm Management AB, Stockholm4 50.0000 Wind Farms Götaland Svealand AB, Hässleholm 100.0000 Wind Farms Västra Götaland AB, Hässleholm 100.0000 Windpark MR-B GmbH & Co. KG, Bremen2 100.0000 Windpark MR-D GmbH & Co. KG, Bremen2 100.0000 Windpark MR-N gmbH & Co. KG, Bremen2 100.0000 Windpark MR-S GmbH & Co. KG, Bremen2 100.0000 Windpark MR-T GmbH & Co.KG, Bremen2 100.0000 wse Solarpark Spanien 1 GmbH & Co. KG, Düsseldorf 75.1243 X-Pact B.V., The Hague 62.5000
Europäische (UK) Ltd., London 100.0000 European Assistance Holding GmbH, Munich 100.0000 Evaluación Médica TUW, S.L., Barcelona 100.0000 Exolvo GmbH, Hamburg 100.0000 First Legal Protection Limited, Bristol 100.0000 Gamaponti 140014 S.L., Valencia 100.0000 GBG Vogelsanger Straße GmbH, Cologne 94.7826 Gebäude Service Gesellschaft Überseering 35 mbH, Hamburg 100.0000 goDentis – Gesellschaft für Innovation in der Zahnheilkunde mbH, Cologne 100.0000 goMedus Gesellschaft für Qualität in der Medizin mbH, Cologne 100.0000 goMedus GmbH & Co. KG, Cologne 100.0000 GRANCAN Sun-Line S.L., Valencia 100.0000 Great Lakes Re Management Company (Belgium) S.A., Brussels 100.0000 Group Risk Technologies Ltd., London 100.0000 Guanzu 2002 S.L., Valencia 100.0000 Hamburger Hof Management GmbH, Hamburg 100.0000 Hamburg-Mannheimer ForsikringService A/S, Copenhagen 100.0000 Hartford Steam Boiler Colombia Ltda, Bogota 100.0000 Hartford Steam Boiler UK Limited, Salford 100.0000 Hestia Loss Control Sp. z o.o., Sopot 100.0000 HK2 GmbH, Münster 51.0000 Horbach GmbH Versicherungsvermittlung und Finanzdienstleistungen, Düsseldorf 70.1000 HSB Associates, Inc., New York, New York 100.0000 HSB Secure Services, Inc., Hartford, Connecticut 100.0000 HSB Ventures, Inc., Dover, Delaware 100.0000 IDEENKAPITAL Anlagebetreuungs GmbH, Düsseldorf 100.0000 Ideenkapital Client Service GmbH, Düsseldorf 100.0000 Ideenkapital erste Investoren Service GmbH, Düsseldorf 100.0000 Ideenkapital Fonds Treuhand GmbH, Düsseldorf 100.0000 Ideenkapital Media Treuhand GmbH, Düsseldorf 100.0000 IDEENKAPITAL Metropolen Europa Verwaltungsgesellschaft mbH, Düsseldorf 100.0000 IDEENKAPITAL PRORENDITA EINS Treuhandgesellschaft mbH, Düsseldorf 100.0000 IDEENKAPITAL Schiffsfonds Treuhand GmbH, Düsseldorf 100.0000 Ideenkapital Treuhand US Real Estate eins GmbH, Düsseldorf 100.0000 IK Einkauf Objektverwaltungsgesellschaft mbH, Düsseldorf 100.0000 IK Einkaufsmärkte Deutschland Verwaltungsgesellschaft mbH, Düsseldorf 100.0000 IK FE Fonds Management GmbH, Düsseldorf 100.0000 IK Komp GmbH, Düsseldorf 100.0000 IK MEGA 4 Service GmbH, Düsseldorf 100.0000 IK Objekt Bensheim GmbH, Düsseldorf 100.0000 IK Objekt Frankfurt Theodor-Heuss-Allee GmbH, Düsseldorf 100.0000 IK Pflegezentrum Uelzen Verwaltungs-GmbH, Düsseldorf 100.0000 IK Property Eins Verwaltungsgesellschaft mbH, Hamburg 100.0000
