Bonds with embedded options Pricing method Parameters Pricing model Callable bonds Theoretical price Money-market/swap interest-rate curve Hull-White model Issuer-specific spreads Volatility matrix CMS floaters Theoretical price Money-market/swap interest-rate curve Hull-White model Issuer-specific spreads Volatility matrix Zero-to-coupon switchable bonds Theoretical price Money-market/swap interest-rate curve Hull-White model Issuer-specific spreads Volatility matrix Zero-to-CMS switchable bonds Theoretical price Money-market/swap interest-rate curve LIBOR market model Issuer-specific spreads Volatility matrix Volatility bonds Theoretical price Money-market/swap interest-rate curve LIBOR market model Issuer-specific spreads Volatility matrix CMS floaters with variable cap Theoretical price Money-market/swap interest-rate curve Replication model (Hagan) Issuer-specific spreads Volatility matrix Inverse CMS floaters Theoretical price Money-market/swap interest-rate curve Replication model (Hagan) Issuer-specific spreads Volatility matrix CMS steepeners Theoretical price Money-market/swap interest-rate curve Replication model (Hagan) Issuer-specific spreads Volatility matrix Correlation matrix Dax-Cliquet Theoretical price Listing of underlying shares Black-Scholes (European) Volatilities Present-value method Issuer-specific spreads Money-market/swap interest-rate curve Convergence bonds Theoretical price Money-market/swap interest-rate curves LIBOR market model Issuer-specific spreads Volatility matrix Correlation matrix Multi-tranches Theoretical price At-the-money volatility index and Black-76, present value skew swap curve method Money-market interest-rate curve Sector-, rating- or issuer-specific interest-rate curve FIS loans against borrower’s note Theoretical price At-the-money volatility index and Black-76, present value skew swap curve method Money-market interest-rate curve Sector-, rating- or issuer-specific interest-rate curve Swaption notes Theoretical price At-the-money volatility index and Black-76, present value skew swap curve method Money-market interest-rate curve Sector-, rating- or issuer-specific interest-rate curve
The other investments allocated to Level 3 are mainly external fund units (in particular, private equity and real estate) as well as relatively illiquid credit structures (especially collateralised mortgage-backed securities and credit-linked obligations). In the case of the former, market data are not available on a regular basis; rather, net asset values (NAVs) are provided by the asset managers. With regard to the latter, the quality of the market quotes available from market data providers is insufficient, so we resort to broker valuations. With these investments, we thus do not perform our own valuations using inputs not based on observable market data but rely on what is supplied by the brokers. We regularly subject the valuations supplied to plausibility tests on the basis of comparable investments.
At 31 December 2014, around 11% (12%) of the investments measured at fair value were allocated to Level 1 of the fair value hierarchy, 86% (84%) to Level 2 and 3% (4%) to Level 3.
Prev. year €m Level 1 Level 2 Level 3 Total Investments measured at fair value Investments in affiliated companies measured at fair value 38 – 176 214 Investments in associates and joint ventures measured at fair value – – 9 9 Other securities available for sale
Other securities at fair value through profit or loss Held for trading, and hedging derivatives1 783 2,092 77 2,952 Designated as at fair value through profit or loss – 164 – 164
Investments in affiliated Investments in associates companies measured at and joint ventures fair value measured at fair value €m 2014 Prev. year 2014 Prev. year Carrying amount at 31 Dec. previous year 176 194 9 16 Gains and losses 14 –15 –1 –7
Disposals –15 –10 –1 – Transfer to Level 3 38 5 – – Transfer out of Level 3 – –19 –2 – Changes in the market value of derivatives – – – – Carrying amount at 31 Dec. financial year 274 176 5 9 Gains (losses) recognised in the income statement that are attributable to investments shown at the end of the financial year –6 –4 – –6
Held for trading, Insurance-related and hedging derivates investments Total €m 2014 Prev. year 2014 Prev. year1 2014 Prev. year Carrying amount at 31 Dec. previous year – 33 77 – 5,146 4,339
Gains (losses) recognised in the income statement – 39 78 – 86 38 Gains (losses) recognised in equity – –1 5 – 346 20
Disposals – –9 –99 – –1,988 –1,860 Transfer to Level 3 – – – – 48 494 Transfer out of Level 3 – – – – –28 –113 Change in the market value of derivatives – 1 – – – –1 Carrying amount at 31 Dec. financial year – 77 109 – 5,330 5,146 Gains (losses) recognised in the income statement that are attributable to investments shown at the end of the financial year – 36 39 – 39 38 1 Owing to changes made in our balance sheet structure in 2004, investments for 2013 are still recognised under investments held for trading.
Accounted for using the equity method 1,280 1,291 Accounted for at fair value 5 9
Write-downs with respect to these companies amounted to –€34m (–101m). They are distributed between the following different Group segments: in reinsurance, – (–€1m) is apportionable to life and –€16m (–81m) to property-casualty; in the ERGO field of business, –€1m (–4m) is apportionable to Life and Health Germany and –€2m (–15m) to Property-casualty Germany; –€15m (–) is allocable to Munich Health.
At the balance sheet date, there were contingent liabilities of €26m (24m) from investments in associates and joint ventures. These essentially comprised payment obligations.
There were no significant limitations on the possibility for associates and joint ventures to transfer dividends or liquid funds to Munich Reinsurance Company and its subsidiaries, or to repay loans to Munich Reinsurance Company and its subsidiaries.
The fair value of the loans is based on recognised valuation methods in line with the present value principle and taking observable market inputs into account; see note (4) Hierarchy for the fair value measurement of investments. The fair value totalled €68,950m (61,316m) at the reporting date.
Carrying amounts €m 31.12.2014 Prev. year Mortgage loans 4,440 4,482 Loans and advance payments on insurance policies 519 593 Other loans 49,591 50,170
Over half the corporate debt securities are covered bonds or issues by development banks and comparable institutions. The remaining portfolio is composed of securities issued by companies outside the banking sector, with each individual risk making up less than 1%, bonds issued by banks and state central savings banks (with state guarantees) and asset-backed securities/mortgage backed securities. The assetbacked securities/mortgage-backed securities are largely rat ed A or better. Assets pledged as security and other restrictions on title amount to €7,327m (7,309m). Some €2,073m (1,525m) of the securities shown are loaned to third parties. These securities are not derecognised, as the main resultant risks and rewards remain with Munich Re. Of the €14,237m (6,636m) in unrealised gains and losses, €5,773m (3,121m) has been recognised in equity (other reserves), after deduction of provisions for deferred premium refunds, deferred taxes, non-controlling interests, and consolidation and currency translation effects.
