(8) Other securities held for trading The securities held for trading include fixed-interest securities totalling €900m (351m), non-fixed-interest securities totalling €9m (6m) and derivative financial instruments (derivatives) totalling €970m (300m)
Derivative financial instruments These are financial instruments whose fair value is derived from one or more underlying assets.
A distinction is made between over-the-counter (otc) products and standardised transactions concluded on the stock exchange.
Derivatives are used to hedge against currency, interestrate and other market-price risks. This is done at the Group companies within the framework of individual supervisory regulations and additional company directives. The risk of default is practically non-existent in the case of products traded on the stock exchange. Over-the-counter products, on the other hand, harbour a theoretical risk in the amount of the replacement costs. Therefore, in the Munich Re Group, only top-quality counterparties are selected for such transactions.
Derivatives are measured at fair value. Depending on whether they qualify for hedge accounting under the rules of ias 39 and whether they have positive or negative fair values, derivatives are shown under the following balance sheet items: All figures in €m Qualifying for Fair value hedge accounting Balance sheet item 31.12.2005 Prev. year
Forwards Notional principal amounts – – – – – 318 318 – Fair values – – – – – –42 –42 –
Fair values – – – – – – – 3 Futures
Others Fair values – – – – – – – –50 Notional principal amounts 1 – – – – – 1 26
Over-the-counter Fair values 2 – – – – – 2 –1
In the case of fair value hedges, the change in the fair value of the hedging instrument and the change in the fair value of the hedged instrument are recognised in profit or loss under the item “investment result” in the consolidated income statement. In the Munich Re Group, hedging relationships in the form of fair value hedges are used to selectively and efficiently reduce interest-rate risks of parts of the portfolio and to mitigate other market-price risks. The fair value of the derivatives used for this amounted to €19m (–2m) at the balance sheet date.
Cash flow hedges play a role in countering fluctuations that may be caused, for example, by variable interest payments. In the Munich Re Group, derivatives are used mainly to hedge against interest-rate risks. 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. In 2005, a negative value development of €4m was recognised in equity without impact on profit or loss.
Periods to maturity in years All figures in €m < 1 1–2 2–3 3–4 4–5 > 5 31.12.2005 Prev. year
Notional principal amounts 70 – – – – – 70 –
Options Notional principal amounts 5 – – – – – 5 –
<1 1–2 2–3 3–4 4–5 Over 5 Total Total All figures in €m year years years years years years 31.12.2005 Prev. year
Munich Re Group Annual Report 2005 Notes to the consolidated balance sheet – Assets
(14) Deferred tax This involves the following items: 31.12.2005 Prev. year All figures in €m Assets Liabilities Assets Liabilities
Accumulated depreciation and accumulated impairment losses at 31.12. business year 736 141
The reduction under “change in consolidated group” is mainly due to the sale of the Karlsruher Insurance Group. The fair value of the property at the balance sheet date amounted to €2,874m.
Expenditures recognised in the carrying amount for assets in the course of construction total €57m for property and €12m for plant and equipment at the balance sheet date. Commitments to acquire property total €36m at the balance sheet date and commitments to acquire plant and equipment amount to €12m.
(16) Equity The total share capital of €587,725,396.48 as at 31 December 2005 is divided into 229,580,233 registered no-par-value shares, each fully paid up and entitled to one vote. By resolution of the Annual General Meeting on 26 May 2004, Munich Re was authorised to buy back shares amounting to a maximum of 10% of the share capital up to 25 November 2005. This authorisation was cancelled by the Annual General Meeting on 28 April 2005 and replaced by a new one, authorising the Board of Management to buy back shares amounting to a maximum of 10% of the share capital up to 27 October 2006. The number of shares in circulation developed as follows: Notes to the consolidated balance sheet – Equity and liabilities
– Sale of shares not held for safeguarding long-term incentive plans – 500
– Acquisition of shares to safeguard stock appreciation rights under long-term incentive plans 513,050 582,240
13,564 shares were purchased at an average price of €87.81 for the employee share programme set up by Munich Reinsurance Company in 2005. After subscription by the employees in 2005 and taking into account the 1,436 shares left over from the 2004 employee share programme, a total of 130 shares remain. For the employee share programme of meag munich ergo AssetManagement GmbH set up in 2005, 2,378 shares were acquired at an average price of €87.31, which were subscribed for by staff at a price of €60.31. At 31 December 2005, there were no shares remaining in the portfolio. In addition, one subsidiary holds 1,203,269 shares to safeguard stock appreciation rights granted to the Board of Management and top Munich Re executives since 1999. In 2005, a total of 400,000 shares were acquired for this at an average price of €85.02.