MedNet Saudi Arabia LLC, Riyadh 100.0000 MedNet UAE FZ L.L.C., Dubai 100.0000 MEGA 4 Management GmbH i. L., Düsseldorf 100.0000 miCura Pflegedienste Berlin GmbH, Berlin 100.0000 miCura Pflegedienste Bremen GmbH, Bremen 100.0000 miCura Pflegedienste Düsseldorf GmbH, Düsseldorf 100.0000 miCura Pflegedienste GmbH, Cologne 100.0000 miCura Pflegedienste Hamburg GmbH, Hamburg 100.0000 miCura Pflegedienste Krefeld GmbH, Krefeld 100.0000 miCura Pflegedienste München/Dachau GmbH, Dachau 51.0000 miCura Pflegedienste München GmbH i. L., Munich 100.0000 miCura Pflegedienste München Ost GmbH, Munich 65.0000 miCura Pflegedienste Münster GmbH, Münster 100.0000 miCura Pflegedienste Nürnberg GmbH, Nuremberg 51.0000 MR Beteiligungen 15. GmbH, Munich 100.0000 MR Beteiligungen 18. GmbH, Grünwald 100.0000 MR Beteiligungen AG, Grünwald 100.0000 MR Digital Innovation Partners Insurance Agency, LLC, Columbus, Ohio4 0.0000 MR Financial Group GmbH, Munich 100.0000 MR Forest GmbH, Munich 100.0000 MR Infrastructure, Inc., Dover, Delaware 100.0000 MR Investment Inc, Dover, Delaware 100.0000 MR RENT-Management GmbH, Munich 100.0000 MR Solar Beneixama GmbH i.L., Nuremberg 100.0000 MRHCUK Dormant No.1 Limited, London 100.0000 Münchener Consultora Internacional S.R.L., Santiago de Chile 100.0000 Münchener de Argentina Servicios Técnicos S. R. L., Buenos Aires 100.0000 Münchener de México S. A., Mexico 100.0000 Münchener de Venezuela C.A. Intermediaria de Reaseguros, Caracas 100.0000 Münchener Finanzgruppe AG Beteiligungen, Munich 100.0000 Münchener Vermögensverwaltung GmbH, Munich 100.0000 Münchener, ESCRITÓRIO DE REPRESENTACAO DO BRASIL LTDA, São Paulo 100.0000 Munich American Reassurance Company PAC, Inc., Atlanta, Georgia4 0.0000 Munich Canada Systems Corporation, Toronto, Ontario 100.0000 Munich Columbia Square Corp., Wilmington, Delaware 100.0000 Munich Management Pte. Ltd., Singapore 100.0000 Munich Re America Brokers, Inc., Wilmington, Delaware 100.0000 Munich Re America Management Ltd., London 100.0000 Munich Re Automation Solutions GmbH, Munich 100.0000 Munich Re Automation Solutions Inc., Wilmington, Delaware 100.0000 Munich Re Automation Solutions KK, Tokyo 100.0000 Munich Re Automation Solutions Pte. Ltd., Singapore 100.0000 Munich Re Automation Solutions Pty Limited, Sydney 100.0000 Munich Re Capital Markets GmbH, Munich 100.0000 Munich Re Digital Partners Limited, London 100.0000 Munich Re Digital Partners US Holding Corporation, Dover, Delaware 100.0000 Munich Re India Services Private Limited, Mumbai 100.0000
IK Property Treuhand GmbH, Düsseldorf 100.0000 IK US Portfolio Invest DREI Verwaltungs-GmbH, Düsseldorf 100.0000 IK US Portfolio Invest Verwaltungs-GmbH, Düsseldorf 100.0000 IK US Portfolio Invest ZWEI Verwaltungs-GmbH, Düsseldorf 100.0000 Janus Vermögensverwaltungsgesellschaft mbH, Munich 100.0000 Jogszerviz Kft., Budapest 100.0000 Junos Verwaltungs GmbH, Munich 100.0000 JUSTIS Sàrl, Etoy 100.0000 K & P Objekt Hamburg Hamburger Straße GmbH, Düsseldorf 100.0000 K & P Objekt Hamburg Hamburger Straße Immobilienfonds GmbH & Co.KG, Düsseldorf4 36.6889 K & P Objekt München Hufelandstraße GmbH, Düsseldorf 100.0000 KQV Solarpark Franken 1 GmbH & Co. KG, Düsseldorf 100.0000 Kuik & Partners Credit Management BVBA, Brussels 98.9000 Larus Vermögensverwaltungsgesellschaft mbH, Munich 100.0000 Law On The Web Limited, Bristol 100.0000 LawAssist Limited, Bristol 100.0000 Legal Net GmbH, Munich 100.0000 Leggle B.V., Amsterdam 100.0000 m:editerran