Carrying amounts Unrealised gains/losses Amortised cost €m 31.12.2014 Prev. year 31.12.2014 Prev. year 31.12.2014 Prev. year Fixed-interest securities Government bonds
9 Other securities at fair value through profit or loss and insurance-related investments
Realised gains and losses €m 2014 Prev. year Gains on disposal 2,691 2,083
Losses on disposal –327 –441 Fixed-interest securities –123 –250 Non-fixed-interest securities –204 –191
The following table shows the fair values and the related notional amounts of all our open positions, broken down according to risk type. Positive and negative fair values have been netted. At 31 December 2014, the open positions amounted to €1,019m (1,313m), or 0.4% (0.5%) of the balance sheet total.
Disclosure of derivatives by balance sheet item €m 31.12.2014 Prev. year Qualifying for Fair value hedge accounting Balance sheet item No Investments, other securities, designated as at fair value through profit or loss 1,874 1,452 Positive
Open positions 31.12. Periods to maturity in years < 1 1–2 2–3 3–4 4–5 > 5 2014 Prev. year €m Interest-rate risks Traded on the stock exchange
Over-the-counter Fair values 62 46 203 –6 –5 398 698 1,036
Total interest-rate risks Fair values 57 46 203 –6 –5 398 693 1,045
Fair values – – – – – – – – Notional amounts – – – – – – – 20
Over-the-counter Fair values 4 1 – – – 24 29 12
Over-the-counter Fair values – – – – – – – 8
Over-the-counter Fair values –5 2 4 1 – – 2 1
Total of all risks Fair values 37 121 233 36 78 514 1,019 1,313
Although the derivatives used by Munich Re essentially serve to manage and hedge risks, only an amount of €190m (219m) meets the requirements of IAS 39 for hedge accounting.
Fair value hedges In the case of fair value hedges, the change in the fair value of the hedging instrument and the change in the fair value of the hedged instrument are generally recognised in profit or loss under the items “investment income” and “investment expenses”. With Munich Reinsurance Company’s hedged subordinated bond, this information is shown under net finance costs. Munich Re uses hedging relationships in the form of fair value hedges to selectively and efficiently mitigate interest-rate and other market risks. The main types of transaction employed for hedging are swaps and forwards. The fair value of the derivatives used for this purpose amounted to €153m (184m) at the balance sheet date. In 2014, the following changes in value were recognised in the consolidated income statement: –€31m for the hedging instruments and €30m for the relevant underlyings.
10 Deposits retained on assumed reinsurance Deposits retained on assumed reinsurance serve directly as collateral for technical provisions covering business assumed from cedants in reinsurance. They do not trigger any cash flows and may not be used by the cedant independently. The credit risk is therefore limited. The amount of and changes in deposits retained on assumed reinsurance in the financial year generally derive from the values for the changes in the related technical provisions for the reinsured business. Deposits retained on assumed reinsurance business thus do not have a fixed maturity date, their release generally being dependent on the run-off of the corresponding provisions.
The impairment losses reversed are distributed between the following different Group segments: in reinsurance, €1m (–) is apportionable to life and €4m (–) to property- casualty.
8060 Development of tangible assets in renewable energies €m 2014 Prev. year Gross carrying amount at 31 Dec. previous year 584 545 Accumulated depreciation and accumulated impairment losses at 31 Dec. previous year –86 –45 Carrying amount at 31 Dec. previous year 498 500 Changes due to currency translation 5 –3 Additions
Munich Re Group Annual Report 2014 12 Ceded share of technical provisions
Of the amounts receivable on primary insurance business, €549m (498m) is apportionable to receivables from insurance agents. The miscellaneous receivables contain receivables of €1,079m (887m) resulting from reinsurance contracts without significant risk transfer, which do not fall within the scope of IFRS 4.
Provision for future policy benefits 7 7 2,355 2,410 Provision for outstanding claims 131 90 2,636 2,616 Other technical provisions – – 6 3
Carrying amounts €m 31.12.2014 Prev. year Up to one year 10,246 10,061 Over one year and up to two years 128 91 Over two years and up to three years 74 100 Over three years and up to four years 269 386 Over four years and up to five years 31 24 Over five years and up to ten years 539 87 Over ten years 182 626 8072 Rating of accounts receivable €m 31.12.2014 Prev. year AAA 2 –
Munich Re Group Annual Report 2014 14 Deferred acquisition costs 8080 A–C Deferred acquisition costs
The deferred tax assets and liabilities recognised in the consolidated balance sheet concern the following balance sheet items: The deferred taxes for technical provisions include the deferred taxes for deferred acquisition costs and €2,625m (2,207m) for claims equalisation provisions, which are not posted under IFRS.
The excess of deferred tax liabilities over deferred tax assets amounts to €2,175m (1,193m). The change of –€982m (1,387m) was recognised as follows: –€837m (1,008m) without impact on profit or loss and –€166m (419m) in earnings. The remaining change is due to obtaining or losing control and to currency translation.
We have broken down the existing deferred tax assets relating to loss carry-forwards and the loss carry-forwards themselves.
Off balance sheet Loss carry-forwards and tax credits 886 – 546 –
Subsequent additions and reduc- Set off tions due to Additions against changes in due to income/ valuation new Decon- €m Prev. year allowances losses solidation 31.12.2014 Deferred tax assets for
Corporation tax loss carry-forwards 489 –52 284 –271 450 Trade tax loss carry-forwards 19 – 322 –2 339 Loss carry-forwards from capital losses – – – – –
Expiring in up to three years 124 103 227 84 98 182 Expiring in over three years and up to ten years 110 103 213 489 64 553 Expiring in over ten years 234 126 360 469 17 486
Expiring in up to three years 4 – 4 – – – Expiring in over three years and up to ten years 13 – 13 – – – Expiring in over ten years 3 – 3 – – –
Gross carrying amount at 31 Dec. previous year 3,510 978 51 4,539 Accumulated depreciation and accumulated impairment losses at 31 Dec. previous year –1,091 –729 –31 –1,851 Carrying amount at 31 Dec. previous year 2,419 249 20 2,688
Disposals Loss of control – – – – Other –17 –11 –16 –44
Impairment losses reversed 7 – – 7 Depreciation and impairment losses
Owner- Operating occupied and office €m property equipment Other Total Prev. year Prev. year Prev. year Prev. year Gross carrying amount at 31 Dec. previous year 3,417 962 55 4,434 Accumulated depreciation and accumulated impairment losses at 31 Dec. previous year –1,026 –689 –34 –1,749 Carrying amount at 31 Dec. previous year 2,391 273 21 2,685 Currency translation differences –11 –4 – –15 Additions
Disposals Loss of control – – – – Other – –7 –3 –10
Carrying amount at 31 Dec. financial year 2,419 249 20 2,688 Accumulated amortisation and accumulated impairment losses at 31 Dec. financial year –1,091 –729 –31 –1,851 Gross carrying amount at 31 Dec. financial year 3,510 978 51 4,539
In the fourth quarter of 2014, Munich Health Holding AG, Munich, decided to sell its shares in the fully consolidated company DKV Luxembourg S.A., Luxembourg. The sale is planned for the first half-year of 2015.
