1 Previous year’s fi gures adjusted pursuant to IFRS 3.62 (see “Consolidation”) and to IFRS 8 and IAS 8 (see “Changes in accounting policies”). 2 Including amounts attributable to minority interests and policyholders. 3 Before elimination of intra-Group transactions across segments. 4 This includes own shares earmarked for retirement.
Gross premiums written €bn Investments €bn Net technical provisions €bn Reserve ratios property-casualty % Large and very large losses (net) €m Natural catastrophe losses €m Combined ratio property-casualty %
ERGO Previdenza almeda Assistance and Health Services Bank Austria Creditanstalt Versicherung AG
The Midland Company The Hartford Steam Boiler Inspection and Insurance Company
1:0 Successful despite the crisis // With underwriting discipline and capital strength, Munich Re achieves a good result despite difficult market conditions.
3:0 Taking the lead in climate protection // As catalyst and founding member, Munich Re plays a major part in setting up the Desertec Industrial Initiative. Aiming to use solar and wind power generated in the deserts of North Africa and the Middle East for a sustainable energy supply, Desertec is one of the world’s biggest climate protection projects.
Kick-off for the opening game of the 2010 World cup – Insured by Munich Re.
World cup Organising committee. As was the case four years ago in Germany, a company has been established in South Africa to take care of the planning and running of the event. The company is headed by Danny Jordaan, a former South African international footballer. In order to attract sponsors, the 2010 FIFA World cup Organising committee South Africa needs to offer companies the certainty that their investment is safe – even in the unlikely event that the finals cannot go ahead.
However, the list of those that may need risk cover would not be complete without the many large and small companies involved on the fringes of such a massive event which have invested considerable sums of money in advance: travel companies that have block-booked hotel rooms, airlines that change their schedules to ensure fans from all over the world can be flown to South Africa in the shortest possible time, the organisers of side events that are held during the World cup, the manufacturers of souvenirs and fan merchandise, etc., etc.
”All in all, the potential demand for cancellation insurance at the World cup in South Africa could be in the region of uS$ 5bn”, says Andrew Duxbury, underwriting manager at Munich Re in London. Munich Re will write only a part of this business, but its share of the cancellation-of-events cover for the organisers is the biggest at uS$ 350m. Such financial commitment is possible because the world’s largest
Munich Re is represented in sub-Saharan Africa and the Indian Ocean Islands by Munich Reinsurance company of Africa Limited (MRoA), with its Head Office in Johannesburg, South Africa, and a life office in cape Town. In addition, Munich Mauritius Reinsurance company Limited (MMRc), a fully-owned subsidiary of MRoA, operates from Réduit, Mauritius, with representative offices in Nairobi, Kenya and Accra, Ghana.
The awarding of the FIFA World cup to South Africa in 2010 has triggered a construction boom across the country, which will have far-reaching benefits for South Africa and the African continent. MRoA participates in the reinsurance of stadium construction and the expansion of OR Tambo International Airport, and, in addition, many of the ancillary projects are given significant support by MRoA in the role of risk carrier. Of major significance here is Munich Re’s involvement as leading reinsurer in the building of the Gautrain rail network between Johannesburg and Pretoria, a project which makes significant strides towards infrastructure development in South Africa.
reinsurer not only has the financial strength but also the know-how needed to assess the risks accurately.
“Our services benefit all participants”, explains Andrew Duxbury. “The organisers can guarantee stakeholders that their investment will not be lost if it really comes to a scenario in which the World cup cannot take place. Significant financial involvment without this protection would simply be too risky for many.”
What can happen when this protection is lacking was demonstrated at the 2002 World cup in Japan and South Korea: many insurers withdrew cover in the wake of the 9/11 terrorist attacks, believing that the risk was impossible to calculate. Sponsorship revenues suffered as a result and remained well below expectations.
Since then, Munich Re has made every effort to ensure that even such risks can be realistically assessed and to develop innovative solutions for its clients so that the show can go on. “As the market leader with our combined global expertise, we have a wealth of know-how to draw on”, explains Duxbury. For example, our Geo Risks Research centre supplies precise data about the likelihood of natural catastrophes occurring and specially trained experts analyse the political situation in the host country. What is the situation regarding internal security? Is the political system stable and the government in control? Are there extremists in the country who pose a threat of violence? “One must bear in mind that there will be hundreds of thousands of visiting fans from abroad in South Africa during the World cup. This makes it especially difficult to calculate the risks”, says Duxbury.
But even that is not enough for our risk managers. Andrew Duxbury visited South Africa two years ago to get a first-hand view of the risk situation there. “Danny Jordaan took a lot of time and effort to get us the information we needed and to answer all our questions”, reports Duxbury. Also of great value is the expertise provided by specialists from the Munich Re offices in Johannesburg and cape Town. “Our colleagues from South Africa can tell us about a lot of things that may not be sufficiently newsworthy to make the international media. We would only have half the picture without this information.”
But now we can look forward to a wonderful celebration of football. Duxbury is proud to have done his bit to make this possible. As an Englishman and a football fan, Duxbury is confident: “The only fear I have now is England losing to Germany on penal- ties.” //
An immense amount of background knowledge is necessary to accurately assess and quantify the actual risks at the sporting venues. That is why Munich Re’s Geo Risks Research experts are always part of the team conducting the risk assessment. With their experience gained over decades, they are key players when it comes to evaluating natural hazards anywhere in the world. These experts can determine the probability of a strong earthquake or a powerful windstorm for any given region or city. Then they analyse the possible consequences: would the destruction of a stadium make it impossible to stage or continue a specific sporting event? can the event as a whole, or individual disciplines, be moved to a different venue or postponed in adverse weather conditions? And what financial outlay would these measures entail?
An equally important factor is that our business environment is also based on a good set of rules. This includes legislation that ensures free movement of capital and goods and promotes rather than hinders enterprise, as well as fair play on the financial markets. The financial crisis has led to more and more people questioning the radical free market beliefs of recent years. Instead, there are calls everywhere for state intervention, greater regulation and stricter controls. The collective unease triggered by the many ailing banks that have only survived thanks to enormous injections of taxpayers’ money is understandable. It is not right, however, to now tar all companies in the financial and insurance industry with the same brush. Rather, what we need is a fair balance between public and private interests, between the state and the market.
The Germans’ wanderlust remains undiminished – despite the crisis: nearly 80% of the population go on holiday every year, and some two-thirds of all trips are taken abroad. The further the destination, however, the more important the preparations. All-round travel protection is a must for mitigating the consequences if something does go wrong. It is what Jürgen Reiss from TUI ReiseCentre in Karlsruhe always recommends his clients. He knows these insurance products and benefits like the back of his hand: “When you hear what happens, you quickly realise that all-round travel protection is not a luxury.”
TuI Reisecenter is one of around 17,000 tourist agencies in Germany offering travel insurance from Europäische Reiseversicherung (ERV) to clients who book a trip. And for good reason: the ERGO subsidiary is a quality provider that does much more than simply reimburse travellers when unforeseen difficulties force them to cancel their holidays at short notice.
Germany + Over 1,000 employees worldwide + Around 120,000 e-mails and 370,000 calls handled by the service centre every year + Approximately 55% of claims paid within 24 hours
The French lady’s biblical age was exceptional, but it is nevertheless true that average life expectancy is rising and none of us know whether the savings we accumulate over a lifetime of work will be sufficient to secure our standard of living in old age. In addition, statutory pension systems like the one in Germany are often based on the pay-as-you-go principle and have started running into trouble as a result of demographic trends. under a pay-as-you-go model, people do not save any funds for their own retirement during the pay-in phase, because these are distributed directly to the current pension recipients. As long as there is population growth and a sufficient number of new contributors, this does not constitute a problem. But in societies where only few children are born and life expectancy is increasing, there are fewer and fewer contributors for more and more pensioners. In Germany, it has long been clear that the level of pensions will continue to decline over the coming years. An ever greater number of people are therefore not going to be able to achieve the standard of living they desire solely based on their state pen- sion entitlements. Additional private cover from a strong and reliable partner is thus indispensable. The lifelong guaranteed annuity offered by a funded scheme provides the security needed for carefree retirement.
In June 2009, the ERGO Insurance Group launched a new unit-linked annuity insurance product called “Vorsorge Invest-Plus” (V.I.P.). This product is sold via the Luxembourg subsidiary of Vorsorge Lebensversicherung, which is part of the ERGO Group. It combines the conventional guarantees of maintaining the capital sum and a minimum return with add itional profit opportunities: “V.I.P. offers a guaranteed interest payment of 1% per year, which at the end of the 12-year term is equivalent to a guaranteed payment of 112.7%
Potent attacking force // combined know-how for the market of the future Interview with Dr. Wolfgang Strassl, Member of Munich Re’s Board of Management
Couldn’t this potential have been leveraged with the existing structures? Why a separate field of business?
Because health business makes very special demands. The challenge is to provide insureds with access to high-quality medical care that is also affordable. For this, we need not only extensive insurance know-how but also a clear understanding of how medical care and health markets function, including the underlying dynamics. That’s not something you can do on the side.
And where does Munich Health derive the specialist knowledge to succeed in this difficult market?
The key to success lies in pooling our human resources and skills in the healthcare sector, which we already have in abundance but which were previously dispersed throughout the Group. As Munich Health, we have succeeded in bringing together a unique spectrum of service providers and risk carriers under one roof. These extend from pure reinsurers and traditional primary insurers to fullrange providers of integrated insurance and healthcare services, and we offer all of this in virtually all the world’s important or promising healthcare markets.
On the one hand, our global reinsurance business in health and the related service companies of the MedNet group. On the other hand, Munich Health also includes the international subsidiaries of our health insurer DKV. Besides this, there is our specialist insurer for seniors in the uSA, Sterling Life Insurance, which we acquired in 2008.
Could you give an example of where this cooperation is already paying off?
North and South America Andover Bellingham Princeton Santiago de chile São Paolo
Asia Beijing Hong Kong Gurgaon Shanghai Singapore Taipei preaching to the converted. There is a demand for innovative healthcare solutions worldwide. I am therefore convinced that our eff orts will soon be successful if we stay on the ball.
We want to grow profi tably. This is what we are all about, and we have already made good progress over the last year with our premiums. But premium growth is not the sole factor. What counts is our results – we aim to contribute to an attractive return on capital for our shareholders. This is the standard by which we will measure our progress. //
As is often the case with bad economic news, the story breaks on a Sunday. Herbert Friedel, Head of Credit Risk/Limit Management at MEAG, Munich – Munich Re’s asset management subsidiary – is watching the late-night news on 1 November 2009 when he hears that US commercial lender CIT Group has filed for creditor protection under Chapter 11 of the US Bankruptcy Code, the second-largest bank failure after the collapse of Lehman Brothers about a year earlier.
For Friedel there is no cause for alarm, however. The most he will do is go to work an hour earlier the next day. It is part of his job as an experienced capital markets expert to examine whether the investments MEAG makes on behalf of Munich Re might be affected by the collapse. At his desk, Friedel immediately begins to look into the matter. It just takes a couple of mouseclicks for him to turn his assumption into certainty and sound the “all clear”. MEAG is not invested in cIT, and its assets are safe. Friedel sends a circular mail to the important decision-makers in the group: “No danger.”
“We always know exactly what is in our portfolio”, explains Peter Schenk, head of MEAG’s investment controlling unit. This seems obvious, but anyone who saw how difficult it was during the hot phase of the crisis in autumn 2008 and spring 2009 for some financial market players to estimate the impact of the turbulences on their portfolio is aware of the fact that there is – has to be – more to it than that. Keeping an overview of the total investments held by a global asset manager of MEAG’s size and significance is anything but straightforward. This is due, for one thing, to their sheer mass: at the reporting date of 31 December 2009, Munich Re’s portfolio comprised fixed-interest investments worth some €165bn, stemming from over 1,500 issuers in over 90 countries.
Excellence Award for its prudent and exemplary risk policy. It is a well-deserved reward for a strategy that gives priority to the avoidance of risk and the security of the funds placed in its keeping: a strategy that allows the clients of Munich Re and ERGO to sleep easy at night – even if the economic news in the media is bad. //
07 // Kenya: Four-man wall. Picture taken in 2009 Source: corbis 08 // Klagenfurt, Austria: Croatian fans at the match against Germany during the European Championships in 2008 Picture taken in 2008 Source: corbis
Responsible for content group Reporting group communications editorial deadline: 28 february 2010 online publication date: 10 March 2010 print publication date: 1 april 2010
Picture credits pp. 3, 6, 7, 23, magazine p. 8 and pp. 17–21: Robert Brembeck, Munich Magazine cover: getty images/Bob thomas Magazine p. 2: stefan Meisel Magazine p. 3: thomas schüer Magazine p. 4: getty images/gallo images Magazine p. 7: getty images/nathan Bilow Magazine p. 10: laif/Zhang peng/ chinafotopress Magazine p. 11 composing: getty images/ christopher furlong/getty images/ Michael grecco Magazine p. 14: Masterfile Magazine p. 15: getty images/KaRiM JaafaR/ stringer Magazine p. 16: laif/Michael Riehle Magazine p. 22: corbis/image source Magazine p. 23: corbis/Ben Radford Magazine p. 25: getty images/eightfish
Munich Re 056 parameters 078 Business performance 083 financial position 120 other success factors 133 Risk report 145 prospects 167
Our integrated business model of insurance and reinsurance under one roof, with its diversification effects, make us more independent of economic fluctuations.
With our risk knowledge and our capital strength, we can give our clients targeted support, even during a global economic crisis.
Dear Shareholders, in the initial months of 2009, the severest financial crisis for 80 years was at its height. important companies in nearly all sectors were badly hit, and even whole economies faltered. governments and central banks responded with massive support measures such as economic stimulus programmes and interest-rate cuts, preventing the imminent collapse of the financial markets and an even worse recession.
One of our particular successes was the acquisition of the hartford Steam Boiler group, which has enabled us to enhance our already strong position in the field of en gineering insurance. But i will openly admit that we had expected to be able to exploit our financial strength even more in the crisis, be it in reinsurance or through further acquisitions. We were not able to achieve this objective to the desired extent. generous accounting rules and the rapid recovery of the financial markets – due to state intervention – prevented our clients’ demand for reinsurance increasing as much as we had anticipated. as far as potential acquisitions were concerned, we con sidered a large number of offers. however, as the prices asked for did not take sufficient account of the subdued economic prospects, we held back with acquisitions and developed our business through our own resources. We demonstrated last year that we are well positioned to do so: more than two-thirds of the increase in group premium comes from organic growth.
Munich Re’s strengths are its great fi nancial solidity, outstanding risk knowledge and sophisticated risk management. We devise needs-oriented solutions for our clients and can draw on a broad marketing network. in the current year, we will continue to pursue our strategy of an integrated insurance group geared to sustained profi tability. in so doing, we intend to take advantage of the opportunities with which the risk market presents us in a still uncertain environment. i am confi dent that we will again succeed in achieving our ambitious goals.
Nikolaus von Bomhard chairman of Munich Reinsurance company’s Board of Management
Nikolaus von Bomhard chairman of the Board of Management , chairman of the group committee group Development/group investments/group communications/group audit/ group executive affairs
Wolfgang Strassl Board member responsible for personnel and welfare matters, within the meaning of Section 33 of the german co-Determination act healthcare/human Resources
Since 1999, Munich Re’s and eRgO’s investment activities have been managed by Munich eRgO assetManagement gesellschaft, or Meag for short. With units in Munich, new York and hong Kong and assets under management of €190bn, Meag has advanced to become one of the most important asset management companies in europe.
// ERGO life insurers tested by the German technical in spection agency TÜV
On 31 March, the purchase of uS specialty insurer hSB group was successfully completed. Munich Re had announced the acquisition back in December 2008. hSB is one of the world’s leading providers of insurance for machinery breakdown and engineering risks, other specialty insurances, as well as inspection, certification and engineering services.
Munich Re launched a microinsurance project for the inhabitants of indonesia’s capital Jakarta under a public-private partnership with indonesian insurer asuransi Wahana Tata and Deutsche gesellschaft für Technische Zusammenarbeit (gTZ, the german agency for Technical cooperation). The innovative product provides Jakartans with the option to insure themselves against financial losses from floods and the social risks associated with them.
The Meag FairReturn investment fund was established in June. The mixed fund investing largely in europe is geared especially to foundations and is managed according to sustainability criteria. its investment objective is to perform in line with the capital market and to yield plannable regular income. The minimum investment amount is €100,000.
Daman national health insurance, in which Munich Re holds a stake of nearly 20%, opened a new medical service centre in abu Dhabi. Together with almeda gmbh, the group’s assistance and telemedical healthcare service provider, this centre started offering healthcare programmes in august to patients with chronic diabetes and obesity. in October, the united arab emirates’ leading health insurer and Munich Re extended their strategic partnership until 2019.
// ERGO insurers design new accident prevention cover with a money-back guarantee in July, eRgO began offering a single-premium personal accident cover that returns premiums, in addition to its regular-premium personal accident cover with premium refund. in future, clients will be able to select either variant – coverage providing a safe investment in times of financial crisis.
// Share buy-back programme resumed at the beginning of October, Munich Re announced that it will resume its share buy-back programme, suspended in april owing to the financial and economic crisis. Shares with a volume of up to €1bn are to be repurchased and retired by the agM on 28 april 2010.
Macroeconomic parameters in 2009 were strongly impacted by the crisis on the international financial markets and a global recession. companies, particularly in the financial sector, reported substantial downturns in their 2008 results and, in some cases, significant depletions of equity capital. in general, banks were much harder hit by these events than insurers. however, some primary insurers around the world suffered considerably from the crisis, especially those focusing on life business. This boosted demand for reinsurance solutions that provided capital relief. as a result, the start of 2009 saw investors favouring shares in reinsurers, especially those geared towards property-casualty business, where many investors expected an appreciable improvement in the reinsurance market’s prices, terms and conditions.
numerous insurers stepped up their investment derisking, a process that started in 2008. This helped the sector’s financial position to stabilise relatively quickly. in addition, there were signs of an economic recovery in the second half of the year. On the international stock markets, prices rose markedly from spring onwards, after considerable setbacks in the first few months. among insurance stocks, the chief beneficiaries were those that had previously fallen furthest in value.
after performing very well in the previous year compared with both the insurance sector and the market as a whole, Munich Re shares proved themselves a stable investment in this environment. particularly at the beginning of 2009, when the downward trend among financial services stocks was still continuing, they demonstrated their relative strength. it is true that between 1 January and the market low at the beginning of March their price fell by 27% from €111.00 to €81.03 (closing price on 9 March 2009). however, this reduction was comparable to that of the cross-sector price indices (DaX 30: –23.3%; euRO STOXX 50: –26.1%; uS indices Dow Jones and S&p 500: –25.4% and –25.1%), while Munich Re shares performed better than the insurance industry as a whole: the euRO STOXX insurance lost 44.4% up to 9 March 2009, and the global MSci insurance index declined by 39.5% on a euro basis.