Power S.a.s. di welivit Solar Italia S.r.l., Bolzano 100.0000 MAM Munich Asset Management GmbH, Munich 100.0000 Marbury Agency, Inc., Amelia, Ohio 100.0000 MAYFAIR Financing GmbH, Munich 100.0000 MAYFAIR Holding GmbH i. L., Düsseldorf 100.0000 MEAG Dividende (A+I Tranche), Munich4 88.9010 MEAG EmergingMarkets Rent (A+I Tranche), Munich4 98.7465 MEAG FlexConcept – EuroGrowth, Luxembourg4 100.0000 MEAG GlobalRent (A+I Tranche), Munich4 99.6325 MEAG Hong Kong Limited, Hong Kong 100.0000 MEAG Luxembourg S.à r.l., Luxembourg 100.0000 MEAG Osteuropa A, Munich4 40.4926 MEAG Pension Rent, Munich4 29.8958 MEAG Pension Safe, Munich4 68.9365 MEAG Real Estate Erste Beteiligungsgesellschaft, Munich 100.0000 MEAG RealReturn Inhaber-Anteile A, Munich4 47.5162 MEAG Short-Term High Yield, Munich4 100.0000 MEAG Vermögensanlage Komfort, Munich4 49.2109 MEAG Vermögensanlage Return (A+I Tranche), Munich4 72.7201 Mediastream Consulting GmbH, Grünwald 100.0000 Mediastream Dritte Film GmbH i. L., Grünwald 100.0000 Mediastream Film GmbH, Grünwald 100.0000 Mediastream Zweite Film GmbH, Grünwald 100.0000 MedNet Bahrain W.L.L., Manama 100.0000 MedNet Egypt LLC, Cairo 100.0000 MedNet Europa GmbH, Munich 100.0000 MedNet Global Healthcare Solutions LLC, Dubai 100.0000 MedNet Greece S.A., Athens 78.1419 MedNet International Ltd., Nicosia 100.0000 Mednet Jordan C. W.L.L., Amman 100.0000
Munich Re Japan Services K. K., Tokyo 100.0000 Munich Re Jordan LP, Dover, Delaware 100.0000 Munich Re Underwriting Agents (DIFC) Limited, Dubai 100.0000 Munich-American Risk Partners GmbH, Munich 100.0000 Munich-Canada Management Corp. Ltd., Toronto, Ontario 100.0000 MunichFinancialGroup AG Holding, Munich 100.0000 MunichFinancialServices AG Holding, Munich 100.0000 Munichre Service Limited, Hong Kong 100.0000 Naretoblera 170017 S.L., Valencia 100.0000 Nerruze 120012 S.L., Valencia 100.0000 nexible GmbH, Düsseldorf 100.0000 Orrazipo 110011 S.L., Valencia 100.0000 P.A.N. Verwaltungs GmbH, Grünwald 100.0000 PLATINIA Verwaltungs-GmbH, Munich 100.0000 ProContact Sp. z o.o., Gdansk 100.0000 PRORENDITA DREI Verwaltungsgesellschaft mbH, Hamburg 100.0000 PRORENDITA EINS Verwaltungsgesellschaft mbH, Hamburg 100.0000 PRORENDITA Fünf Verwaltungsgesellschaft mbH, Hamburg 100.0000 PRORENDITA VIER Verwaltungsgesellschaft mbH, Hamburg 100.0000 PRORENDITA ZWEI Verwaltungsgesellschaft mbH, Hamburg 100.0000 Reaseguradora de las Américas S. A., Havana 100.0000 Roanoke Trade Insurance Inc., Schaumburg, Illinois 100.0000 SAINT LEON ENERGIE S.A.R.L., Sarreguemines 100.0000 Schloss Hohenkammer GmbH, Hohenkammer 100.0000 Schrömbgens & Stephan GmbH, Versicherungsmakler, Düsseldorf 100.0000 Sopockie Towarzystwo Doradcze Sp. z o.o., Sopot 100.0000 Stichting Aandelen Beheer D.A.S. Holding, Amsterdam 100.0000 Sustainable Finance Risk Consulting GmbH i. Gr., Munich11 100.0000 Sydney Euro-Center Pty. Ltd., Sydney 100.0000 Synkronos Italia SRL, Milan 59.3500 TAS Assekuranz Service GmbH, Frankfurt a. M. 100.0000 TAS Touristik Assekuranzmakler und Service GmbH, Frankfurt a. M. 100.0000 Three Lions Underwriting Ltd., London 100.0000 Tillobesta 180018 S.L., Valencia 100.0000 