How the non-current assets held for sale are allocated between the segments is disclosed in the segment reporting.
MEAG Munich ERGO AssetManagement GmbH sold 10,944 Munich Re shares at an average price of €158.94 in the financial year 2014 in connection with the hedging of obligations from its long-term incentive plan. The sale generated proceeds of €1.7m, which were used to strengthen liquid funds. With the remaining Munich Re shares acquired in prior years to hedge the stock appreciation rights granted, MEAG had a total portfolio of 2,530 shares at 31 December 2014.
Number of shares 2014 Prev. year Status at 31 Dec. previous year 177,421,900 178,527,270 Additions
Disposals from hedging stock appreciation rights under long-term incentive plans 10,944 816,883
Included in the retained earnings are claims equalisation provisions of €6,837m (6,084m). These provisions are established under national regulations to smooth fluctuations in loss experience in future years. In IFRS accounting, they are recognised in equity.
The “other reserves” include €434m (–997m) from currency translation and –€2m (3m) resulting from valuation of cash flow hedges. In addition, “other reserves” contain unrealised gains and losses distributed between the different items as follows: Composition of the capital authorised for capital increases €m 31.12.2014 Authorised Capital Increase 2011 (until 19 April 2016) 10 Authorised Capital Increase 2013 (until 24 April 2018) 280 Total 290
Composition of contingent capital €m 31.12.2014 Contingent Capital Increase 2010 (until 27 April 2015) 117 Total 117
Less Provision for deferred premium refunds recognised in equity –6,384 –2,754 Deferred taxes recognised in equity –1,986 –796 Non-controlling interests –24 –8 Consolidation and currency translation effects –98 32
All financial liabilities that are recognised at fair value, and such financial instruments that are not recognised at fair value but for which a fair value is disclosed in the notes, are allocated to one of the fair value hierarchy levels of IFRS 13.
Tax effects in the income and expenses recognised directly in equity 2014 Prev. year €m Before tax Tax After tax Before tax Tax After tax Currency translation 1,428 – 1,428 –709 – –709 Unrealised gains and losses on investments 3,851 –1,190 2,661 –3,821 1,209 –2,612 Change resulting from valuation at equity 9 – 9 35 – 35 Change resulting from cash flow hedges 1 – 1 –1 – –1 Remeasurements of defined benefit plans –780 259 –521 282 –98 184
Liabilities not measured at fair value Subordinated liabilities 4,955 62 – 5,017 Bonds and notes issued 371 – – 371 Amounts due to banks 1 184 276 461
In the case of Munich Reinsurance Company’s bonds, annual outflows of liquidity amounting to the respective interest payments occur until the first possible call dates in 2022, 2021, 2017 and 2018. In the financial year, these amounted to –€259m. Thereafter, the liquidity outflows will vary, depending on the respective interest-rate level. On 2 January 2014, we fully redeemed the registered bonds (from 2004) of ERGO Versicherung Aktiengesellschaft, Vienna, with a nominal value of €50m. For its registered bonds from 2001 and 1998, and for the HSB Group bonds, the annual outflow is variable, depending on the respective interest-rate levels.
The fair value of the subordinated liabilities at the balance sheet date amounted to €5,017m (4,828m). For the Munich Reinsurance Company bonds, we take the stock market prices as fair values. For the other subordinated liabilities, we determine the fair values using net present value methods with observable market parameters.
Gross provision for future policy benefits according to type of insurance cover €m 31.12.2014 Prev. year
Munich Health 1,068 976 Primary insurance 28,457 27,175 Property-casualty 464 461
In the ERGO Life and Health Germany segment, assumptions regarding future mortality, lapses and profit participation, and regarding long-term interest-rate levels were adjusted in 2014 on the basis of the long-term regular return on investments. The provision for future policy benefits was increased as a result of these adjustments.
The change under “Other” contains €433m (361m) in savings premiums for capitalisation products and –€647m (1,266m) for portfolio entries and withdrawals. Scheduled changes in the provision for future policy benefits contain the changes deriving from prospective calculation as a result of premium payments, benefit cases and the unwinding of discount in the year under review.
Development of gross provision for future policy benefits €m 2014 Prev. year Status at 31 Dec. previous year 111,427 109,769 Currency translation differences 770 –571 Change in consolidated group/Other –103 2,220 Changes
ERGO Life and Health Property-casualty Germany Germany International €m 31.12.2014 Prev. year 31.12.2014 Prev. year 31.12.2014 Prev. year 8212 A–C
The claims expenses for the year under review show payments made for the year under review and expenses for posting the claims reserve in that year. The provisions set up for claims from previous years are regularly updated using best estimates based on exposure and claims information and past claims experience. The respective change is shown under “Claims expenses for previous years”.
In the year under review, most sectors experienced comparatively low claims-reporting activity from previous years, which had a positive influence on the ultimate-loss projection.
Net run-off results in property-casualty business The values in the following run-off triangles cover more than 99% of our Group’s portfolio of property-casualty business.
For the year under review 14,415 –387 14,028 14,426 –343 14,083 For previous years –1,358 88 –1,270 –917 12 –905
Thereof resulting from unrealised gains and losses on investments (recognised directly in equity) – – 6,325 2,736 25 14 6,350 2,750 Thereof resulting from other revaluations (recognised in profit or loss) – – 4,284 3,502 –12 –9 4,272 3,493
The above change resulting from unrealised gains and losses on investments reflects the proportional allocation to expected future policyholders’ bonuses of the change in market values that occurred in the past year. Changes in the provision for deferred premium refunds are only recognised in the income statement to the extent that they result from valuation differences recognised in profit or loss.
The provisions are directly covered by the investments for unit-linked life insurance contracts. Small differences in relation to these investments arise as a result of including unearned revenue liability in these provisions.
Development of provision for deferred premium refunds €m 2014 Prev. year Status at 31 Dec. previous year 6,243 6,849 Change in consolidated group – –231 Change resulting from unrealised gains and losses on investments (recognised directly in equity) 3,600 –952 Change resulting from other revaluations (recognised in profit or loss) 779 577 Status at 31 Dec. financial year 10,622 6,243
Expenses for defined contribution plans in the year under review totalled –€72m (–69m). Expenses for contributions to state plans totalled –€114m (–117m) in the financial year.