// Munich Re shares proved a stable investment again in 2009. although their price showed a slight reduction of 2.1% over the course of the year, on a long-term basis – taking dividend payments into account – they have clearly outperformed the competition.
in this market situation, our investors benefited from Munich Re’s capital strength, our proven risk management, and our active cycle and portfolio management. With a high degree of transparency, Munich Re enhanced investors’ confidence in the dependability of its financial performance and the reliability of its consistent economic management approach. consequently, the above-average performance of Munich Re shares continued through much of the first quarter. in the months that followed, however, investors tended to prefer stocks with more pronounced risk profiles, particularly insurance stocks whose result performance was more closely correlated with the stock markets. The winners were mainly shares in life insurers, especially as the high expectations with regard to growth and profitability in reinsurance were not completely fulfilled. The pricing levels for insurance stocks thus converged again. Despite the change in market preferences, Munich Re stuck to its course, focusing clearly on its core business of insurance and reinsurance, while maintaining a restrained approach to investment risks.
Our subdued share price performance at year-end was also a consequence of our expectation management for 2010. We had pointed out that, in view of the persistently low interest rates on the capital markets and the prudent risk profile of our investment portfolio, our investment result was likely to be considerably reduced compared with previous years. however, the lower overall result to be expected due to this should be subject to less volatility, further enhancing the dependability of our financial performance. We expect this result quality to have a positive impact on our shares going forward.
More than 40 banks and brokerage houses regularly evaluate Munich Re shares. at the end of December 2009, some 62% of the analysts gave our shares a positive assessment, 32% a neutral one, and only 6% a negative rating.
With a dividend yield of approximately 5.3% (in relation to the year-end share price), Munich Re shares remain an attractive equity investment, which is also included in the DivDax, a subindex of Deutsche Börse ag that features the 15 DaX companies with the highest dividend yields.
in december 2009, a total of 121,000 shareholders were entered in our share register. the vast majority of shares were held by institutional investors such as banks, insurers or investment companies; around 8.3% were in the hands of private investors.
Securities reference numbers Reuters MuVgn ISIN de 000 843 002 6 Bloomberg MuV2 WKN 843 002
Year-end closing price € 108.67 111.00 annual performance (excluding dividend) % –2.1 –16.5 Beta relative to daX (daily, raw) % 0.8 0.7 Market capitalisation at 31 december €bn 21.5 22.9 Market value/equity at 31 december1 1.0 1.1 average daily turnover ’000 1,191 2,269 earnings per share € 12.95 7.74 dividend per share € 5.75 5.50 dividend yield at 31 december % 5.3 5.0 dividend payout (status at 28 Feb. 2009) €m 1,088 1,073 1 including minority interests.
The proportion of international investors remained at around the same level as in the previous year. at year-end 2009, a good 70% of the shares were held by foreign investors.
Besides our annual analysts’ conference on 3 March 2009, the separate events we held on individual issues of topical interest met with a very positive response: on 29 June 2009, we staged a seminar on life reinsurance; on 19 november 2009, we reported to analysts on our assessment of Solvency ii, including the implications for the insurance industry and the business opportunities for Munich Re. On 10 March 2010, we present our figures for the financial year 2009, and at our analysts’ conference on 11 March 2010 we will give an update on Munich Re’s strategic orientation. We reported on the key figures for the financial year 2009 on 2 February 2010.
The service pages of our shareholder portal provide our shareholders with a wide range of information and offer them such facilities as registering to receive documents for the annual general Meeting by e-mail or updating their registered shareholder data online.
Some 3,800 investors accepted our invitation to the 122nd annual general Meeting on 22 april 2009 at the icM – international congress center Munich. Many other shareholders arranged for their voting rights at the annual general Meeting to be exercised by proxies, especially banks and shareholders’ associations. The proposals of the Board of Management and Supervisory Board on the individual agenda items were adopted by the shareholders with clear majorities in each case.
at 44.6%, the proportion of the share capital represented in the votes was only just below the previous year’s level (45.1%). We see this renewed high figure as a reflection of our efforts to actively inform our investors and encourage them to exercise their voting rights at the annual general Meeting. Shareholders’ participation in the annual general Meeting is facilitated by means of electronic communications. The whole meeting is transmitted on the internet, admission cards can be ordered online, and shareholders can have their votes cast by company proxies in accordance with their instructions. in addition, the implementation of the Shareholders’ Rights Directive in germany has created new opportunities which we will be one of the first DaX com panies to exploit, e.g. by providing for a postal vote at the 2010 annual general Meeting. We publish the resolutions adopted at the annual general Meeting immediately on our website.
To improve its capital structure, Munich Re has issued several subordinated bonds in recent years. With the upheavals on the credit markets, the prices of these securities came under pressure at the start of 2009. Taking advantage of this attractive price level, Munich Re bought back subordinated euro bonds with a face value of €251m in the first half of 2009.
Over the year, the prices of the subordinated bonds showed a marked recovery. at year-end, the undated euro bond was listed at 90.4%, the bond maturing in 2023 at 107.1%, and the pound sterling bond maturing in 2028 at 108.9%. Munich Re america’s senior bond closed the year at 103.0%. The issuer of this senior bond bought back a principal amount of uS$ 24m in the second and third quarters.
For many years, Munich Re has received excellent ratings from the leading rating agencies. even in 2009, a challenging year for the insurance industry, the outook for all Munich Re ratings remained unchanged. in January 2010, Fitch adjusted its ratings for Munich Reinsurance company’s subordinated bonds from a+ to a, based on a change in its rating methodology for hybrid securities. More than 200 securities from issuers in the insurance sector were affected by this methodological change.
Munich Re has weathered the global financial and economic crisis well and achieved a good result for the financial year 2009. This success is founded on the consistent implementation of our strategy geared to creating sustainable value. at its centre are our value-based management, our rigorously practised integrated risk management covering both sides of the balance sheet, and our outstanding risk knowledge. This business approach makes us an attractive, dependable and reliable partner for our clients and adds value for our investors.
For our primary insurance group, establishing the eRgO brand in the german market is the greatest challenge. Many of our international primary insurers already operate successfully using the eRgO brand. in germany, on the other hand, we have so far conducted our business under different brands. at the end of last year, we decided to streamline our market presence, meaning that in our domestic market the life and property-casualty insurers will operate solely under the eRgO brand in future.
// Our strategy of creating sustainable value has proved its worth in the crisis and will continue to be consistently applied.
We will withdraw the long-established hamburg-Mannheimer and Victoria brands from the market. Our direct insurer, formerly KarstadtQuelle Versicherungen, will write business under the name of eRgO Direkt. The providers of specialty lines – DKV, D.a.S. and eRV – will retain their household brand names.
The new brand architecture offers many advantages for eRgO’s business. in future, we will be able to concentrate our marketing activities on just a few brands and provide “one face to the customer” internationally, making the whole spectrum of eRgO products more visible to the client. We will maintain our wide range of distribution structures. Regardless of which route clients choose to come to us: they will find a strong and effective partner in the eRgO group for every line of business and every product. This strengthens eRgO’s competitiveness and will stimulate growth.
growth, rather than cost savings, is our object in pooling our group-wide activities in international health business. in this field of business, we have combined our primary insurance activities outside germany and our worldwide health reinsurance business under the Munich health brand. having made good progress in establishing the organ isation in 2009, we will be showing Munich health’s business figures separately for the first time as part of the segment reporting in 2010.
in reinsurance, too, we have undertaken organisational changes in the past few years. The client management teams that we introduced as part of our changing gear programme have successfully concluded their first rounds of treaty renewals. We are now focusing on further intensifying contact with our clients. We want to understand even better how we can support them and, with our knowledge, develop individual solutions that benefit both sides.
With this in mind, we carried out a broad client survey last year to determine the effectiveness of our organisational realignment. The results have confirmed our expectations: besides Munich Re’s security, cedants especially value our great risk competence. understanding and assessing risks in all their facets, at the same time identifying new developments and considering hidden connections – these are our strengths. We want to use these strengths for our clients even more systematically in future.
international subsidiaries to assume Munich Re brand pioneer in developing solutions for future challenges
Our activities are not restricted to climate change. Whether it is natural catastrophes threatening our increasingly interwoven economies, demographic change, or new diseases – in all these areas we are actively contributing our know-how. Our objective is to expand the boundaries of insurability. Munich Re thus assumes social responsibility, while at the same time creating value for clients and investors.
Ladies and gentlemen, in the financial year 2009, the composition of the Supervisory Board changed consider­ ably as a result of the elections at the annual general Meeting on 22 april 2009. as chairman of both the former and current Supervisory Board, i can assure you that the Supervisory Board duly fulfilled the tasks and duties incumbent upon it under the law, the articles of association and the rules of procedure.
the Supervisory Board advised the Board of Management in its running of the group and constantly monitored its management activities. at no time did we see cause to carry out inspection measures in accordance with Section 111 para. 2 sentence 1 of the german Stock companies act.
at every meeting, we discussed the Munich re group’s performance. against the background of the still difficult financial market situation, we considered business opportunities and risks together with the Board of Management and obtained detailed reports on the group’s risk situation and profitability. We satisfied ourselves that the Board of Management was guiding Munich re soundly through the financial crisis thanks to its prudent risk strategy. We regularly gained an overview of the group’s investments, naturally with due regard to the current situation on the financial and capital markets. We debated the group’s risk strategy at length with the chief risk officer. the Supervisory Board also established procedure for handling risk strategy at the plenary sessions in future, including the distribution of responsibilities between the audit committee and the full Supervisory Board. in addition, at a separate meeting in July, we looked closely at all aspects of the group’s strategic positioning in the eco nom ic crisis. Munich re’s integrated strategy of combining primary insurance and reinsurance under one roof was also discussed in detail.
other items on the agenda at meetings of the full Supervisory Board were current issues, such as the introduction of the new brand and the further organisational development of the new field of business, Munich health. Between the meetings, we received ad­hoc reports concerning important matters in the group, such as the key figures of the 2009 financial statements, the desertec project, the new ergo brand strategy, and the planned squeeze­out at ergo.
the personnel committee met six times. in addition to succession planning for the Board of Management, the committee also considered the extension of one Board member’s contract. Besides this, it decided on the remuneration from the 2008 annual bonus payment and medium­term bonus 2006–2008. a regular item on the agenda was the authorisation of the acceptance of new seats on supervisory, advisory and similar boards by members of the Board of Management. in the second half of 2009, the new statutory provisions under the act on the appropriateness of Management Board remuneration and the new regulations of the german corporate governance code were central issues discussed, which led inter alia to changes in the responsibil­ ities of the personnel committee and full Supervisory Board. as a result, the personnel committee no longer decided on the Board of Management’s remuneration but prepared the relevant resolution for the Supervisory Board, giving detailed attention to the new remuneration structure for members of the Board of Management. this included the design of the variable remuneration, retirement provision, fringe benefits and the necessary adjustments to the employment contracts for members of the Board of Management. in addition, the personnel committee prepared the proposal for a resolution by the full Supervisory Board on the basis for variable remuneration in 2010.
the nomination committee met four times in 2009. it first prepared the election of the shareholders’ representatives by the 2009 annual general Meeting. the committee selected suitable candidates on the basis of the criteria it had defined and submitted its proposals to the full Supervisory Board so that the annual general Meeting could decide on the Supervisory Board nominations. following the death of prof. Karel van Miert, the nomination committee met three times in order to determine his successor. at the suggestion of the committee and with the consent of the shareholders’ repre­ sentatives, the Board of Management applied for the appointment of dr. Benita ferrero­Waldner, former Member of the european commission, by the registration court. under item 5.4.3 of the german corporate governance code, this appointment is limited until the next annual general Meeting. the Supervisory Board proposes that dr. ferrero­Waldner be elected by the annual general Meeting 2010 for the remaining term of office.
Corporate governance and declaration of conformity the supervisory board considered the amendments to the german corporate govern­ ance code and adjusted the rules of procedure of the supervisory board accordingly, in particular with a view to the extended responsibility of the full supervisory board for board of Management remuneration. the standing committee looked into the efficiency of the supervisory board’s work and presented the results to the full super­ visory board. further information on these topics and on corporate governance in general is available in the joint report of the board of Management and supervisory board on page 28.
in november 2009, the board of Management and supervisory board submitted their annual declaration of conformity with the german corporate governance code as per section 161 of the german stock companies act, which can be read on page 28 of this report and on the company’s website.
Changes on the Supervisory Board at the end of the annual general Meeting on 22 april 2009, the five­year term of office of the supervisory board expired. the following shareholders’ representatives retired: ulrich hartmann, prof. dr. hubert Markl, prof. dr. heinrich v. pierer and dr. albrecht schmidt. With the exception of herbert bach, all the employee representatives retired from the supervisory board, i.e. hans­georg appel, holger emmert, dr. Rainer Janßen, Kerstin Michl, ingrid Müller, dr. Jürgen schimetschek, Wolfgang stögbauer, Josef süßl and Judy võ. the supervisory board wishes to thank all the retired members for their valuable and constructive counsel and their dedication to the development and super­ vision of Munich Re, in some cases over many years.
prof. Karel von Miert died on 23 June 2009. he had been a member of the supervisory board from 2002 until his death. We mourn the loss of an exceptional figure and a knowledgeable and far­sighted advisor, whose memory we honour.
Munich reinsurance company’s corporate governance statement comprises (1) the declaration in accordance with Section 161 of the german Stock companies act and (2) the report of the chairman of the Supervisory Board on the company’s corporate governance within the meaning of item 3.10 of the german corporate governance code, including the remuneration report in accordance with item 4.2.5 of that code and the disclosures as per Section 289a para. 2 items 2 and 3 of the german commer­ cial code.
“Münchener rückversicherungs­gesellschaft aktiengesellschaft in München fulfils all the recommendations of the german corporate governance code of 18 June 2009 (published on 5 august 2009) and will continue to do so in future. Since the last declaration of conformity in november 2008, Münchener rückversicherungs­gesell­ schaft aktiengesellschaft in München has fulfilled all the recommendations of the german corporate governance code of 6 June 2008 (published on 8 august 2008).”
corporate governance statement1 1 copy from the management report of Munich reinsurance company. the figures on pension entitlements have been calculated on the basis of international accounting Standards.
Beyond this, we have our own Munich re code of conduct specifying high­level ethical and legal requirements that must be met by employees. this document is published on our website.
in our code of conduct we clearly state our views on corporate integrity, i.e. legally impeccable behaviour based on ethical principles. at the same time, the code is an expression of our understanding of value management. the code of conduct contains regulations that are binding on all Munich re1 employees including the management, in particular for dealing with conflicts of interest. furthermore, it outlines a procedure for reporting legal infringements or contraventions, which allows the company to respond promptly even to the suspicion of irregularities and to prevent any form of financial crime.
How we view corporate governance corporate governance stands for a form of responsible company management and control geared to long­term creation of value. one of our particular aims in this context is to foster the confidence of investors, clients, employees and the general public. also of great relevance for us are efficient practices on the Board of Management and Supervisory Board, good collaboration between these bodies and with the companies’ staff, and open and transparent corporate communications.
1 in order to make the spectrum of our global business model clearer, all our reinsurance units throughout the world appear under the uniform brand of Munich re. as of September 2009, this also applies to the german­ speaking market. We use the reinsurance brand for the group as well, and thus refer to the Munich re group as Munich re. When we report on Münchener rückversicherungs­gesellschaft aktiengesellschaft in München, we refer to Munich reinsurance company.
30 corporate governance corporate governance StateMent the german corporate governance code, which entered into force in 2002 and has since been amended several times, contains the main legal rules that must be observed by german listed com panies. in addition, it includes recommendations and proposals based on nationally and internationally recognised standards of good and responsible management. every year, Munich reinsurance company’s Board of Management and Supervisory Board publish a declaration stating how far the code’s recommendations have been and will be complied with. the current declaration of conformity can be found on page 28.
the principle of parity co­determination on the Supervisory Board has been main­ tained as a result of the relevant provision in the co­determination agreement, and strengthened by taking into account staff employed in the rest of europe.
pursuant to article 16 of the articles of association, the Board of Management must comprise a minimum of two persons; beyond this, the number of members is deter­ mined by the Supervisory Board. Munich reinsurance company’s Board of Manage­ ment had nine members in the 2009 financial year. an overview of its composition and distribution of responsibilities can be found on page 71. additional information on individual members of the Board of Management is available on our website. Since 1 January 2006, the Board of Management has had two committees – one for group matters and one for reinsurance – in order to enhance the efficiency of its work. rules of procedure issued by the Supervisory Board regulate the work of the Board of Management, in particular the allocation of responsibilities between the individual Board members, matters reserved for the full Board of Management, and the required majority for Board of Management resolutions. the full Board of Management decides on all matters for which the law or the articles of association prescribe a decision by the Board of Management. in particular, it is responsible for matters requiring the approval of the Supervisory Board, for items which have to be submitted to the annual general Meeting, for tasks which constitute fundamental management functions or are of exceptionally great importance, and finally for significant personnel issues at top management level.
Meetings of the Board of Management take place as required, but at least once a month. the members of the Board of Management cooperate closely to the benefit of the company and aim to reach unanimous decisions.
the Reinsurance Committee comprises those members of the Board of Management that do not sit on the group committee, i.e. torsten Jeworrek, ludger arnoldussen, thomas Blunck, georg daschner, peter röder, Wolfgang Strassl and Joachim Wenning. a further member, as in the past business year, is the chief financial officer for reinsurance, hermann pohlchristoph. the chairman of the committee is appointed by the Supervisory Board. in the period under review, this office was held by torsten Jeworrek. the reinsurance committee decides on all fundamental matters relating to the business field of reinsurance except where the full Board of Management is mandatorily responsible.
in compliance with the articles of association, Munich reinsurance company’s Supervisory Board has a total of 20 members. half are elected representatives of the employees, and half representatives of the shareholders, elected by the annual general Meeting. following the merger of Münchener rück italia S.p.a. with Munich reinsurance company, the opportunity was taken to modernise employee co­determination on the company’s Supervisory Board. previously, the right to participate in elections of employee representatives to the Supervisory Board had been restricted to Munich re employees working in germany. now employees of group companies in the european union (eu) and european economic area (eea) may also participate. the new arrange­ ment was applied for the first time in the regular election of Munich reinsurance company’s Supervisory Board for a new term of office in april 2009. employee representatives on the Supervisory Board will in future be elected by a european electoral board, made up of members from employee representative bodies and employees. every eu/eea member country in which at least 10% of the total Munich re workforce composition and working procedure of the Board of Management committees collaboration between Board of Management and
32 corporate governance corporate governance StateMent is employed has a seat on the Supervisory Board. Munich re’s fields of business are to be adequately represented on the Supervisory Board. the distribution of the seats apportionable to germany for senior executives and union representatives is based on the Mgvg. Supervisory Board resolutions on the nomination of candidates for election to the Supervisory Board at the annual general Meeting only require the majority of votes cast by the Supervisory Board members representing the shareholders.
an overview of the members of the Supervisory Board can be found on page 72 ff. additional information on the current members of the Supervisory Board (shareholder representatives) is available on our website.