Europäische Reiseversicherung ag also acquired a further 5,300 Munich Re shares at a price of €85.40 per share in the year under review and 7,372 at a price of €94.34 each to safeguard future obligations from its long-term incentive plan. As at 31 December 2005, together with the shares acquired since 2003 to cover the long-term incentive plans, it had a total portfolio of 16,872 shares.
meag munich ergo AssetManagement GmbH acquired 20,843 shares at €94.77 each in the business year 2005 to safeguard obligations from its long-term incentive plan and thus has a total portfolio of 52,064 Munich Re shares. The acquisition costs of all Munich Re shares in the possession of Group companies at the end of the business year totalled €201,144,896.75.
Retained earnings were reduced by €59m due to adjustments under ias 8. In the case of ergo Previdenza S.p.A., Milan, modified actuarial methods had to be applied retrospectively for determining the fair value of acquired insurance portfolios, which resulted in a reduction of the fair value. After tax, this impacted retained earnings with an amount of €44m. A further €30m is due to a correction relating to reinsurance business between ergo Previdenza S.p.A., Milan, and Münchener Rück Italia S.p.A., Milan. A change in the method for measuring deferred acquisition costs and underwriting provisions for life insurance policies where the investment risk is borne by policyholders at
Capital Increase 2003 ii, replacing these with a new authorisation to issue convertible bonds and/or bonds with warrants and a new contingent capital (Contingent Capital Increase 2005).
Minority interests These are mainly minority interests in the ergo Insurance Group.
Direct minority interests in special funds have been reclassified to “other liabilities” (see remarks under “Changes in accounting policies”).
Other equity 303 307 *Adjusted owing to first-time application of ias 1 (rev. 2003).
Munich Re Finance b.v., Amsterdam, 6.75%, €3,000m, Bonds 2003/2023 2,975 2,973
Munich Re Finance b.v., Amsterdam, 7.625%, £300m, Bonds 2003/2028 433 420
All figures Life and health Property-casualty Life and health Property-casualty in €m* 31.12.2005 Prev. year 31.12.2005 Prev. year 31.12.2005 Prev. year 31.12.2005 Prev. year 31.12.2005 Prev. year *After elimination of intra-Group transactions across segments.
In determining the actuarial assumptions in primary insurance and reinsurance, particular account is taken of the future trend with regard to life expectancy. The termination rates of the insured portfolios are regularly determined and monitored over the course of time. Essentially the same actuarial assumptions have been used as in the previous year for measuring the provisions for future policy benefits for business in force.
For the most part, no guaranteed interest rate is explicitly granted in reinsurance. However, the provisions for future policy benefits are usually discounted. The relevant interest on the provisions for future policy benefits is in many cases collateralised by a corresponding deposit at the ceding company, with the deposit interest guaranteed by the cedant. Provisions for future policy benefits amounting to €3,646m are not covered by deposits with cedants. For 49% of the non-deposited provisions for future policy benefits, the discount rate is a maximum of 5.0%; for 40% it is between 5.0% and 6.5%; and for 11% it is above 6.5%.
The provision for future policy benefits derives from the difference between the prospectively calculated present values of future obligations and of future premiums. Scheduled changes in the provisions for future policy benefits contain changes resulting from premium payments, benefit cases and the unwinding of discount in the year under review. Unscheduled changes stem from alterations in the assumptions underlying the calculations, which required an adjustment in the measurement. The change in the consolidated group mainly results from the sale of the Karlsruher Insurance Group.
Reinsurance Primary insurance All figures in €m * 31.12.2005 Prev. year 31.12.2005 Prev. year
Provision for known claims (case reserves) 18,211 15,621 2,974 3,261 *After elimination of intra-Group transactions across segments.
The claims expenses shown for the year under review comprise both payments made for the year under review and expenses for posting the provision for claims in the year under review.
The provisions for previous years are reduced by the payments made in the year under review for these years. As the provisions are determined using best estimates based on claims information and past claims experience, as well as estimates of future claims development, it is inevitable that the relevant estimate will regularly change as knowledge of claims cases grows in the year under review. This change is shown under “claims expenses for previous years”. A positive value here can be interpreted as a strengthening of the provisions, and a negative value as a reduction in the provisions posted in the past. The strengthening of the reserves at American Re accounts for €388m of the increase in net provisions shown. This was due to deviations from the expected figures for reported claims in workers’ compensation and liability business, and to benefits for asbestos claims.