The present value of obligations under defined benefit pension plans amounted to €5,584m (3,992m), the plan assets to be deducted totalled €2,741m (2,012m). The defined benefit obligations comprise the following main plans: Munich Reinsurance Company’s pension obligations account for €1,484m (1,014m) of the present value of obligations under defined pension plans and €1,432m (1,022m) of plan assets. The obligations include disability and old-age pensions, and pensions for surviving dependants. The amount of the pensions generally depends on salary and length of service. The defined benefits granted up to 31 December 2007 are financed through a fund. New members on or after 1 January 2008 receive pension commitments in the form of defined contribution plans financed by means of intra-Group insurance contracts securing the obligations under pension schemes. The fund and insurance contracts have been grouped in a contractual trust agreement (CTA).
The pension obligations of the ERGO Insurance Group account for €2,779m (1,966m) of the present value of obligations under defined pension plans and €285m (194m) of plan assets. The obligations include disability and old-age pensions, and pensions for surviving dependants. The amount of the pensions generally depends on salary and length of service. The commitments are generally funded through pension provisions. New members receive pension commitments in the form of defined contribution plans financed by means of intra-Group insurance contracts securing the obligations under pension schemes. There are medical-care benefit obligations.
The pension obligations of Munich Re America account for €695m (524m) of the present value of obligations under defined pension plans and €466m (326m) of plan assets. The obligations include pensions for employees and surviving dependants. The amount of the pensions generally depends on includable compensation and length of service. The plan is financed through a trust and pension provisions. The plan was closed to new members effective 1 January 2006 and to all remaining members effective 31 December 2011. With effect from 1 January 2012, all members now receive pension commitments in the form of defined contribution plans. There are also retiree medicalcare benefit obligations.
Breakdown of other accrued liabilities €m 31.12.2014 Prev. year Provisions for post-employment benefits 2,965 2,140 Other provisions 1,508 1,602
Change in the present value of the defined benefit obligations €m 2014 Prev. year Status at 31 Dec. previous year 3,992 4,234 Currency translation differences 122 –60 Change in consolidated group –1 –1 Current service cost 118 125 Past service cost 17 10 Gains and losses from plan settlements –14 – Contributions by plan participants 4 5 Interest expense 145 132 Payments –121 –110 Payments from plan settlements –28 –2 Transfer of obligations 1 6 Actuarial gains/losses: Change in demographic assumptions 35 2 Actuarial gains/losses: Change in financial assumptions 1,281 –319 Actuarial gains/losses: Experience adjustments 28 –34
Defined benefit obligations include medical-care benefits. The present value of defined benefit obligations for these items amounted to €285m (207m) at the balance sheet date.
The plan settlements mainly derive from an offer made by Munich Re America to compensate for pension commitments towards departing staff members with vested benefits.
The present value of the obligations under defined benefit plans breaks down as follows: The consolidated companies used the following actuarial assumptions (weighted -average values) for calculating their pension obligations: Actuarial assumptions
% 2014 Prev. year Discount rate 2.1 3.6 Future increases in entitlement/salary 1.9 2.0 Future pension increases 1.5 1.5 Medical cost trend rate 3.9 3.9
Pension obligations are measured using generally recognised biometric actuarial assumptions, adjusted as a rule to take account of company-specific circumstances.
% 31.12.2014 Prev. year Active members 53 50 Deferred members 13 13
For the financial year 2015, capital transfers of €78m (63m) to plan assets are expected.
There were no effects resulting from the asset ceiling on overfunded defined benefit plans.
% 31.12.2014 Prev. year Quoted market price in an active market Cash or cash equivalents 1 2 Equity instruments 9 11 Debt instruments 51 52 Real estate – – Derivatives – – Securities funds 18 17 Asset-backed securities – – Structured debt – – Insurance contracts 20 17
The plan assets have the exclusive purpose of fulfilling the defined benefit obligations to which they are allocated and making provision for future outflows. This is required by law in several countries, whilst in other countries plan assets are provided on a voluntary basis.
The relationship between the fair value of the plan assets and the present value of the defined benefit obligations is referred to as the funded status. If the present value of defined benefit obligations exceeds the fair value of the plan assets, this excess of liabilities over assets is financed by means of provisions for post-employment benefits. If the fair value of the plan assets exceeds the present value of the defined benefit obligations, an asset arises out of the defined benefit plan. As each plan is analysed individually, this may give rise to both a provision for post-employment benefits and an asset from the defined benefit plan.
Market fluctuations may give rise to changes in the fair value of the plan assets over the course of time. Adjustments to the actuarial assumptions (e.g. life expectancy, actuarial interest rate) or deviations in actual risk experience from the risk experience assumed may result in changes in the present value of the defined benefit obligations. Both factors may therefore lead to fluctuations in the funded status. To avoid these fluctuations wherever possible, care is taken, when choosing investments, that fluctuations in the fair value of the plan assets and in the present value of defined benefit obligations offset each other as far as possible whenever changes in certain influencing variables occur (asset-liability matching).
Obligations funded through plan assets Present value of defined benefit obligations 2,821 2,024 Fair value of plan assets –2,741 –2,012 Assets from the defined benefit plan 122 160 Effect of asset ceiling – – Other – – Net balance sheet liability 202 172
Contractual period to maturity of pension obligations €m 31.12.2014 Prev. year Up to one year 133 119 Over one year and up to five years 599 537 Over five years and up to ten years 867 788 Over ten years and up to twenty years 2,257 2,106
The weighted average contractual period to maturity of our pension obligations is 21 (18) years.
An increase or decrease in the following essential actuarial assumptions has an impact on the present value of defined benefit obligations: Sensitivity analysis €m 31.12.2014 Prev. year Increase in actuarial discount rate by 50 BP –515 –316 Decrease in actuarial discount rate by 50 BP 600 364 Increase in salary/entitlement trends by 10 BP 43 15 Decrease in salary/entitlement trends by 10 BP –42 –14 Increase in pension trends by 10 BP 57 35 Decrease in pension trends by 10 BP –56 –36 Increase in medical cost trend rate by 100 BP 47 28 Decrease in medical cost trend rate by 100 BP –38 –24 Increase in mortality rate by 10% –143 –77 Decrease in mortality rate by 10% 154 84
Early retirement benefits/semi-retirement 93 6 –32 –1 – 66 Medium- and long-term incentive plans 92 15 –35 –7 – 65 Anticipated losses 82 –16 –2 –6 –8 50
The provisions for restructuring also included in this item mainly concern €140m (178m) for the ERGO Group’s “Continuous improvement of our competitive position” project and €327m (343m) for the comprehensive restructuring of its sales organisation. The miscellaneous other provisions comprise a large number of different items, including €22m (19m) for competitions for sales staff, €22m (25m) for settlements, and €42m (43m) for litigation risks.