Munich reinsurance company’s Supervisory Board has set up five committees: the Standing committee, the personnel committee, the audit committee, the conference committee, and the nomination committee. the main committee responsibilities are described below. as a result of the changes on the Supervisory Board after the elec­ tions at the annual general Meeting in 2009, the composition of most of the commit­ tees altered during the year.
33corporate governance corporate governance StateMent the Standing Committee prepares Supervisory Board meetings and decides on matters of company business requiring the Supervisory Board’s approval insofar as the full Supervisory Board or another committee is not responsible. it makes amendments to the articles of association that only affect the wording, and decides on the attend­ ance of guests at Supervisory Board meetings. Besides this, it prepares the annual declaration of conformity with the german corporate governance code, in accordance with Section 161 of the german Stock companies act, and the Supervisory Board’s report about the company’s corporate governance in the annual report. every year, it reviews the efficiency of the Supervisory Board’s work and submits appropriate proposals to the full Supervisory Board where necessary. Subject to the rules concerning matters for which the personnel committee is responsible, it also approves certain legal transactions of the company with members of the Board of Management and Super­ visory Board or parties related to them. if the chairman of the Supervisory Board is unable to attend, it determines the chair of the annual general Meeting.
Members of the Standing committee are dr. hans­Jürgen Schinzler (chairman), herbert Bach, hans peter claußen, Wolfgang Mayrhuber and dr. Bernd pischetsrieder. up to the end of the 2009 annual general Meeting, the members of the committee were as follows: dr. hans­Jürgen Schinzler (chairman), herbert Bach, dr. Bernd pischets­ rieder, dr. albrecht Schmidt and Josef Süßl.
Members of the audit committee are prof. dr. henning Kagermann (chairman), christian fuhrmann, Marco nörenberg, anton van rossum and dr. hans­Jürgen Schinzler. up to the end of 2009 annual general Meeting, the members of the committee were as follows: dr. albrecht Schmidt (chairman), hans­georg appel, prof. dr. henning Kagermann, dr. hans­Jürgen Schinzler and Wolfgang Stögbauer.
comprising solely representatives of the shareholders, the Nomination Committee suggests suitable candidates to the Supervisory Board for the latter’s election pro­ posals to the annual general Meeting.
the Conference Committee makes personnel proposals to the Supervisory Board if the requisite two­thirds majority is not achieved in the first vote when it comes to appointing or dismissing members of the Board of Management. its responsibilities remain the same after application of the co­determination agreement and are now laid down in the articles of association and the Supervisory Board’s rules of procedure.
Annual General Meeting the regular responsibilities of the annual general Meeting include reaching a reso lution on the appropriation of profits and approving the actions of the Board of Management and Supervisory Board.
Structure of the remuneration system for the Board of Management in conformity with the german corporate governance code, we here explain the principles of the remuneration system for Munich reinsurance company’s Board of Management and the structuring of the individual remuneration components.
in accordance with the provision governing remuneration for 2009 under item 4 of the german corporate governance code, the remuneration system for the Board of Management, along with the key elements of relevant contracts, has been determined by the full Supervisory Board. the necessary preparations for the resolution were made by the personnel committee of the Supervisory Board, comprising the chairman of the Supervisory Board, one shareholder representative and one employee representative.
20% appreciation in share price 0–150% (cap at 150% of share price increase)
> 20% share price increase > Munich re shares have outperformed euro StoXX 50 twice at the end of three­month period during the term of the plan as from third year of plan until end of plan
Retirement plan a) Defined benefits plan (Board members appointed before 2009 who had reached the age of 55 in 2008)
fixed components Basic remuneration the fixed annual basic remuneration is paid in the form of a monthly salary.
the processes laid down for specifying objectives and assessing their achievement also involve the external auditor, who subjects the envisaged financial objectives to a predefined review procedure regarding their consistency and assessability, which includes analysing the calculation of the individual results achieved. the outcome of this review and any potentially controversial aspects are rendered transparent for the Supervisory Board’s personnel committee.
Mid-Term Incentive Plan the Mid­term incentive plan 2009–2011 is based on performance over a three­year period. it promotes the medium­ and long­term increase in Munich re’s value in terms of value added (value­based success factors) and improvement in the Munich re share’s total shareholder return (tSr). the plan provides for the granting of performance share units, free of charge, to members of the Board of Management. plan participants have the opportunity to share in the development of Munich re’s value if they achieve their performance targets and increase the tSr.
for the value­based performance objectives, three­year average targets are set for each of the business fields reinsurance, Munich health and primary insurance. achievement of objectives is measured at the end of the plan’s term, there being no adjustment of the targets during the course of the plan.
Long-Term Incentive Plan this remuneration component, with a long­term perspective, is linked to the sustained appreciation of Munich re’s share price. the long­term incentive plan, launched every year since 1999, was set up for the members of the Board of Management for the last time in 2009. the participants were granted a certain number of stock appreciation rights. these can only be exercised if, after a two­year vesting period, Munich re’s share price has risen by at least 20% since inception of the plan and the shares have outper­ formed the euro StoXX 50 at least twice over a three­month period during the term of the plan.
Whether the stock appreciation rights can be exercised and, if so, when, is not certain. the exercising and proceeds depend on the development of the share price and fulfilment of the exercise conditions. the amount of income is limited. up to now, it has only been possible to exercise stock appreciation rights under the plans set up in 1999 and 2003 to 2005. further information on the long­term incentive plan can be found on pages 288 to 292 in the notes to the financial statements.
continued payment of remuneration in the case of incapacity to work in the case of temporary incapacity to work due to illness or for other cause beyond the Board member’s control, the remuneration is paid until the end of the contract of employ­ ment. the company may terminate the contract prematurely if the Board member is incapacitated for a period of longer than 12 months and it is probable that he will be permanently unable to fully perform the duties conferred on him (permanent incapacity to work). in this event, the Board member will receive a disability pension.
the members of the Board of Management have no contractual entitlement to severance payments. if the Board member’s activities on the Board are terminated prematurely without good cause within the meaning of Section 626 of the german civil code, payments due may not surpass the equivalent of two years’ total remuneration (three years’ remuneration in the event of acquisition of a controlling interest or change of control within the meaning of Section 29 para. 2 of the german Securities acquisition and takeover act) and may not cover more than the remaining period of the employment contract. the calculation is to be based on the overall remuneration for the past financial year and, if necessary, on the probable overall remuneration for the current financial year.
in the event of a change of control, only the conditions of the long­term incentive plan provide for special exercise options. details of this are available in the notes to the financial statements on page 288 ff.
Beginning in 2009, pension plans for Board members were changed to a defined contribution system. the main aim of this change was the fullest possible outsourcing of all pension­specific risks from the company’s balance sheet. this major risk transfer was achieved by financing increases in entitlements exclusively by paying premiums into insurance policies concluded to cover these benefit obligations. this means the company is no longer liable for the pension benefits, as these are covered by the aforementioned insurance policies. the longevity risk, the biometric risks of premature occurrence of a pensionable event (e.g. disability or death of a member of the Board during active service), and the capital market risk were thus transferred to the insurer and the individual Board members.
as of 2009, newly appointed members of the Board thus become members of a defined contribution plan. for this plan, the company provides the Board members with a pension contribution geared to their basic remuneration for each calendar year (contribution year) during the term of their contract . the pension contribution is paid over to an external pension insurer. the insurance benefits which will result from the contribution payments to the external insurer constitute the company’s pension commitment to the Board member. for Board members newly appointed as from 1 January 2009, a uniform pension contribution rate has been set; the annual basic remuneration is multiplied by this rate to arrive at the pension contribution payable.
Board members who had not reached the age of 55 by the end of 2008 maintain as a vested pension their pension entitlement under the previous defined benefit plan (fixed amount in euros) existing at the point of transition on 31 december 2008. as of 1 January 2009, these Board members receive an incremental pension benefit generally based on the defined contribution plan for new Board members. Since the conversion of the pension system took place while Board members’ contracts were in force, the pension contributions were calculated in such a way that the total of vested pension, pension­fund pension and incremental pension benefit results in an expected pension at age 60 equivalent to that of the previous pension benefit based on realistic estimates.
Board members who had already reached the age of 55 at the conversion date were not transferred to a defined contribution system and remain members of the previous system’s defined benefit plan.
Disability pension Board members are entitled to a disability pension if, due to a permanent incapacity to work, their contract ends by mutual agreement, is terminated by the company, or their appointment is not extended or revoked. permanent incapacity to work means if the Board Member is incapacitated for a period of longer than 12 months and it is probable that he will be permanently unable to fully perform the duties conferred on him.
Benefit amount: // for a period of six months, previous monthly basic remuneration (only for Board members appointed prior to 2006) // under the defined contribution plan for new members as from 2009: 80% of the insured occupational pension up to the age of 59, with subsequent occupational pension
// for Board members transferred from the old system to the new: vested pension from defined benefit plan up to 2008 and 80% of the insured occupational pension benefit up to age 59 with subsequent occupational pension based on the defined contribution plan
Benefit amount: // for a period of six months, previous monthly basic remuneration (only for Board members appointed prior to 2006) // under the defined contribution plan for new members as from 2009: annuity based on the policy reserve built up under the external insurance or payment of the policy reserve as a lump sum at the date the pension benefit is claimed
Board members have vested benefits under the german employers’ retirement Benefits act if they leave the company before reaching the age of 60 and the pension commitment has existed for at least five years before.
Benefit amount: // under the defined contribution plan for new members as from 2009: annuity based on the policy reserve built up under the external insurance or payment of the policy reserve as a lump sum at the date the insured event occurs
b) Improved vested benefits improved vested benefits are granted if the contract ends owing to non­extension of the Board member’s appointment (by the company) but not due to gross violation of duties or to the Board member giving notice. a further precondition is that the Board member leaves the Board before reaching the age of 60 and has at least ten years’ service with the company.
the improved vested benefits do not apply to Board members appointed as from 2009. for Board members transferred from the old system to the new, the improved vested benefits apply only to that part of their pension resulting from the vested pension under the defined benefit plan.
if the Board member dies after retirement, the surviving dependants receive the previous monthly occupational pension for a period of three months, provided the marriage took place and/or the child was born before the Board member started drawing the occupational pension. if the Board member’s occupational pension was reduced owing to early retirement, widow(er)’s and orphan’s pensions are based on the reduced occupational pension.
Surviving dependants of a Board member who dies during active service or after retirement, subsequently receive the following benefits: Benefit amount: // Widow(er)’s pension amounting to 60% of the defined benefit or insured occupa­
total remuneration of the Board of Management the basis for reporting the remunera­ tion of Board members is german accounting Standard no. 17 (drS 17), according to which the amount shown for the annual bonus is the provision established for that bonus, since the performance on which the bonus is based has been completed by the balance sheet date and the requisite Board resolution is already foreseeable. the members of Munich reinsurance company’s Board of Management received remu­ neration totalling €17.8m (18.2m) for fulfilment of their duties in respect of the parent company and its subsidiaries in the financial year. the previous year’s figures have been adjusted in accordance with drS 17.
3 the total expenditure recognised in the reporting period (expenses for reserves due to the development in value of the performance share units from the 2009–2011 plan, including the value recognised in 2009) for the Mid­term incentive plan 2009–2011 breaks down as follows: von Bomhard €835,967, arnoldus­ sen €340,465, Blunck €368,024, daschner €404,195, Jeworrek €510,793, röder €297,979, Schneider €596,981, Strassl €199,609, Wenning €255,301.
1 at the balance sheet date, no Board resolution had yet been passed on the amounts to be paid for 2009. the amount shown for the annual bonus is based on estimates and the corresponding provisions posted. for 2008, the annual bonus actually paid is shown; it is €295,722 more than the provisions shown in the previous year (total provisions for 2008 = €2,546,789; actual amount paid = €2,842,511).
2 performance share units were granted for the first time for the financial year under the Mid­term incentive plan 2009–2011. the figure 0 shown for 2008 refers to the medium­term bonus 2006–2008, for which the achievement of objectives was 0% for the previous year.
3 the total expenditure recognised in the reporting period (expenses for reserves due to the development in value of the performance share units from the 2009–2011 plan, including the value shown in 2009) for the Mid­term incentive plan 2009–2011 breaks down as follows: von Bomhard €835,967, arnoldus­ sen €340,465, Blunck €368,024, daschner €404,195, Jeworrek €510,793, röder €297,979, Schneider €596,981, Strassl €199,609, Wenning €255,301.
4 the total expenditure recognised in the reporting period (expenses for/release of reserves due to the development in value of the stock appreciation rights from the 2002–2009 plans, including the value recognised in 2009) for the long­term incentive plans breaks down as follows: von Bomhard –€2,331,300.53, arnoldussen –€346,713.03, Blunck –€675,247.58, daschner –€1,099,742.78, Jeworrek –€1,252,168.39, röder –€235,286.78, Schneider –€1,697,668.50, Strassl –€736,714.54, Wenning €303,538.79.
46 corporate governance corporate governance StateMent pension entitlements personnel expenses of €4.0m (1.4m) were incurred in the finan­ cial year 2009 to finance the pension entitlements for active members of the Board of Management. of these, €1.0m was apportionable to defined benefit plans and €3.0m to defined contribution plans. as a consequence of the risk transfer to an external insurer under the defined contribution system, there will be a clearly noticeable and lasting increase in the visible pension costs as of 2009. the company accepts this increase in order to avoid higher costs in future and to eliminate long­term pension­ specific risks. the following pension commitments result for the individual members of the Board of Management: outlook Structure of the remuneration system for the Board of Management as from 1 January 2010 the remuneration system for the Board of Management has been revised with effect from 1 January 2010 on the basis of the remuneration­related amendments to the german act on the appropriateness of Management Board remuneration and the german corporate governance code. particular attention has been paid in this regard to comprehensibility and transparency.
47corporate governance corporate governance StateMent the following new remuneration system for the Board of Management has been decided by the full Supervisory Board on the basis of a proposal by the personnel committee of the Supervisory Board.
30% function responsibility length of service on Board fixed contractual stipulations
objectives for the business fields > reinsurance > Munich health > primary insurance individual objectives 0–200 % (fully achieved = 100%)
achievement of three­year objectives in the fourth year, on condition that 25 % of the net amount paid out is invested by the Board member in shares that must be held for at least a two-year period
Pension a) Defined benefits plan (Board members appointed before 2009 who had reached the age of 55 in 2008)
the variable remuneration for annual performance is reviewed and decided on by the full Supervisory Board and then calculated and paid out in the year after the one­year period under consideration. payment is effected on condition that 50% of the net amount paid out is invested in Munich reinsurance company shares that the Board member must hold for at least a four­year period.
Multi-year performance three­year targets based on the performance of the reinsurance, Munich health and primary insurance segments and on individual objectives are fixed every year for the multi­year performance remuneration component. 70% of the target amount for variable remuneration can be earned in the event of full achievement (= 100%) of the objectives. the targets and scaling for the business field targets are geared to vBM performance indicators, and the individual targets are based on individual objectives. the objectives are weighted individually according to the responsibilities of the individual members of the Board of Management.
Further development of the remuneration system in its circular 23/2009 of 21 december 2009, the german federal financial Supervisory authority (Bafin) specified in more detail for the german insurance industry the financial Stability Board principles whose implementation the g20 states agreed on at their summit meeting in pittsburg in September 2009. in January 2010, Munich re set up a remuneration committee as required by the Bafin circular. in 2010, the remuneration committee will deal with the implementation of the principles in the group at 1 January 2011.
Remuneration structure for senior executives, including security-based incentive systems in compliance with Bafin’s circular 23/2009, the following paragraphs provide details of the remuneration structures for our senior executives in Munich.
the fixed components for senior executives comprise a fixed annual basic remuner­ ation, paid out as a monthly salary, plus customary market fringe benefits and remu­ neration in kind (e.g. company car, insurance).
the variable components are made up of the short­term components “performance­ related bonus” and “company result bonus”, and the share­price­linked components Mid­term incentive plan and long­term incentive plan.
the Mid-Term Incentive Plan, with a duration of three years, and the Long-Term Incentive Plan, with a duration of seven years, are based on the corresponding plans for the Board of Management in 2009. their structure is explained on pages 37 and 38.
50 corporate governance corporate governance StateMent the weighting for the variable remuneration components is more than 50% for the first management level below the Board of Management. proceeding down the manage­ ment hierarchy, the proportion of variable remuneration decreases successively from one management level to the next, making up around one­third of total remuneration at the lowest management level. thus, with the same incentivisation logic, the individual variable components are present at all management levels, albeit with different weightings.
there is a well­balanced combination of short­, medium­ and long­term components. the proportion of medium­ and long­term remuneration is over 50% in the variable remuneration for the top management level, so that a longer­term incentive system is provided for. no guaranteed variable remuneration components are granted.
Total remuneration of the Supervisory Board By resolution of the 2008 annual general Meeting, the Supervisory Board’s remuneration was adjusted and restructured to take account of current circumstances. the rules apply for the first time to the financial year 2009. fixed remuneration has been marginally increased, whereas the performance­related annual remuneration has been reduced. each member of the Supervisory Board thus receives an annual fixed remuneration of €50,000 (previously €45,000) and a variable, performance­related remuneration.
the result­related annual remuneration is based on the undiluted earnings per share from continuing operations, as shown in the consolidated financial statements in accordance with international financial reporting Standards (ifrSs): each Supervisory Board member receives €4,000 for each full euro by which earnings per share exceed €12, but a maximum of €40,000. Based on earnings per share of €12.95, no annual result­related remuneration is payable for the financial year 2009.
the remuneration for the chairman of the Supervisory Board and the additional amounts payable to members of the Supervisory Board committees have been increased, thus making greater allowance than in the past for the substantial workload involved. the additional amount paid for work on committees now totals 50% of the fixed remunera­ tion (or 100% for the chairman of a committee). the remuneration of the chairman of the Supervisory Board amounts to 250% of the fixed and variable remuneration, while his deputy continues to receive 150%.
Fixed Result- total remuneration related remuneration name Financial year annual For committee annual work2 € Dr. Hans-Jürgen Schinzler, Chairman
Share trading and shares held by members of the Board of Management and the Supervisory Board the company has to be notified promptly of the acquisition or sale of company shares (or financial instruments based on these) by members of the Board of Management and Supervisory Board and by certain persons closely related to or connected with them. this notification must take place for acquisition and sales transactions totalling €5,000 or more in a single calendar year. under Section 10 para. 1 of the german Securities prospectus act, Munich reinsurance company is obliged to publish information of this kind on its website without delay as well as in an annual document.
the total number of Munich re shares and related financial instruments held by all members of the Board of Management and Supervisory Board amounts to less than 1% of the shares issued by the company.