Currency translation differences are mainly due to the development of the us dollar against the euro.
Net run-off results in property-casualty business The following table shows the provision for outstanding claims in property-casualty business for the primary insurers and reinsurers for the last ten years. This covers more than 99% of the relevant provisions. What the table considers is not the run-off of the provisions for individual accident years, but the run-off of the provision posted at each balance sheet date, which contains the provisions for the respective current accident year and for all previous accident years. The figures for the years 1997 and earlier were determined on the basis of the relevant national accounting regulations; the figures for the years 1998 to the present have been based on ifrs.
Development of the provisions for outstanding claims in the property-casualty segment
Claims expenses – For the year under review 14,321 1,499 12,822 – For previous years 595 168 427
Less payments – For the year under review 3,734 106 3,628 – For previous years 7,713 1,062 6,651
Change in consolidated group –351 –41 –310 Currency translation differences 3,137 312 2,825
In reinsurance, the provisions for known claims and the ibnr reserves include a volume of €2,214m for us workers’ compensation business. This portion of the provisions is discounted at a rate of 4.5%.
The table illustrates how the estimate of the respective balance sheet provision has changed in the course of time – owing partly to payments made and partly to the re-estimate of the outstanding payments. The net run-off result reflects the difference between the current and original estimate. It is often materially affected by changes in exchange rates. The fluctuations in the value of important foreign currencies for us (mainly the us dollar and the pound sterling) against the euro led to significant changes in the provisions. On the other hand, there have been corresponding changes in the value of investments as a consequence of our consistent currency matching policy. Besides this, the strengthening of reserves in our us business at American Re has had a negative impact on the results.
Net provision for outstanding claims 16,376 17,478 19,090 18,857 22,429 23,509 28,764 32,316 31,415 31,955 37,634
The ceded share of the other underwriting provisions amounts to €43m (113m), of which €3m (3m) is apportionable to the ceded share of the provision for premium refunds based on national regulations.
Provision for deferred premium refunds – – – – 6,492 5,811 – – 6,492 5,811
Changes resulting from unrealised gains and losses on investments (without impact on profit or loss) 899 1,553
Provisions for deferred premium refunds have to be set up if the future participation of policyholders in realised gains is provided for in the case of valuation differences between the statutory and ifrs basis. Changes in the provision for deferred premium refunds are only recognised in the consolidated income statement to the extent that they result from valuation differences recognised in profit or loss.
The provisions are directly covered by the investments for the benefit of life insurance policyholders who bear the investment risk. Small differences arise as a result of including unearned revenue liability in these provisions. The changes in the consolidated group stem chiefly from the sale of the Karlsruher Insurance Group.
The provision for premium refunds based on national regulations relates only to German primary insurance business. The allocation is based on the statutory result of the relevant part portfolios after tax, with rates of between 85.0% and 92.5% after tax mainly being applied.
For pension entitlements amounting to €68m (59m), there are reinsurances (reimbursement rights).
Provisions for post-employment benefits The companies in the Munich Re Group generally give pension commitments to their employees in the form of defined contribution plans or defined benefit plans. The type and amount of the pension obligations are determined by the conditions of the respective pension plan.
Defined contribution plans In the case of defined contribution plans, the company commits itself to paying fixed contributions to a legally independent entity and is not obliged to pay any further amounts.
The consolidated companies use the following actuarial assumptions (weighted average values) for calculating their pension obligations: Tax provisions Tax provisions comprise the provisions for current taxes on income and other taxes of the individual companies, based on their respective national taxation. Deferred tax obligations are shown under “deferred tax liabilities”.
Change in provision for defined benefit plans in the business year
The exchangeable bonds of ergo International ag contain embedded derivatives in the form of exchange options. In accordance with ias 39, they are each separated into a derivative component and a liabilities component. Only the liabilities components are shown under “notes and debentures ”, whilst the derivative components amounting to €63m (16m) are included in “other liabilities”. The fair value of our notes and debentures at the balance sheet date amounts to €1,168m (2,321m).
Munich Reinsurance Company’s bonds exchangeable into Allianz AG shares were redeemed with available funds in the second quarter of the business year ended. The bonds’ ratings are given on page 102 f.
(25) Deposits retained on ceded business Deposits retained on ceded business are collateral for underwriting provisions covering business ceded to reinsurers and retrocessionaires.
