Measures to counter climate change offer us good business opportunities in propertycasualty reinsurance. in cooperation with industrial insurance broker Marsh and photovoltaic producer signet solar, Munich Re has launched an innovative insurance solution to cover the risk of a performance deterioration in photovoltaic modules. it is a solution that covers the warranty given for signet solar modules over a period of 25 years, guaranteeing performance of at least 90% in the first ten years and at least 80% in the remaining 15. Designed specifically to meet the needs of the photovoltaic industry, this cover is of importance in financing the use of such technology. the energy project Desertec, in which we belong to a consortium of companies, also offers major business potential. its aim is to produce sufficient power to meet around 15% of european electricity requirements and a substantial portion of the power needs of the producer countries. Desertec is intended to trigger a large number of infrastructure projects in the energy sector in southern europe, the Middle east and north africa. on 30 october 2009, a limited company was set up to serve as the planning entity. the insurance of such major construction projects throughout the world is already part of the core business handled by Munich Re’s engineering experts. these increasingly include projects for generating renewable energy. Munich Re is actively promoting Desertec not just to pursue its own business interests but, more importantly, to make an essential contribution to reducing co2 emissions in europe and thus curbing global warming.
eRgo has modified its brand strategy with the aim of gearing itself even more strongly to the needs of its clients and winning new ones in order to generate more growth. the trigger for its revised strategy was the need for action regarding the brand KarstadtQuelle Versicherungen following the insolvency of arcandor’s Karstadt and Quelle operations. in future, eRgo will market life and property-casualty insurance under the eRgo brand in germany as well. KarstadtQuelle Versicherungen has already been renamed eRgo Direkt Versicherungen. health insurance will be pooled under the DKV brand and legal expenses insurance under D.a.s., with travel insurance continuing to be represented by the eRV brand. By focusing its brand presence, eRgo is making its all-round offering more visible. the brands Victoria and hamburg-Mannheimer will be withdrawn from the market. implementation will take place in the further course of 2010.
We expect that premium development in the segments will continue to be varied in the coming year, with a positive trend overall.
in life insurance, our total premium income should amount to nearly €8bn, somewhat below last year’s level, with gross premiums written totalling around €6bn. We project that there will be a moderate decline in premium revenue in our international business. in germany, we are planning for premium to remain more or less constant. our german new business should show a slight increase both in regular-premium and single-premium income in 2010.
Investments in 2009, the global economy continued to suffer from the consequences of the financial crisis. in the first quarter of the year, the situation further deteriorated in the international cap ital markets. the stock markets slumped worldwide, while the yields on government bonds and risk spreads for corporate bonds stayed at their historic lows or highs. a capital market rally was triggered by numerous economic programmes and political emergency measures in the further course of the year. nevertheless, there is still considerable uncertainty regarding the durability of the recovery and future prospects.
even though there has been less bad news of late and the economic and early indicators are slowly stabilising, we can by no means assume that the crisis is over. economic forecasts are thus subject to exceptional uncertainty. the development of Munich Re’s investment strategy is therefore based on various scenarios, enabling us to respond flexibly to future trends and keeping us protected from extreme situations. overall, we essentially aim to maintain our relatively cautious risk profile.
We further expanded our portfolio of fixed-interest investments in the financial year 2009, especially by increasing our positions in corporate bonds, nearly all of which have a minimum rating of BBB–. We do not plan to further expand this portfolio in 2010.
1 primary insurance premium income comprises the following: in the life primary segment, it includes not only gross premiums written but also savings premiums for unit-linked life insurance and capitalisation products in accordance with the statutory accounting guidelines applicable in the insurer’s home country. in the propertycasualty and health primary insurance segments, it comprises the gross premiums written.
We intend to continue managing interest-rate risks by gearing the periods to maturity in our bond portfolio to match the periods of our liabilities. however, in order to profit from the currently steep yield curve, we will extend durations, particularly of our government bonds. for our life insurers, moreover, the hedging programme we adopted mainly against falling interest rates will be further adjusted and refined in the current year.
We are fundamentally interested in further strategic acquisitions if the purchase prices reflect the difficult economic situation and risks, thus enabling us to create attractive added value. this was not, incidentally, the case in the projects recently looked at by us, so that we did not submit any offers or the offers we made did not meet the sellers’ expectations. Whilst state support schemes have brought a certain amount of stability, they also suppress the self-regulating mechanisms of the market, adversely impact the structure of competition, and curb private demand for capital owing to growing government debt. We trust that a gradual withdrawal of state aid will lead to a strengthening of the necessary consolidation trends on the supply side.
We are proceeding on the assumption that the group’s gross premiums written for 2010 will be in the range of €41–43bn (total consolidated premium), provided that exchange rates remain stable compared with those at the end of 2009.
176 ManageMent RepoRt pRospects from november 2006 and up to the annual general Meeting 2009, Munich Reinsurance company carried out share buy-backs with a total volume of €4bn. after concluding the 2008/2009 share buy-back programme as planned, we had originally proposed to carry out further share buy-backs totalling over €1bn for each of the following two twelve-month periods preceding the 2011 annual general Meeting, but then put them on hold from april onwards owing to the uncertainties resulting from the economic crisis. in our estimation, the economic environment has now stabilised and our buy-back programme was resumed on 1 october 2009 after a seven-month break. By the annual general Meeting on 28 april 2010 at the latest, we aim to buy back shares for a total purchase price of up to €1bn. By the end of february 2010, we had bought back a total of 6.0 million Munich Re shares with a volume of €648m. Depending on the market conditions, the capital market environment and the further development of the group parent company’s retained earnings, we would consider further share buy-backs of up to €1bn for the twelve-month period from May 2010 to april 2011. a decision on further buy-backs will have to be taken in due course, after weighing the options of organic and external growth.
But for the time being, our shareholders can look forward to the dividend for 2009, which – subject to the approval of the annual general Meeting – will amount to €5.75 per share, thus exceeding the previous year’s high level. for the financial year 2010 and beyond, our intention is to again pay our shareholders an annual dividend depending on the result for the year.
a back four, with two full backs and two central defenders, is the most widely used defensive formation in football. the way it is deployed nowadays makes the game considerably quicker and more dynamic.
Consolidated balance sheet 182 Consolidated income statement 184 Statement of recognised income and expense 185 Changes in Group equity 186 Consolidated cash flow statement 188 notes to the consolidated financial statements 189
notes to the consolidated financial statements application of International financial Reporting Standards (IfRSs) 189 declaration of conformity with the German Corporate Governance Code in accordance with Section 161 of the German Stock Companies act 189 figures for previous years 189 Consolidation 190 Recognition and measurement 196 Changes in accounting policies 196 Standards or changes in standards not yet entered into force 200
Equity and liabilities Equity 208 Subordinated liabilities 208 Gross technical provisions 208 Gross technical provisions for life insurance policies where the investment risk is borne by the policyholders 2 1 1 Other accrued liabilities 2 1 1 liabilities 212 deferred tax liabilities 212
Segment reporting Segment assets 214 Segment equities and liabilities 216 Segment income statement 218 non-current assets by country 220 Gross premiums written 220
Notes to the consolidated balance sheet – Assets Goodwill 221 Other intangible assets 224 land and buildings, including buildings on third-party land 225 Investments in affiliated companies and associates 226
loans 226 Other securities held to maturity 227 Hierarchy for the fair value measurement of investments 228 Other securities held for trading 229 Other securities at fair value through profit or loss 231 deposits retained on assumed reinsurance 235 Other investments 235 Ceded share of technical provisions 235 Other receivables 236 deferred acquisition costs 237 deferred tax 237 Other assets 238 non-current assets and disposal groups held for sale 239
Notes to the consolidated income statement premiums 260 Income from technical interest 260 Expenses for claims and benefits 262 Operating expenses 263 Investment result 264 Other operating result 266 Other non-operating result, impairment losses of goodwill and finance costs 268 taxes on income 269
Disclosures on risks from insurance contracts and financial instruments Risks from insurance contracts in the life and health segment 272 Risks from insurance contracts in the property-casualty segment 279 Credit risks from ceded reinsurance business 285 market risks from financing instruments – Sensitivity analysis 285 munICH RE GROup annual REpORt 2009
Affiliated companies, participating interests and other shareholdings 298 munICH RE GROup annual REpORt 2009
V. Deposits retained on assumed reinsurance (10) VI. Other investments (11)
Equity and liabilities notes 31.12.2009 prev. year Change Opening balance sheet prev. year €m €m €m €m % €m A. Equity (18) I. Issued capital and capital reserve II. Retained earnings III. Other reserves IV. Consolidated result attributable to Munich Re equity holders V. Minority interests
B. Subordinated liabilities (19) C. Gross technical provisions I. Unearned premiums (20) II. Provision for future policy benefits (21) III. Provision for outstanding claims (22) IV. Other technical provisions (23) thereof: provision for deferred premium refunds relating to disposal groups (17)
G. Deferred tax liabilities (15) Thereof: Deferred tax liabilities relating to disposal groups (17) Total equity and liabilities
Consolidated income statement for the financial year 20091 1 previous year’s figures adjusted pursuant to IfRS 3.62 (see “Consolidation”) and to IfRS 8 and IaS 8 (see “Changes in accounting policies”).
Items notes 2009 prev. year Change €m €m €m €m €m % Gross premiums written 1. Earned premiums (29) Gross Ceded net 2. Income from technical interest (30) 3. Expenses for claims and benefits (31) Gross Ceded share net 4. Operating expenses (32) Gross Ceded share net 5. Technical result (1– 4)
Statement of recognised income and expense €m 2009 prev. year Consolidated result Currency translation Gains (losses) recognised in equity Included in the income statement Unrealised gains and losses on investments Gains (losses) recognised in equity Included in the income statement Change resulting from valuation at equity Gains (losses) recognised in equity Included in the income statement Change resulting from cash flow hedges Gains (losses) recognised in equity Included in the income statement Actuarial gains and losses on defined benefit plans Other changes Income and expense recognised directly in equity Total recognised income and expense Thereof: Attributable to Munich Reinsurance Company equity holders Attributable to minority interests
–2 3 – – –78 –53 –28 33 371 –2,866 2,935 –1,287 2,885 –1,318
Equity attributable to munich Reinsurance Company minority total equity holders interests equity €m Issued Capital Retained earnings Other reserves Consolidated capital reserve result Retained Own shares unrealised Reserve from Valuation result earnings before held gains and currency from cash deduction of losses translation flow hedges own shares 31.12.2007 as originally recognised Adjustments pursuant to IAS 8 Status at 31.12.2007 Allocation to retained earnings Consolidated result Income and expense recognised directly in equity Currency translation unrealised gains and losses on investments Change resulting from valuation at equity Change resulting from cash flow hedges actuarial gains and losses on defined benefit plans Other changes Total recognised income and expense Change in shareholdings in subsidiaries Change in consolidated group Dividend Share buy-backs Retirement of own shares Status at 31.12.2008 Allocation to retained earnings Consolidated result Income and expense recognised directly in equity Currency translation unrealised gains and losses on investments Change resulting from valuation at equity Change resulting from cash flow hedges actuarial gains and losses on defined benefit plans Other changes Total recognised income and expense Change in shareholdings in subsidiaries Change in consolidated group Dividend Share buy-backs Retirement of own shares Status at 31.12.2009
– – – – – – – –1,124 –57 –1,181 – – – –1,414 – – – – – –1,414 – – –1,498 1,498 – – – – – –
– – – – – – – –1,073 –3 –1,076 – – – –399 – – – – – –399 – – –1,000 1,000 – – – – – –
€m 2009 prev. year Consolidated result net change in technical provisions Change in deferred acquisition costs Change in deposits retained and accounts receivable and payable Change in other receivables and liabilities Gains and losses on the disposal of investments Change in securities held for trading Change in other balance sheet items Other income/expenses without impact on cash flow I. Cash flows from operating activities Inflows from the sale of consolidated companies Outflows for the acquisition of consolidated companies Change from the acquisition, sale and maturities of other investments Change from the acquisition and sale of investments for unit-linked life insurance Other II. Cash flows from investing activities Inflows from increases in capital Outflows for share buy-backs dividend payments Change from other financing activities III. Cash flows from financing activities Cash flows for the financial year (I + II + III) Effect of exchange rate changes on cash Cash at the beginning of the financial year Cash at the end of the financial year additional information Income tax paid (net) dividends received Interest received Interest paid
–70 –20 –69 763 –94 158 –1,612 –2,208 620 –403 1 –
Munich Re’s consolidated financial statements have been prepared on the basis of section 315a paragraph 1 of the german commercial code in conjunction with article 4 of Regulation (ec) no. 1606/2002 of the european parliament and of the council of 19 July 2002 concerning the application of international accounting stand­ ards. We have complied with the international accounting standards adopted in accordance with articles 2, 3 and 6 of the aforementioned Regulation and with the commercial code rules designated in section 315a para. 1 of the german commercial code. the consolidated financial statements thus also meet all the requirements of ifRss. our presentation currency is the euro (€). amounts are rounded to million euros, with figures in brackets referring to the previous year.
since 2002, the standards adopted by the international accounting standards Board (iasB) have been referred to as international financial Reporting standards (ifRss); the standards from previous years continue to bear the name international accounting standards (iass). insofar as we do not explicitly refer to a particular standard, we use the two terms synonymously. in accordance with the rules of ifRs 4, underwriting items are recognised and measured on the basis of us gaap (united states generally accepted accounting principles). We have also observed the german accounting standards (dRss) adopted by the german standardisation council (dsR) provided they do not contradict the applicable ifRss.