Munich Re 056 parameters 078 Business performance 083 Financial position 120 other success factors 133 Risk report 145 prospects 167
Business performance 83 overview and key figures 83 Reinsurance 90 primary insurance 106 investment performance 110
Other success factors 133 clients and client relationships 133 Research and development 134 Staff 136 corporate responsibility 140 Security and availability 144
Risk report 145 Risk governance and risk management system 145 economic risk capital 154 available financial resources 161 Selected risk complexes 163 outlook 166 Summary 166
Prospects 167 overview 167 economic parameters 168 Munich Re’s development 170
Munich Re is one of the world’s leading risk carriers. the group’s business activities cover the whole value chain of insurance and reinsurance. Munich Re is also active in the field of asset management.
the reinsurance companies of the group operate globally. its primary insurers traditionally focus on germany and high-growth european markets, but have meanwhile been looking to extend their activities to promising asian markets such as South Korea or india. the companies conduct their business from their respective headquarters and also via a large number of branches, subsidiaries and affiliated companies. Domination and profit-transfer agreements are in place with many subsidiaries, especially between holding company eRgo Versicherungsgruppe ag and its subsidiaries.
Since 2005, Munich Reinsurance company and eRgo Versicherungsgruppe ag have been under unified control within the meaning of the german Stock companies act. the relevant statutory regulations and a group directive govern the distribution of responsibilities and competences for key decisions between group management and eRgo. the Board of Management of Munich Reinsurance company, which for legal purposes continues to represent the company externally, has divided its responsibil ities between two Board committees: the group committee and the Reinsurance committee. this structure is geared to maintaining clearly defined strategic management of the equal-ranking business segments and provides for clear assignment of responsibility.
the present management report summarises the activities of the group according to its segments of reinsurance, primary insurance and asset management rather than on the basis of its legal or corporate structure or individual companies. Such segmentation is determined by how Munich Re manages its business internally. unlike in previous years, the business of the Watkins Syndicate is shown in the reinsurance segment rather than in the primary insurance segment. in the business field of Munich health set up in 2008, Munich Re combines its health reinsurance worldwide and health primary insurance outside germany1. the business field has been operating under the Munich health brand since May 2009 and will not be disclosed as a separate segment until the first quarter of 2010. For 2009, the business written in this field for health reinsurance and Sterling life insurance company (Sterling) is shown for the last time 1 excluding travel insurance.
in reinsurance, we operate in life, health and property-casualty business, the latter being subdivided into liability, accident, motor, marine, aviation, space, fire, engineering, credit and bonding, and other classes of business. the “other classes” comprise the remaining lines of property business, i.e. burglary, plate glass, hail (including agricultural reinsurance), water damage, contingency, windstorm, livestock, householders’ and homeowners’ comprehensive reinsurance as well as fidelity guarantee reinsurance. as stated, all reinsurance units throughout the world operate under the uniform brand of Munich Re. under reinsurance, we also include specialised primary insurance activities that are handled by the reinsurance organisation and business from managing general agents (Mga). For the most part, they will be transferred to the Munich Re brand under the Risk Solutions descriptor in the near future.
Special and Financial Risks (SFR) is in charge of the classes of credit, aviation and space, agriculture, enterprise, contingency and political risks, and of alternative markets business. insurance risk securitisation and risk transfer to the capital markets are handled by our Risk trading unit. in addition, the division also attends to our own reinsurance requirements (retrocession).
global clients and north america handles our accounts with major international insurance groups (hence “global clients”) and globally operating lloyd’s syndicates. it also pools our know-how in the north american market. it is responsible for our subsidiaries there, including Munich Reinsurance america, Munich Reinsurance company of canada, the Midland company (Midland) and the hartford Steam Boiler group (hSB group). Besides this, it also handles the business written selectively from
the corporate underwriting Division performs an important function for our propertycasualty reinsurance business, without direct responsibility for operative business: its staff clarify fundamental issues of underwriting policy, oversee quality assurance, integrate mathematical methods into our business processes, and set standards for claims management.
Europe and Latin America Münchener Rück do Brasil Reseguradora S.a., São paulo Bell & clements (london) ltd, london Münchener Rückversicherungs-gesellschaft a. g. Sucursal españa y portugal, Madrid Münchener Rückversicherungs-gesellschaft ag in München
Germany, Asia Pacific Münchener Rückversicherungs-gesellschaft australian Branch, and Africa Sydney great lakes australia Branch, Sydney Munich Mauritius Reinsurance co. ltd., port louis Munich Reinsurance company Beijing Branch, Beijing Munich Reinsurance company hong Kong Branch, hong Kong Munich Reinsurance company Korea Branch, Seoul
Munich Reinsurance company Malaysia Branch, Kuala lumpur Munich Reinsurance company new Zealand Branch, auckland Munich Reinsurance company of africa ltd, Johannesburg Munich Reinsurance company Singapore Branch, Singapore
Special and Financial Risks great lakes Reinsurance (uK) plc., london great lakes Switzerland Branch, Zurich Munich Re of Malta holding limited, Floriana Munich Re of Malta p.l.c., Floriana new Reinsurance company, geneva
Global Clients and american alternative insurance corporation, Wilmington, North America Delaware american Family home insurance company, Jacksonville, Florida american Modern home insurance company, amelia, ohio american Modern insurance company of Florida, inc., Jacksonville, Florida american Modern Select insurance company, amelia, ohio american Modern Surplus lines insurance company, amelia, ohio american Southern home insurance company, Jacksonville, Florida american Western home insurance company, oklahoma city, oklahoma Beaufort underwriting agency limited, london global Standards llc, Wilmington, Delaware hSB engineering insurance ltd, london hSB group, inc., Wilmington, Delaware hSB professional loss control, inc., lenoir city, tennessee hSB Solomon associates llc, Wilmington, Delaware MSp underwriting ltd., london Munich Re capital limited, london Munich Reinsurance america, inc., Wilmington, Delaware Munich Reinsurance company of canada, toronto Roanoke trade Services inc., Schaumburg, illinois temple insurance company, toronto the Boiler inspection and insurance company of canada, toronto the hartford Steam Boiler inspection and insurance company of connecticut, hartford, connecticut the hartford Steam Boiler inspection and insurance company, hartford, connecticut the Midland company, cincinnati, ohio the princeton excess and Surplus lines insurance company, Wilmington, Delaware Watkins Marine Services limited, london Watkins Syndicate hong Kong limited, hong Kong Watkins Syndicate Middle east limited, Dubai Watkins Syndicate Singapore pte. limited, Singapore 1 the complete list of our shareholdings is available on our website. 2 only subsidiaries outside germany with equity generally in excess of €5m are listed by name. 3 part of Munich health. 4 new company name since 12 January 2010: apollo Munich health insurance company limited, hyderabad. 5 new company name since 1 January 2010: Munich Re america Stop loss inc., andover, Massachusetts.
Munich Re’s second pillar is primary insurance business, which is concentrated in eRgo. With its integrated business model consisting of insurance and reinsurance, Munich Re can cover the entire value chain in the risk market. the group aims to leverage synergies in revenue and costs, whilst reducing the risk-based capital required through better diversification. in the past year, Munich Re increased its stake of nearly 95% in eRgo by almost 5%. it is planned that the holders of the remaining 237,000 shares, i.e. 0.31% of the share capital, will be bought out. this measure will further simplify the group’s shareholding structures, reduce costs and facilitate group-wide cooperation.
as at 1 January 2009, travel insurer eRV (europäische Reiseversicherung), which until then had been owned directly by Munich Reinsurance company, was integrated along with Mercur assistance into eRgo, where a travel centre of competence was set up. Munich Re’s primary insurance segment thus corresponds to the business managed by eRgo. the international health primary insurers are managed by the Munich health business field and in 2009 were shown for the last time in the primary insurance segment.
Following the insolvency of arcandor’s Karstadt and Quelle operations, there was a need for action regarding the KarstadtQuelle Versicherungen brand. eRgo therefore decided to fundamentally revise its multi-brand strategy in germany: the direct insurer KarstadtQuelle Versicherungen has been renamed eRgo Direkt Versicherungen, and the brands Victoria and hamburg-Mannheimer are being withdrawn from the market. consequently, life and property-casualty insurance will be only marketed under the eRgo brand in future. through this clear focus, its all-round offering in primary insurance will become more visible, facilitating the acquisition of new clients and the achievement of more growth.
the broad range of life and property-casualty insurance available under the eRgo brand will be complemented by that of the specialty brands eRgo has retained. their respective businesses will be combined, with health insurance pooled under the DKV brand, legal expenses insurance under D.a.S., and travel insurance continuing to be represented by the eRV brand.
the segments life, health and property-casualty business in germany will continue to be managed by eRgo with a single back office and central infrastructure supporting the various brands and wide range of sales channels. not only their own strong sales organisations and direct marketing but also their wide variety of broker relationships, extensive marketing cooperations and collaboration with the unicredit group in the banking sector are important.
Property-casualty D. a. S. Deutscher automobil Schutz allgemeine RechtsschutzVersicherungs -aktiengesellschaft, Munich D. a. S. Deutscher automobil Schutz Versicherungs-aktien gesellschaft, Munich hamburg-Mannheimer Rechtsschutzversicherungs-aktiengesellschaft, hamburg hamburg-Mannheimer Sachversicherungs-aktiengesellschaft, hamburg KarstadtQuelle Versicherung ag, Fürth3
Fürth; eRgo Direkt Versicherung ag, Fürth. 4 part of Munich health.
Meag Munich eRgo Kapitalanlagegesellschaft mbh eRgo insurance group Munich Reinsurance company
the framework for any business activity is our risk strategy (see page 146 f.). Besides value-based parameters, we observe a range of important additional conditions in managing our business. these conditions may be reflected in supplementary targets or may even determine a unit’s short-term orientation in a particular situation. they include rules of local accounting systems, tax aspects, liquidity requirements, supervisory parameters, and rating agency requirements.
// With value-based performance indicators we ensure the economic view and the necessary comparability of alternative initiatives and prioritise these.
the adjusted result serves as the basis for determining the value added. it consists of the underwriting result (derived from the income statement), the investment result, and the remaining non-technical result. in each case, value-based adjustments are made, including the smoothing of expenditure for major losses, the normalisation of investment income, and the recognition of future claims expenses at present value.
We compare the result adjusted in this way with the requisite cost of equity. a sig nificant factor in calculating the cost of equity is the risk-based capital, which we determine using our internal model. For property-casualty business and health reinsurance, value is added to the extent that, measured on the basis of one calendar year, the adjusted result exceeds the cost of equity.
the products of life primary insurance and life reinsurance, and the bulk of our health primary insurance business, are characterised by their long-term nature and the distribution of results over the duration of the policies. For valuing such long-term portfolios, whose performance cannot be reasonably measured on the basis of a single year, we follow the current version of the principles of market consistent embedded Value (mceV)©1, published by the european insurance cFo Forum in october 2009.
mceV relates to the portfolio existing at the valuation date. 100% of our life reinsurance business and more than 94% of our life primary insurance and long-term health primary insurance business is reflected in it. By contrast, mceV does not include the value of future new business. however, the valuation is made under the assumption of continued operations, i.e. taking into account the related costs in particular. options and guarantees – especially for the policyholders – are explicitly valued using stochastic simulations. mceV reflects the present value of all cash flows for all important currency regions on the basis of the “swap rates” and the implicit volatilities at the valuation date of 31 December 2009. assets that are traded on the capital markets are valued on the basis of the market values observed at the valuation date.
Munich Re gRoup annual RepoRt 2009 our steering of Munich Re’s investments is strongly geared to the structure of the liabilities on our balance sheet. With the help of asset-liability management, we determine the economic neutral position. this synthetic investment portfolio best reflects the characteristics of our liabilities towards clients, taking into consideration significant additional parameters in the investment of capital.
in an optimisation process, a benchmark portfolio is developed that reflects our own risk-bearing capacity and other investor preferences on the basis of long-term expectations of capital market yields. our asset manager Meag is responsible for implementing this strategic benchmark portfolio into concrete investments, from which it deviates only within a carefully defined framework and taking into account its own market view for the respective financial year. the target return, i.e. the expected income from the benchmark portfolio, is compared with the return from the actual portfolio. Meag’s performance is measured in terms of the excess return it achieves, taking into consideration the risks incurred.
in addition to these purely financial performance factors, non-financial performance measures like innovation, speed of processes, staff-training level and client satisfaction play a part. in the long term, a firm can only be successful if it operates sustainably and takes account of such future-oriented qualitative factors as well.
We closely link strategy and operative planning by defining our strategies in structured overviews or “scorecards”, from which we derive initiatives, performance measures and responsibilities. the scorecards have four perspectives: “financial”, “market and client”, “process” and “employee”. We promote an entrepreneurial culture among our staff through the clear allocation of responsibility and accountability, recognising how much the individual, unit or field of business contributes to increasing value. our incentive systems for staff, executives and Board support the clear orientation towards value creation. the higher a staff member or executive is positioned in the management hierarchy, the more strongly their remuneration is based on performance.
in order to also give more emphasis in external communication to Munich Re’s value orientation – as implemented through our internal management tools – we have geared our group return target to risk-adjusted performance indicators, which are explained in more detail below.
the combined ratio, which is calculated as the percentage ratio of the sum of net expenses for claims and benefits plus net operating expenses to net earned premiums, corresponds to the sum of the loss ratio and the expense ratio. put simply, a combined ratio of 100% means that premium income was exactly sufficient to cover claims and costs. net expenses for claims and benefits mainly include paid claims, the change in claims provisions, and the bulk of other underwriting expenses. not included in the expenses are insignificant portions of other underwriting expenses such as german fire brigade tax. net operating expenses chiefly comprise the costs arising in the acquisition of new business (e.g. commission) and for the ongoing administration of insurance contracts.
the key factor we consider is economic value added, which cannot be properly reflected by the combined ratio. We pursue this target internally through the performance indicator of value added, which measures value creation not only on the basis of current and forecast profits but also taking into account the size of the risks assumed. thus, when considering group performance, we gear targets (by way of a common, linking element) to a risk-adjusted return. although this is not a direct performance measure, it is a strong indication of Munich Re’s value creation.
RoRac is defined as follows: the numerator in the formula comprises the published iFRS net income adjusted for post-tax income (interest rate x [1 – tax rate]) generated on capital not subject to risk within the given risk tolerance. the basis for the adjustment is the capital exceeding the necessary risk-based capital, which is referred to as additional available economic equity. its determination is described in detail on page 162. it is also necessary for rating and solvency purposes, as well as for profitable growth, but we strive to keep it lean through our active capital management, because the additional available economic equity in the system presented here only earns a risk-free interest rate. this is due to the fact that all the risk components of the investment and underwriting are covered with risk-based capital by the internal risk model, and thus assigned return requirements. even though we take a risk-adjusted return as our target, we aspire to meet the high, but fair expectations of our investors with regard to the return on total capital placed at our disposal.
in both primary insurance and reinsurance, we are proceeding on the basis of statistically expectable claims experience. provided there are no significant shifts in the composition of our business portfolio, we reckon with a combined ratio of around 97% of our net earned premiums over the market cycle as a whole, based on an expected average major-loss burden from natural catastrophes of 6.5%. Since we were affected by very severe accumulation loss events at the end of February 2010, i.e. the earthquake in chile and Winter Storm Xynthia over europe, we will only be able to achieve our target if random major losses remain below our expectations in the further course of the year. uncertainties result not only from the random incidence of major individual losses but also from the fact that recession-related exceptional burdens cannot be disregarded in view of the still difficult economic situation. in property-casualty
in primary insurance, we write both personal lines and commercial business, which provides us with a broadly diversified portfolio. We therefore have line- and segmentrelated guidelines for pricing and underwriting designed to ensure the requisite risk balance in the community of policyholders. in addition, the actuaries responsible (life and health business) and the heads of the actuarial departments (property-casualty business) make sure that pricing is appropriate and that sufficient reserves are set up to cover the obligations assumed. We regularly check by means of independent audit processes that these guidelines are appropriate.
Dr. jur. Nikolaus von Bomhard (chairman of the Board of Management) (chairman of the group committee) group Development group investments group communications group audit group executive affairs
Dr. jur. Jörg Schneider group Reporting group controlling corporate Finance M&a integrated Risk Management group legal, compliance group taxation investor and Rating agency Relations
Dr. oec. publ. Wolfgang Strassl (Board member responsible for personnel and welfare matters, within the meaning of Section 33 of the german co-Determination act) healthcare human Resources
Supervisory Board chairman Dr. jur. Hans-Jürgen Schinzler Member since 2 January 2004, last re-elected on 22 april 2009 Former chairman of the Board of Management of Munich Reinsurance company
Dina Bösch Member since 22 april 2009 Member of the national executive Board of ver.di (trades union)
Dr. jur. Benita Ferrero-Waldner Member since 12 February 2010 Former Member of the european commission
Kerstin Michl Member until 22 april 2009 employee of Munich Reinsurance company
Silvia Müller Member since 22 april 2009 employee of Deutsche Krankenversicherung ag
Reinhard Pasch Member since 22 april 2009 employee of Victoria Versicherungs-gesellschaften
Prof. Dr. jur. Dr.-Ing. E. h. Heinrich v. Pierer Member until 22 april 2009 Former chairman of the Supervisory Board of Siemens ag
Dr. jur. Dr. h. c. Albrecht Schmidt Member until 22 april 2009 Former chairman of the Supervisory Board of Bayerische hypo- und Vereinsbank ag
Richard Sommer Member since 22 april 2009 head of the Federal Specialist group, insurances, ver.di
Wolfgang Stögbauer Member until 22 april 2009 employee of Munich Reinsurance company
Josef Süßl Member until 22 april 2009 employee of Munich Reinsurance company
Standing committee Dr. Hans-Jürgen Schinzler (chairman) Herbert Bach Hans Peter Claußen (since 22 april 2009) Wolfgang Mayrhuber (since 22 april 2009) Dr. Bernd Pischetsrieder Dr. Albrecht Schmidt (until 22 april 2009) Josef Süßl (until 22 april 2009)
conference committee Dr. Hans-Jürgen Schinzler (chairman) Herbert Bach Hans Peter Claußen (since 22 april 2009) Dr. Bernd Pischetsrieder Judy Võ (until 22 april 2009)
Dr. oec. publ. Wolfgang Strassl DKV Deutsche Krankenversicherung ag2 apollo DKV insurance company ltd., hyderabad, india Storebrand helseforsikring aS, oslo
2 own group company within the meaning of Section 18 of the german Stock companies act.