The provisions for restructuring, early-retirement benefits/semi-retirement, anniversary benefits and medium- and long-term incentive plans are mainly long term, whereas the provisions for earned commission, salary obligations, other remuneration for desk and field staff and miscellaneous are essentially short term.
Outflows of liquidity occur annually in the amount of the interest payments until the notes mature. These totalled –US$ 25m in the financial year. We use the prices provided by price quoters to determine the fair value of the notes issued. The fair value at the reporting date amounts to €371m (309m).
Deposits retained on ceded business are collateral for technical provisions covering business ceded to reinsurers and retrocessionaires, and do not trigger any cash flows. As a rule, the changes in deposits retained on ceded business derive from the changes in the relevant technical provisions covering ceded business. Deposits retained on ceded business thus do not have a fixed maturity date, their release generally being dependent on run-off of the corresponding provisions.
Breakdown of other liabilities €m 31.12.2014 Prev. year Amounts payable on primary insurance business 3,086 3,358 Accounts payable on reinsurance business 5,462 4,553 Amounts due to banks 443 462 Miscellaneous liabilities 5,646 4,548
Of the amounts owed to banks, €164m is attributable to bank borrowing by Group companies acquired by Munich Re under its infrastructure investment programme including renewable energies and new technologies.
The following table provides information on the remaining contractual maturities of the items shown under “Other liabilities”. Since the amounts payable on primary insurance business are directly linked to the underlying insurance business, we analyse the liquidity risk arising from these together with the corresponding insurance contracts. This currently also applies to the derivatives embedded in variable annuity business; see Disclosures on risks from insurance contracts and financial instruments (39) Risks from life and health insurance business and (40) Risks from property-casualty insurance business. The derivatives listed below are recognised at market value.
The major portion of the liabilities up to one year involve interest-free items, where the carrying amounts and the undiscounted cash flows are identical. A total of €50m (56m) of the amounts owed to banks and €399m (389m) of the liabilities from derivatives are due within one year. Any deviations in the liabilities with remaining terms of over one year from the undiscounted cash flows are not material for the presentation and significance of the financial liabilities for our financial position and performance.
Ceded premiums written –420 –462 –731 –677 Change in unearned premiums – Ceded share – – 31 –6 Earned premiums ceded –420 –462 –700 –683
Ceded premiums written –27 –71 –39 –39 –251 –257 Change in unearned premiums – Ceded share –8 –3 –1 – 6 15 Earned premiums ceded –35 –74 –40 –39 –245 –242
Munich Re Group Annual Report 2014 as earned premiums and income when they become due. Under gross premiums written, only those parts of the premium from unit-linked life business are included that are used to cover the risks and associated costs.
Of the gross premiums written from short-term insurance business, the portions attributable to periods after the balance sheet date are posted as unearned premiums; see notes to the consolidated balance sheet – Equity and liabilities (21) Unearned premiums. Over the duration of the contracts, unearned premiums are reversed in accordance with the reduction in risk.
In property-casualty reinsurance, we allow for the fact that provisions established in prior years were invested at higher interest rates than the current level of market interest rates. The income from technical interest therefore corresponds to the risk-free interest on our discounted technical provisions at the respective historical interest rate, taking into account the relevant period of insurance and currency. For balance sheet provisions in excess of the discounted provisions, short-term interest rates are applied.
Munich Re Group Annual Report 2014 technical result sources. For health primary insurance companies, the income from technical interest for primary insurance business corresponds to the allocation of interest to the ageing reserve (actuarial interest) and the allocation to the provision for premium refunds. The latter is based on the allocation of interest to the provision for non-performance-related premium refunds, on the investment result exceeding the actuarial interest rate, and on policyholders’ participation in the other non-technical result components.
Reinsurance Life Property-casualty €m 2014 Prev. year 2014 Prev. year Gross Claims and benefits paid –7,604 –8,035 –10,578 –9,896 Change in technical provisions
Provision for future policy benefits –214 431 1 5 Provision for outstanding claims –318 –711 624 –316 Provision for premium refunds – – –6 –5
Ceded share Claims and benefits paid 333 356 374 394 Change in technical provisions
Provision for future policy benefits –36 –76 – – Provision for outstanding claims –22 –20 –140 –195 Provision for premium refunds – – – –
Other technical result –36 –35 –1 –1 Expenses for claims and benefits – Ceded share 239 225 233 198
Provision for future policy benefits –250 355 1 5 Provision for outstanding claims –340 –731 484 –511 Provision for premium refunds – – –6 –5
ERGO Life and Health Property-casualty Germany Germany International €m 2014 Prev. year 2014 Prev. year 2014 Prev. year Gross Claims and benefits paid –9,591 –9,307 –1,825 –1,871 –2,386 –2,340 Change in technical provisions
Provision for future policy benefits 8 7 – – –98 –21 Provision for outstanding claims –8 1 –35 24 32 47 Provision for premium refunds – – –2 1 – –
Other technical result –6 –6 1 –3 –65 –67 Expenses for claims and benefits – Ceded share 22 42 –20 31 149 165
Provision for future policy benefits –93 –94 –1,302 –487 Provision for outstanding claims –146 2 –128 –1,473 Provision for premium refunds – – –2,656 –2,081
Net Claims and benefits paid –4,150 –5,053 –35,103 –35,497 Change in technical provisions
The change in the provision for future policy benefits (net) contains €495m (401m) in unrealised gains/losses from unit-linked life insurance. Expenses for claims and benefits include expenses for policyholders’ bonuses. Of this, –€1,414m (–1,135m) is for the allocation to the provision for premium refunds on the basis of national regulations, –€763m (–337m) for the change in the provision for deferred premium refunds recognised in the income statement, and –€102m (–173m) for direct crediting. The “Other technical result” for life primary insurance mainly includes interest on policyholders ’ accumulated credit.