Figures for previous years the completion of the initial accounting for a business combination pursuant to ifRs 3.62 and the changes pursuant to ias 8 made it necessary to retrospectively adjust the balance sheet as at 31 december 2008, the consolidated income statement for the financial year 2008 and the respective items of the notes. details are provided in the sections “consolidation” and “changes in accounting policies“. otherwise, the previous­year figures have been calculated on the same basis as the figures for the financial year 2009.
the hsB group is one of the world’s leading providers of insurance for machinery breakdown and engineering risks, other specialty insurances, and inspection, certification and engineering services. the core of the hsB group is hartford steam Boiler inspec­ tion and insurance company in hartford, connecticut, one of the largest insurance and inspection companies specialising in engineering risks in the usa.
Based on the conclusion of the acquisition process and the determination of the tax impact, which is currently still in progress, the provisional figures for the hsB group have been adjusted since april 2009. the adjustments mainly concern increases of €6.9m in the purchase price, €53.8m in deferred tax assets, and €80.9m in deferred tax liabilities. altogether, there was an increase of €32.8m in goodwill.
WFB Stockholm Management AB on 1 december 2009, Munich Reinsurance company acquired 50% of the share capital of WfB stockholm Management aB (WfB) – formerly fastighets aB Bangardsposten – based in stockholm, sweden, for a total price of €67.3m.
the purchase price comprises various forms of conditional consideration contingent in particular on the future rental situation for the still unleased space in the property held by WfB. in addition, the acquisition costs include all directly attributable incidental acquisition expenses such as fees for external consulting services and taxes incurred.
the differences between the amounts directly prior to the business combination and the amounts at the time of acquisition are mainly the result of the property’s recogni­ tion at fair value (€101.5m) in accordance with ifRs 3 and of shareholder contributions (€11.2m) that are not of relevance for the purchase price and were made at the time of acquisition.
d) the aforementioned change in valuation resulted in an increase of €24m in the provision for deferred premium refunds and an increase of €9m in deferred tax liabilities at the time of first consolidation.
e) these adjustments have an impact on the goodwill recognised in the opening balance sheet and its later impairment.
Consolidation principles the balance sheet date of the consolidated companies is generally 31 december. some of the special funds have other balance sheet dates. these funds are consolidated on the basis of interim accounts as at 31 december.
We generally consolidate subsidiaries and special funds as soon as the group holds the majority of the voting shares or has the factual ability to exercise control. in the case of affiliated companies in which Munich Re owns 50% or less of the voting power, the obligation to prepare consolidated accounts is based chiefly on the fact that the main risks and rewards rest with Munich Re, in accordance with sic 12. acquisitions are accounted for by the purchase method. in order to determine the equity capital at the time of acquisition, we measure the assets and liabilities of the subsidiary or special fund at fair value. the acquisition costs of the shares are netted against the equity capital apportionable to the group at the time of acquisition. any residual positive amount is capitalised as goodwill. profits earned by the subsidiaries or special funds after their first consolidation are included in group equity. amounts relating to intra­ group transactions (receivables and liabilities, expenses and income between consoli­ dated companies) are eliminated unless they are determined as not being material.
Associates pursuant to ias 28, associates are generally all entities which are not subsidiaries or joint ventures but on whose financial and operating policies the invest ors can exercise a significant influence.
Number of companies valued at equity germany other total countries 31 dec. previous year additions Reductions 31 dec. financial year
Restrictions regarding transfer of capital at 31 december 2009, our subsidiaries Munich Re america (MRam) and Munich american Reassurance company (MaRc) show a negative earned surplus of us$ 876m and us$ 598m respectively in their local financial statements prepared in accordance with statutory accounting principles. for this reason, they can only pay dividends or transfer capital to the parent company with the approval of the competent us regulatory authority.
owing to its acquisition by Munich Re in the year under review , dividend payments by our subsidiary the hartford steam Boiler inspection and insurance company (hsBiic), connecticut, can only be made subject to the prior approval of the competent us regulatory authority in the coming two years.
Recognition and measurement the annual financial statements of the consolidated subsidiaries and special funds are subject to uniform accounting policies. for the annual financial statements of signifi­ cant associates we have, in accordance with ias 28.27, made appropriate adjustments to conform the accounting policies to those of Munich Re. Valuations used in the financial statements of associates not classified as significant are maintained. in the course of preparing the consolidated financial statements, we have to use our judge­ ment in applying accounting policies and to make estimates and assumptions that affect the year­end items shown in the consolidated balance sheet, the consolidated income statement and the disclosures on contingent assets and liabilities. details are provided in recognition and measurement methods and in the notes regarding the individual items as well as in the disclosures on risks from insurance contracts and financial instruments.
in the financial year 2009, the following new ifRss had to be applied for the first time: published in March 2009, the amended IFRS 7, Financial Instruments: Disclosures, requires additional disclosures on financial instruments measured at fair value. Based on the new three­level hierarchy for such measurement, information must be supplied on which level of the hierarchy has been used for valuation. a distinction has to be made here between valuation at quoted prices in active markets (level 1), valuation using inputs based on observable market data (level 2), and valuation using inputs not based on observable market data (level 3). Reallocations between the individual levels have to be disclosed. for instruments valued in accordance with level 3, a reconcili­ ation from the beginning balances to the ending balances must be published. disclo­ sure of comparative information may be dispensed with for the financial year 2009, and Munich Re is availing itself of this option.
as far as disclosures on the liquidity risk are concerned, the amended ifRs 7 also clarifies that the maturity analysis for non­derivative financial liabilities includes issued financial guarantee contracts. the maturity analysis for derivative financial liabilities must include their remaining contractual maturities insofar as these are essential for understanding the timing of the cash flows.
the implementation of IFRS 8, Operating Segments, to be applied for the first time as from 1 January 2009, has resulted in additional disclosures in the notes and a modified disclosure of items in our segment reporting. the business fields in which we operate continue to form the basis for identifying the segments to be reported. in accordance with the “management approach”, the way in which Munich Re is managed internally constitutes the basis for the changes in disclosure described in the following. in primary insurance, we now separate the previously combined life and health segment into the two individual segments, life and health. health reinsurance and our special­ ised insurers in international health primary insurance business that are managed from within reinsurance, together with the international health primary insurance business conducted by eRgo, have been brought together in a separate business field, which has been operating under the Munich health brand since May 2009. not having yet reached a volume that requires disclosure as a separate segment, Munich health’s business is split up for reporting purposes, with some sections of it being shown together with life reinsurance and others together with german health primary insurance.
197consolidated financial stateMents notes at Munich Re entities, different performance indicators and measures are used, depending on the type and duration of the business. Besides this, ifRs result contri­ butions are a central feature of planning and strategy in all segments. therefore the uniform assessment basis used for the measure of segment result is the operating result adjusted to eliminate non­operating components (e.g. foreign currency gains and losses, income and expenses from the sale of intangible assets).
in line with our internal management approach, the operating result has been split into a technical and a non­technical result as from the first quarter of 2009, with an interest component allocated to the underwriting business in the form of income from technical interest. this interest income derives from investment of the premium income and the entitlement of policyholders to portions of the non­technical result (cf. information on income from technical interest, page 260). there continues to be comparability with prior periods, since it is possible to reconcile the current figures to the previous ifRs segment results by reallocating the result components.
owing to the reallocation of europäische Reiseversicherung within the primary insurance segment and the management­related reallocation of the Watkins syndicate from primary insurance to the reinsurance segment, the composition of our reported segments has changed. the relevant items of the segment information and notes for the previous year have been adjusted.
the main change to IAS 1 (rev. 09/2007), Presentaion of Financial Statements, is that tax effects included in income and expenses recognised directly in equity are disclosed separately in the notes to the consolidated financial statements. in addition, ias 1 now requires the publication of the opening balance sheet of the earliest comparative period, plus the relevant disclosures in the notes, when an accounting policy is applied retrospectively with significant adjustments. non­owner changes in equity are now disclosed in a separate statement of recognised income and expense, with only the total shown in the changes in equity. there is also the option to rename individual components of the financial statements or to publish a single statement of income combining the income statement and the statement of recognised income and expense. We have not availed ourselves of this option.
198 consolidated financial stateMents notes there was no significant impact on Munich Re’s financial statements from the manda­ tory first­time application of ifRs 2 (rev. 01/2008), share­based payment, ias 23 (rev. 03/2007), Borrowing costs, or ias 32 (rev. 05/2008), financial instruments: presentation. the same applies to the mandatory first­time application of interpreta­ tions ifRic 9 (rev. 03/2009), Reassessment of embedded derivatives, in conjunction with ias 39 (rev. 03/2009), financial instruments: Recognition and Measurement, ifRic 13, customer loyalty programmes, ifRic 15, agreements for the construction of Real estate, ifRic 16, hedges of a net investment in a foreign operation, and ifRic 18, transfers of assets from customers. for application on the basis of Regulation (ec) no. 1606/2002, the european commission has changed the date at which first­time application of the interpretations ifRic 15, ifRic 16 and ifRic 18 is mandatory. as a result, application of these interpretations is currently only optional for Munich Re.
owing to the introduction of new it systems, we are now able to record provisions for disability benefits separately from provisions for future policy benefits. this has resulted in a reclassification of these disability reserves from the provisions for future policy benefits to the provisions for outstanding claims.
Consolidated income statement 2008 changes due to 2008 after adjustment adjustments pursuant to pursuant to ias 8 ifRs 3.62 in 2008 €m 3. Expenses for claims and benefits gross net 6. Investment result investment income investment expenses thereof: income from associates 7. Other operating income 12. Other non­operating result 15. Taxes on income 16. Consolidated result thereof: attributable to Munich Reinsurance company equity holders the effects on the consolidated income statement for the financial year 2008 are as follows: the relevant items of the segment information and notes to the consolidated financial statements have been adjusted for the previous year.
Standards or changes in standards not yet entered into force application of the following amended standards is mandatory for financial years beginning on or after 1 July 2009: the revision of IFRS 3 (rev. 01/2008), Business Combinations, and that of IAS 27 (rev. 01/2008), Consolidated and Separate Financial Statements, mainly involve changes in the balance sheet recognition of non­controlling interests, successive share purchases, acquisition­related costs and contingent consideration. effects of the new rules for Munich Re will, owing to their prospective application, result only for future acquisitions of shareholdings and will be dependent on the conditions of the respective acquisition.
Besides this, the interpretation ifRic 17, distributions of non­cash assets to owners, has not yet entered into force.