The accounts payable on primary insurance business mainly contain liabilities towards policyholders resulting from accumulated profit sharing, premium deposits and insurance contracts without significant risk transfer. The miscellaneous liabilities contain liabilities of €166m (305m) resulting from reinsurers’ contracts without significant risk transfer. In addition, €172m (197m) of the miscellaneous liabilities is apportionable to tax liabilities, €37m (39m) to liabilities for social security, and €143m (153m) to liabilities for interest and rent.
Also included here are the derivative components of the exchangeable bonds totalling €63m (16m). Further information on this can be found under (24) Notes and debentures.
In the case of life primary insurance products where the policyholders bear the investment risk, only those parts of the premiums used to cover the risks insured and associated costs are treated as premiums.
All figures in €m * 2005 year 2005 year 2005 year 2005 year 2005 year
All figures in €m* 2005 year 2005 year 2005 year 2005 year 2005 year 2005 year
Land and buildings, including buildings on third-party land 6 6 29 33 67 162 – 17 1 –24 103 194
Other securities held to maturity – – – – 28 35 1 1 – – 29 36
Deposits retained on assumed and ceded reinsurance, and other investments 527 460 87 110 –81 –90 10 10 32 32 575 522
Investments in associates were affected in 2005 by the exchange of hvb shares into UniCredit stock, which realised a capital gain of €988m.
On “loans” and “other securities held to maturity”, we earned interest income of €1,081m (911m) and €29m (36m) respectively.
Munich Re Group Annual Report 2005 Notes to the consolidated income statement
All figures in €m * 2005 year 2005 year 2005 year 2005 year 2005 year 2005 year
Losses on the disposal of investments 58 79 264 205 279 601 56 77 14 3 671 965
reduction of miscellaneous provisions and adjustments of values of €69m (68m) for receivables, as well as – for the first time – income from owner-occupied land and buildings that are sometimes leased out amounting to €107m.
Notes to the consolidated income statement in the income statement, and €202m (232m) for direct crediting. The “other underwriting result” for life primary insurance includes interest on policyholders’ accumulated credit.
Gross expenses for claims and benefits 5,511 5,292 11,943 10,124 14,669 14,090 3,436 3,040 35,559 32,546
– Provision for premium refunds – – – –1 – –2 1 1 1 –2
Other underwriting result – –1 – – – –6 13 –1 13 –8
Changes in underwriting provisions – Provision for future policy benefits 491 964 60 18 2,318 2,298 37 23 2,906 3,303
Ceded share of acquisition costs 10 17 1 10 16 52 – 10 27 89
Subordinated bonds issued by Munich Re Finance b.v., Amsterdam 238 240
Main components of tax expenses/income All figures in €m 2005 Prev. year
Deferred tax resulting from the occurrence or reversal of temporary differences –225 265
Effects of changes in tax rates on deferred tax – –107
Taxes on income shown 1,009 712 *Adjusted owing to first-time application of ias 1 (rev. 2003).
”Tax-free income” is made up of tax-free gains on the sales of shareholdings in joint-stock companies, tax-free dividend income and other tax-free income. The non-deductible expenses are mainly for write-downs of loans which are to be treated as non-deductible in the opinion of the tax authorities. They also include writedowns of non-fixed-interest securities available for sale and non-deductible impairment losses of goodwill and other non-deductible expenses.
No deferred taxes were recognised for retained earnings of affiliated companies, as there is no intention of distributing these earnings in the foreseeable future. The calculation of this unrecognised deferred tax liability would involve a disproportionately large amount of work.
Biometric risks The degree of exposure to biometric risks depends on the type of insurance product. For contracts mainly covering the mortality risk, it lies in a higher-than-expected mortality, whereas for annuities it lies in mortality being lower than expected. For contracts mainly covering the disability risk and contracts in the health segment, the risk lies in higher claims frequency and higher healthcare costs, and to some extent in lower-than-expected mortality. The relevant structure of the business is shown in the notes to the consolidated balance sheet on page 180.
The biometric actuarial assumptions used in life primary insurance and reinsurance are deemed to be sufficient in the view of the actuaries responsible; the mortality and morbidity tables used contain sufficient provisions for adverse deviation. In annuity business, the longevity risk plays a particularly significant role for the provision for future policy benefits. In primary insurance, the provisions for adverse deviation in our portfolio of annuity insurance policies are decreasing. If the trend intensifies, additional amounts may have to be allocated to the provision for future policy benefits. In reinsurance, the longevity risk in our portfolio has significantly less weight than in primary insurance.