Prof. Dr. rer. nat. Peter Gruss (since 22 april 2009) Siemens ag – Ulrich Hartmann (until 22 april 2009) Deutsche lufthansa ag henkel ag & co. Kgaa e.on ag (chairman) Dr. rer. nat. Rainer Janßen (until 22 april 2009) – acoRD4
Demographic change is also leading to fundamental upheavals in many parts of the world. in combination with falling birth rates, increasing life expectancy is placing enormous pressure on pay-as-you-go social security systems. By 2030, every two people employed in europe will have to finance one person who is not. this means europeans can only maintain their standard of living and high-quality healthcare in the medium term if they make additional private provision, giving rise to a major opportunity for the private insurance industry.
the Japanese economy shrank for the second consecutive year. after –1.2% in 2008, gDp decreased noticeably by 5.0% in real terms.
the eurozone was also hit hard by the crisis. Whereas in the previous year slight real economic growth of 0.6% had been posted, economic performance fell by 4.0% in real terms in 2009. there were significant regional differences, but none of the euro countries recorded positive real growth rates.
at –4.8%, the fall in real gDp for 2009 was also comparatively sharp in the United Kingdom.
Capital markets after a string of setbacks, the international stock markets recorded marked price gains from March 2009 onwards. over the course of the year, the euRo StoXX 50 improved by 21.1%. in the uSa, the S&p 500 closed 2009 up 23.5%. the DaX gained 23.8% compared with the beginning of the year, while the Japanese nikkei index recorded an increase of 19.0%.
until early March 2009, the euro lost ground against the uS dollar and reached its year-low at uS$ 1.25. this trend subsequently reversed, with the exchange rate rising to uS$ 1.43 at year-end. the pound sterling exchange rate was very volatile, with the euro depreciating over the year as whole from £0.97 at the start to £0.89 at the close. the euro appreciated marginally in value against the Japanese yen, climbing from ¥126.01 at the beginning of January to ¥133.57 at the end of December.
Development of the US$/€ exchange rate from January to December 2009
Writing business at risk-adequate prices was once more the central issue on the insurance markets in 2009. Due to the financial crisis and its effects on the capitalisation of the insurance and reinsurance industries, some appreciable price gains were realised in some cases in the renewals at the beginning of the year and at 1 april and 1 July. For many market players, selective and result-oriented underwriting was still the priority.
in general, the negative trends in the global economy also affected insurance markets, although initial estimates indicate that high growth rates were achieved in China. the European markets showed differing developments. in Spain, it appears that premium volume grew by only 1.2% compared with the previous year, whereas in France it increased by 9%.
Despite the high degree of economic uncertainty, the insurance industry in Germany increased its premium income in 2009 by 3.1% according to provisional estimates, compared with growth of only 1.0% in the previous year. life insurance benefited considerably from single-premium business and posted a significant improvement of 7.1% in premium volume. property-casualty business saw hardly any growth, with premium increasing by only 0.2%. premium income in private health insurance rose by 4.0%.
// 62.4% increase in the consolidated result to €2,564m, despite the difficult environment worldwide
As part of the first-time application of IFRS 8, we now clarify the sources of the profit shown in the income statement by splitting the operating result into two components: the technical result and the non-technical result. Also, an interest component is allocated to the technical result in the form of “income from technical interest”. This derives from the interest earned on technical provisions and the entitlement of policyholders to portions of the non-technical result. Further information can be found in the notes to the financial statements on page 197.
Munich Re’s business performed well in the past financial year, despite the still difficult macroeconomic climate. Gross premium income rose by 9.5% year on year. We posted an operating result of €4,721m for 2009, an increase of 23.1%. This operating result comprises the technical result totalling €2,747m (2,756m) and the non-technical result amounting to €1,974m (1,078m). The increase in the non-technical result was mainly attributable to a significantly higher investment result. The consolidated result was 62.4% up on the previous year. The hSb Group, acquired with effect from 31 March, contributed €123m to the operating result and €78m to the consolidated result. Including the income and expenses recognised directly in equity, there was a result improvement of around €4.2bn compared with the previous year. The investment result climbed to €7.9bn (5.9bn). On the basis of the average investment portfolio at market values, we achieved a return on investment of 4.3% (3.4%).
The return on risk-adjusted capital (RORAC) totalled 15.1% for the 2009 financial year, compared with 7.2% in 2008. The RORAC for 2009 was thus slightly above our long-term target of 15% despite the very difficult environment, a clear sign of our earnings strength.
MunICh RE GROuP AnnuAl REPORT 2009 84 MAnAGEMEnT REPORT buSInESS PERFORMAnCE
In the year under review, we significantly improved the operating result and consolidated result.
In the first half of 2009, primary insurance business still reflected the impact of the capital market crisis. by contrast, thanks to our continued good underwriting in property-casualty business and less strain from the capital markets, the picture from July to December was a positive one. For the whole financial year 2009, the primary insurance result climbed to €375m (156m). In the year under review, MCEV amounted to €3.2bn (1.7bn) in life insurance and €2.0bn (1.8bn) in health insurance2. In propertycasualty insurance including legal expenses business, our combined ratio remained at a good level of 93.1% (90.9%).
Gross premiums written €bn Combined ratio Reinsurance property-casualty % Primary insurance property-casualty1 % Operating result €m Consolidated result €m
We earned around 58% (55%) of our Group premium income from reinsurance and 42% (45%) from primary insurance. Whereas in reinsurance we operate on a global basis, in primary insurance the major share of our premium, around 74% (76%), comes from the German market. Thanks to companies acquired in 2008, however, foreign business grew to €4,613m (4,144m) in 2009.
In reinsurance, premium income rose significantly by €3.0bn or 13.5% in the year under review. Taking into account adjustments to eliminate the effects of currency gains or losses, the increase amounted to 13.1%. Our capital strength was particularly in demand during the financial crisis.
In the life and health segment, gross premiums written were up by 36.6% to €9.7bn (7.1bn). Without currency translation effects, they showed a rise of 36.4%, primarily owing to a series of large-volume transactions providing clients with a capital substitute in the financial crisis. Our underwriting policy continued to be determined by risk-adequate prices, terms and conditions.
1 The primary insurance premium income is made up as follows: 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.
MunICh RE GROuP AnnuAl REPORT 2009 86 MAnAGEMEnT REPORT buSInESS PERFORMAnCE
In health insurance, premium volume expanded by 3.6% to €6.0bn (5.8bn). In Germany, health premium income grew by 1.7% to €4.9bn, while international business increased by 12.7% or €126m. The year under review was adversely affected by the impact of the German health reform on comprehensive cover and of the economic crisis on travel insurance.
MunICh RE GROuP AnnuAl REPORT 2009 88 MAnAGEMEnT REPORT buSInESS PERFORMAnCE
currency leads on balance to a positive result contribution if exchange rates for that currency rise, and in a negative result contribution if they fall. With undercoverage, the effects are the opposite. In the consolidated financial statements, we recognise these items under “other income” and “other expenses“.
beyond this, the impact of changes in exchange rates is reflected in period-to-period comparisons of all items in the income statement. Thus, for example, gross premiums translated into euros for the consolidated financial statements show a rise if their original currency has appreciated against the euro compared with the prior period. Falling exchange rates have a converse effect.
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.
// Year-on-year increase in premium income of 13.5% to €24.8bn, mainly due to premium growth in life and health
Munich Re operates in virtually all classes of reinsurance. We offer a full range of products, from traditional reinsurance to innovative solutions for risk assumption. We aim to deploy our extensive risk knowledge to develop individual solutions for our clients in response to complex requirements. The newly positioned Munich Re brand symbolises this sharpened value proposition, whose cornerstones are financial solidity coupled with forward-looking expertise.
As reinsurers, we write our business directly with the primary insurers and also via brokers. This includes traditional reinsurance business and primary insurance business from industrial clients, insurance pools, public-private partnerships and business in specialist niche segments. The crucial success factor in all these areas is generally risk expertise.
MunICh RE GROuP AnnuAl REPORT 2009 90 MAnAGEMEnT REPORT buSInESS PERFORMAnCE
Our capital strength was particularly in demand during the financial crisis, and we were able to realise transactions with a series of clients seeking to cover their need for a capital substitute. In addition, we benefited from consistently pursuing our underwriting policy of forgoing business that fails to meet our risk-adequate terms and conditions. Our expertise in the assessment of risk and proven financial strength are important success factors that are increasingly being rewarded through better prices than those achieved by our competitors.
1 not available for the financial years 2005–2007, since IFRS 8 was applied for the first time in the financial year 2009.
About 39% of our total premium income emanated from life and health and 61% from property-casualty business.
Life Gross premiums written €m Health Gross premiums written €m Combined ratio1 %
The MCEV of total life reinsurance business increased to €6,773m (6,116m) in the past financial year. The revaluation of the previous year’s figure in connection with the conversion from EEV to MCEV has resulted in a decline of €1,459m in embedded value as at 31 December 2008. This decrease contrasted with positive exchange-rate impacts and higher overall earnings of €1,616m (498m), due not only to a favourable capital market environment but also to a significant rise in the value added by new business totalling €562m (356m). The strong growth in the value added by new business is in part attributable to one-off new business opportunities created by the financial crisis. A presentation of MCEV is available on Munich Re’s website.
Embedded value for 2009 at €6,773m 28.6% growth in premium income
In Germany, a trend away from unit-linked life insurance products towards traditional annuity products with guarantees emerged in light of the financial crisis. Moreover, the share of single-premium business in Germany grew strongly. The slightly greater demand for pure risk products is gratifying from the reinsurance perspective, but it is reflected mainly in the companies’ retentions, given the low average sums insured. Overall, the trend towards increasing retentions and a conversion of reinsurance treaties from coinsurance to risk-premium basis continued. Due to the financial crisis, solutions in the area of solvency relief and capital strengthening met with rising interest, enabling us to keep premium income in Germany stable overall at €0.7bn (0.7bn) in 2009.
In the USA, our subsidiary Munich American Reassurance Company (MARC) increased its gross premiums to €1.5bn (1.3bn), thus maintaining its position among the leading life reinsurers, even in the financial crisis. Despite the difficult market environment, MARC sees opportunities to further grow its market share, especially in the area of pure mortality covers, by offering attractive individual risk capacity and financial solutions tailored to clients’ specific requirements. Although expenses for pure mortality covers had returned to normal after the previous year, the operating result was below expectations, predominantly due to a more conservative investment policy designed to stabilise future results.
Our investments in the Asian life insurance markets bore fruit in 2009 and exceeded expectations, despite the economic crisis. With the help of newly developed insurance products, we succeeded in upping our premium and results in this field of business. We also managed to conclude a series of attractive treaties that improved our clients’ solvency and balance sheet strength. Premium volume in the Asian markets came to €0.6bn (0.2bn) and played a significant role in determining the value added by new business in the life Division.
We continued to expand our involvement in the region in 2009 and made selected investments with a view to exploiting the business opportunities even more strongly in the long run. Independent client surveys showed that in Asia, too, Munich Re is seen as the first choice in life reinsurance.
Our subsidiary Munich Reinsurance Company of Australasia (MRA), which writes life reinsurance business in Australia and New Zealand, increased premium income by 30% in original currencies, while maintaining satisfactory profit margins.
On the African continent, our subsidiary Munich Reinsurance Company of Africa (MRoA) continued to grow profitably, increasing its premium income by 40% to €105m. Despite its small size, the African market remains attractive for us and offers aboveaverage opportunities for profitable growth.
In recent years, the global health market has become one of the fastest-growing sectors of the economy in terms of both insurance and care provision. This trend will become even more pronounced in the future due to advances in medicine and increases in life expectancy. In order to maximise the opportunities this brings, Munich Re has pooled its specialists for international health primary insurance (outside Germany) and reinsurance business in a separate organisation under the new brand Munich health.
Since Munich health will not be recognised as a separate segment until the first quarter of 2010, the following information for the financial year 2009 still relates exclusively to the activities of international health business managed from within reinsurance.
In the year under review, premium income in this sector rose by around 60%, from €1.8bn to €2.9bn. This increase is partly attributable to a new multi-year quota share treaty in the north American market with a premium volume of €980m in 2009. The combined ratio showed a rise to 100.0% (99.1%), largely owing to start-up costs at our newly established companies DKV Salute (Italy) and DKV Globality (which pools our global business with expatriates).
The USA remains our largest single market, with a premium volume of €912m (848m) in the 2009 financial year. Despite the competitive environment, we succeeded in further improving the result margins in reinsurance business, enabling us to offset reductions in volume due principally to our withdrawal from unprofitable business.
Sterling Life Insurance Company was able to conclude its integration into Munich Re in 2009 and achieve its income targets for the financial year. Its premium income reached €695m, compared with €538m for the three quarters in 2008 following first-time consolidation as at 1 April. Sterling life Insurance Company provides insurance benefits for seniors in the Medicare Advantage segment, the parameters of which are defined by the uS administration. Given the planned health reform, the legal and regulatory framework remains uncertain. back in June 2008, a law was passed that has made marketing to potential new clients more difficult. In addition, in the second quarter of 2009, the government’s plans to cut the state budget for Medicare Advantage plans became more concrete – state reimbursement of expenses is to be reduced. This will lead to a significant decline in premiums in 2010.
Cairnstone, our uS service company for employer stop loss products, is maintaining a stringent underwriting policy, which enabled it to surpass its result margin targets for 2009 and achieve a business volume of €29m (45m). Cairnstone changed its brand name in 2009, renaming itself Munich Re America Stop loss Inc. with effect from 1 January 2010 – a step that is also intended to improve the company’s market positioning.
In Germany, premium volume in the year under review amounted to €215m (236m). For statutory health insurance, 2009 was dominated by the introduction of the new health Fund, leading to a reorganisation of financing as from 1 January 2009. The legislators simultaneously introduced a new insolvency code for statutory health insurers, which has increased their need for risk protection. At the same time, statutory health insurers are required to invest increasingly in healthcare management, a fact that could increase their need for new types of reinsurance solution. In addition, it is now possible for statutory health insurance providers to sell supplementary insurance, which opens up further market opportunities for such products.
Private health insurance, too, is beginning to show a greater need for reinsurance protection against large losses and catastrophe losses as new advances are made in medicine.
Since 2007, Munich health has also been operating one of the first specialist health insurers in India, Apollo DKV Insurance Company limited (renamed Apollo Munich health Insurance Company limited with effect from 12 January 2010), together with the Apollo hospitals Group (Asia’s largest chain of hospitals and pharmacies). The aim is to give new stimulus to heathcare provision and to the country’s health insurance sector.
In property-casualty reinsurance, we posted a solid result founded mainly on the good profitability of our basic business and the low claims burden from natural catastrophes. Owing to the financial crisis, however, man-made claims increased significantly compared with the previous year. The falling prices for reinsurance protection in the last few years were succeeded in 2009 by improved price levels. Against the background of the financial crisis, we demonstrated our qualities as a reliable partner with a sound capital base and were able to consolidate Munich Re’s positioning as one of the world’s leading reinsurers.
Aggregate losses from natural catastrophes came to €196m (832m), representing 1.4 (6.2) percentage points of the combined ratio. These losses were far lower in 2009 than in 2008, owing to the general absence of major catastrophes and the benign hurricane season in the north Atlantic. nevertheless, there was a large number of moderately severe natural catastrophes in 2009. Extensive damage was caused by the bushfires that struck the Australian state of Victoria at the beginning of February 2009, resulting in a burden on the result of around €97m before tax. Severe damage was also triggered chiefly in Spain and France by Winter Storm Klaus, with a loss burden of €83m, and by Windstorm Xystus, which was responsible for a claims burden of €79m in Central Europe.
At €962m, man-made major losses in 2009 were above the long-term average. In credit and surety business, defaults triggered by the financial crisis led to a claims burden of €510m. An incident at a Russian hydropower plant also caused a major loss.
In the Germany, Asia Pacific and Africa Division, the combined ratio reduced to around 100.1% (106.5%), primarily owing to our selective underwriting and the pleasing performance of natural-catastrophe business.
In the Europe and latin America Division, the combined ratio for 2009 fell to a gratifying 87.2%, compared with 91.7% in the previous year, when claims experience had already been good. This improvement is mainly attributable to reductions in reserves for previous underwriting years. At the same time, the number of major losses was lower than the long-term average.
The combined ratio in the Special and Financial Risks Division was up by 13.6 percentage points to 112.6%, owing to the recession-related increase in losses in trade credit, surety and D&O business. by contrast, the result in industrial business and aviation and space reinsurance developed very favourably due to the unusually low frequency of major losses.
In Germany, premium income dropped to €1,416m (1,555m). This was partly due to declines in the original rates obtained by primary insurers and higher cedant retentions. On top of this, we withdrew from business where our requirements with regard to risk-adequate prices, terms and conditions could not be realised. This is part of our consistent cycle management. The pressure on original rates in motor insurance, the class of business with the largest premium volume, persisted. Reinsurance premium volume also declined market-wide with lower margins, causing us to further reduce our motor business in 2009.
In Greater China, premium volume also fell. Since original terms and conditions deteriorated in the course of 2009, we refrained from writing business that did not meet our profitability requirements.
Gross premiums by class of business 2009 2008 2007 2006 2005 €m liability Accident Motor Marine, aviation, space Fire Engineering Credit insurance Other classes of business Total
In the United Kingdom, growing competition in the reinsurance market and the effects of the economic crisis caused a marginal drop in our premium level by 1.3%. Our withdrawal from business where our pricing requirements could not be met was largely offset by new business in fire and an expansion of primary insurance business via managing general agencies (MGAs). We generated additional proportional motor business by supporting a strategic partner in expanding into selected European countries. As in previous years, our branch office in london, which operates in the area of individual-risk business (i.e. facultative business) on the local broker market, made a positive contribution to the overall result.
We maintained our position as market leader in Latin America. Premium income showed a reduction to €606m (658m). Overall, the economic crisis did not have any major impact on premium volume, although development varied somewhat between markets. Our consistent, selective and profit-oriented underwriting policy, a more or less constant price level and the absence of major natural catastrophe losses helped us achieve an exceptionally positive combined ratio in latin America. We easily surpassed our aim of obtaining an adequate share in the anticipated expansion of the Brazilian reinsurance market (which was deregulated in 2008) via our subsidiary Münchener Rück do brasil. Indeed, we became market leader among the foreign reinsurers, with a premium volume of €126m (80m).
In our Global Clients and North American Division, we posted growth in premium volume to €6,058m (5,086m). Especially thanks to our acquisition of the hSb Group, full consolidation of Midland and our increased shareholding in the lloyd’s syndicate MSP, we were able to expand our property business. besides this, we took advantage of attractive growth opportunities involving selected products and existing client relationships and systematically withdrew from unprofitable business due to the pressure on reinsurance rates.