Goodwill from the first­time consolidation of subsidiaries is tested for impairment in accordance with ias 36 at least once annually, i.e. the goodwill is allocated to cash­ generating units and the carrying amount of the cash­generating unit (including allocated goodwill) is compared with that unit’s recoverable amount. if this recoverable amount is lower, a write­down is made for impairment of goodwill.
other intangible assets mainly comprise purchased and internally generated software and acquired insurance portfolios. the software is carried at cost less straight­line amortisation. the useful life assumed is generally three to five years, and in exceptional cases up to ten years. 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 items in question are amortised in accordance with the realisation of the profits from the insurance portfolios underlying the pVfp calcula­ tion. the other intangible assets are tested for impairment at each balance sheet date and write­downs made if required. Write­downs of software and other intangible assets 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 the expenses to these functional areas, they are shown under “other non­ operating expenses”. Write­downs of purchased insurance portfolios are recognised under operating expenses. Write­ups of software and other intangible assets are included in “other non­operating income”.
Land and buildings shown under investments comprise property used by third parties and are carried at cost. Maintenance expenses are recognised as an expense. structural measures equivalent to 5% or more of the historical cost of a building are generally assessed with regard to whether they have to be capitalised. Buildings are depreciated over a period of 40 to 55 years on a straight­line basis in accordance with the component approach, depending on the weighted useful life for their specific building class. if the recoverable amount of land and buildings falls below their carrying amount, the carrying amount is written down to the recoverable amount. impairment losses are recognised as investment expense in the consolidated income statement, and reversals of impairment losses as investment income. land and buildings classi­ fied as “held for sale” are recognised at the lower of book value or fair value less sales costs.
Investments in associates are valued by the equity method at the group’s propor­ tionate share of their net assets. the associate’s earnings attributable to the group are included in the investment result. as a rule, the equity and annual result from the most recent individual or consolidated financial statements of the associate are used; exceptional transactions of material importance for a true and fair picture of the associate’s financial position are recognised in the same financial year. investments in associates that are not material for assessing the group’s financial position are accounted for at fair value insofar as this can be reliably measured. to determine the fair value, we use the share prices at the balance sheet date if the investments are quoted on a stock exchange; for other investments, the fair value is measured using the discounted earnings or net asset value method.
Loans are non­derivative financial assets with fixed or determinable payments that are not quoted in an active market. they are carried at cost in accordance with the effective interest method. Write­downs for impairments are made in cases where the repayment of a loan can no longer be expected.
Fixed­interest or non­fixed­interest securities available for sale that are not held for trading or recognised under loans are accounted for at fair value. if no quoted prices in an active market are available, fair values are based on recognised valuation methods in line with the present value principle. unrealised gains or losses are calculated taking into account interest accrued and, after deduction of deferred taxes and the amounts apportionable to policyholders by the life and health insurers on realisation (provision for deferred premium refunds), are recognised directly in “other reserves”.
use of financing instruments financial assets in our direct portfolio are generally accounted for at the settlement date. investments held in special funds are accounted for at the trade date.
all financial instruments recognised at fair value are allocated to one of the valuation hierarchy levels of ifRs 7. this valuation hierarchy provides for three levels. the initial basis for the allocation is the “economic investment class”. only if this does not result in an appropriate allocation do we deviate from such an approach in individual cases.
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 write­ups, 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.
We determine acquisition cost on the basis of the average purchase price. in the case of an impairment, a write­down is made to the fair value at the balance sheet date, i.e. generally the publicly quoted market price. if there is a further fall in the fair value of equity investments that have already been written down once, a further write­down recognised in the income statement is made again immediately, even if the impairment is only temporary. impairments recognised in profit or loss may not be reversed through profit or loss.
in impairment tests of our financial assets (with the exception of equity investments), we generally first assess whether objective evidence of impairment exists for items that are individually significant. if this is not the case, and also in the case of individually insignificant items, the impairment test is carried out collectively on the basis of groups of similar financial assets. assets that are individually assessed for impairment are not included in the collective assessment. the amount of the probable loss is measured as the difference between the amortised cost of the asset or group of assets and the present value of estimated future cash flows. the impairment thus determined is recognised as an expense. We generally deduct impairments directly from the items concerned on the assets side, without using a value adjustment account. if, in a subsequent period, the reasons for the impairment cease to apply, the impairment is reversed, with impact on the income statement. the resultant carrying amount may not exceed the original amortised cost.
G // Deferred acquisition costs deferred acquisition costs comprise commissions and other variable costs directly connected with acquisition or renewal of insurance contracts. in life business and long­term health primary insurance, acquisition costs are capitalised and amortised over the duration of the contracts. in accordance with fasB accounting standards codification subtopic 944­30, this is done either proportionally to the premium income (formerly fas 60) or proportionally to the respective contracts’ expected gross profit margins calculated for the relevant year of the contract term (formerly fas 97, 120). the allocation of individual contracts to the us gaap standards concerned is shown in the notes to equity and liabilities item c. in determining the amount of amortisation, we take into account an actuarial interest rate and changes resulting from the disposal of contracts from the portfolio. in property­casualty business, short­term health primary insurance and health reinsurance, the deferred acquisition costs are amortised on a straight­line basis over the average term of the policies, from one to five years. deferred acquisition costs are regularly tested for impairment using a liability adequacy test as per ifRs 4; cf. notes on equity and liabilities item c.
A // Equity the item issued capital and capital reserve contains the amounts that Munich Reinsurance company equity holders have paid in on shares. the capital reserve is reduced by the externally generated costs directly connected with equity capital measures, after taking into account tax effects.
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.
Unearned premiums are accrued premiums already written for future risk periods. for primary insurance, these premiums are calculated separately for each insurance policy pro rata temporis; for reinsurance, nominal percentages are used in some cases where the data for a calculation pro rata temporis is not available. the posting of unearned premiums is restricted to short­term underwriting business, i.e. property­casualty business (except long­term accident cover) and parts of health business, in both primary insurance and reinsurance.
the provision for future policy benefits in long­term underwriting business is posted for the actuarially calculated value of obligations arising from policyholders’ guaranteed entitlements. as well as life insurance, this concerns portions of health and personal accident insurance, insofar as the business is conducted like life insurance. Measure­ ment is usually based on the prospective method, by determining the difference between the present values of future benefits and future premiums. the actuarial assumptions used for their calculation include, in particular, assumptions relating to mortality, disablement and morbidity, as well as assumptions regarding interest­rate development, lapses and costs. these are estimated on a realistic basis at the time the insurance contracts are concluded, and they include adequate provision for adverse deviation to make allowance for the risks of change, error and random fluctuations. the actuarial assumptions are adjusted if this is shown to be necessary by a liability adequacy test in accordance with ifRs 4.
for life primary insurance contracts on the universal life model, unit­linked life insurance and life reinsurance for assumed policies of this type (formerly fas 97), an account is kept to which net level premiums and interest earnings are credited and from which risk premiums and administration expenses are debited, not all credits and debits being contractually fixed at the time the contracts are concluded. the provision for future policy benefits for life primary insurance where policyholders bear the invest­ ment risk themselves (unit­linked life insurance) is shown separately under equity and liabilities item d.
Other technical provisions mainly include the provision for premium refunds in primary insurance and the provision for profit commission in reinsurance. provisions for premium refunds are posted in life and health primary insurance for obligations involving policyholder bonuses and rebates that have not yet been irrevocably allocated to individual contracts at the balance sheet date. Where these provisions are posted on the basis of national regulations, a retrospective approach is usually taken based on supervisory or individual contract regulations. the provision for premium refunds also incorporates the provision for premium loadings and the provision for future premium reductions in german health primary insurance.
211consolidated financial stateMents notes 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 invest­ ment result and, for contracts with participation in surplus, the future profit sharing.
D // Gross technical provisions for life insurance policies where the investment risk is borne by the policyholders this item encompasses the provision for future policy benefits in life primary insurance where policyholders bear the investment risk themselves (unit­linked life insurance). the value of the provision for future policy benefits essentially corresponds to the market value of the relevant investments shown under assets item c. Besides this, in accordance with fasB accounting standards codification subtopic 944­40 (formerly fas 97), they may include additional premium components; cf. the notes on assets item c. changes in this provision are fully recognised in the technical result. insofar as these changes derive from unrealised gains and losses from alterations in the fair values of the related investments, they are matched by opposite changes of the same amount in the investment result. Recognising these provisions at fair value, with impact on profit or loss, avoids valuation mismatches that would otherwise occur due to different measurement of the corresponding investments.
E // Other accrued liabilities this item includes provisions for post­employment benefits. Munich Re companies generally give commitments to their staff 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. in general, they are based on the staff member’s length of service and salary. under defined contribution plans, the com­ panies 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 two­way 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 commitment, this reimbursement right is recognised under “other receivables”.
212 consolidated financial stateMents notes the interest rate at which the pension obligations are discounted is based on the yields for long­term good­quality bonds (e.g. commercial or government bonds). actuarial gains or losses from pension obligations and plan assets result from the deviation of actual risk experience from estimated risk experience. they are recognised directly in equity, without impact on profit or loss.
the other provisions included in this item are established in the amount of the prob­ able requirement. such amounts are not discounted if the interest­rate effect is insignificant.
F // Liabilities this item comprises bonds and notes issued, deposits retained on ceded business, current tax liabilities, and other liabilities. financial liabilities are generally recognised at amortised cost. derivatives (derivative financial instruments and derivative com ­ ponents of variable annuities) are recognised at fair value. details of how the fair value is determined are provided under assets item B.
B. Investments I. Land and buildings, including buildings on third-party land thereof: investment property held for sale II. Investments in affiliated companies and associates III. Loans IV. Other securities 1. held to maturity 2. available for sale 3. at fair value through profit or loss
B. Gross technical provisions I. Unearned premiums II. Provision for future policy benefits III. Provision for outstanding claims IV. Other technical provisions thereof: other segment liabilities relating to disposal groups
– – – – –1 – – – – – – – – – –1 –
Non-current assets by country1 31.12.2009 prev. year €m germany usa austria spain singapore sweden uK netherlands france turkey portugal poland italy switzerland greece others Total segment reporting 195 –
Gross premiums written1 Reinsurers primary insurers total 2009 prev. year 2009 prev. year 2009 prev. year €m Europe germany uK italy spain Belgium others
Latin America Total 1 the non-current assets mainly comprise intangible assets (especially goodwill) and our owner-occupied and investment property.
Impairment test for impairment testing, ifRs 3 in conjunction with ias 36 requires that the goodwill be allocated to the cash-generating units or groups of cash-generating units expected to derive benefit (in the form of cash flows) from the business combination. to ascertain whether there is any impairment, the carrying amount (including allocated goodwill) of a cash-generating unit or a group of cash-generating units is compared with that unit’s or group’s recoverable amount. the recoverable amount is the higher of // its fair value less costs to sell and // its value in use (present value of the future cash flows expected to be derived from a cash-generating unit or group of cash-generating units). the future cash flows used for determining the value in use are based on management’s most recent financial plans/forecasts. Beyond the period covered by these financial plans/ forecasts, the future cash flows are estimated by extrapolating the prognoses on which the financial plans/forecasts are based, applying a growth rate for the subsequent years.
Development of goodwill 2009 prev. year €m gross carrying amount at 31 dec. previous year accumulated impairment losses at 31 dec. previous year carrying amount at 31 dec. previous year currency translation differences additions Reductions impairment losses carrying amount at 31 dec. financial year accumulated impairment losses at 31 dec. financial year gross carrying amount at 31 dec. financial year
222 consolidated financial stateMents notes in the financial year 2009, impairments of goodwill amounting to €117m were identified in the impairment tests of goodwill that is not significant within the meaning of ias 36.134. these have been recognised in the item “impairment losses of goodwill” in the income statement. a breakdown of these impairments between Munich Re’s segments is provided by the overview on page 268. the recognised impairments mainly concern the following goodwill: the deterioration in parameters caused by the spreading of the financial crisis to the real economy prompted us to critically review the business plans of our international primary insurance companies and, in some cases, adjust them downwards. for the financial year 2009, the impairment test gave rise to an impairment for the goodwill of Bank Austria Creditanstalt Versicherung AG. as a result, the remaining goodwill of €38m was written off.
further changes in the us healthcare system as a consequence of the amendments adopted in 2008 resulted in a significant reduction in the growth potential of Sterling Life Insurance Company, requiring a revision of the company’s planning figures. the goodwill of €40m has consequently been completely written off.
as regards the cash-generating units which, in themselves, have not been allocated a significant portion of the goodwill, the key assumptions for determining their recoverable amounts differ materially from one another. there is therefore no requirement for aggregation in accordance with ias 36.135.