Interest-rate risks Interest-rate risks have to be taken into account in primary insurance and reinsurance due to the discounting of the provision for future policy benefits and parts of the provision for outstanding claims. For life primary insurance contracts with implicit or explicit interest-rate guarantees, to which the major part of the relevant provisions is attributable, we use the actuarial interest rate applicable at the time of contract conclusion. The same actuarial interest rate is used for the calculation of the contractually guaranteed benefits. The actuarial interest rate is limited by the respective maximum actuarial interest rate prescribed by the supervisory authorities. In reinsurance, a discount rate based on a conservative capital market scenario is selected for the prospective calculation of premiums and reserves. The actuarial interest rates used are disclosed in the notes to the consolidated balance sheet on page 181. The underwriting provisions are not subject to any direct risk of change in interest rates because the actuarial interest rate during the term of the contract is not adjusted in line with the fluctuations on the capital markets. However, there is an interest-guarantee risk. In primary insurance, the minimum interest rate for the contractually guaranteed
– for claims already incurred and – for future claims from current insurance contracts.
Notes_Disclosures on the uncertainties of future cash flows from insurance contracts
Munich Re Group Annual Report 2005 Notes_Disclosures on the uncertainties of future cash flows from insurance contracts
Interest-rate risks Provisions for outstanding claims are only discounted to a small extent. The relevant analysis is presented in the notes to the consolidated balance sheet on page 182 f. and largely involves provisions for us workers’ compensation business and annuity provisions. The discount rates are regulated by supervisory law. On the basis of present knowledge, we do not expect to have to reduce our interest -rate assumptions. The discounted provisions entail a risk involving the minimum interest rate needed: if the interest income on the provisions is lower than the reserve adjustment required by the unwinding of discount, unforeseen losses arise. Conversely, higher interest income results in gains. Any difference is recognised in the consolidated income statement with impact on profit or loss.
(39) Parent The parent of the Munich Re Group is Münchener Rückversicherungs -Gesellschaft Aktiengesellschaft in München (Munich Reinsurance Company Joint-Stock Company in Munich), Königinstrasse 107, 80802 München. Its registered seat is Munich. In addition to its function as a reinsurer, the parent also fulfils the function of holding company for the Group.
Until the acquisition of the hvb Group by UniCredit S.p.A., Milan, in the fourth quarter of 2005, HypoVereinsbank ag was an associate and related party of the Munich Re Group – see (4). Besides cross-shareholdings and seats on each other’s boards, the relationship between HypoVereinsbank ag and the Munich Re Group was given documented form in a general agreement. This agreement, which continues to exist, deals in particular with cooperation activities between the two groups. There are further contractual relations in connection with the normal running of business.
Nikolaus von Bomhard, Chairman of Munich Re’s Board of Management, and Hans-Jürgen Schinzler, Chairman of Munich Re’s Supervisory Board, have been members of UniCredit’s Board of Directors since October 2005. There are no other significant cooperation agreements or contractual relations between the UniCredit Group and the Munich Re Group, so that the Munich Re Group’s investment of under 5% in UniCredit does not classify as a relatedparty relationship.
(41) Personnel expenses 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: Munich Re Group Annual Report 2005
As a result of Munich Reinsurance Company’s capital increase in the business year 2003, the initial share prices for the stock appreciation rights issued up to then and the number of stock appreciation rights already granted were adjusted in accordance with the conditions.
In the year under review, a total of 487,544 (456,336) stock appreciation rights were granted, 138,833 (133,803) of these to Board of Management members. The future obligations arising from the long-term incentive plans are covered with Munich Re shares.
As from 1 January 2005, the personnel expenses and income incurred for the stock appreciation rights are determined on the basis of the change in the fair value of the underlying options. In preceding years, these obligations
Number of rights on 31 December 2001 85,645 80,582 109,474 – – – –
Number of rights on 31 December 2002 78,668 80,261 109,301 132,466 – – –
Number of rights on 31 December 2003 78,981 77,855 107,428 135,200 439,581 – –
Since 1 July 2002, ergo Versicherungsgruppe ag and some of its subsidiaries, as well as Europäische Reiseversicherung ag and meag munich ergo AssetManagement GmbH, have also set up long-term incentive plans at yearly intervals and with terms of seven years each. The persons entitled to participate – Board of Management members, managing directors and, in individual cases, also top executives – are granted a defined number of stock appreciation rights in respect of Munich Re shares. The design of the plans is identical to that of Munich Re’s long-term incentive plans and they are accounted for in the same way.