Triple IP B.V., Amsterdam 100.0000 US PROPERTIES VA Verwaltungs-GmbH, Düsseldorf 100.0000 Vectis Claims Services Ltd., Tel Aviv 75.0000 VFG Vorsorge-Finanzierungsconsulting GmbH, Vienna 100.0000 VICTORIA Immobilien Management GmbH, Munich 100.0000 VICTORIA Immobilien-Fonds GmbH, Düsseldorf 100.0000 VICTORIA US Property Zwei GmbH, Munich 100.0000 Victoria Vierter Bauabschnitt Management GmbH, Düsseldorf 100.0000 Viwis GmbH, Munich 100.0000 Vorsorge Service GmbH, Düsseldorf 100.0000 VV-Consulting Gesellschaft für Risikoanalyse, Vorsorgeberatung und Versicherungsvermittlung GmbH, Vienna 100.0000
Associates and joint ventures accounted for at fair value “PORT ELISABETH” GmbH & Co. KG, Bramstedt 31.9660 “PORT LOUIS” GmbH & Co. KG, Bramstedt 26.0495 “REISEGARANT” Gesellschaft für die Vermittlung von Insolvenzversicherungen mbH, Hamburg 24.0000 Agricultural Management Services S.r.l., Verona 33.3333 Allianz Pegasus Fonds, Frankfurt/Main 46.0000 Assistance Partner GmbH & Co. KG, Munich 21.6600 carexpert Kfz-Sachverständigen GmbH, Walluf 25.0000 Energie Kapital GmbH & Co. Solarfonds 2 KG, Stadecken-Elsheim 34.4234 Famous Insurance Agency Pty Limited, Sydney 20.0000 Fernkälte Geschäftsstadt Nord Gesellschaft bürgerlichen Rechts, Hamburg 39.9083 Finsure Investments (Private) Limited, Harare 24.5000 GIG City Nord GmbH, Hamburg 20.0000 Hannover Finanz-Umwelt Beteiligungsgesellschaft mbH i. L., Hillerse 20.0000 Hartford Research, LLC, Lewes, Delaware 41.7500 IK Objektgesellschaft Frankfurt Theodor-Heuss-Allee GmbH & Co. KG, Düsseldorf 47.4000 LCM Logistic Center Management GmbH, Hamburg 50.0000 MCAF Management GmbH i. L., Düsseldorf 50.0000 PERILS AG, Zurich5 10.0000 POOL Sp. z o.o., Warsaw 33.7500 Residential Builders Underwriting Agency Pty Ltd., Sydney 20.0000 Rural Affinity Insurance Agency Pty Limited, Sydney 50.0000 Sekundi CVBA, Brussels 33.3333
Super Home, Inc, Wilmington, Delaware5 15.0000 Teko – Technisches Kontor für Versicherungen Gesellschaft mit beschränkter Haftung, Düsseldorf 30.0000 Verwaltungsgesellschaft “PORT ELISABETH” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT KELANG” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT LOUIS” GmbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT MAUBERT” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT MELBOURNE” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT MENIER” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT MOODY” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT MORESBY” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT MOUTON” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT NELSON” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT RUSSEL” GmbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT SAID” GmbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT STANLEY” GmbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT STEWART” mbH, Bramstedt 50.0000 Verwaltungsgesellschaft “PORT UNION” mbH, Bramstedt 50.0000 VisEq GmbH, Grünwald 34.0000 Volksbanken-Versicherungsdienst GmbH, Vienna 25.2319 VV Immobilien Verwaltungs GmbH, Munich 30.0000 VV Immobilien Verwaltungs und Beteiligungs GmbH, Munich 30.0000 Windpark Osterhausen-Mittelhausen Infrastruktur GbR, Bremen7 58.9400 WISMA ATRIA Holding GmbH i. L., Düsseldorf 50.0000