1 in the impairment test, sensitivity analyses with the stated ranges were performed for these parameters.
owing to the reduced turnover and earnings expectations for the products sold by allfinanz ltd., dublin, an impairment test was carried out. this resulted in an impairment loss of €12m on software and of €9m on the other intangible assets.
Development of other intangible assets software purchased other 2009 prev. year €m insurance portfolios Gross carrying amount at 31 Dec. previous year Accumulated amortisation and accumulated impairment losses at 31 Dec. previous year Carrying amount at 31 Dec. previous year Currency translation differences Change in consolidated group Additions Disposals Impairment losses reversed Depreciation and impairment losses depreciation impairment losses Carrying amount at 31 Dec. financial year Accumulated amortisation and accumulated impairment losses at 31 Dec. financial year Gross carrying amount at 31 Dec. financial year
225consolidated financial stateMents notes 3 // Land and buildings, including buildings on third-party land the impairment losses result essentially from a deterioration in the market environment in a number of the european countries invested in. they are distributed between the different group segments as follows: in reinsurance €5m (18m) is apportionable to life and health and €9m (31m) to property-casualty; in primary insurance €31m (31m) is apportionable to life, €3m (–) to health, – (€1m) to property-casualty, and – (–) to asset management .
property pledged as security and other restrictions on title amount to €711m (526m; opening balance sheet previous year €724m). expenditures recognised in the carrying amount for assets in the course of construction total €250m (125m) at the balance sheet date, and contractual commitments to acquire property amount to €60m (142m). the fair value of investment property at the balance sheet date amounted to €5,533m (5,426m; opening balance sheet previous year €5,442m). of this, €141m (16m) concerns investment property classified as “held for sale”. the valuation is performed for each site individually as at 31 december 2009 except where valuation units are formed. calculations are carried out mainly by valuers within the group but in individual cases also by external valuers. determining the sustainability of cash inflows and outflows, taking into account the market conditions at the respective property location, is material for the valuation. the fair value is determined individually per item by discounting the future surplus cash flow to the valuation date. depending on the type of property, discount rates of 3.0% to 6.5% are used for residential buildings, of 4.0% to 9.5% for office buildings, and of 4.5% to 10.0% for retail.
Development of investments in land and buildings, 2009 prev. year including buildings on third-party land €m Gross carrying amount at 31 Dec. previous year Accumulated depreciation and accumulated impairment losses at 31 Dec. previous year Carrying amount at 31 Dec. previous year Currency translation differences Change in consolidated group Additions Disposals Impairment losses reversed Depreciation and impairment losses Depreciation impairment losses Reclassification Carrying amount at 31 Dec. financial year Accumulated depreciation and accumulated impairment losses at 31 Dec. financial year Gross carrying amount at 31 Dec. financial year
226 consolidated financial stateMents notes 4 // Investments in aff iliated companies and associates the fair value of investments in associates valued at equity amounted to €982m (1,189m; opening balance sheet previous year €1,334m) at the balance sheet date. in the fi nancial year, shares of losses of associates amounting to €14m (8m) were not recognised in the balance sheet. altogether, the losses not recognised in the balance sheet totalled €17m (8m).
the other loans mainly comprise government bonds, pfandbriefs and borrowers’ note loans of banks.
Breakdown of loans 31.12.2009 prev. year €m Mortgage loans loans and advance payments on insurance policies other loans Total
227consolidated financial stateMents notes the fair value of the loans, based on recognised valuation methods in line with the present value principle and taking observable market parameters into account, totalled €47,909m (41,052m) at the reporting date.
6 // Other securities held to maturity the fair values are based on recognised valuation methods in line with the present value principle and taking observable market parameters into account.
Contractual period to maturity carrying amounts €m 31.12.2009 prev. year up to one year over one year and up to two years over two years and up to three years over three years and up to four years over four years and up to five years over five years and up to ten years over ten years Total
228 consolidated financial stateMents notes the rating categories are based on those of the leading international rating agencies. in deviation from the purely economic view, the carrying amount of the securities represents the maximum exposure to credit risk at the balance sheet date, in accordance with ifRs 7.
229consolidated financial stateMents notes 8 // Other securities held for trading
Breakdown of other securities carrying unrealised amortised available for sale amounts gains/losses cost €m 31.12. prev. opening 31.12. prev. opening 31.12. prev. opening 2009 year balance 2009 year balance 2009 year balance sheet sheet sheet prev. prev. prev.
Non-fixed-interest securities Shares Investment funds equity funds Bond funds Real estate funds Other
230 consolidated financial stateMents notes over half the corporate debt securities are pfandbriefs or issues by development banks and comparable institutions. the remaining portfolio is composed of securities issued by companies outside the banking sector (with each individual risk making up less than 5%), bonds issued by banks and state central savings banks (with state guarantees), and asset-backed securities/mortgage-backed securities that largely have implicit state guarantees or an above-average rating.
assets pledged as security and other restrictions on title amount to €12,037m (11,378m). some €923m (1,085m) of the securities shown are loaned to third parties. these securities are not derecognised, as the main resultant risks and rewards remain with Munich Re. of the €4,750m (2,993m; opening balance sheet previous year €6,549m) in unrealised gains and losses, €2,516m (2,032m; opening balance sheet previous year €4,894m) has been posted in equity (other reserves) after deduction of provisions for deferred premium refunds, deferred taxes, minority interests and consolidation eff ects.
to support hypo Real estate (hRe), the german federal government adopted a rescue package in october 2008, backed by the deutsche Bundesbank and also the german fi nancial services industry. as part of this rescue package, the Bundesbank granted liquidity assistance of €20bn, and a consortium of fi nancial institutions subscribed to two hRe bearer bonds totalling €30bn with a maximum term up to the end of 2009. as from 23 december 2009, the two bonds were replaced by a €22.98bn bond issued by deutsche pfandbriefbank ag. this has a term of one year and is guaranteed by the german financial Market stabilisation fund (soffin). Munich Reinsurance company has taken up €108.3m of this bond, €37.3m in trust for companies of the eRgo group. the bond is recognised under corporate debt instruments.
Realised gains and losses 2009 prev. year €m Gains on disposal fixed-interest securities non-fi xed-interest securities Losses on disposal fixed-interest securities non-fi xed-interest securities Total
the securities held for trading are made up of fixed-interest securities totalling €600m (695m), non-fixed-interest securities totalling €25m (30m) and derivatives held for trading amounting to €596m (1,915m). the securities designated as at fair value through profit or loss comprise €372m (482m) assignable to fixed-interest securities and €20m (–) to non-fixed interest securities.
Contractual period to maturity carrying amortised of fixed-interest securities amounts cost 31.12.2009 prev. year opening 31.12.2009 prev. year opening balance balance sheet sheet €m prev. year prev. year up to one year over one year and up to two years over two years and up to three years over three years and up to four years over four years and up to five years over five years and up to ten years over ten years Total
Rating of fixed-interest securities according to fair values 31.12.2009 prev. year €m aaa aa a BBB lower no rating Total
Rating of fixed-interest securities 31.12.2009 prev. year opening according to fair values balance sheet prev. year €m aaa aa a BBB lower no rating Total
derivative fi nancial instruments are used by Munich Re to hedge against currency, interest-rate and other market-price risks. this is done at the group companies within the framework of individual supervisory regulations and additional internal 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, Munich Re selects only top-quality counterparties for such transactions.
Disclosure of derivatives by balance sheet item 31.12.2009 prev. year €m fair value Qualifying for Balance sheet item hedge accounting no investments, other securities held for trading positive
although the derivatives used by Munich Re essentially serve to hedge against risks, only an amount of €152m (702m) meets the requirements of ias 39 for hedge accounting.
235consolidated financial stateMents notes 10 // Deposits retained on assumed reinsurance deposits retained on assumed reinsurance serve directly as collateral for technical provisions covering business assumed from cedants in reinsurance. they do not trigger any cash flows and may not be used by the cedant independently. the credit risk is therefore limited. the amount of and changes in deposits retained on assumed reinsurance in the balance sheet year generally derive from the values for the changes in the related technical provisions for the reinsured business. deposits retained on assumed reinsurance business thus do not have a fixed maturity date, their release generally being dependent on the run-off of the corresponding provisions.
as the other investments mainly have a period to maturity of less than one year, the fair values largely correspond to the carrying amounts.
as the other receivables mainly have a period to maturity of less than one year, the fair values largely correspond to the carrying amounts.
Rating of accounts receivable 31.12.2009 prev. year €m aaa aa a BBB and lower no external rating
237consolidated financial stateMents notes 14 // Deferred acquisition costs amortisation includes accrued interest as well as write-downs. the impairment losses comprise write-ups and write-downs stemming from changes in the assumptions underlying the calculations, which require an adjustment in the measurement. in the primary insurance segment, long-term interest-rate levels were significantly adjusted on the basis of the long-term regular return on investments. the now lower interest margin led to write-downs of deferred acquisition costs.
Deferred tax 31.12.2009 prev. year opening balance sheet prev. year €m assets liabilities assets liabilities assets liabilities losses carried forward and tax credits intangible assets investment property investments (other than investment property) technical provisions pension provisions claims equalisation provisions other Total
Development of gross Reinsurance primary insurance total deferred acquisition life and property- life health propertycosts health casualty casualty €m1 31.12. prev. 31.12. prev. 31.12. prev. 31.12. prev. 31.12. prev. 31.12. prev. 2009 year 2009 year 2009 year 2009 year 2009 year 2009 year Status at 31 Dec. previous year Currency translation differences Change in consolidated group/Other New deferred acquisition costs Changes amortisation impairment losses Status at 31 Dec. financial year
–276 –327 –996 –881 –360 –287 –154 –152 –240 –207 –2,026 –1,854 –15 –4 –17 –4 –271 –57 –2 – – – –305 –65
238 consolidated financial stateMents notes the deferred taxes for technical provisions also include the deferred taxes for deferred acquisition costs.
of the total deferred tax liabilities amounting to €372m (670m), some €87m (549m) was recognised in the income statement and €285m (121m) in equity.
the impact from first-time consolidation and deconsolidation is also included in the deferred tax assets and liabilities.
16 // Other assets these mainly comprise owner-occupied property totalling €2,472m (2,313m), thereof finance leases amounting to €21m (–), plant and equipment and inventories totalling €371m (314m), deferred expenses from the conclusion of insurance contracts amounting to – (€16m), and other deferred items of €107m (126m).
the impairment losses mainly resulted from a deterioration in the market environment in a number of european countries invested in. they are distributed between the different group segments as follows: in reinsurance – (€11m) is apportionable to life and health and €1m (22m) to property-casualty; in primary insurance, the impairment losses amount to €1m (3m) in life, €1m (–) in health and – (–) in property-casualty.
the fair value of the property at the balance sheet date amounted to €2,746m (2,574m). the expenditures recognised in the carrying amount for assets in the course of con struction at the balance sheet date totalled €95m (52m) for property and €28m (18m) for plant and equipment. commitments to acquire property totalled €14m (78m) and commitments to acquire plant and equipment €18m (12m).
in the fourth quarter of 2009, with scheduled economic effect from 1 april 2010, we sold seven residential investment properties with a total carrying amount of €68m.
also in the fourth quarter of 2009, with economic effect from 1 January 2010, we sold one of our owner-occupied office properties with a carrying amount of €13m. at the same time, we acquired an office property for own use at a price of €41m.