With its acquisition of Midland and the HSB Group, Munich Re advanced further with its entry into specialised primary insurance in niche segments of the uS market and its expansion of property business. This put us in a position to complete our strategy for Munich Re America’s realignment. The integration of Midland has been successfully accomplished, and its premium income totalled €871m. As at 31 March 2009, Munich Re acquired the hSb Group, one of the world’s leading providers of specialist insurance and the inspection of engineering risks. The purchase price for the 100% stake was uS$ 747m (€570.5m). The group’s successful integration into Munich Re was largely concluded within a very short period by year-end. Premium income since first-time consolidation at 1 April 2009 totalled €458m. At €77.6m, the result for the financial year was very satisfying in light of the recession.
Munich Reinsurance Canada Non-Life Group 2009 Prev. year Gross premiums written Can$ m Property-casualty Can$ m Net earned premiums Can$ m Property-casualty Can$ m Loss ratio property-casualty % Expense ratio property-casualty % Combined ratio property-casualty % Result for the year Can$ m Investments Can$ m 1 Financial statements in accordance with national accounting law.
New Reinsurance Company1 2009 Prev. year Gross premiums written Sfr m life and health Sfr m Property-casualty Sfr m Net earned premiums Sfr m life and health Sfr m Property-casualty Sfr m Loss ratio property-casualty % Expense ratio property-casualty % Combined ratio property-casualty % Result for the year Sfr m Investments Sfr m
Our medium- to long-term assessment of the aviation market remains positive. We therefore again increased our share in the Global Aerospace Pool to 44.96% (37.46%) in underwriting year 2009. This pool is managed by GAuM ltd., the world’s leading underwriting agency for aviation and space business, in which we have a stake of 40%.
Measures for limiting risk in credit and surety business taking effect
With Munich Re Capital Markets Gmbh, a subsidiary of Munich Reinsurance Company and organisational component of the Risk Trading unit, we can place catastrophe bonds with investors in the Eu and Switzerland ourselves. We have in the meantime become one of the main European investors in insurance-linked securities (IlS), which allows us to systematically exploit further market opportunities. We are consequently in a position to cover the whole value chain in this promising area. The Risk Trading unit achieved a satisfactory technical result in 2009.
We offer our clients in direct industrial and major project business a wide range of products, customised solutions and services based on our recognised industry- and risk-specific knowledge. We will in future operate the business under the Munich Re Risk Solutions brand through our experts in Munich, london, Paris, the uSA, and Singapore. Our specialist knowledge in identifying, assessing and structuring insurance solutions allows us to create value in a highly dynamic, globalised and innovative environment and to set ourselves apart from our competitors. We build on our ability to combine substantial capacity with proven financial strength and capacity for innovation, and to place these at the disposal of our clients and business partners, such as brokers. Despite significant investment in the global expansion of these activities, the result developed very favourably in the 2009 financial year, partly because the burden from major and accumulation losses was below average.
// Combined ratio of 93.1% again better than our long-term target // Investment result of €4.6bn // Consolidated result totalling €375m significantly higher than in previous year // ERGO to drive growth with its new brand strategy
With the transfer of travel insurer ERV and of almeda (formerly Mercur) to ERGO on 1 January 2009, our primary insurance segment now corresponds to the business managed by ERGO. besides this, the Watkins Syndicate is now reported in the re insurance segment. ERGO is active in nearly all branches of life, health and propertycasualty insurance. Approximately 74% of gross premiums written derives from Germany, the remaining 26% stemming from international business, in particular from Europe. Altogether, around 91% is transacted in euros.
In primary insurance, we use multiple sales channels. ERGO has almost 22,000 full-time, self-employed insurance agents representing its brand insurers and also works with brokers and strong cooperation partners. In addition, it collaborates with the subsidiaries of the Italian banking group uniCredit both in Germany and in several countries of central and eastern Europe. The Group has stepped up its international activities under the ERGO brand name. In future, it will offer life and property-casualty insurance under this brand in Germany as well, with health insurance pooled under the DKV brand and legal expenses insurance under D.A.S. Through its travel insurer ERV, ERGO has more than 17,000 partners in the tourist industry in Germany, its main sales partners being travel agents and tour operators. You will find details on ERGO’s new brand strategy on page 60.
In 2009, business development remained impacted by the financial crisis. While the results in the first half of the year still suffered from the effects of the capital market upheavals, the picture was more positive in the further course of the year, thanks to the continued good underwriting in property-casualty business and an easing of the strain from the capital markets. The operating result totalled €926m, a decline of 6.6% compared with the previous year (€991m). In the period under review, the technical result amounted to €854m (1,332m) and the consolidated result for the primary insurance segment totalled €375m (156m), 140.4% higher than in the previous year. The result for the ERGO subgroup came to €173m (73m).
In the financial year 2009, we wrote total premium income of €19.1bn (18.1bn) in primary insurance, a rise of 5.3%. Growth was especially apparent in international business, where it was driven by changes in the consolidated group: the new Austrian subsidiary bACAV had not yet been fully consolidated in the previous year, and ERGO Daum Direct was not included in the figures until the second quarter of 2008. If these companies had been part of ERGO in the corresponding period last year, our growth would have totalled 2.5%. Although our premium volume in primary insurance largely stems from the eurozone, our income felt the impact of strong negative changes in exchange rates, especially the Polish zloty and Turkish lira. Whereas ERGO hestia in Poland grew by a robust 20.1% in the domestic currency, its premium reduced by 2.6% in euros. At €13.9bn (13.8bn), overall premium income from Germany was up 1.0% on the previous year. Gross premiums written in 2009 totalled €17.5bn (17.0bn). unlike overall premium income, gross premiums written do not include the savings premiums of €1,580m (1,132m) from unit-linked life insurance and capitalisation products.
The consolidated result in life insurance for the past financial year amounted to €30m (–12m).
We value the life, health and personal accident insurers with their long-term liabilities on the basis of Market Consistent Embedded Value (MCEV) Principles. MCEV comprises a company’s equity and the present value of its future net earnings from business in force. The latter is the present value of future profits (where profits are posttaxation shareholder cash flows from the in-force covered business and the assets backing the associated liabilities) calculated using financial and actuarial methods (see page 64 f.). In contrast to the market-consistent EEV published in the previous year, the costs of non-hedgeable risks are explicitly calculated under MCEV.
In the 2009 financial year, ERGO consolidated its presence in Austria, bringing together under the roof of ERGO Austria International holding the brands bACAV, acquired in 2008, and Victoria Volksbanken Versicherung. The group’s activities in central and eastern Europe are also united under the umbrella of the holding company. In addition to developing an IT platform, the group aims to generate new products as well.
In the first quarter of 2009, ERGO and the Indian hERO Group mutually agreed to abandon their plans for a joint-venture company for life insurance in India. The hERO Group has postponed its planned activities in this area indefinitely. We have confidence in the long-term potential of the Indian life insurance market, despite the global economic crisis, and will pursue our plans to enter the market.
In the health insurance segment, the consolidated result for the year under review rose to €82m (16m). In the financial year 2009, MCEV climbed to €1,971m (1,783m). The revaluation of the previous year’s figure in connection with the conversion from EEV to MCEV Principles resulted in a rise of €17m. Total MCEV earnings reduced to €168m (224m). The value added by new business decreased to €36m (40m). A presentation of MCEV is available on Munich Re’s website.
Since the beginning of 2009, premium volume in health climbed by 3.6% to €6.0bn (5.8bn). ERV and almeda (formerly Mercur) have been included in this segment since 1 January 2009 rather than in the property-casualty segment. The previous year’s figures have been adjusted accordingly. In international business, we recorded growth of 12.7% in the past financial year. Premium increases were particularly robust in Spain, mainly due to the operations of DKV Seguros, which began providing healthcare for the Denia region in Spain by taking over hospital operator Marina Salud in February 2009. In Germany, premium volume for 2009 totalled €4.93bn (4.85bn), representing growth of 1.7% compared with 2008. Our premium in supplementary health business rose by 5.6%, while in comprehensive health insurance premium income was up by 1.0%. These figures reflect not only the impact of the German health reform on comprehensive health business but also the effect of the economic crisis on travel insurance in particular, where premium fell to €390m (395m).
Investment result having made systematic reallocations from equities to interest-bearing securities, we generated higher regular interest income. Despite the current low interest rate level, regular income from loans and fixed-interest securities categorised as “available for sale” rose by €442m or 7.4%. Conversely, dividend income from our markedly reduced equity portfolio and regular income from associates fell by €739m or 76.7%.
Distribution of investments by type 2.2% Real estate 2.3% Real estate 2.2% Shares and equity funds 8.7% Miscellaneous investments 60.8% Fixed-interest securities 62.5% Fixed-interest securities 25.6% loans 23.1% loans 8.6% Miscellaneous investments 2.7% Shares and equity funds 0.6% Participating interests 0.7% Participating interests €m Regular income Write-ups/write-downs net realised capital gains Other income/expenses Total
In the period under review, the net balance of write-ups and write-downs on our investments was –€1,122m (–2,847m), of which –€283m (–509m) was attributable to the fourth quarter. In the previous year, we had had to absorb substantial write-downs on our equity portfolio. Furthermore, write-downs on our fixed-interest securities “available for sale” and loans in 2009 were down by €418m to €213m. In the previous year, we made relatively high write-downs on lehman brothers securities in the wake of their insolvency, and already recognised impairment losses of around €280m in the fourth quarter of 2008 for various sections of our uS portfolio, commercial mortgagebacked securities, Alt-A and subprime home equity loans. however, there was a countervailing effect in the financial year 2009 from higher write-downs totalling €366m (–489m) on swaptions used by our life primary insurers to protect themselves against reinvestment risks in low-interest-rate phases.
nevertheless, we cannot rule out further write-downs if the difficult economic situation persists. This applies particularly to the tier 1 and upper tier 2 instruments in our bank exposure (which are equity-related from the issuer’s perspective) and to the participation certificates, which have already been partially written down in value. Our total exposure to such securities as at the reporting date was €602m at market values. This is equivalent to only 0.3% of our whole investment portfolio.
Investment result by type of investment 2009 Prev. year Change €m €m % Real estate Investments in affiliated companies Investments in associates Mortgage loans and other loans Other securities 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 and other expenses Total
In the financial year 2009, we generated a result of €441m (–562m) from investments for the benefit of life insurance policyholders who bear the investment risk. We post this figure in the investment result under “other income/expenses”.
The carrying amount of investments showed an increase of €7.2bn or 4.1% since the beginning of the year, due largely to the inclusion of the investments of the hSb Group, consolidated for the first time as at 31 March 2009, and to the rising market values of our fixed-interest securities as a consequence of lower risk spreads. net unrealised gains on our fixed-interest securities therefore also showed an increase. An opposite effect derived from our dividend payment of €1.1bn. In addition, we continued to make substantial investments in fixed-interest securities and loans, favouring these to some extent over our equity portfolio. This mainly took the form of switches into corporate bonds. Our loan investments are almost all held by our life and health primary insurers.
The majority of our investments are in the European area. by way of currency matching, we base investments on the currency structure of our underwriting liabilities. The focus of ERGO’s business, and thus also of the technical provisions requiring investment coverage, is on Germany and other European countries. In reinsurance, investments and technical provisions have a more international spread; our commitment in the uS reinsurance market is reflected by the regional investment allocation.
At the reporting date, the market value of our equity portfolio (including investments in affiliated companies and associates) was only €5.2bn (6.2bn). At 31 December 2009, our economic equity exposure amounted to 2.8% (1.6%). Expressed as a percentage of adjusted equity, the volume of investments in equities – minus derivatives, policyholders’ bonuses and deferred taxes – is 5% (“equity gearing”). We thus only benefited to a small extent from the sometimes significant price gains in 2009. Given the volatile capital market environment, however, we preferred to deploy our financial capacity to cover insurance and reinsurance risks rather than speculate on cyclically fragile stock market rallies.
Our investment portfolio is chiefly made up of fixed-interest securities and loans, which totalled €157bn at 31 December 2009, making up around 86.4% of our investments at carrying amounts. This represents an increase of 0.9 percentage points compared with the start of the year and a rise of 12.1 percentage points compared with 31 December 2007.
Approximately 11% of our portfolio of fixed-interest securities and loans, which includes short-term items, was invested with banks at the balance sheet date. A small portion of our bank exposure, around 3%, consists of dormant holdings, participation certificates and other quasi-equity instruments. Another 7% is in subordinated bonds with limited maturities.
Our entire portfolio of interest-bearing investments has a good rating structure. This is described in more detail on pages 226 to 235 in the notes to the consolidated financial statements.
Duration of fixed-interest securities and loans, including short-term items, as at 31 December 2009 (in years)1 1 Presentation based on economic view and not fully comparable with IFRS figures. The economic view includes cash positions.
Valuation reserves not recognised Valuation Fair Carrying Valuation Fair Carrying in the balance sheet reserves value amount reserves value amount €m 31.12.2009 31.12.2009 31.12.2009 Prev. year Prev. year Prev. year land and buildings1
Munich Re’s capital structure is essentially governed by its activity as an insurer and reinsurer. investments on the assets side of the balance sheet serve mainly to cover technical provisions (75.6% of the balance sheet total). equity (10.0% of the balance sheet total) and bonds classified as strategic debt (2.3%) are the most important sources of funds.
Reinsurance business accounts for approximately 32% of technical provisions, and primary insurance business for about 68%. in contrast to liabilities under loans and securities issued, we cannot foresee with certainty how high our liabilities from underwriting business will be and when they will arise. this is especially true of reinsurance. Whereas in property insurance a major portion of the provisions is generally paid out within two years, in life or liability insurance substantial amounts may still be due decades after the contracts were concluded. the currency distribution of our provisions reflects the global orientation of our group. Besides the euro, our main currencies are the us dollar and pound sterling. We ensure that our business is sufficiently capitalised at all times by monitoring the situation continuously and taking suitable measures, which are dealt with in the section on capital management.
Strategic debt reduced slightly compared with the previous year. as part of our active capital management, we bought back and retired outstanding bonds with a nominal value of around €268m, 94% of which comprised subordinated bonds. in addition, we repaid a bank loan equivalent to around €123m on schedule in July 2009. a detailed analysis of the structuring of this type of funding is provided in the section on strategic debt on page 128 f.
Despite this return of capital, our equity increased by €1,171m in 2009. also, equity’s share of total capital rose marginally compared with the previous year.
since we are an international (re)insurance group, some of our financial resources are subject to restraints on disposal. supervisory authorities in some countries, for ex ample, require foreign reinsurers to establish premium and reserve deposits with primary insurers. at the reporting date, this involved investments with a volume of €12.7bn (11.9bn).
in addition, there were contingent liabilities, which are described in the notes to the financial statements (see page 295). off-balance-sheet financing does not play a significant role for Munich Re.
to configure our asset management as effectively as possible, we also use derivative financial instruments, which are described on page 232 ff. of the notes to the financial statements.
essentially, we see efficient and transparent capital management – always geared to what is feasible – as an appropriate means of achieving our goal of being recognised as a reliable partner in the capital markets. this should guarantee our ability to raise cap ital quickly and easily in the capital markets, especially for large potential growth opportunities and the optimisation of our capital structure.
the available capital should not only be adequate but also deployed efficiently. We use our value-based management to set performance targets designed to ensure that every investment achieves a sustainable return commensurate with the risk involved. to limit fluctuations in results owing to major losses, we have also developed guidelines and limit systems within the framework of integrated risk management and corporate underwriting for our reinsurance companies. these guidelines and systems are constantly monitored, and adjusted where necessary. We protect the results and capital of our primary insurance and reinsurance companies against unacceptable fluctuations by means of suitable reinsurance and retrocession covers. We also use asset-liability management and a system of limits to restrict the risks inherent in our investments.
our internal risk model plays a central role in capital management. We use it to analyse how certain risk scenarios affect segment results and investments. We explain how we determine our economic risk capital on page 154 ff. in the risk report. the risk report also provides information on our economic equity (see page 161 f.).
// Within the framework of the share buy-back programmes announced in May 2008 and october 2009, we bought back shares to the value of approximately €0.4bn in 2009, which we offset against retained earnings.
// net unrealised gains were €490m higher than at the beginning of the year. in particular owing to the decrease in risk spreads for corporate bonds and pfandbriefs, net unrealised gains on our fixed-interest securities in the “available for sale” category rose further.
// our equity is affected by changes in the exchange rates of foreign currencies against the euro (see explanations on page 88 f.). at the reporting date of 31 December 2009, our reserve for currency translation adjustment showed a slight reduction of €51m to €1,245m compared with the previous year, mainly as a result of two opposite effects: the rise due to the appreciation in the pound sterling and canadian dollar was marginally exceeded by the minor depreciation in the us dollar.
Changes in Group equity and in the valuation reserves 31.12.2009 31.12.2008 31.12.2007 31.12.2006 31.12.2005 not recognised in the balance sheet €bn group equity Valuation reserves not recognised in the balance sheet, including those apportionable to minority interests and policyholders (before tax)
Information in accordance with Section 315 para. 4 of the German Commercial Code and explanatory report of the Board of Management
Shares with special control rights there are no shares with special control rights.
System of control for employee share scheme where the control rights are not exercised directly by the employees like other shareholders, employees exercise control rights directly on shares issued to them, in accordance with statutory provisions and the articles of association.
Statutory regulations and provisions of the Articles of Association regarding appointment and dismissal of members of the Board of Management and concern ing amendments to the Articles of Association the legal parameters for the appointment and dismissal of members of the Board of Management are specified in the company’s co-determination agreement, articles 13 and 16 of the articles of association, sections 84 and 85 of the german stock companies act, and sections 121a para. 1 and 7a of the german insurance control act. Munich Re’s co-determination agreement and articles of association have taken over the legal tenets of the german co-Determination act. the supervisory Board appoints the members of the Board of Management and may dismiss them at any time for good cause. on initial appointment, members of the Board of Management are usually given contracts for a term of between three and five years. extensions of up to five years are possible and – in exceptional cases – members of the Board of Management may also be appointed by a court of law.
Powers of the Board of Management with particular regard to the option of issuing or buying back shares the powers of the members of the Board of Management are defined in sections 71 and 76 to 94 of the german stock companies act. the Board of Management has the following powers to issue and buy back shares (the complete wordings of the relevant resolutions and provisions in the articles of association can be viewed on our website): // the annual general Meeting of 22 april 2009 authorised the company under agenda items 5 and 6, pursuant to section 71 para. 1 item 8 of the german stock companies act, to buy back shares until 21 october 2010 up to a total amount of 10% of the share capital at the time of the annual general Meeting resolution (€587,725,396.48). the shares acquired plus other own shares in the possession of the company or attributable to the company in accordance with section 71a ff. of
// under article 4 para. 1 of the articles of association, the Board of Management is authorised, with the consent of the supervisory Board, to increase the company’s share capital at any time up to 21 april 2014 by an amount of up to €280m by issuing new shares against cash or non-cash contribution (authorised capital increase 2009). in accordance with the above-mentioned provisions of the articles of association, it may exclude subscription rights. the shares issued overall on the basis of this authorisation subject to the exclusion of shareholder subscription rights may not exceed 20% of the existing share capital at the time this authorisation is exercised for the first time.