Reinsurance Life Property-casualty €m 2014 Prev. year 2014 Prev. year Gross Acquisition costs, profit commission and reinsurance commission paid –2,160 –3,023 –4,185 –3,987 Administrative expenses –289 –275 –1,211 –1,171 Change in deferred acquisition costs and contingent commissions, amortisation and impairment losses of acquired insurance portfolios 169 549 83 149 Gross operating expenses –2,280 –2,749 –5,313 –5,009
Ceded share Acquisition costs, profit commission and reinsurance commission paid 5 21 3 6 37 33 Change in deferred acquisition costs and contingent commissions 1 7 – – –2 –
Ceded share Acquisition costs, profit commission and reinsurance commission paid 48 36 323 317 Change in deferred acquisition costs and contingent commissions 2 4 –10 9 Operating expenses – Ceded share 50 40 313 326
Munich Re Group Annual Report 2014 34 Investment result 8312 A
Other securities held to maturity – – – – Other securities available for sale Fixed-interest 580 490 1,961 1,586
Fixed-interest – – – 3 Non-fixed-interest – – 1 2 Derivatives –239 –89 –1,152 –405
ERGO Life and Health Property-casualty Germany Germany International €m 2014 Prev. year 2014 Prev. year 2014 Prev. year Land and buildings, including buildings on third-party land 180 152 8 9 9 9 Investments in affiliated companies –4 –11 –7 4 1 9 Investments in associates and joint ventures 25 19 4 1 6 8
Other securities held to maturity – – – – – – Other securities available for sale Fixed-interest 1,542 1,655 131 134 463 512
Write-ups of non-derivative investments 3 2 31 11 Gains on the disposal of non-derivative investments 351 224 1,751 1,156 Write-ups and gains on the disposal of derivatives 303 370 1,519 1,704 Other income – – – –
Other securities held to maturity – – – – Other securities available for sale Fixed-interest 94 118 4,771 4,495 Non-fixed-interest – 10 1,504 1,202 Other securities at fair value through profit or loss Held for trading
Fixed-interest – – 1 –3 Non-fixed-interest – – 1 2 Derivatives –1 7 –1,004 –868
Designated at fair value through profit or loss Fixed-interest – – 46 3 Non-fixed-interest – – – –
Write-ups of non-derivative investments 51 21 13 1 34 3 Gains on the disposal of non-derivative investments 604 578 142 135 95 126 Write-ups and gains on the disposal of derivatives 707 218 86 67 109 20 Other income – – 2 3 – –
Reinsurance Life Property-casualty €m 2014 Prev. year 2014 Prev. year Write-downs of non-derivative investments –22 –45 –165 –287 Losses on the disposal of non-derivative investments –41 –53 –219 –285 Write-downs and losses on the disposal of derivatives –540 –466 –2,659 –2,136 Management expenses, interest charges and other expenses –48 –45 –183 –180
Thereof: Interest income 75 74 13 29 Write-ups of other operating assets 4 4 9 21
Thereof: Interest income 6 12 105 124 Write-ups of other operating assets 3 7 23 68
Other operating expenses –69 –93 –875 –922 Thereof: Interest charges –12 –19 –130 –162 Write-downs of other operating assets –3 –12 –78 –56
Other operating expenses –157 –222 –84 –63 –167 –133 Thereof: Interest charges –52 –61 –15 –13 –15 –12 Write-downs of other operating assets –15 –16 –12 –5 –35 –15
37 Other non-operating result, impairment losses of goodwill and net finance costs
Besides foreign currency exchange gains of €2,572m (2,560m), the other non- operating income contains other non-technical income of €156m (177m).
Other non-operating result, impairment losses of goodwill and net finance costs
Munich Health Total €m 2014 Prev. year 2014 Prev. year Other non-operating income 18 39 2,728 2,737 Other non-operating expenses –21 –38 –3,224 –3,408 Impairment losses of goodwill – – –445 –29 Net finance costs –1 –4 –228 –257
The current tax for the year under review is derived from the tax results of the financial year, to which the local tax rates of the respective Group companies are applied.
The following table shows the reconciliation between the expected taxes on income and the tax on income actually shown. The expected tax expenses are calculated by multiplying the consolidated result before taxes on income (after “other tax”) by the Group tax rate. The applicable Group tax rate amounts to 33%. This takes into account corporation tax including solidarity surcharge, and trade tax (GewSt). Trade-tax municipal factors range from 240% to 490%.
Main components of tax expenses/income €m 2014 Prev. year Current tax for financial year –993 –1,440 Current tax for other periods 1,471 913 Deferred tax resulting from the occurrence or reversal of temporary differences –513 391 Deferred tax resulting from the occurrence or utilisation of loss carry-forwards 392 –211 Valuation allowances for deferred taxes/loss carry-forwards –48 227 Effects of changes in tax rates on deferred tax 3 12 Taxes on income 312 –108
The effective tax burden is the ratio between the “Taxes on income shown” and the “Result before taxes on income (after “other tax”)”. In the year under review, there was tax relief of –10.9% (in the previous year, a tax burden of 3.1%).
The non-deductible expenses mainly comprise non-tax-deductible write-downs of goodwill, expenses in connection with tax-free income and interest on back tax payments.
“Tax for prior years” is for actual and expected changes to tax assessments for previous years and includes deferred tax for other periods totalling –€130m (33m) as well as current tax for other periods amounting to €1,471m (913m). Deferred taxes result from adjustments to tax accounts after the tax returns have been filed or tax audits have been concluded. Current tax results in particular from adjustments made to the tax provisions for all years not yet finally assessed to take account of recent legal judgments, changes in administrative opinion and ongoing tax audits. A significant one-off effect in this context is the retroactive recognition of the tax deductibility of losses on equities incurred in 2001 and 2002 in our special fund investments.
Munich Re’s reporting is based on various legal regulations governing risks it is exposed to as a result of its business operations: IFRS 4 prescribes disclosures on the type and extent of risks from insurance contracts. Under IFRS 7, analogous disclosures on risks from financial instruments are required. Besides this, Section 315 (2) no. 2 of the German Commercial Code (HGB) prescribes disclosures in the management report on risk management objectives and methods, hedging and risks in connection with financial instruments. These requirements are specified in more detail in German Accounting Standard No. 20 (DRS 20) for management reports.
Risk reporting concerns not only accounting but also the activities of integrated risk management (IRM) at Munich Re. To take both perspectives into account, information on risks is provided in the risk report within the management report, in the disclosures on risks from insurance contracts and in the disclosures on financial instruments in the notes to the financial statements. The disclosures in the risk report largely adopt a purely economic view. The report provides a detailed account of the organisation of risk management and Munich Re’s risk strategy, briefly outlines the main risks we are exposed to, and describes in detail the economic risk capital calculated by means of our internal risk model and available financial resources. The report also contains information on specific risk complexes.
Munich Re Group Annual Report 2014 39 Risks from life and health insurance business
The quantitative structure of our business is shown in the notes to the consolidated balance sheet – Equity and liabilities (22) Provision for future policy benefits.
– In most cases, guaranteed lifetime annuity payment – Actuarial assumptions mainly fixed when contract is concluded – Long-term contracts with a guaranteed limited annuity in the event of disablement – Actuarial assumptions fixed when contract is concluded
Mortality (short-term): – Increase in claims expenditure due to exceptional, one-off circumstances (e.g. pandemics) Mortality (long-term): – Increase in claims expenditure due to sustained rise in mortality in the portfolio Longevity: – Increase in expected expenditure for annuities due to sustained rise in life expectancy in the portfolio
Morbidity (short-term): – Increase in costs of medical treatment within the risk period – Increase in claims expenditure due to exceptional, one-off events (e.g. pandemics)
Interventions by legislatures or courts in the distribution of risks and rewards underlying the contracts concluded between the parties to insurance may mask or aggravate the biometric risks described, making it necessary to adjust the provision.