Besides this, in the fourth quarter of 2009, we decided to sell an investment office property with a carrying amount of €22m. it is envisaged that the sale will take place in the first half of 2010.
Balance sheet items relating to disposal groups at the reporting date 31.12.2009 prev. year €m Assets B. Investments I. Land and buildings, including buildings on third-party land thereof: investment property held for sale H. Deferred tax assets thereof: deferred tax assets relating to disposal groups I. Other assets thereof: owner-occupied property held for scale Total assets relating to disposal groups
241consolidated financial stateMents notes in 2009, no employee share programmes were set up for the employees of Munich Reinsurance company, Meag Munich eRgo assetManagement gmbh or the eRgo insurance group (including euRopÄische Reiseversicherung ag and almeda gmbh, formerly called Mercur assistance deutschland gmbh, which are now part of eRgo). at Munich Reinsurance company, there are a total of 255 shares left over from the 2008 employee share programme.
in addition, one subsidiary holds 1,831,795 shares to hedge stock appreciation rights granted to the Board of Management and top Munich Re executives since 1999. in 2009, no shares were acquired for hedging these programmes, and a total of 62,060 shares were sold at an average price of €106.47.
Meag Munich eRgo assetManagement gmbh acquired 23,000 shares at €99.61 each in the financial year 2009 to safeguard obligations from its long-term incentive plan and and sold 2,319 shares at an average price of €106.16, leaving it with a portfolio of 139,754 Munich Re shares.
Composition of the capital authorised for capital increases 31.12.2009 €m authorised capital increase 2006 (until 18 april 2011) authorised capital increase 2009 (until 21 april 2014) Total
Composition of contingent capital 31.12.2009 €m to safeguard conversion rights or subscription rights from convertible bonds or bonds with warrants (contingent capital increase 2005) Total
the “other reserves” include –€1,245m (–1,194m) from currency translation and €1m (3m) resulting from valuation of cash fl ow hedges. in addition, “other reserves” contain unrealised gains and losses distributed between the diff erent items as follows: Composition of equity 31.12.2009 prev. year opening balance sheet prev. year €m issued capital capital reserve Retained earnings other reserves consolidated result attributable to Munich Reinsurance company equity holders Minority interests Total equity
Unrealised gains and losses 31.12.2009 prev. year opening balance sheet prev. year €m Unconsolidated aff iliated companies and associates not valued at equity Associates valued at equity Other securities available for sale fixed-interest non-fi xed-interest Less provision for deferred premium refunds recognised in equity deferred taxes recognised in equity Minority interests consolidation and currency translation eff ects Total
Minority interests 31.12.2009 prev. year opening balance sheet prev. year €m unrealised gains and losses consolidated result other equity Total
1 in the fi rst half-year 2009, the issuer bought back bonds with a nominal value of €100m. 2 in the fi rst half-year 2009, the issuer bought back bonds with a nominal value of €151m. 3 in the second quarter of 2009, the issuer redeemed bonds with a nominal value of us$ 24m.
Breakdown of subordinated liabilities 31.12.2009 prev. year €m Munich Reinsurance company, Munich, 6.75% until 2013, thereafter fl oating, €2,900m1, Bonds 2003/2023 Munich Reinsurance company, Munich, 7.625% until 2018, thereafter fl oating, £300m, Bonds 2003/2028 Munich Reinsurance company, Munich, 5.767% until 2017, thereafter fl oating, €1,349m2, Bonds 2007/perpetual the Midland company, cincinnati, liBoR +350 Bp, us$ 24m3, Bonds 2004/2034 Bank austria creditanstalt Versicherung ag, Vienna, 4.95%, €50m, Registered bonds 2004/2014 Bank austria creditanstalt Versicherung ag, Vienna, 6% until 2010, thereafter fl oating, €12m4, Registered bonds 2001/perpetual Bank austria creditanstalt Versicherung ag, Vienna, secondary market yield on federal government bonds (austria) +70 Bp, €13m5, Registered bonds 1998/perpetual hsB group inc., delaware, liBoR +91 Bp, us$ 76m6, Bonds 1997/2027 Total
20 // Unearned premiums 21 // Provision for future policy benefits 1 after elimination of intra-group transactions across segments.
Development of Reinsurance primary insurance total gross unearned life and property- life health propertypremiums health casualty casualty €m1 31.12. prev. 31.12. prev. 31.12. prev. 31.12. prev. 31.12. prev. 31.12. prev. 2009 year 2009 year 2009 year 2009 year 2009 year 2009 year status at 31 dec. previous year currency translation effects change in consolidated group gross premiums written earned premiums Status at 31 Dec. financial year 1 after elimination of intra-group transactions across segments.
246 consolidated financial stateMents notes the provision for future policy benefits in life reinsurance largely involves contracts where the mortality or morbidity risk predominates. in reinsurance, annuity contracts have a significantly lower weight than in primary insurance.
in primary insurance, measurement is generally carried out individually for each risk. for german life and health primary insurance, to which approx. 87% of the provisions for future policy benefits are apportionable, biometric actuarial assumptions based on the tables of the german association of actuaries are used. We also largely use the tables of the national actuarial associations for the rest of the primary insurance business. the actuarial interest rate employed for discounting is limited by the respective maximum actuarial interest rate prescribed by the supervisory authorities.
further information on the underwriting risks and discount rates can be found under (37) Risks from insurance contracts in the life and health segment and (38) Risks from insurance contracts in the property-casualty segment.
Gross provision for future policy benefits 31.12.2009 prev. year according to type of insurance cover €m Life Reinsurance Primary insurance term life insurance other life insurance annuity insurance disability insurance contracts with combination of more than one risk Health Reinsurance Primary insurance Property-casualty Reinsurance Primary insurance Total
248 consolidated financial stateMents notes in the life and health segments, the provision for outstanding claims consists of a provision for disability cases and a provision for other benefit cases. the disability claims provision involves periodic payments and is usually due long term. it is calculated as the present value of the expected future payments. discount rates are disclosed in (37) Risks from insurance contracts in the life and health segment. the biometric actuarial assumptions are selected using appropriate actuarial principles. the provision for other benefit cases is largely measured at face value and is usually due short term. this provision includes an iBnR reserve, whose amounts are estimated using actuarial methods.
in the property-casualty segment, the claims reserve consists of the case reserve and the iBnR reserve. the case reserve reflects the amount which is expected to be needed to settle claims which are known and have already been reported at the balance sheet date. the major part of this provision is measured at face value. a smaller part refers to provisions for annuities in personal accident, liability and workers’ compensation insurance. for this, the present value of the expected future payments is calculated. the respective discount rates are disclosed in (38) Risks from insurance contracts in the property-casualty segment. the underlying biometric actuarial assumptions are selected using appropriate actuarial principles. the iBnR reserve is calculated using actuarial methods on the basis of historical claims development data and taking into account foreseeable future trends.
it should be borne in mind that the expected timing of payments from the provisions for outstanding claims naturally involves considerable uncertainty.
Net run-off results in property-casualty business the values in the following run-off triangles cover more than 99% of our group’s portfolio of property-casualty business.
Claims reserve for the individual accident years at the respective reporting dates (net) €m accident year
Breakdown of other Reinsurance primary insurance total technical provisions 31.12.2009 prev. year 31.12.2009 prev. year 31.12.2009 prev. year opening balance sheet €m1 prev. year Provision for premium refunds based on national regulations Provision for deferred premium refunds thereof resulting from unrealised gains and losses on investments (recognised directly in equity) thereof resulting from other revaluations (recognised in profit or loss) Provision for profit commission Other Total (gross)
the provision for deferred premium refunds has to be established if the future par ticipation of policyholders in realised gains is provided for in the case of valuation diff erences between local gaap and ifRs basis. the above change resulting from unrealised gains and losses on investments refl ects the proportional allocation to expected future policyholders’ bonuses of the change in fair values that occurred in the past year. changes in the provision for deferred premium refunds are only recognised in the income statement to the extent that they result from valuation diff erences recognised in profi t or loss. to determine the portion of the valuation diff erences allocable to the provision for deferred premium refunds, rates of between 50% and 92.5% after tax were generally used.
for hamburg-Mannheimer Versicherungs-ag and Victoria lebensversicherung ag, a change in the management rule for the participation of policyholders in surplus led to this portion being adjusted again in the past fi nancial year. the revaluation of the provision for deferred premium refunds resulting from the application of these amended rates was recognised either in equity or in profi t or loss, depending on their origin.
of the carrying amount of the gross provision for deferred premium refunds totalling €4,343m (4,029m) at 31 december 2009, –€1m (–) concerns disposal groups held for sale; cf. (17) non-current assets and disposal groups held for sale.
expenses for defined contribution plans in the year under review totalled €57m (47m).
Breakdown of other accrued liabilities 31.12.2009 prev. year €m provisions for post-employment benefits other provisions Total 461 –591 –50 –20 –255 –142
in 2003, Munich Reinsurance company established a contractual trust agreement in the form of a two-way trust for its unfunded company pension obligations. to fi nance these obligations, it is necessary for the trust assets to correspond to the present value of pension obligations. in the process, however, account has to be taken of the diff erence between the actuarial interest rate relevant for measuring the obligations and the return attainable on the investments. therefore, the present value of the pension obligations was calculated using an actuarial interest rate equivalent to the expected investment return, which increased the present value of defi ned benefi t obligations at 31 december 2009 by €81m (133m).
the reimbursement rights derive from insurance concluded to cover the benefi t obligations.
Change in the reimbursement rights for defi ned benefi t plans 2009 prev. year €m status at 31 dec. previous year expected return actuarial gains/losses capital transfer paid pension benefi ts Status at 31 Dec. fi nancial year 6 –26 150 –33 –92 –77 –45 – –25 15 2 –4 17 –24 22 –114
255consolidated financial stateMents notes the plan curtailments concern defined benefit plans which have been superseded by defined contribution plans.
included in the recognised income and expenses are actuarial gains/losses amounting to €121m (81m) in the financial year and €508m (387m) cumulative, taking currency fluctuations into account.
Change in the provision for defined benefit plans 2009 prev. year €m status at 31 dec. previous year currency translation differences change in consolidated group expenses payments capital transfer to plan assets transfer to other receivables actuarial gains/losses recognised in equity other Status at 31 Dec. financial year
Funded status of defined benefit plans 31.12.2009 prev. year €m Unfunded obligations present value past service cost not yet recognised net balance sheet liability Wholly/partly funded obligations present value plan assets other receivables other net balance sheet liability Total net balance sheet liability
the consolidated companies used the following actuarial assumptions (weighted average values) for calculating their pension obligations: the expected rate of return on plan assets is determined on the basis of anticipated long-term capital yields.
for the financial year 2010, capital transfers of €59m (64m) to plan assets are expected.
a change in the medical cost trend rate by one percentage point would have the following effects on the present value of defined benefit obligations and pension expenses: Actuarial assumptions 2009 prev. year % discount rate expected rate of return on fund assets expected rate of return on reimbursements future increases in entitlement/salary future pension increases Medical cost trend rate
Effects of change in the medical cost trend rate increase Reduction by one by one percentage percentage €m point point present value of defined benefit obligations pension expenses
Other figures for the current financial year and previous years 2009 2008 2007 2006 €m present value of defined benefit obligations (excluding medical-care benefits) plan assets not covered by plan assets experience adjustments arising on the plan liabilities experience adjustments arising on the plan assets 16 –12
257consolidated financial stateMents notes the miscellaneous other provisions comprise a large number of different items, including €50m (86m) for medium- and long-term incentive plans, €82m (77m) for salary obligations, €46m (44m) for other remuneration for desk and sales staff, €273m (155m) for restructuring, €27m (29m) for competitions for sales staff, €27m (11m) for litigation risks, and €5m (3m) for insurance tax on outstanding premiums. the provisions for restructuring mainly concern €263m (144m) for the eRgo group’s “continuous improvement of our competitive position” project.
We calculate the fair value of the notes issued by Munich Re america corporation using recognised valuation methods with observable market data. the fair value at the reporting date amounts to €285m (317m).