// under article 4 para. 2 of the articles of association, the Board of Management is authorised to increase the share capital at any time up to 18 april 2011 by an amount of up to €5m by issuing new shares against cash contribution (authorised capital increase 2006). the subscription right of shareholders is excluded insofar as this is necessary to allow the shares to be issued to employees of Munich Reinsurance company and its affiliated companies.
Based on our underwriting guidelines, our reinsurance agreements generally include a clause that grants both parties to the agreement a right of extraordinary cancellation in the event that “the other party merges with another company or its ownership and control undergoes a material change”. such or similar clauses are typical of the industry. Munich Reinsurance company’s long-term incentive plan for members of the Board of Management, senior management, and top executives in Munich Re’s international organisation, which is explained in detail in the remuneration report, provides for special exercise options in the event of a change of control.
We define as strategic debt all financial instruments with the character of outside financing that do not have a direct link with our operative business. it supplements our financial resources and is essentially designed to reduce the cost of capital and ensure that we have sufficient liquidity at all times. With a view to making our capital structure transparent, we detail below the calculation of our debt leverage, which is defined as the ratio of strategic debt to the sum of group equity and strategic debt expressed as a percentage. our technical provisions are not considered, even though they are mostly available to us on a very long-term basis as a source of financing for investment.
Munich Re is subject not only to the supervisory requirements applying to individual insurance companies but also to supervision at group level. Munich Reinsurance company as the parent has introduced suitable control methods and, when reporting to Bafin, which is also responsible for the group, includes supplementary aspects at group level, such as shareholdings, consolidated financial data and intra-group transactions. solvency in the case of insurance companies is generally understood to be the ability of an insurer to always meet the obligations assumed under its contracts. in concrete terms, this means an insurance company must fulfil specific minimum capital requirements. the aim of the “adjusted solvency” rules is to prevent the multiple use of equity to cover risks from underwriting business at different levels of the group hierarchy. to calculate the adjusted solvency, the minimum equity required for the volume of business (required solvency margin) is compared with the eligible equity actually available (actual solvency margin) on the basis of the ifRs consolidated financial statements. to determine the eligible capital elements, the ifRs equity is adjusted; in particular, it is increased by portions of the subordinated liabilities and reduced by intan gible assets. Munich Re’s eligible capital is more than two-and-a-half times higher than the legal requirement.
the change in the adjusted solvency ratio from 263.9% in the previous year to 268.5% in 2009 is mainly due to the increase in group equity, which was chiefly attributable to the improvement in the consolidated result.
Debt leverage 31.12.2009 prev. year strategic debt €m group equity €m Total €m
Despite the fi nancial crisis, Munich Re’s fi nancial strength continues to be assigned the second-highest rating category by each of the leading rating agencies. standard & poor’s explicitly refers to Munich Re’s very strong capitalisation.
Primary insurance group a. M. Best fitch Moody’s s&p Das legal expenses insurance company limited a D.a.s. Österreichische allgemeine Rechtsschutz-Versicherungs-ag a D.a.s. Rechtsschutz-Versicherungs-ag a+ DKV Deutsche Krankenversicherung aktiengesellschaft aa– aa– europäische Reiseversicherung ag a+ hamburg-Mannheimer sachversicherungs-aktiengesellschaft aa– hamburg-Mannheimer Versicherungs-aktiengesellschaft aa– aa3 aa– eRgo DiReKt lebensversicherung ag1 a+ stu eRgo hestia s.a. BBBpi Victoria lebensversicherung aktiengesellschaft a– aa3 a+ Victoria Versicherung aktiengesellschaft aa– Vorsorge lebensversicherung aktiengesellschaft a+
Financial strength ratings for Munich Re Rating agency Rating outlook a. M. Best a+ (superior) stable fitch aa– (Very strong) stable Moody’s aa3 (excellent) stable standard & poor’s aa– (Very strong) stable 1 formerly KarstadtQuelle lebensversicherung ag.
Bonds and notes issued the bonds and notes issued by our group identification a. M. are rated as follows: number Best fitch Moody’s s&p Munich Reinsurance Company WKn: 843278 6.75% until 2013, thereafter floating, €2,900m1 isin: Xs0166965797 subordinated bonds Reuters: De016696579= 2003/2023 Bloomberg: MunRe a+ a a2 a Munich Reinsurance Company WKn: 843449 7.625% until 2018, thereafter floating, £300m isin: Xs0167260529 subordinated bonds Reuters: De016726052 = 2003/2028 Bloomberg: MunRe a+ a a2 a Munich Reinsurance Company WKn: a0n4eX 5.767% until 2017, thereafter floating, €1,349m2 isin: Xs0304987042 subordinated bonds Reuters: De030498704 = 2007/perpetual Bloomberg: MunRe a a a3 a Munich Re America Corporation cusip-no.: 029163aD4 7.45%, us$ 397m3 isin, Reuters: – senior notes Bloomberg: 1996/2026 aMeR Re coRp MunRe bbb+ a+ a2 a– HSB Group Inc. liBoR +91 Bp, us$ 76m4, subordinated bonds not 1997/2027 rated The Midland Company liBoR +350 Bp, us$ 24m5 subordinated bonds not 2004/2034 rated Bank Austria Creditanstalt Versicherung AG 4.95%, €50m subordinated registered bonds not 2004/2014 rated Bank Austria Creditanstalt Versicherung AG secondary market yield on federal government bonds (austria) +70 Bp, €13m6 subordinated registered bonds not 1998/perpetual rated Bank Austria Creditanstalt Versicherung AG 6% until 2010, thereafter floating, €12m7 subordinated registered bonds not 2001/perpetual rated 1 in the first half-year 2009, the issuer bought back bonds with a nominal value of €100m.
2 in the first half-year 2009, the issuer bought back bonds with a nominal value of €151m. 3 the issuer bought back notes with a nominal value of us$ 17m in the second quarter 2009 and notes with a nominal value of us$ 7m in the third quarter. 4 in the third quarter of 2009, hsB capital i, Delaware, was dissolved. the bonds it had issued were replaced by bonds of the hsB group inc., Delaware, in the amount of the liabilities outstanding, with unchanged terms and conditions. 5 in the second quarter of 2009, the issuer redeemed bonds with a nominal value of us$ 24m.
6 eRgo ag holds bonds with a nominal value of €3m; the volume outstanding has been reduced accordingly. 7 eRgo international ag holds bonds with a nominal value of €3m; the volume outstanding has been reduced accordingly.
the cash outfl ows for fi nancing activities stem in particular from share buy-backs of €399m and the dividend payment of €1,076m in 2009.
overall in the year under review, cash – which encompasses cash with banks, cheques and cash in hand – increased by €717m (including currency eff ects) to €3,082m.
Beyond financial performance, we also aim to secure Munich Re’s long-term economic success with other factors.
these include: // Being the first “port of call” for clients in connection with all risk matters // firm commitment to devising innovative coverage concepts for new and complex risks // corporate responsibility towards employees, society and the environment // efficient business processes for managing our group and identifying or avoiding risks
Munich Re has different client bases in reinsurance and primary insurance. in reinsurance, we work together with over 4,000 corporate clients from more than 160 countries – not only traditional insurers but also the insurance subsidiaries of industrial com panies (so-called captives).
Reinsurance as reinsurers, we aim to deploy our extensive risk knowledge to develop individual solutions for our clients to meet their complex needs. We therefore provide companies wishing to cede insurance risks with the full range of underwriting products. in so doing, we do not shy away from new or complex risks and regularly assume a pioneering role in the development of new coverage concepts. our clients thus benefit from a unique combination of financial strength and risk knowledge. in line with their specific needs, we offer them not only risk transfer products but also consulting and other services, giving precedence to a holistic view of client relationships. our client management is geared to providing our clients with optimum solutions for all risk transfer requirements and intensifying cooperation with them. in addition, we constantly strive to enhance our service and, to this end, draw on the findings and suggestions obtained from client surveys.
proximity to our clients is important to us: with branches and subsidiaries around the world, we ensure that they can always find us where and when they need us. and by combining international know-how with in-depth knowledge of local conditions, we are always in a position to propose individual solutions.
clients benefit from financial strength and risk knowledge other success factors
Primary insurance in primary insurance, we focus on private clients, who make up the bulk of our clientele, along with small and medium-sized commercial firms. from eRgo, they can obtain a full range of products from one source: life and health insurance, property-casualty insurance, legal expenses insurance, fund products offered by Meag, and bank products from our cooperation partner, the unicredit group. consultancy and other services supplement the portfolio. eRgo is working constantly at expanding this range and networking it to achieve integrated solutions. this enables us to provide flexible answers to all clients’ needs, even if these change over time.
135ManageMent RepoRt otheR success factoRs innovative solutions that benefit our clients also regularly emerge in other divisions. here are two examples from the past year: the insurance4renewables initiative of the global clients and north america Division demonstrates how the challenges of climate change can be taken up and translated into business. together with partners Rsa insurance group (Rsa) and carbonRe, with support from the global environment facility (gef) and the united nations environment programme (unep), Munich Re offers tailor-made products for projects connected with renewable energy in developing markets, substantially supporting their advance.
in designing a policy for employment practice liability insurance, Munich Re and the recently acquired hsB group have demonstrated their successful cooperation in research and development. this jointly developed innovative product covers small and medium-sized companies in the usa against lawsuits brought by employees or clients on the grounds of discrimination or harassment.
organisationally, too, Munich Re is adjusting the structure of its research and development to the constantly changing business environment. an enhanced knowledge management strategy, for example, has linked the activities of more than 700 experts more closely to the business we write. in cross-divisional projects, knowledge management comes up with concrete solutions for our clients and carries out excellence initiatives for underwriting and claims management. Munich Re has also invested in a state-ofthe -art online platform to ensure that our first-class expertise continues to be effectively used internally and externally and to optimise interdisciplinary cooperation and information exchange with clients.
eRgo’s life insurers use their own mortality tables in order to have customised data available for their specifically structured portfolios. the health insurers make use of the german association of private health insurers’ mortality tables. our actuaries work closely with the german association of actuaries to extend and update their knowledge about client life expectancy.
Staff in our human resources work, we focus firmly on a corporate and leadership culture that rewards performance, promotes individual responsibility and facilitates personal development. our primary aim is to win the best talent and optimally deploy our staff throughout all fields of business, operating regions and subsidiaries. Joint succession planning at top management level is well established. and a forward-looking platform is in place for Munich Re’s group job market. advertisements are placed globally on all the group’s intranet and internet online job markets and on over 70 job portals. this en ables us to make known on an ongoing basis our requirements for high-performing, interdisciplinarily networked and highly competent specialists.
the rise in the number of staff in the group is largely attributable to international acquisitions in the reinsurance group. particularly worth mentioning in this regard is the acquisition of us specialty insurer hsB group (around 2,600 employees).
We give high priority to the qualifications and personal development of our staff. expenditure on specialist and personal training measures rose by around 22% in 2009, totalling some €8.9m (7.3m). an average of €2,462 (2,069) was invested in training measures per employee. We support the enhancement of skills and excellence in business-specific functions by means of competence profiles, curricula and consistent quality assurance. the career development of our specialists is also of central importance to us.
a measure of the quality of our hR work is the engagement index, the result of a survey on staff satisfaction, commitment and motivation performed at our Munich location at the end of 2008. Munich Re achieved a positive overall result of 82%. this rating exceeds both the tp-isR german national norm (74%) and the tp-isR global financial service companies norm (78%).
Asset management at Meag, employee motivation and skills are enhanced by ongoing qualification and hR development measures. We attach importance not only to the acquisition of key qualifications but also to extending professional knowledge – through seminars and an intensive exchange of experience and expertise across units. as a result of our successful strategic hR planning and development, management positions at Meag can nearly always be filled internally. as usual, the staff turnover rate at Meag was higher than in the rest of the group, reflecting the high degree of internationalisation customary in the asset management sector, as well as the low average age and the company’s comparatively small size.
141ManageMent RepoRt otheR success factoRs given that we manage substantial investments worldwide, we carry substantial responsibility in the area of asset management. in april 2006, Munich Re became the first german company to sign the un principles for Responsible investment (pRi), which we played a prominent role in helping to establish. our globally binding general investment guidelines (gig) in place since 2005 specify that our investments in shares, corporate bonds, bank bonds and government bonds must meet certain sustainability requirements. We invest at least 80% of the market value of these investments in assets that are included in a sustainability index like the Dow Jones sustainability or satisfy generally recognised sustainability principles. in addition, we have tightened our sustainability criteria for corporate and bank bonds since 2007. We are convinced that taking account of such criteria in our investments will have a favourable impact on risk and return in the long term.
Munich Re has had an iso 14001-certified environmental management system in place at its Munich head office since 2000. our Munich and Milan offices have been using only green electricity since 2008.
Primary insurance eRgo also practises social responsibility in many areas, continuing the long tradition of many of its companies. it is guided by the principle of sustainability, reflecting the long-term character of our business. as insurers, we give a promise of cover for the future, thereby supporting people in managing their lives.
this commitment takes many different forms, of which the following are just a selection.
Education and science as a member of the association for the promotion of german science and humanities, eRgo helps promote germany as a scientific location. in addition, we sponsor gifted students, e.g. in the nRW scholarship programme.
143ManageMent RepoRt otheR success factoRs the hamburg-Mannheimer foundation “Jugend & Zukunft”, set up in 1999, is dedicated to encouraging young people to shape their own futures. its “Job locomotive” project supports socially deprived youngsters in developing career perspectives and in starting training and work.
Via the DKV brand, we sponsor the german hygiene Museum in Dresden. this allround museum for human sciences makes clear the importance of a responsible approach to life and health. on a more active note, the DKV Bridge Race in cologne motivates thousands of people to take part in sport each year. in past years, eRgo staff have done the bridge race as a sponsored run, with eRgo donating three euros to a social project for each completed kilometre.
Music through its involvement in the sponsorship of the Düsseldorfer tonhalle e.V., eRgo supports the “Junge tonhalle”, a musical experience for young people. the “3-2-1 ignition” project is a series of classical concerts for young people in a relaxed atmosphere, designed to improve classical music’s image and give youngsters a new form of access to this type of music.
Social from our work in insurance, we know only too well that 100% protection is not possible. eRgo and its staff are therefore glad to help in supporting such social projects as the Madeleine schickedanz children’s cancer foundation. the “victorianer helfen” association collects for social institutions and projects nationally and internationally. over 5,000 staff are members of the association and donate a few cents of their salaries and commissions each month.
Security and availability ensuring the protection of persons, information and infrastructure is of fundamental importance for Munich Re. the same applies to our ability to maintain business operations when human errors occur, protective measures fail, or new operational risks occur.
Meeting these objectives requires professional risk management in all operational and central units. central responsibility for the coordination and monitoring of the relevant activities lies with group security and continuity Management (gscM), a unit located in the integrated Risk Management Division. We focus particularly on an appropriate cost-risk relationship and on the consistency and balance of the loss prevention and minimisation measures taken. headed by the chief security officer (cso), gscM ensures that the relevant processes and guidelines are implemented, updated and complied with throughout the group. it reports to the gscM committee of the Board of Management. the cso is also responsible for coordinating the protection of persons, property and information, as well as availability management. he supervises a global network of specialists from reinsurance, primary insurance and asset management with interfaces to the compliance officers, to internal audit, to data protection officers and to the operational units for protection of persons and property, as well as it security. in addition, he is in charge of the security training and awareness programme for Munich Re employees, geared to developing the security culture as a cornerstone of a successful protection concept.
Remit and objectives Risk management is a key part of our corporate management. its purpose is not only to safeguard the group’s financial strength, enabling us to meet our obligations to clients and create sustained value for our shareholders, but also to protect Munich Re’s reputation. We achieve these objectives through global risk management encompassing all areas of our operations.
Organisational structure to provide for efficient risk management, Munich Re has established specific risk management functions and bodies. the integrated Risk Management (iRM) Division supervises risk management group-wide, building on decentralised structures in all units of the group. it is headed by the group chief Risk officer (group cRo), who, like the decentralised cRos at individual companies, is supported by interdisciplinary teams of highly qualified staff. our extensive documentation, guidelines and instructions ensure that staff in our risk management structure and the group as a whole are sufficiently informed about our risk strategy, organisation and processes.
Risk governance the chief Risk officer is a permanent member of the group committee, the Board of Management committee for strategic issues and the body responsible for decisions in matters concerning the whole group (see also page 31).
Determining the risk strategy Munich Re operates worldwide, turning risk into value. the assumption of risks is therefore an essential part of our business strategy. the risk strategy defines the extent of the risks we have incurred for our clients and shareholders. the development of the risk strategy is embedded in the annual planning cycle, and hence in our business strategy. the risk strategy is approved by the Board of Management and discussed regularly with the supervisory Board.
Munich Re’s risk strategy takes into account the interests of both clients and shareholders. its objectives are: // to maintain our financial strength, thereby ensuring that our liabilities to our clients can be met, // to protect and increase the value of our shareholders’ investment, // to safeguard Munich Re’s reputation.
the risk strategy is determined by setting a risk appetite defined by a series of risk limits. the risk appetite is based on the capital and liquidity available and earnings volatility, and provides a term of reference for the group’s operating divisions.
Implementation of strategy and the risk management cycle the risk appetite defined by the Board of Management is reflected in our business planning and integrated into the management of our operations. in the event of capacity shortages or conflicts with the systems of limits and rules, there are fixed escalation and decision-making processes which ensure that business interests and risk management aspects are reconciled. if necessary, risks are ceded or hedged by means of reinsurance, derivatives or other forms of risk relief.
our implementation of risk management at operational level embraces the identification, measurement, analysis and assessment of risks, and the resultant risk reporting, limitation (reduction to a level we have defined as appropriate) and monitoring. With these processes, we endeavour to consider all significant risks.
Risk limitation is derived from the risk strategy. Based on the defined risk appetite, limits and budgets and any risk-reducing measures required are decided on and implemented. Various units in the group work hand in hand to comply with the specified risk limits, whilst simultaneously taking account of the interests of the business. if a business unit identifies attractive business that exceeds its risk limits, the competent risk management departments and iRM analyse the potential impact of the business on the group portfolio and the risk appetite of the group as a whole. taking these results and the expected earnings from the business into consideration, we devise a solution that enables the business to be accepted in our books if appropriate.