Provisions in reinsurance and primary insurance that are not covered by deposits retained are covered by investments. In the case of a discrepancy between the durations of these investments and the liabilities (duration mismatch), the main risk lies in the fact that if interest rates fall markedly over the remaining settlement period of the liabilities, the return on the reinvested assets may be lower than the discount rates and thus necessitate further expenses. But a complete duration matching of liabilities with fixed-interest investments of identical maturities would not be expedient, because if interest rates rise significantly, policyholders might make increasing use of their surrender rights, resulting in a liquidity requirement for premature payouts.
Other market risks and embedded derivatives In reinsurance, other market risks are generally ruled out through suitable contract design.
In life primary insurance, the reported technical provision in the case of contracts with a surrender option is generally at least as high as the relevant surrender value. As with the lump-sum option in the case of deferred annuity policies, a potential lapse risk may result from a higher interest-rate level than that on which the calculation was based. This is allowed for by means of appropriate liquidity planning and adequate calculation of the surrender value. Expected surrenders are taken into account in the amortisation of deferred acquisition costs in life primary insurance and reinsurance. The policy- holder’s right in some contracts to maintain the contract with a waiver of premium and an adjustment of the guaranteed benefits constitutes a partial lapse and is taken into account in the calculations analogously. Based on the relevant legal parameters, reserves for primary health insurance business are calculated considering amounts payable due to cancellation of policies. The underlying assumptions are regularly checked and can be altered by means of a premium adjustment.
Munich Re Group Annual Report 2014 therefore analyse the expected future balance from cash inflows due to premium payments and outflows for payment of insurance claims and benefits plus costs.
At the balance sheet date, this results in the future expected technical payment balances (including variable annuities) shown in the following table according to duration bands. As only the technical payment flows are considered, inflows from investment income and investments that become free are not included in the quantifications. Taking into account the inflows from investments, whose cash flows are largely aligned with those of the liabilities through our asset-liability management, items in the future expectations are positive throughout, so that the liquidity risk of these insurance contracts is minimised accordingly.
In health primary insurance, there is the additional possibility of adjusting premiums for most long-term contracts. If it is foreseeable that the assumptions behind the calculation are permanently inadequate to cover expenses for claims or the actual mortalities deviate significantly from the calculated ones, premiums can be raised accordingly, thus closely limiting the financial and balance sheet effects of cost increases in healthcare and permanent changes in morbidity.
For information on our risk management processes, reference is made to pages 117–122 of the risk report.
Impact on equity and the consolidated income statement In the liability adequacy test pursuant to IFRS 4, the technical provisions and deferred acquisition costs are regularly tested to ensure they are adequate. An adjustment is made if such tests show that, as a whole, the amounts calculated using the previous assumptions for biometric actuarial rates, for discounting provisions and for lapses are no longer sufficient. Particularly in primary insurance, the possibilities of adjusting participation in surplus are taken into account.
1 In 2012, our segment reporting was modified and no longer has a consolidation column. The figures for the previous year have been adjusted accordingly. Comparability with 2010 is thus limited.
The development of our claims reserves and the corresponding run-off results are shown in the notes to the consolidated balance sheet – Equity and liabilities (23) Provision for outstanding claims.
Time lags in claims settlement may assume significant dimensions, especially in reinsurance. Loss notification often involves a long chain: exposure to the loss, manifestation of an injury, possible filing of a lawsuit against a defendant and adjudication of the suit, reporting and payment of an insurance recovery and, finally, notification to the reinsurer. Therefore, besides monitoring these developments on a claim-by-claim level, we also monitor the development from an industry perspective, as this may be considered an important early indicator.
In addition, there are loss scenarios which are highly influenced by the continuously evolving jurisprudence of tort law, but also by a growing number of class actions. The main lines of business affected are product liability and professional liability in the USA. Besides this, we see increased uncertainties in the assessment of the liability scenarios for pure financial losses as a result of the massive change in economic parameters. We continue to carefully monitor trends and respond to the emergence of new information as appropriate.
In the area of bodily injury losses, Munich Re carries a significant amount of reserves for individual claims where the claimant is severely injured and is in need of a high degree of individual, specialised medical treatment and care. US workers’ compensation business and motor liability business in some European countries are particularly affected by such claims. In both instances, coverage is provided for permanent disability cases where the claimant is expected to live for a considerable length of time and requires significant medical attention. Accordingly, the loss provisions are highly sensitive in particular to inflation of medical care costs and to the trend with regard to general life expectancy. Owing to unexpectedly high price inflation, we have repeatedly had to increase these provisions in the past. Actual claims reported are compared with projected amounts to check whether the loss development patterns used are still appropriate for projecting future claims payments.
Another important measure for controlling underwriting risks is the cession of a portion of our risks to other carriers via external reinsurance or retrocession; see notes to the consolidated balance sheet – Assets (12) Ceded share of technical provisions and notes to the consolidated income statement (30) Premiums. All our companies have intra-Group and/or external reinsurance and retrocession cover. Particularly important in this context is an accumulation excess-of-loss cover, which provides protection against property damage losses from natural catastrophes. The dimensions of this cover are based on analyses of our accumulation budgets in those parts of the world exposed to natural catastrophes. The protection afforded by retrocession comes into play if we are hit by an extremely large loss.
We further diversify our risk management instruments by issuing catastrophe bonds.
The major part of the discounted provisions in reinsurance are for US workers’ compensation business, for which the discount rates are governed by supervisory law and are determined prospectively per accident year. We currently do not expect any changes in the US regulatory authorities’ approval procedure. A sustained reduction in the level of market interest rates is taken into account through appropriate discount rate assumptions for future provisions for outstanding claims. If the discount rate were subsequently lowered by 100 BP, this would necessitate additional reserving of €174m (157m), which would have to be recognised as an expense in the income statement.
The effects of the capital market events listed here do not take account of tax or the provision for premium refunds (gross disclosure), i.e. the analysis does not take into account the effects resulting from policyholders’ participation in surplus in insur - ances of the person. The impact on the results and equity shown below would be substantially reduced if these effects were considered. It is also assumed that changes in the capital markets occur instantaneously, preventing our limit systems and active countermeasures from taking effect. The analysis considers around 99% of Munich Re’s investments.