27 // Deposits retained on ceded business deposits retained on ceded business are collateral for technical provisions covering business ceded to reinsurers and retrocessionaires, and to that extent do not trigger any cash flows. as a rule, the changes in deposits retained on ceded business derive from the changes in the relevant technical provisions covering ceded business. deposits retained on ceded business thus do not have a fixed maturity date, their release generally being dependent on run-off of the corresponding provisions.
Breakdown of bonds and notes issued 31.12.2009 prev. year €m Munich Re america corporation, princeton, 7.45%, us$ 397m, senior notes 1996/20261 Total
the miscellaneous liabilities contain liabilities of €157m (167m; opening balance sheet previous year €172m) resulting from reinsurance contracts without significant risk transfer and €593m (603m; opening balance sheet previous year €550m) from derivative financial instruments and derivative components of variable annuities with a negative fair value. the miscellaneous liabilities also include €12m (11m; opening balance sheet previous year €9m) for social security and €202m (200m; opening balance sheet previous year €211m) for interest and rent.
the major portion of the liabilities up to one year involve interest-free items, where the carrying amounts and the undiscounted cash flows are identical. €378m (1,107m; opening balance sheet previous year €1,091m) of the amounts owed to banks and €273m (119m; opening balance sheet previous year €274m) of the liabilities from derivatives are due within one year. any deviations in the liabilities with remaining terms of over one year from the undiscounted cash flows are not material for the presentation and significance of the financial liabilities for our financial position and performance.
Notes to the consolidated income statement the total gross premiums include not only the gross premiums written but also savings premiums from unit-linked life insurances and capitalisation products. premiums from long-term insurance business, especially in the life primary insurance segment, are recognised in full as earned premiums and income when they become due. under gross premiums written, only those parts of the premium from unit-linked life business are included that are used to cover the risks and associated costs.
30 // Income from technical interest 1 after elimination of intra-group transactions across segments.
Income from Reinsurance primary insurance total technical interest1 life and property- life health property- €m health casualty casualty 2009 prev. 2009 prev. 2009 prev. 2009 prev. 2009 prev. 2009 prev. year year year year year year Income from technical interest 1 after elimination of intra-group transactions across segments.
Premiums1 Reinsurance primary insurance total €m life and property- life health property- health casualty casualty 2009 prev. 2009 prev. 2009 prev. 2009 prev. 2009 prev. 2009 prev. year year year year year year total gross premiums gross premiums written change in unearned premiums gross Gross earned premiums ceded premiums written change in unearned premiums ceded share Ceded earned premiums
for the life and health segment in reinsurance, the interest on the provisions is essentially based on contractual agreements (in germany, for example, at least the guaranteed interest rate). in primary insurance, the income from technical interest in the life segment corresponds to the gains and losses from unit-linked life insurance for life business in germany plus the policyholders’ guaranteed interest and profit sharing on the basis of the ifRs investment result, as derived in accordance with supervisory regulations. for the companies outside germany, it corresponds to the gains and losses from unit-linked life insurance plus the risk-free interest on the average net provision for future policy benefits at the relevant national interest rate.
in the health segment, the income from technical interest for german business corresponds to the allocation of interest to the ageing reserve (actuarial interest) and the allocation to the provision for premium refunds. the latter is based on the investment result exceeding the actuarial interest and on policyholders’ participation in the other non-technical result components.
the technical interest for non-german health insurance companies is based on the interest on technical provisions at the relevant national risk-free interest rate.
262 consolidated financial stateMents notes 31 // Expenses for claims and benefits 1 after elimination of intra-group transactions across segments.
Deposits retained on assumed reinsurance, and other investments Investments for the benefit of life insurance policyholders who bear the investment risk Expenses for the management of investments, other expenses Total 1 after elimination of intra-group transactions across segments.
Investment income by segment Reinsurance primary insurance asset management total (before deduction of income from technical interest)1 life and health property-casualty life health property-casualty €m 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year Regular income thereof: interest income Income from write-ups Gains on the disposal of investments Other income Total
Investment result by type of investment and segment Reinsurance primary insurance asset management total (before deduction of income from technical interest)1 life and health property-casualty life health property-casualty €m 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year Land and buildings, including buildings on third-party land Investments in affiliated companies Investments in associates Loans Other securities held to maturity Other securities available for sale fixed-interest non-fixed-interest
– – – – – – – – – – – – – –
266 consolidated financial stateMents notes 34 // Other operating result the other operating income mainly comprises income of €361m (331m) from services rendered, interest and similar income of €64m (122m), income of €208m (203m) from the release/reduction of miscellaneous provisions and adjustments of values for receivables, and income of €37m (39m) from owner-occupied property, some of which is also leased out.
in addition to expenses of €292m (250m) for services rendered, the other operating expenses chiefl y include interest charges and similar expenses of €132m (182m), other write-downs of €85m (62m), and other tax of €36m (20m). they also contain expenses of €44m (17m) for owner-occupied property, some of which is also leased out.
Other operating result1 Reinsurance primary insurance asset management total €m life and health property-casualty life health property-casualty 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year Other operating income Other operating expenses
Write-downs of investments 2009 prev. year €m ¹ land and buildings, including buildings on third-party land investments in aff iliated companies investments in associates loans other securities available for sale other securities held for trading Total
Investment expenses by segment Reinsurance primary insurance asset management total (before deduction of income from technical interest)1 life and health property-casualty life health property-casualty €m 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year Write-downs of investments Losses on the disposal of investments Management expenses, interest charges and other expenses thereof: interest charges Total
Finance costs by fi nancing instrument 2009 prev. year €m subordinated bonds of Munich Reinsurance company, Munich senior notes of Munich Re america corporation, princeton¹ Bank borrowing of Munich Reinsurance company, Munich Bank borrowing of Munich Re america corporation, princeton other Total 11 – – 11
By finance costs we understand all interest and other expenses directly attributable to strategic debt. debt has a strategic character for us if it does not have an original, direct link with our operative business.
Other non-operating result, impairment losses of goodwill and finance costs1 Reinsurance primary insurance asset management total life and health property-casualty life health property-casualty €m 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year 2009 prev. year Other non-operating income Other non-operating expenses Impairment losses of goodwill Finance costs 36 // Taxes on income this item shows the corporation tax and municipal trade earnings tax paid by the german consolidated companies (including solidarity surcharge) and the comparable taxes on earnings paid by the foreign consolidated companies in the group. in accordance with ias 12, the determination of taxes on income includes the calculation of deferred taxes.
Recognised tax expenses/income broken down according to 2009 prev. year Germany and other countries €m ¹ Current tax germany other countries Deferred tax germany other countries Taxes on income
deferred tax assets are recognised for unused loss carry-forwards to the extent that, on the basis of tax result planning, it is sufficiently probable that they will be utilised.
at the balance sheet date, there were unused loss carry-forwards of €3,956m for which no deferred tax assets were posted because their utilisation was not sufficiently probable. in 2009, the current tax expenditure resulting from the use of previously unrecognised tax losses fell by €100m.
Reconciliation to effective tax expenses 2009 prev. year €m Result before taxes on income (after “other tax”) Group tax rate in % Expected taxes on income Tax effect of: tax rate differences tax-free income non-deductible expenses Valuation allowances for deferred taxes/loss carry-forwards change in tax rates and tax legislation tax for prior years Municipal trade earnings tax other Taxes on income shown
“Valuation allowances for deferred taxes/loss carry-forwards” benefited particularly from the utilisation of loss carry-forwards for which no deferred tax assets had previously been posted.
“tax for prior years” has been impacted in particular by an increase in provisions for potential tax risks.
– Variable actuarial assumptions; premium adjustment possible if there are sustained changes in the cost structure
274 consolidated financial stateMents notes is not directly aff ected as long as there is provision for adverse deviation. in the view of the actuaries responsible, the biometric actuarial assumptions used by us are deemed suff icient. however, in long-term health insurance, we are proceeding on the assumption that there will be further advances in medical treatment, potentially giving rise to higher costs. for this business, it is generally possible to modify the actuarial assumptions by means of a premium adjustment to refl ect the changes.
in reinsurance, we use the following discount rates for the provision for future policy benefi ts and the provision for outstanding claims: 1 after elimination of intra-group transactions across segments.
provisions in reinsurance and primary insurance that are not covered by deposits retained are covered by investments. in the case of a discrepancy between the durations of these investments and the liabilities (“duration mismatch”), the main risk lies in the fact that if interest rates fall markedly over the remaining settlement period of the liabilities, the return on the reinvested assets may be lower than the discount rates and thus necessitate further expenses. But a complete duration matching of liabilities with fixed-interest investments of identical maturities would not be expedient, because if interest rates rise significantly, policyholders might make increasing use of their surrender rights, resulting in a liquidity requirement for premature payouts.
Other market risks and embedded derivatives in reinsurance, other market risks are generally ruled out through suitable treaty design. some reinsurance contracts contain derivative components of variable annuities. these are measured separately and their changes in value are recognised in the investment result. the valuation of these embedded derivatives is sensitive to share prices and interest rates, but these sensitivities are nearly fully compensated for by the fact such derivatives are for the most part directly matched by financial derivatives for hedging purposes. the sensitivities to changes in share prices and interest rates shown in the previous year have been largely eliminated through an adjustment of the hedging strategy for these portfolios.
Lapse risks in reinsurance, a lapse risk derives primarily from the indirect transfer of lapse risks from cedants. as a rule, both this risk and the financial risk from extraordin ary termination of reinsurance contracts are largely ruled out through appropriate contract design.
for the business at the balance sheet date, this results in the future expected technical payment balances (including variable annuities) shown in the table according to duration bands. as only the technical payment flows are considered, inflows from investments – i.e. investment income and investments that become free – are not included in the quantifications. taking into account the inflows from investments, whose cash flows are largely aligned with those of the liabilities through our assetliability management, items in the future expectations are positive throughout, so that the liquidity risk from this segment is minimised accordingly.
With these estimated values, it should be borne in mind that these forward-looking data may involve considerable uncertainty.
in health primary insurance, there is the additional possibility of adjusting premiums for most long-term contracts. if it is foreseeable that the assumptions behind the calculation are permanently inadequate to cover expenses for claims, premiums can be raised accordingly, thus closely limiting the financial and balance-sheet effects of cost increases in healthcare and permanent changes in morbidity.
for information on our risk management processes, reference is made to the risk report, pages 145–149 and page 151.
Quantitative impacts of changes in assumptions on long-term insurance business Munich Re measures the sensitivity of its long-term insurance business in the segments life and health using an economic valuation on the basis of the Market consistent embedded Value principles and guidance of the cfo forum; cf. page 64 f. this covers 100% (100%) of the long-term business in reinsurance and more than 94% (90%) of the long-term business in primary insurance.
the basis for measuring the risk assumed is an estimate of the claims frequency to be expected for a contract or a portfolio of contracts. in addition, an estimation of the claims amount is necessary, from which a mathematical distribution of the expected losses is derived. the result of these two steps is an estimation of the expected overall claims in a portfolio. a third element comprises the expected cash flows to settle claims incurred, a process which frequently extends over several years.
Embedded value sensitivities1 Reinsurance primary insurance €m 2009 prev. year 2009 prev. year Embedded value at the balance sheet date change in the event of a sustained increase in interest rates of 100 Bp change in the event of a sustained decrease in interest rates of 100 Bp change in the event of a 10% decrease in the value of equities and real estate change in the event of an increase in mortality by 5% in the case of contracts mainly covering the mortality risk change in the event of a decrease in mortality by 5% in the case of contracts mainly covering the longevity risk change in the event of an increase in morbidity by 5% change in the event of an increase in the lapse rate by 10%
further information on risks from large and accumulation losses can be found in the risk report on pages 157-159.
Large and very large losses in reinsurance according to 2009 2008 2007 2006 2005 individual calendar years (net) €m1
Large and very large losses thereof losses from natural catastrophes thereof other accumulation losses
asbestos insurance liabilities currently emanating predominantly from the us and some european counties are an area of concern for the entire insurance and reinsurance industry. since the mid-1980s industrial insurers writing business worldwide have found themselves being confronted with losses from policies taken out decades before. this also applies to Munich Re. in our case, the policies mainly cover claims which manifest themselves after a latency period of as long as 30 to 50 years. in response, we have posted provisions for claims under long-cancelled general liability policies which provided coverage according to the then-applicable legal environment.