Number of rights on 31 December 2005 42,892 59,108 122,059 187,530
Munich Re shares must have outperformed the dax 30 (Plan 1999) or the euro stoxx 50 (from Plan 2000 onwards) twice at the end of a three-month period during the term of the plan. The gross amount that may be obtained from the exercising of the stock appreciation rights is limited to an increase of 150% of the initial share price.
(45) Number of staff The number of staff employed by the Group at year-end totalled 27,063 (29,851) in Germany and 10,890 (11,111) in other countries.
The decrease shown for the primary insurance companies results mainly from the sale of our majority stake in the Karlsruher Insurance Group in the fourth quarter of 2005.
Following amendments to the German Insurance Control Act (vag) at the end of 2004, the German life and health insurers of our Group are obliged to be members of a protection fund. For life insurers, the protection fund can in future levy special contributions of up to one per mille of total net underwriting provisions, in addition to a regular contribution of 0.2 per mille of total net underwriting 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 underwriting provisions to fulfil its functions. This could give rise to a potential payment obligation of €92m (97m) at Group level.
Protektor Lebensversicherungs-ag has applied to the Federal Ministry of Finance to exercise the functions and powers of the statutory protection fund in life insurance. However, its public appointment under Section 127 of the Insurance Control Act and the issuing of the requisite legal regulations are still pending. Until such public appointment, the participation of German life insurers will continue to be voluntary and Protektor Lebensversicherungs-ag will exercise the functions of “lifeboat”. The German life insurers in our Group are committed via their participation of around 11% to assuming payment obligations to the extent of their share in the case of a life insurance company failing.
Medicator ag has applied to be publicly appointed for health insurance.
(48) Leasing The Munich Re Group as lessee At the balance sheet date, the total of future minimum lease payments under non-cancellable operating leases was €456m, due as follows: Not later than one year €97m Later than one year and not later than five years €230m Later than five years €129m
Payments under operating leases concern in particular rents for offices and business premises of the Group. At €3m, the amount of minimum lease payments under finance leases at the balance sheet date was insignificant in scope.
The Munich Re Group as lessor Operating leases mainly involve leased property. The total of future minimum lease payments under non-cancellable leases at the balance sheet date was €1,064m, due as follows: Not later than one year €197m Later than one year and not later than five years €514m Later than five years €353m
Amortisation of goodwill reduced the previous year’s earnings per share by €0.97.
Consolidated result attributable to Munich Re equity holders €m 2,671 1,833
Primary insurance, consolidated subsidiaries ergo Versicherungsgruppe ag, Düsseldorf 94.69% 2,068,571 181,584 victoria Versicherung Aktiengesellschaft, Düsseldorf***) 94.69% 529,249 0 victoria Krankenversicherung Aktiengesellschaft, Düsseldorf***) 94.69% 59,811 143 victoria Lebensversicherung Aktiengesellschaft, Düsseldorf***) 94.69% 739,241 600 victoria General Insurance Company s.a., Athens 94.20% 19,068 1,161 victoria Life Insurance Company s.a., Thessaloniki 94.20% 5,882 –115 victoria MERIDIONAL Compañía Anónima de Seguros y Reaseguros, S.A., Madrid 94.69% 19,429 2,253 victoria Pensionskasse AG, Düsseldorf 94.69% 72,176 26,325 victoria-Seguros de Vida, s.a., Lisbon 94.69% 20,107 1,437 victoria-Seguros s.a., Lisbon 94.69% 13,483 2,842 victoria-volksbanken Poist´ovna, a.s., Bratislava 64.89% 6,489 224 victoria-volksbanken pojist´ovna, a.s., Prague 64.79% 9,420 703 victoria-volksbanken Versicherungsaktiengesellschaft, Vienna 70.66% 41,838 2,156
Orel-G-Holding ad., Sofia 29.67% 12,413 –2 picc Health Insurance Company Limited, Beijing 17.99% 105,051 0
Storebrand Helseforsikring as, Oslo 47.34% 6,098 –3,214 union versicherungs-aktiengesellschaft, Vienna 42.61% 66,103 14,257 vereinsbank victoria Bauspar Aktiengesellschaft, Munich 28.41% 64,545 2,084 victoria-volksbanken Pensionskassen Aktiengesellschaft, Vienna 39.27% 8,986 1,187
Accepting risk Not every risk offers the same tolerance of threat and opportunity. Still, the image of the half-empty/half-full glass is a nice metaphor for a risk-taking culture: if you only see danger in risk, you do not recognise the opportunity.
Amortised cost The amount at which a financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method or any differences between the initial amount and the maturity amount, and minus any write-down for impairment or uncollectibility.