2 This fully consolidated German subsidiary with the legal form of a partnership, as defined in Section 264a of the German Commercial Code (HGB), intends to fulfil the conditions required pursuant to Section 264b of the Commercial Code and, in the financial year 2016, to avail itself of the relevant provision exempting it from preparing annual financial statements.
7 No control, since the Articles of Association or another agreement bind the relevant operations to a quorum, which cannot be achieved by Munich Re.
8 No control and/or no significant interest, as it is a purely financial investment under the managerial responsibility of an external asset manager.
12 This company is not required to prepare or disclose financial statements. Accordingly, we make use of the option to exempt this company in accordance with Section 313 (3), sentence 5, of the German Commercial Code, and forgo the disclosures on equity and the result for the year.
(equity: €---; result for year: €---) 2.1500 Bought by Many Limited “BBM”, London12
In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315a (1) of the German Commercial Code and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The combined management report is consistent with the consolidated financial statements , complies with statutory provisions, and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.
We have audited the consolidated financial statements prepared by Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München, Munich, comprising the consolidated balance sheet, the consolidated income statement, the statement of recognised income and expense, the Group statement of changes in equity, the consolidated cash flow statement and the notes to the consolidated financial statements, together with the combined management report for the financial year from 1 January to 31 December 2016. The preparation of the consolidated financial statements and the combined management report in accordance with IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315a (1) of the German Commercial Code (HGB) are the responsibility of the Company’s Board of Management. Our responsibility is to express an opinion on the consolidated financial statements and on the combined management report based on our audit.
© 2017 Münchener Rückversicherungs-Gesellschaft Königinstrasse 107 80802 München Germany www.munichre.com www.twitter.com/munichre www.munichre.com/facebook
Editorial deadline: 1 March 2017 Online publication date: 15 March 2017 Print publication date: 3 April 2017
Munich Reinsurance Company’s market capitalisation €bn 28.9 26.7 24.2 29.8 Other Combined ratio
Ceded –1,546 –440 –406 –357 –342 3. Expenses for claims and benefits Gross –39,167 –9,894 –9,953 –10,154 –9,166
Net –38,498 –9,733 –9,726 –10,070 –8,969 4. Operating expenses Gross –12,655 –3,489 –3,061 –3,107 –2,998
Thereof: Attributable to Munich Reinsurance Company equity holders 2,580 491 685 974 430 Attributable to non-controlling interests 1 –5 –1 0 6