Provisions for asbestos and environmental claims 31.12.2009 prev. year €m1� gross net gross net
another important measure for controlling underwriting risks is the cession of a portion of our risks to other carriers via external reinsurance and retrocession; cf. (12) ceded share of technical provisions and (29) premiums. all our companies have intra-group and external reinsurance and retrocession cover. particularly important in this context is an accumulation excess-of-loss cover, which provides protection against property damage losses from natural catastrophes. the dimensions of this cover are based on analyses of our accumulation budgets in those parts of the world exposed to natural catastrophes. the protection afforded by retrocession comes into play if we are hit by an extremely large loss.
for information on our risk management processes, reference is made to the risk report; cf. pages 145-151.
Interest-rate risks economically, an interest-rate risk derives in principle 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 interestrate 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 the cedant in at least the same amount.
284 consolidated financial stateMents notes the discounting of the provisions in primary insurance is also largely governed by supervisory law. an interest-rate risk arises for us here primarily for annuity insurance claims. however, as only around 13.5% (12.5%) of the actuarial and claims reserves to be considered in this connection in our property-casualty primary insurance segment are discounted, this risk can be assessed as small. if the investment income failed to cover the expenses arising from the discounting, this would result in losses not included in the calculations. in such a case, a reserve adjustment might be necessary. conversely, if the investment income were higher, this would result in unforeseen gains.
39 // Credit risks from ceded reinsurance business in connection with the business we cede, the credit risk is also of relevance. for our reinsurance and retrocessions to be placed externally, we choose only business partners that have been approved by our Retro security committee.
apart from this, there are credit risks from the underwriting of credit reinsurance contracts. information on these can be found under (38) Risks from insurance contracts in the property-casualty segment. We do not conduct any active credit insurance business in our primary insurance.
40 // Market risks from financing instruments – Sensitivity analysis the sensitivity analysis shows the effect of capital market events on the value of investments and the corresponding impact on the income statement. sensitivities of investments to share prices, interest rates and exchange rates are analysed independently of one another, i.e. ceteris paribus, with the change in market value being determined under selected capital market scenarios as follows: the analysis of equities and equity derivatives is based on a change in market value of ±10%, ± 30% of the delta-weighted exposure. for interest-rate-sensitive instruments, on the other hand, the change in market value resulting from a global change in interest rates of ±100 Bp und ±200 Bp is determined using duration and convexity. the reaction of interest-rate derivatives to the change in market value of the underlying investment is taken into account using the delta of the derivative. By contrast, changes in exchange rates affect both interest-rate-sensitive and share-price-sensitive instruments. the sensitivity of instruments in foreign currency is determined by multiplying the euro market value by the assumed change of ±10% in the exchange rates. alternative investments (private equity, hedge funds and commodities) are analysed together with the equities.
the effects of the capital market events listed in the following table do not take account of tax or the provision for premium refunds (gross disclosure), i.e. the analysis does not take into account the effects resulting from policyholders’ participation in surplus in insurances of the person. the impact on the results and equity shown below would be substantially reduced if these effects were considered. it is also assumed that changes in the capital markets occur instantaneously, preventing our limit systems and active counter-measures from taking effect. the analysis considers around 97% of Munich Re’s investments.
Market risk – Share prices sensitivity to the stock market was increased in part by the termination of existing derivative hedging measures. a change in the stock market of 10.0% has an impact of 10.5% (4.2%) on the market value of the equity portfolio.
Market risk – Interest rates in terms of market value, Munich Re’s fixed-interest investments respond to changes in interest rates in a similar way to an interest-bearing bond with a period of around seven years to maturity. as a portion of the investments are recognised at amortised cost, however, the effects shown deviate from this.
economically speaking, the impact of the fixed-interest investments on equity is paralleled by a change in the economic value of the liabilities. therefore our asset- liability management steers the investments in such a way that the effects of inter estrate changes on the value of the investments and on the economic value of the liabil ities are largely cancelled out. this offsetting does not have an impact on the bal ance sheet, however, since significant portions of the liabilities are not valued on the basis of the current interest-rate curves.
Change in market value of investments sensitive to share prices change in share prices 31.12.2009 prev. year €bn impact on impact on total change impact on impact on total change profit equity1 in market profit equity1 in market or loss1 value or loss1 value increase of 30% increase of 10% decrease of 10% decrease of 30% Market values
–0.150 –0.331 –0.587 –0.201 0.009 –0.297 –0.583 –0.856 –1.760 –0.371 –0.206 –0.893
43 // 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: Breakdown of personnel expenses 2009 prev. year €m Wages and salaries social security contributions and employee assistance expenses for employees’ pensions Total 44 // Long-term incentive plans every year since 1 July 1999, Munich Reinsurance company has set up long-term incentive plans, each with a term of seven years. eligible for participation in these share-price-related remuneration plans are members of the Board of Management, senior management in Munich, and top executives in Munich Re’s international organisation. participants receive a certain number of stock appreciation rights.
289consolidated financial stateMents notes 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. the fair value recognises not only the intrinsic value (difference between current share price and initial share price of the stock appreciation rights) but also the possibility of growth in value up to the date of forfeiture or expiry of the rights and is determined on the basis of recognised valuation models, taking into account the exercise conditions. at each balance sheet date, the fair value is calculated and reserved; this amount is recognised in full. in the year under review, provisions of €29.5m (63.3m) had to be posted for Munich Re’s reinsurers. the personnel expense/income recognised in the income statement corresponds to the change in the provision in the year under review, taking into consideration any rights exercised. in 2009, this resulted in income of €33.3m (–10.6m). the weighted average share price for the stock appreciation rights exercised in 2009 was €108.98 for plan year 2003, €108.92 for plan year 2004, and €108.54 for plan year 2005. the intrinsic value of the exercisable stock appreciation rights amounted to €11.6m at the balance sheet date.
Old initial share price New initial share price after 2003 capital increase Intrinsic value 2009 for one right Fair value 2009 for one right Number of rights on 31 Dec. 2002 additions forfeited Number of rights on 31 Dec. 2003 additions forfeited Number of rights on 31 Dec. 2004 additions exercised forfeited Number of rights on 31 Dec. 2005 additions exercised forfeited Number of rights on 31 Dec. 2006 additions exercised forfeited Number of rights on 31 Dec. 2007 additions exercised forfeited Number of rights on 31 Dec. 2008 additions exercised forfeited Number of rights on 31 Dec. 2009 Exercisable at year-end 132,466 – – – – – – –
290 consolidated financial stateMents notes since 1 July 2002, eRgo Versicherungsgruppe ag and some of its subsidiaries, as well as 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 eligible for participation – 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. in the year under review, a total of 148,834 (173,153 ) stock appreciation rights were granted, 112,764 (132,383 ) of these to Board of Management members. the future obligations arising from the long-term incentive plans are covered by Munich Re shares or options on Munich Re shares. in the year under review, provisions of €9.4m (21.4m) had to be posted for Munich Re’s primary insurers and asset managers. the personnel expense/income recognised in the income statement corresponds to the change in the provision in the year under review, taking into consideration any rights exercised. in 2009, this resulted in income of €7.6m (–4.4m). the weighted average share price for the stock appreciation rights exercised in 2009 was €109.50 for plan year 2003, €110,95 for plan year 2004, and €110.20 for plan year 2005. the intrinsic value of the exercisable stock appreciation rights amounted to €3.2m at the balance sheet date.
291consolidated financial stateMents notes each stock appreciation right entitles the holder to draw in cash the difference between the Munich Re share price at the time when the right is exercised and the initial share price. the stock appreciation rights may only be exercised after a two-year vesting period and then only if the share price is at least 20% higher than the initial price. in addition, Munich Re shares must have outperformed the euRo stoXX 50 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.
Old initial share price New initial share price after 2003 capital increase Intrinsic value 2009 for one right Fair value 2009 for one right Number of rights on 31 Dec. 2002 additions forfeited Number of rights on 31 Dec. 2003 additions forfeited Number of rights on 31 Dec. 2004 additions exercised forfeited Number of rights on 31 Dec. 2005 additions exercised forfeited Number of rights on 31 Dec. 2006 additions exercised forfeited Number of rights on 31 Dec. 2007 additions exercised forfeited Number of rights on 31 Dec. 2008 additions exercised forfeited Number of rights on 31 Dec. 2009 Exercisable at year-end 45,476 – – – – – – –
the plan conditions are structured as follows: the calculation factors are, on the one hand, value-based performance targets and, on the other, the total shareholder return of Munich Reinsurance company shares.
the value-based performance targets are set for the business fields of reinsurance, eRgo primary insurance and Munich health in the form of a target average to be achieved over three years and are allocated according to responsibilities.
payment is capped if the tsR doubles. the maximum amount payable is limited to 150% of the target amount for members of the Board of Management and company management, and to 300% of the target amount for senior management.
the Mid-term incentive plan at the reporting date is valued indirectly at the fair value of the liabilities. the fair value takes account of the value-based performance target and the total shareholder return during the performance period.
there are no pension commitments for former members of the supervisory Board or their surviving dependants.
294 consolidated financial stateMents notes 48 // Number of staff the number of staff employed by the group at year-end totalled 24,951 (25,437) in germany and 22,298 (18,772) in other countries.
49 // Auditor’s fees for services rendered to the parent and consolidated subsidiaries by the group auditor (KpMg Bayerische treuhandgesellschaft ag Wirtschaftsprüfungsgesellschaft, Munich, and its affiliated companies within the meaning of section 271 para. 2 of the german commercial code), the following fees have been recognised as an expense in the financial year: With effect from 1 october 2009, KpMg netherlands (excluding KpMg Meijburg), turkey, luxembourg and Belgium became part of KpMg europe llp. these com - panies, along with KpMg spain, KpMg switzerland and KpMg llp (uK), are thus affiliated companies of KpMg germany within the meaning of section 271 para. 2 of the german commercial code. consequently, they have been included in the auditor’s fees to be disclosed.
Breakdown of number of staff 31.12.2009 prev. year Reinsurance companies primary insurance companies asset management Total
Breakdown of auditor’s fees 2009 prev. year €’000 audits of financial statements other assurance and appraisal services tax consultancy services other services Total
295consolidated financial stateMents notes 50 // Contingent liabilities, other financial commitments
the total of future minimum sublease payments expected to be received under non-cancellable subleases was €3m (–) at 31 december 2009.
297consolidated financial stateMents notes 52 // Events after the balance sheet date under the share buy-back programme decided on by Munich Reinsurance company’s Board of Management in the fourth quarter of 2009, we repurchased a further 2,760,659 Munich Re shares with a volume of €298m after the balance sheet date up to 28 february 2010.
on 27 february 2010, a severe earthquake with an intensity of 8.8 occurred off the coast of chile. on the same weekend, Winter storm Xynthia swept over western and central europe. Munich Re has exposures in the regions affected.