Asset-liability management Management of a business in a way that coordinates decisions on assets and liabilities. Specifically, the ongoing process of formulating, implementing, monitoring, and revising strategies related to assets and liabilities in an attempt to achieve financial objectives for a given set of risk tolerances and constraints.
Associates Companies on whose financial and operating decisions a significant (but not a controlling) influence can be exercised, regardless of whether this influence is actually exercised or not. A significant influence is presumed if the proportion of voting rights lies between 20% and 50%. Investments in associates are valued according to the � equity method.
Balanced scorecard Strategy implementation tool in which strategic objectives and initiatives (financial and non-financial) are set out in a table and linked with one another. Short-term milestones help in monitoring the achievement of objectives.
Blue chip Designation for high-turnover stock of large and internationally significant firms. Their share price performance is also used as the basis for calculating the main indices.
Capital Asset Pricing Model (capm) Capital market model based on the portfolio theory, used to evaluate securities. The capm expands the portfolio theory to include the question of which part of a security’s overall risk cannot be eliminated by means of risk diversification and explains how investment opportunities entailing risk are assessed in the capital markets. Accordingly, in efficient markets where prices already incorporate all the information, a greater return can only be achieved by assuming more risk.
Combined ratio Percentage ratio of the sum of net claims expenses plus net operating expenses to net earned premiums. It corresponds to the sum of the loss ratio and the expense ratio.
Compliance guidelines Rules for handling inside information. As a general principle, inside information may not be used for own investment transactions, for transactions conducted by a bank or for recommendations to others. Therefore, as part of the compliance procedure, business transactions are checked to make sure they are not based on inside information.
Customised Portfolio Solutions (cps) cps is Munich Re’s centre of competence for retrospective reinsurance cover in non-life classes of business. Frequently also referred to as runoff cover, this protects the cedant against the risk of loss portfolios producing worse run-off results than expected.
Deposits retained on assumed reinsurance and ceded business Deposits retained on assumed reinsurance are receivables which reinsurers have vis-à-vis their cedants for collateral (cash deposits) that has been retained by the cedants as a security to cover future reinsurance claims. The cedants show the retained funds as deposits withheld on ceded business.
Derivative financial instruments Financial instruments whose increase or fall in value is based on and determined by the change in the amount of an underlying value (a particular interest rate, security price, exchange rate, price index, etc.). The main derivatives are � futures, � forwards, � swaps und � options.
Disease management programmes Systematic treatment programmes for chronic conditions such as diabetes mellitus, coronary heart disease or asthma. Particular attention is given to using methods of treatment whose effectiveness, safety and benefit have been verified in scientific studies. Patients thus receive care which minimises the risk of consequential effects and acute deterioration and improves their quality of life.
Duration The average term of an interest-sensitive investment (or � portfolio) and a measure of the risk of its sensitivity to changes in interest rates.
Earnings per share A ratio calculated by dividing the consolidated result by the average number of shares in circulation. “Diluted earnings per share” includes exercised and still to be exercised subscription rights in the consolidated result for the year and the number of shares. Such subscription rights arise from the issue of bonds with conversion rights and from warrants for the acquisition of shares.
Equity method Investments in � associated enterprises have to be valued in the consolidated financial statements using the equity method. The “at equity” value corresponds to the Group’s proportionate share of the shareholders ’ equity of the enterprise concerned.
Forwards Contracts to trade at a specified price on a specified future date. In contrast to � futures, forwards tend to be individually designed � derivative financial instruments.
Integrated risk management (irm) Holistic management of insurance risks in life and non-life business and of investment risks. irm essentially rests on four pillars � asset-liability management, active capital management, � accumulation control and operational risks.
Standards formulated by the � iasb with the intention of achieving internationally comparable preparation and presentation of financial statements. Since 2002 the standards adopted by the iasb have been referred to as International Financial Reporting Standards (ifrs). Until existing standards are renamed, they continue to be referred to as International Accounting Standards (ias).
Managed care service Managed care service is a steering method for reducing costs in healthcare. Benefit management and risk management follow twin objectives: improving cost management using a system of coordinated methods and tools (e.g. by avoiding unnecessary treatment and tackling the problem of fraud) whilst ensuring that patients still enjoy the same high standard of treatment.
Mortality table Table developed using methods of probability theory for estimating the expected mortality of policyholders in a portfolio of life or health insurance contracts. It shows the probability of future mortality on a differentiated basis according to age and other factors, often taking into account demographic trends. Mortality tables with provision for adverse deviation are generally used for measuring underwriting provisions.