Quantitative risk monitoring based on indicators is carried out at central points, e.g. at Meag for investments (cf. also page 24 f. of the magazine section). We monitor qualitative risks on a decentralised or centralised basis, depending on their significance and classification.
Control and monitoring systems in 2009, we continued with the group-wide project launched in 2008 to enhance our internal risk-control system (ics) aimed at harmonising and coordinating more closely the various control and monitoring systems in place in the group. the ics being introduced at Munich Re is a uniform worldwide system for managing risks across all risk dimensions that both meets group management needs and satisfies local legal and regulatory requirements (cf. our comments on the Minimum Requirements for Risk Management – MaRisk – on page 82). the Board of Management has group-wide responsibility for the ics and it falls structurally under the responsibility of the cRo. Munich Re’s organisational structure ensures the separation required by MaRisk between functions that are not reconcilable, up to and including Board level.
the ics is being implemented in stages and will be fully operational in 2012.
the consolidated financial statements are produced centrally in Munich on the basis of the ifRs accounts for individual entities and subgroup financial statements. underwriting transactions and general business are in principle accounted for through the companies included in the consolidated financial statements, while the accounting for investments is carried out predominantly by Meag, with the exception of certain units where it is performed by external service providers.
Munich Re applies carefully defined materiality thresholds to ensure that internal controls are appropriate. significance, risk experience and compliance are taken into account in determining the thresholds. all risks significant from a group perspective for financial reporting are integrated into the ics in accordance with uniform criteria.
149ManageMent RepoRt RisK RepoRt transactions are posted at the companies included in the consolidation using a standard general ledger (for insurance and reinsurance) in place throughout most of the group, with harmonised basic data, standard processes and posting rules, and a standard interface for delivery of data from companies to the group or subgroup. the rules for access to accounting systems are clearly defined using systems of authorisation.
the aim of our external risk reporting is to provide a clear overview of the group’s risk situation. this includes information on our risk management methods and processes, our risk governance, and the individual risks to which Munich Re is exposed.
Significant risks at Munich Re group level, we classify risks as significant if their implications are ser ious enough to endanger the continued existence or reputation of the group or of individual companies. taking account of individual risk tolerance, we have applied this definition consistently to the individual business units and legal entities. the assessment of whether a risk is significant for a unit within the meaning of this definition is carried out in the competent risk management units, e.g. group iRM or eRgo’s iRM. specifically, we have identified the following categories from which significant risks can arise.
Underwriting risk: Property-casualty insurance underwriting risk is defined as the risk of insured losses in property-casualty business (insurance and reinsurance) being higher than our expectations.
150 ManageMent RepoRt RisK RepoRt premium risk primary responsibility for controlling the premium risk lies with operational management. Managers of operations grant underwriting authorities and lay down internal processes with the intention of ensuring that a high level of quality is maintained; in doing so, they take account of both the specific exposures in their business and the competence of each member of staff.
in particularly critical areas, the underwriting authorities granted to the operating units are restricted, minimum standards prescribed to ensure transparency, and quality assurance and risk management processes laid down.
generally unwanted exposures may only be accepted after submission to the committees responsible.
application of group-wide reserving rules guarantees a consistent procedure. in addition, internal audits are carried out group-wide to provide a continuous check of both compliance with reserving rules and the appropriateness of the reserves.
in life insurance and reinsurance, biometric and lapse risks are especially relevant. Mortality and disability are the most significant biometric risks. for pandemic scenarios and longevity risks, budgets derived from the risk strategy are allocated to the operational units.
the assessment of our business on an embedded-value basis is based on biometric actuarial assumptions, which are regularly reviewed and adapted to include new findings, in particular relating to our own experience and expected future developments.
Depending on the contract structure, the risks of health primary insurance are reflected in the generally short-term contracts for health reinsurance.
Credit risk We define credit risk as the financial loss that Munich Re could incur as a result of changes in the financial profile of a counterparty, issuer of securities or other debtor with liabilities to our group.
in order to monitor and control our group-wide credit risks, we have implemented a cross-balance-sheet counterparty limit system valid throughout the group. the limits per individual counterparty (a group of companies or country) are based on its financial situation and the risk appetite defined by the Board of Management. the group-wide limit per counterparty is broken down for the primary insurance and reinsurance segments, and for the underwriting and investment sides. the basis for the exposure figure is the estimated financial loss in the event of default by the counterparty, after realisation of collateral (loss given default – lgD). these factors are estimated on the basis of historical evaluations and expert opinions.
control of market risks by means of suitable limit and early-warning systems and through our asset-liability management
Monitoring and control of credit risks through our groupwide cross-balance-sheet counterparty limit system
the remarks on underwriting guidelines and limits (see “property-casualty” section) also apply to credit risks incurred through insurance business. Responsibility for the issue of underwriting guidelines and credit limits lies with iRM.
Operational risk Munich Re defines operational risks as potential losses resulting from inadequate processes, technical failure, human error or external events. these include criminal acts committed by employees or third parties, insider trading, infringements of antitrust law, business interruptions, inaccurate processing of transactions, noncompliance with reporting obligations and disagreements with business partners.
in addition, at Munich Re we attach particular importance to // prudent, real-time cash-flow management, // a balanced investment structure aligned with our financial obligations with investment primarily in asset classes that take due account of security, liquidity and ability to realise at market prices and // frequent simulation of the impact of particular burdens on our liquidity.
We optimise the availability of liquidity in the group through internal funding and a cash pool fed by group companies, whilst complying with regulatory requirements through stringent rules of access to the pool and ensuring that every unit is able to meet its payment obligations.
// known and expected payment obligations through regular, detailed liquidity planning at individual entity level and a central cash flow reporting system; // short-term margin and collateral obligations arising out of derivative positions where companies make use of such instruments; // unexpectedly high payments resulting, for example, from accumulation losses that far exceed normal loss expectations.
We monitor reputational risk through the identification processes we have established in various internal units (e.g. group communications). as soon as such a risk is identified, our reaction is decided on by the Reputational Risk committee, which was set up specifically for this purpose, with a view to ensuring that operational risks are not accompanied by reputational risks. the committee is made up of experts from various units and is headed by the compliance officer. Rules of procedure regulate the functions and work of the committee. our code of conduct comprises the main rules and principles for legally correct and responsible behaviour by employees.
We use our central risk management to assess our risk situation on the basis of qualitative and quantitative factors. throughout the entire period under review, Munich Re’s risk situation was manageable and under control. in the interests of our clients and shareholders, our carefully implemented, modern risk management processes combined with our solid level of capitalisation ensured the solvency and viability of the group at all times. in addition to the underwriting and capital market risks inherent in our business model, which we can assess very well so that we are fully aware of the implications of taking them (see below), there are a large number of other risks to which Munich Re – like every other undertaking – is exposed. the incidence of these risks is not planned and their occurrence probability and impact are generally difficult to estimate. We therefore attach great importance to closely monitoring our environment and our own group to identify even these risks in good time and to take suitable measures to avert loss or damage.
to determine Munich Re’s economic risk capital, we use the economic profit-loss distribution across all risk segments. the economic risk capital corresponds to 1.75 times the value at risk of this distribution over a one-year time horizon with a confidence level of 99.5%. the value at risk with a confidence level of 99.5% gives the economic loss of Munich Re which, given unchanged exposures, will be statistically exceeded once every two hundred years at most. it represents the future risk tolerance under solvency ii. By calculating 1.75 times the capital requirement in respect of this risk tolerance, our group follows a conservative approach, aimed at offering our clients a high degree of security.
the distribution of economic losses between the individual legal entities in Munich Re may vary, but the options for one unit to support another in the event of a loss are subject, in part, to legal constraints. in determining Munich Re’s capital requirements, restrictions of capital fungibility resulting from legal or regulatory requirements are therefore explicitly taken into account.
the table also makes clear the diversifi cation eff ects we achieve through our broad spread across the diff erent risk categories (underwriting, market and credit) and through our combination of primary insurance and reinsurance business. the diversifi cation eff ect between the risk categories “property-casualty”, “life and health”, “market ”, “credit” and “operational risks” grew by around €0.3bn, as the discount for restrictions in capital fungibility has reduced owing to the improved capitalisation. the diversifi cation eff ect between the insurance and reinsurance segments has risen substantially, since besides the aformentioned eff ect, the total capital requirement for the insurance and reinsurance segments has increased owing to the improvement in capital fungibility.
the significant reduction in the economic risk capital for large and accumulation losses is mainly due to the above-mentioned decrease in the peak risk “storm europe”. in addition, we have further refined the modelling of our external retrocession covers. in the case of basic losses, the annual readjustment of the models has resulted in an increased requirement for economic risk capital, especially for credit reinsurance. Besides this, currency translation effects have also led to a slight rise.
Storm Europe ceded Retained aggregate VaR (return period: 200 years) €bn (before tax)
Economic risk capital (ERC) 31.12.2009 prev. year change Property-casualty group Re- primary segment group Re- primary segment group €bn insurance insurance diversi- insurance insurance diversification fication Basic losses large and accumulation losses Subtotal Diversification effect Total
Economic risk capital (ERC) 31.12.2009 prev. year change Market group Re- primary segment group Re- primary segment group €bn insurance insurance diversi- insurance insurance diversification fication equity risks general interest-rate risk specific interest-rate risk property risks currency risks Subtotal Diversification effect Total
interest-rate risk as the interest-rate risks arising out of general movements in interest rates (general interest-rate risk) and those relating to the spreads for specific bonds (specific interest-rate risk) are disclosed separately for the first time, a direct comparison of the risk figures with the previous year is not possible. the sensitivity of our provisions to inflation, inherent in the general interest-rate risk, was again analysed and adjusted in the financial year.
Credit risks Munich Re determines these using a portfolio model, taking into account changes in value owing to rating migrations and the default of debtors. the model is calibrated over one credit cycle.
our sophisticated limit system and our well-established administration systems have served us well overall – even during turbulent financial markets – and enable us to manage our investments efficiently and successfully.
We compare the economic risk capital, which equates to Munich Re’s capital requirement, with the available financial resources which can be used to cover losses that exceed expectations. the available financial resources are calculated as the sum of the economic equity and the available hybrid capital. the economic equity is based essentially on Munich Re’s ifRs equity, supplemented by various economically appropriate adjustments.
the valuation reserves include post-tax adjustments to items that are not valued at fair value under ifRs, in particular to land and buildings and loans. We perform various valuation adjustments for property-casualty and life and health. in property-casualty, we discount the reserves that under ifRs are not discounted from a strict economic perspective or at all, adjusting them for the resultant tax effects, and add on a risk margin derived in accordance with economic principles. in the case of business for which we show a Market consistent embedded Value (MceV), we regard the embedded value as capital available to cushion risks. this is only partially included in ifRs equity, which is why we make an adjustment to include it. on the other hand, capitalised goodwill and other intangible assets are included in the group’s ifRs equity. as they might not retain their value following a severe loss event, we deduct them when calculating available financial resources. We treat loss carry-forwards in deferred tax items in the ifRs balance sheet in the same way.
Ceded share of technical provisions according to rating 31.12.2009 prev. year in % aaa aa a BBB and lower no rating available comparison of economic risk capital and available financial resources
the economic capital buffer is the amount by which the available financial resources exceed the economic risk capital. the economic solvency ratio is the ratio of the available financial resources (less announced but not yet completed capital measures such as the 2009/2010 share buy-back and dividend payment for the 2010 financial year) to the economic risk capital. over the course of the time, the situation has developed as follows: the economic solvency ratio of 153% reflects Munich Re’s capital strength. Munich Re’s economic risk capital, which produces the solvency ratio described above, corresponds to 1.75 times the capital that is likely to be necessary under solvency ii.
We report on regulatory solvency requirements in the “group solvency” section on page 129 of the management report.
Economic solvency ratio components 31.12.2009 prev. year €bn (a) economic equity (B) available financial resources (c) available financial resources after dividend and share buy-back (D) economic risk capital (eRc)
on the insurance side, current indications are that Munich Re is potentially exposed mainly via the liability classes directors’ and officers’ liability (D&o) and professional indemnity (pi). specifically, there is the prospect of liability arising out of alleged misconduct in the form of inadequate advice, mismanagement or negligence on the part of sales organisations, banks or other financial intermediaries. even if courts ultimately do not award damages, any defence costs covered under insurance policies could be considerable. since such lawsuits are typically very prolonged, it will be several years before there is final clarity regarding the extent of the losses. at the turn of the year 2009/2010, we had received isolated provisional notifications from our liability reinsurance clients. We have taken these into account through appropriate allocations to iBnR reserves.
the upheaval in the international financial markets caused by the financial crisis is impairing economic recovery, with the related rise in insolvency rates leading to higher claims costs for the year in credit reinsurance. We expect a further increase in insolvencies in 2010. Both we and our cedants took account of this for the 1 January 2010 renewals by adapting our underwriting policy and conditions. We are withdrawing totally from some areas of credit reinsurance. We have tightened up our criteria and analysis processes for large transactions in life and non-life that involve substantial credit or liquidity risk.
We were well prepared for the swine flu in autumn/winter 2009/2010. in recent years, we had already developed scenarios to quantify the pandemic risk, which are based on experience with spanish flu (1918), asian flu (1957) and hong Kong flu (1968). We take into consideration parameters such as infection rates, duration of illness, excess mortality, etc. together with selection effects that produce a lower average mortality in the insured portfolio than among the population as a whole. so far, we have not observed any noticeable impact. assumptions as to the further progress of swine flu are, of course, subject to uncertainty. changes in the severity of the illness, the supply and effectiveness of medication and vaccinations and, notably, a mutation of the virus may have a considerable impact on future developments.
climate change represents one of the greatest risks of change for the insurance industry. in Munich Re’s corporate climate centre, we analyse and evaluate the related risks for all divisional units and for asset management. however, changes in the physical environment and new regulations resulting from climate change also open up many business opportunities. applying the knowledge of this topic we have accumulated over decades, we exploit these opportunities – for example, through new insurance products for renewable energy technologies.
We identify trends and faint signals in many ways, including systematic trend research, using Munich Re’s knowledge management, and regular structured discussions in our “emerging risks think tank”. to ensure that emerging risks are understood, a group of experts reports on the issues involved from various perspectives. they derive conceivable scenarios and analyse their possible impact on Munich Re. of particular significance are interdependencies between different risks and other aspects related directly or indirectly to emerging risks. cooperation with external partners complements our internal early-warning system. one example is our collaboration with the us Rand institute for civil Justice on the issue of class actions.
after the federal legislative procedure for the us fairness in asbestos injury Resolution act foundered in february 2006, several us states adopted legislation initiatives (tort reform) which may have a positive effect on the settling of asbestos claims. following revelations about questionable asbestos-related disease diagnoses and resultant lawsuits, various investigation committees are at work. similar questionable practices that have come to light in silicosis lawsuits are also relevant for us asbestos claims. these developments indicate that the legal situation in the usa is moving in a positive direction. however, it is too early to say whether and to what extent this will have favourable implications for future loss development in the insurance industry. We are aware that the plaintiffs’ attorneys are trying hard to repel the tort reform initiatives. We are currently still being affected by late-reported claims – in some cases for high amounts – for asbestos-related diseases and similar liability complexes. though the total number of asbestos claims is declining, the number of severe cases of mesothelioma and other types of cancer has remained relatively constant in recent years.
Outlook the future regulatory requirements for risk management have become more transparent as a result of the progress made in the european union’s solvency ii project, notably the adoption of the solvency ii Directive in early 2009 and the draft implementation measures published by the committee of european insurance and occupational pensions supervisors (ceiops) at year-end. nevertheless, there are still considerable uncertainties regarding the future calibration of solvency ii.
// economic environment still difficult, despite further signs of recovery; challenges for the group but also opportunities thanks to financial strength and know-how
// sharpened positioning in reinsurance; eRgo driving growth in primary insurance with new brand strategy
// consolidated result of over €2bn envisaged for 2010 // Dividend proposal for 2009: €5.75 per share predictions about the forthcoming development of our group are based primarily on planning figures, forecasts and expectations. consequently, the following assessment of Munich Re’s development merely reflects our incomplete assumptions and subjective views. it follows that we cannot accept any responsibility or liability in the event that they are not realised in part or in full.
Overview the global economic recession seems to have bottomed out, but there is still great uncertainty as to whether the recovery will be sustained. neither the job market nor the trend in real incomes has turned around yet. the demand for primary insurance and reinsurance therefore remains subdued. even if the downturn has come to an end, it will take some time for economic performance to return to its pre-crisis level and for companies to again invest more and also insure this investment. given the rising unemployment rate and economic uncertainty, consumers are reducing their expenditure on private provision. all the following prognoses are subject to considerable uncertainty in view of the difficulty involved in estimating future development, in particular if they go beyond the current financial year 2010.
Reinsurance continues to hold considerable promise for the future, with a wide variety of earnings possibilities in the long term. although the economic strains for primary insurers and their customers have an impact on reinsurers’ growth and profit perspectives, reinsurance has gained in importance owing to the after-effects of the financial crisis, as its capital-relief function is in demand. at the same time, Munich Re sees a steady shift in demand trends in insurance and reinsurance, which is why we have sharpened our positioning. our objective is to leverage insurance solutions individually for clients. even more so than in the past, Munich Re will offer its clients specialist consulting services also for tasks such as balance-sheet management, risk modelling or asset-liability management – for instance to prepare for the restructured european supervisory regime (solvency ii). clients can thus optimise their risk management, save risk capital or increase their return on investment with the same risk capital. a further focus is on devising innovative coverage concepts for new and complex risks. in addition, we aim to expand our client base in areas where risk expertise is the crucial success factor, i.e. in business with insurance pools or in public-private partnerships and specialist primary insurance niche segments.
We are adhering to our objective of doubling the value added by new business in the period 2006 to 2011. on the basis of MceV principles, this objective corresponds to a value added by new business of €330m for the year 2011. given the good results of recent years, we are at present confident of being able to achieve good results that exceed this target in future.
171ManageMent RepoRt pRospects primary insurance outside germany and reinsurance business in germany. Munich health covers large stretches of the value chain, with services ranging from risk assessment and risk management to healthcare support and involving much more than just the assumption of risks. in this context, opportunities and risks will derive for our reinsurance business and for our health insurance subsidiary sterling life from the expected fundamental us healthcare reform.
the renewal of natural catastrophe business in particular shows a heterogeneous picture. While risks and markets not affected by losses in the past year recorded significant price reductions of up to 10%, business that had been affected by specific claims in 2009 showed price increases that were quite substantial in some cases. in this context, it is necessary to take into consideration that us natural catastrophe business in the previous year had been characterised by a very high profitability level, due to the influence on prices of the prior-year claims and reduced capacity. this business is therefore still attractive, despite the decline in prices.
Renewals at 1 January 2010: Munich Re’s stability, global presence and diversification pay off