Munich Re capital limited, london 100.00% -62,059 4,856 Munich Re of Malta holding limited, Floriana 100.00% 193,971 -50 Munich Re of Malta p.l.c., Floriana 100.00% 197,559 5,181 Munich Reinsurance america, inc., Wilmington, Delaware 100.00% 1,688,503 167,127 Munich Reinsurance company life Reinsurance eastern europe / central asia, Moscow 100.00% 8,786 617 Munich Reinsurance company of africa ltd, Johannesburg 100.00% 137,547 26,299 Munich Reinsurance company of australasia ltd, Sydney 100.00% 111,208 3,853 Munich Reinsurance company of canada, toronto 100.00% 186,530 30,743 Munichre life Services limited, london 100.00% 59,173 8,801 new Reinsurance company, geneva 100.00% 1,037,209 130,131 Roanoke trade Services inc., Schaumburg, illinois 100.00% 8,502 67 Southern pioneer life insurance company, Jonesboro, arkansas 100.00% 12,739 -757 Sterling life insurance company, Bellingham, Washington 100.00% 147,915 1,557 temple insurance company, toronto 100.00% 97,938 17,218 the Boiler inspection and insurance company of canada, toronto 100.00% 49,776 7,415 the hartford Steam Boiler inspection and insurance company of connecticut, hartford, connecticut 100.00% 44,408 6,918 the hartford Steam Boiler inspection and insurance company, hartford, connecticut 100.00% 597,725 89,231 the Midland company, cincinnati, ohio 100.00% 66,933 -4,754 the princeton excess and Surplus lines insurance company, Wilmington, Delaware 100.00% 24,062 5,145 the Roanoke companies inc., Schaumburg, illinois 100.00% 10,341 1,506 Watkins Marine Services limited, london 100.00% 17 -42 Watkins Syndicate hong Kong limited, hong Kong 67.00% 113 0 Watkins Syndicate Middle east limited, Dubai 100.00% 265 39 Watkins Syndicate Singapore pte. limited, Singapore 100.00% 142 0 Primary insurance, consolidated companies and associates eRgo Versicherungsgruppe ag, Düsseldorf 99.64% 1,995,411 85,613 VictoRia general insurance company S.a., athens 99.64% 23,008 3,822 VictoRia Krankenversicherung aktiengesellschaft, Düsseldorf3 99.64% 86,968 0 VictoRia lebensversicherung aktiengesellschaft, Düsseldorf3 99.64% 738,653 0 VictoRia life insurance company S.a., thessaloniki 99.64% 5,588 -155 VictoRia pensionskasse ag, Düsseldorf3 99.64% 48,504 1,300 VictoRia Versicherung aktiengesellschaft, Düsseldorf3 99.64% 528,152 0 VictoRia-Seguros de Vida, S.a., lisbon 99.64% 29,747 2,967 VictoRia-Seguros S.a., lisbon 99.64% 14,566 -8,300 VictoRia-VolKSBanKen pojišt´ovna, a.s., prague 68.18% 11,899 511 VictoRia-VolKSBanKen pensionskassen aktiengesellschaft, Vienna5 41.33% 13,894 1,451 VictoRia-VolKSBanKen Versicherungsaktiengesellschaft, Vienna 74.36% 58,309 -675 Vorsorge lebensversicherung aktiengesellschaft, Düsseldorf3 99.64% 27,746 0 Vorsorge luxemburg lebensversicherung S.a., Munsbach 99.64% 14,794 2,120 hamburg-Mannheimer pensionskasse ag, hamburg 99.64% 30,187 -86 hamburg-Mannheimer Rechtsschutzversicherungs-aktiengesellschaft, hamburg3 99.64% 17,293 0 hamburg-Mannheimer Sachversicherungs-aktiengesellschaft, hamburg3 99.64% 202,486 0 hamburg-Mannheimer Versicherungs-aktiengesellschaft, hamburg3 99.64% 402,885 0 DKV BelgiuM S.a., Brussels 99.64% 70,663 13,534 DKV Deutsche Krankenversicherung aktiengesellschaft, cologne3 99.64% 466,352 0 DKV luxembourg S.a., luxembourg 74.73% 20,661 1,563 DKV Seguros y Reaseguros, Sociedad anónima española, Saragossa 99.64% 127,025 15,611 unión Médica la Fuencisla, S.a., compañia de Seguros, Saragossa 99.64% 7,826 674 conSoliDateD Financial StateMentS noteS
Other participating interests admiral group plc, cardiff 10.18% 310,168 162,623 allfinanz limited, Dublin 100.00% 1,014 BhS tabletop ag, Selb4 (Mc: €35m)5 28.91% 36,361 3,359 credit guarantee insurance corporation, Johannesburg 7.10% 25,096 2,512 Forst ebnath ag, ebnath3 96.73% 5,302 909 helvetia holding, St. gallen 8.16% 550,720 44,977 Jordan insurance co. p.l.c., amman 10.00% 40,017 8,567 MeDiclin aktiengesellschaft, offenburg4 (Mc: €141m)5 34.88% 189,780 5,820 MR Solar gmbh & co. Kg, nuremberg 100.00% 57,548 -1,899 nürnberger Beteiligungs ag, nuremberg 19.84% 418,279 29,417 Österreichische Volksbanken-ag, Vienna 9.96% 1,377,567 80,800 Sana Kliniken ag, Munich5 21.62% 166,498 12,670 Bloemers holding B. V., Rotterdam5 22.73% 33,975 359 global aerospace underwriting Managers ltd., london5 40.00% 34,792 5,533 Middlesea insurance p.l.c, Floriana4 (Mc: €20m)5 19.90% 63,779 21,369 Saudi national insurance company B.S.c.(c), Manama5 22.50% 26,294 4,965
in our opinion, based on the findings of our audit, the consolidated financial statements comply with iFRS, as adopted by the eu, and the additional requirements of german commercial law pursuant to Section 315a para. 1 of the german commercial code and give a true and fair view of the net assets, financial position and results of operations of the group in accordance with these requirements. the group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the group’s position and suitably presents the opportunities and risks of future development.
“to the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated fi nancial statements give a true and fair view of the assets, liabilities, fi nancial position and profi t or loss of the group, and the group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the expected development of the group.”
Alternative risk financing // utilising the capacity of the capital markets to cover insurance risks. an example is the securitisation of natural catastrophe risks that can no longer be borne in full by the insurance and reinsurance industry.
Asset-liability management // Management of a business in a way that coordinates decisions on assets and liabilities. specifically, it is 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.
Assistance // a service that provides the clients of insurance and other companies with immediate, on-the-spot assistance and organises and/or provides emergency help around the clock.
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 incor porate 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.
Delta // the delta or delta factor is a measure of the change in the option price relative to a change in the value of an underlying asset by one unit. if, for example, an option has a delta of 2, the option price rises by 2% if the value of the underlying asset increases by 1%.
Economic solvency ratio // calculated by dividing the available financial resources (after dividend and share buy-backs) by the economic risk capital, this ratio is an expression of Munich Re’s capital strength.
Embedded value // concept used in valuing life and health insurance business. embedded value mainly comprises the present value of earnings from business in force, calculated according to actuarial principles, plus the value of equity, including valuation reserves, and less the cost of holding capital.
Guaranteed interest // Minimum interest rate to be paid out by the insurer on the savings component of the insurance premium under an endowment insurance policy.
Managing general agency business // Business where the insurer transfers the underwriting authority for a specific portfolio to a managing general agent or managing general agency (Mga) that acts on its behalf. Depending on the arrangement involved, the agent/agency may be assigned additional responsibilities such as claims handling or administrative tasks.
Pandemic // the spread of a disease or – in the narrower sense – infectious disease across national borders and continents. unlike an epidemic, which is a disease occurring in a limited area and time, a pandemic is not restricted to a certain geographical area.
Policyholders’ bonuses // in life and health insurance, policyholders are entitled by law and contractually to an appropriate share of the surplus earned by their insurers. the amount of this bonus is fixed anew each year. as a rule, in life insurance these bonuses increase the benefit payable on maturity of the policy or on occurrence of the insured event; in health insurance, they are paid by way of premium refunds.
Run-off triangle // also known as “loss triangle”, this is a tabular representation of claims-related data (such as payment, claims reserve, ultimate loss) in two, time-related dimensions. one of these is the calendar year, while the other is usually the accident year (year of the loss occurrence). Run-off triangles – as the basis for measuring claims reserves – make clear how the claims reserve changes over the course of time due to payments made and new estimates of the expected ultimate loss at the respective balance sheet date.
Ultimate loss // as calculated at the end of the calendar year under consideration, the ultimate loss for an accident year indicates the estimated aggregate claims expenditure that will have to be paid to finally settle the claim(s). it comprises the claims payments already made for the accident year in question and the remaining claims reserve posted for payments in future years. since claims reserves are based on estimates, the ultimate loss changes from one calendar year to the next. Reference may therefore also be made to the ultimate loss position or the ultimate loss estimate.
Universal life // contracts in life primary insurance where the amount of the premiums and benefits is flexible, the policyholder being able tovary the premium payments within certain limits.
Value at risk // Method of quantifying risk; measures the potential future losses that may not be exceeded within a specified period and with a specified probability.
Variable annuity product // a special form of unit-linked life insurance where the investment risk is borne primarily by the policyholder but the insurer guarantees a minimum payment on occurrence of the insured event.
Bank Austria Creditanstalt Versicherung (BACAV) 86 f., 107 Board of Management 6 f., 23 ff., 28 ff., 56 ff., 71, magazine 09
Earnings per share 297 equity 123 equity method 194 eRgo 24, 56 ff., 106 ff., magazine 10 ff. eRgo DauM Direct 86, 107, 109 europäische Reiseversicherung 60, magazine 12 f. european embedded Value (eeV) 93 financial position 120 ff.
Hartford Steam Boiler Group (HSB) 84 ff., 102, 132 health 95 ff., 109, magazine 16 ff.
Remuneration report 36 ff. Report of the supervisory Board 23 ff. Return on risk-adjusted capital (RoRac) 38, 48, 66, 68, 84 Risk capital 17, 68, 154 ff.
Risk management 145 ff. Risk model 68, 121 f., 155 Roanoke companies inc. 103 share capital 13, 124 ff., 173 share price performance 11 ff., 80 shares 10 ff.
Germany Münchener Rückversicherungs-gesellschaft aktiengesellschaft in München Königinstrasse 107 80802 München e-mail: feedback@munichre.com www.munichre.com
Australia Munich holdings of australasia pty limited (Mha) Munich Re house 143 Macquarie street sydney nsW 2000, australia e-mail: mha@munichre.com
South Africa Munich Reinsurance company of africa limited (MRoa) Munich Re centre 47 empire Road, parktown Johannesburg 2193, p.o. Box 6636 Johannesburg 2000 e-mail: mroa@munichre.com
Victoria Versicherungen Victoriaplatz 1 und 2 40198 Düsseldorf e-mail: service@victoria.de www.victoria.de
Poland eRgo hestia ul. hestii 1 81-731 sopot e-mail: poczta@hestia.pl www.hestia.pl
Turkey eRgoİsVİÇRe sigorta anoniM siRKeti Kısıklı caddesi no. 28 altunizade tR-34662 İstanbul e-mail: ergoisvicre@ergoisvicre.com.tr www.ergoisvicre.com.tr further addressses may be obtained at www.ergo.com
Service for investors and analysts if you have general questions on Munich Re shares, please use our shareholder hotline: e-mail: shareholder@munichre.com if you are an institutional investor or analyst, please contact our investor relations team: christian Becker-hussong e-mail: ir@munichre.com
our strong capital base and clear positioning make us a formidable player and allow us to grow profitably in a dynamic market.
Balance sheet Investments €m Equity €m Net technical provisions €m Balance sheet total €m Shares Share price € Munich Reinsurance Company’s market capitalisation €bn Other Combined ratio Reinsurance property-casualty % Primary insurance property-casualty % number of staff
Gross premiums written 1. Earned premiums Gross Ceded Net 2. Income from technical interest 3. Expenses for claims and benefits Gross Ceded share Net 4. Operating expenses Gross Ceded share Net 5. Technical result (1– 4)
6. Investment result Investment income Investment expenses Total Thereof: Income from associates 7. Other operating income 8. Other operating expenses 9. Deduction of income from technical interest 10. non-technical result (6–9)
11. Operating result 12. Other non-operating result 13. Impairment losses of goodwill 14. Finance costs 15. Taxes on income 16. consolidated result Thereof: Attributable to Munich Reinsurance Company equity holders Attributable to minority interests
Important dates 2010 Important dates 2011 // 28 April 2010: Annual General Meeting // 29 April 2010: Dividend payment // 7 May 2010: Interim report as at 31 March 2010 // 4 August 2010: Interim report as at 30 June 2010 // 4 August 2010: Half-year press conference // 9 november 2010: Interim report as at
// 10 March 2011: Balance sheet press conference for 2010 consolidated fi nancial statements