Net asset value Measurement for the � fair value of companies. The starting point is the proportional equity capital of the company to be valued, plus the valuation reserves.
Obligatory reinsurance Although obligatory reinsurance agreements contain agreed periods of notice, they are generally concluded for an unlimited duration. These treaties between insurers and reinsurers may therefore run for long periods (cf. � facultative reinsurance).
Offshore energy insurance Umbrella term for the insurance of risks such as oil platforms and production facilities at sea, plus the related technical equipment.
Operating result Consolidated result from ordinary activities, before finance costs and taxes on income.
Portfolio Collection of investments belonging to an investor or held by a financial organisation. They primarily comprise securities, but may also include real estate. In the case of investment funds, portfolio refers to the composition of investment instruments in the fund (equities, bonds, derivatives, etc.). In the case of insurers and reinsurers, portfolio usually means all the risks assumed in insurance and reinsurance respectively.
pvfp (Present Value of Future Profits) When insurance companies or individual insurance portfolios are acquired, the present value of the expected earnings from the business acquired is capitalised as “pvfp”. This intangible asset arises in particular when life or health insurance companies are acquired.
Recoverable amount The recoverable amount of an asset under ifrs is the higher of net sales price (i.e. sales price less sales costs) and the value in use (i.e. present value of the future cash flows). The recoverable amount plays a part especially in connection with impairments in the value of real estate, where an impairment loss has to be recognised if the recoverable amount is lower than the carrying amount.
Registered shares Shares registered in the owner’s name. They are entered in the company ’s share register with the shareholder’s personal data and the number of shares held.
Reinsurance capacity Amount of cover that a reinsurance company or the market as a whole can make available.
Retention That part of the risk assumed which the insurer/reinsurer does not reinsure /retrocede, i.e. retains net for own account.
Swap Agreement between two counterparties to exchange payment flows over a specified period in order to profit from relative cost benefits that one party enjoys on a particular financial market. In the case of an interest-rate swap, payment obligations in the same currency but with different interest-rate conditions (e.g. fixed/variable) are exchanged. In the case of currency swaps, the payment obligations exchanged are in different currencies.
Underwriters Member of an insurance or reinsurance company that acts on behalf of his or her employer to negotiate, accept or reject the terms of a (re)insurance contract.
us Generally Accepted Accounting Principles (us gaap) The principles of us accounting that are stipulated as compulsory for quoted companies in the USA. The individual accounting standards are referred to as � Financial Accounting Standards (fas).
Value at risk Method of quantifying risk, which measures the potential future losses that may not be exceeded within a specified period and with a specified probability.
Value-based management Concept geared to increasing the value of a company on a long-term basis. Value is only created long term if a company regularly earns a profit that exceeds the costs of the equity capital invested.
Corporate governance 11f., 112ff., 118f., 152 Corporate Underwriting/Global Clients (cugc) 43, 87
Mercur Assistance 45 Münchener Rück Italia 74 Munich American Capital Markets 44, 81 Munich American Reassurance Company 67 Munich-American RiskPartners 64, 82 Munich Holdings of Australasia 76 Munich Re Asia Capital Management Ltd 92 Munich Re Capital Management Corp. 92 Munich Re Foundation 3, 108 Munich Reinsurance Canada Non-Life Group 80f. Munich Reinsurance Company of Africa 77 Munich Reinsurance Company of Australasia 68, 76 Munich Reinsurance Company of Canada 43, 67, 79
Canada Munich Reinsurance Company of Canada (mroc) Munich Re Centre 390 Bay Street, 22nd Floor Toronto, Ont., M5H 2Y2
Hamburg-Mannheimer Versicherungs-ag Hamburg-Mannheimer Sachversicherungs-ag Hamburg-Mannheimer Rechtsschutzversicherungs-ag Hamburg-Mannheimer Pensionskasse ag Überseering 45 22297 Hamburg
E-mail: service@dkv.com www.dkv.com d.a.s. Deutscher Automobil Schutz Allgemeine Rechtsschutzversicherungs-ag d.a.s. Deutscher Automobil Schutz Versicherungs-ag Thomas-Dehler-Str. 2 81728 München
Further addresses may be obtained from the 2004 annual report of ergo Versicherungsgruppe ag.
Our operations encompass all aspects of risk assumption in primary insurance and reinsurance. We are one of the world’s largest reinsurers and one of the largest primary insurers in Germany.
The official German original of this report is also available from the Company. In addition, you can find our annual reports and interim reports, along with further information about Munich Re, on the internet at www.munichre.com.