Change in share prices 31.12.2014 Prev. year Impact on Total change Impact on Total change profit Impact on in market profit Impact on in market €bn or loss1 equity1 value or loss1 equity1 value
Change in interest rates 31.12.2014 Prev. year Impact on Total change Impact on Total change profit Impact on in market profit Impact on in market €bn or loss1 equity1 value or loss1 equity1 value Increase of 100 BP –0.244 –8.138 –14.460 0.089 –6.218 –11.050 Increase of 50 BP –0.129 –4.214 –7.604 0.037 –3.210 –5.830
Munich Reinsurance Company has established a contractual trust agreement in the form of a two-way trust for its unfunded company pension obligations. The Munich Re pension scheme is considered a related party in accordance with IAS 24. Contributions to the pension scheme are recognised as expenses for defined contribution plans; see Notes to the consolidated balance sheet – Equity and liabilities (26) Other accrued liabilities. For transactions of related parties with Munich Reinsurance Company shares, please refer to Notes to the consolidated balance sheet – Equity and liabilities (18) Equity.
The following personnel expenses are included in the operating expenses, in the expenses for claims and benefits (for claims adjustment) and in the investment result: 46 Long-Term Incentive Plan
Under each long-term incentive plan, participants received a certain number of stock appreciation rights.
The relevant initial share price for the stock appreciation rights was calculated from the average of closing prices for Munich Re shares in Frankfurt Xetra trading over the last three months prior to the respective plan commencement.
The personnel expenses and income incurred for the stock appreciation rights are determined on the basis of the change in the fair value of the underlying options. The fair value recognises not only the intrinsic value (difference between current share price and initial share price of the stock appreciation rights) but also the possibility of growth in value up to the date of forfeiture or expiry of the rights and is determined on the basis of recognised valuation models, taking into account the exercise conditions. At each balance sheet date, the fair value is calculated and reserved in full. In the year under review, provisions of €5.8m (10.9m) had to be posted for Munich Reinsurance Company. The personnel expense/income recognised in the income statement corresponds to the change in the provision in the year under review, taking into consideration any rights exercised. In 2014, this resulted in expenses of –€1.1m (–18.6m). The weighted average share price for the stock appreciation rights in 2014 was €161.49 for plan year 2007, €161.63 for plan year 2008, €159.38 for plan year 2009, and €150.26 for plan year 2010. The intrinsic value of the exercisable stock appreciation rights amounted to €5.8m at the balance sheet date.
Number of rights on 31 Dec. 2008 339,399 441,041 – –
Number of rights on 31 Dec. 2011 329,883 428,225 450,646 665,309
Number of rights on 31 Dec. 2012 329,100 426,803 128,684 296,125
Number of rights on 31 Dec. 2014 – 24,512 27,800 59,662 Exercisable at year-end – 24,512 27,800 59,662
From 2002 to 2009, ERGO Versicherungsgruppe AG and some of its subsidiaries, as well as the MEAG companies, also set up long-term incentive plans at yearly intervals and with terms of seven years each. The persons eligible for participation – Board of Management members, managing directors and, in individual cases, also top executives – were granted a defined number of stock appreciation rights in respect of Munich Re shares. In 2010, these share-price-related remuneration plans were provided only for senior management at the MEAG companies and for the managing directors of MEAG MUNICH ERGO Kapitalanlagegesellschaft mbH. The design of the plans is identical to that of Munich Re’s long-term incentive plans and they are accounted for in the same way. The obligations arising from the long-term incentive plans are covered by options on Munich Reinsurance Company shares. In the year under review, provisions of €0.2m (1.2m) had to be posted for the ERGO and MEAG companies. The personnel expense/ income recognised in the income statement corresponds to the change in the provision in the year under review, taking into consideration any rights exercised. In 2014, this resulted in income of – (€0.5m). The weighted average share price for the stock appreciation rights exercised in 2014 was €161.89 for plan year 2007, €161.75 for plan year 2008, €159.00 for plan year 2009, and €158.05 for plan year 2010. The intrinsic value of the exercisable stock appreciation rights amounted to €0.2m at the balance sheet date.
Number of rights on 31 Dec. 2010 106,368 168,243 148,834 39,046
Number of rights on 31 Dec. 2012 101,207 166,170 20,299 19,112
Number of rights on 31 Dec. 2013 17,963 5,844 3,386 7,088
When the stock appreciation rights are exercised, the cash payment is made (in the respective national currency) by the company that granted the rights. Stock appre - ciation rights not exercised on the last trading day of the plan term are exercised on the participant’s behalf insofar as the prerequisites for this are met. If the pre requisites are not met, the stock appreciation rights are forfeited. If another company acquires control of Munich Reinsurance Company or if the latter’s group of share- holders changes significantly due to a merger or comparable transaction or intended business combination (“change of control”), all plan participants from Munich Re may exercise their stock appreciation rights within 60 days after the change of control becomes effective, even if the prerequisites for exercising the rights are not yet met at that juncture.
Since 1 January 2009, Munich Reinsurance Company has set up medium-term incentive plans, each with a term of three years. Eligible for participation in these cash-settled share-based remuneration plans are senior management in Munich. The participants receive performance share units (PSUs). In the fourth year after plan commencement, participants are entitled to a bonus payment dependent on the achievement of valuebased performance targets and the increase in the total shareholder return (TSR).
In the financial year 2014, expenses of –€7.9m (–26.6m) were recognised for the MidTerm Incentive Plan. The provision at the reporting date amounted to €58.9m (79.5m).
The members of the Supervisory Board and Board of Management did not receive any cash advances or loans in the year under review. For their service as employees of the Group, Supervisory Board members received remuneration in the amount of €1.4m (1.3m). There were no significant notifiable transactions between Board members and Munich Re.
All other disclosures on the remuneration and structure of the remuneration system for the Board of Management can be found in the remuneration report on page 49. Information on share trading and shares held by members of the Board of Management and the Supervisory Board is provided in the corporate governance report on page 29.
Fair value 2014 for one right – 344.04 € 359.94 € 377.07 € Number of rights (for 100% achievement of objectives) on 1 January 2011 63,769 – – –
Number of rights (for 100% achievement of objectives) on 31 December 2012 63,530 78,568 – – Number of rights (for 100% achievement of objectives) on 1 January 2013 63,530 78,568 51,168 –
Number of rights (for 100% achievement of objectives) on 31 December 2013 62,144 76,654 51,168 – Number of rights (for 100% achievement of objectives) on 1 January 2014 62,144 76,654 51,168 42,233
The number of staff employed by the Group at year-end totalled 21,899 (23,131) in Germany and 21,417 (21,534) in other countries.
For services rendered to the parent and consolidated subsidiaries by the Group auditor (KPMG Bayerische Treuhandgesellschaft AG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Munich, and its affiliated companies within the meaning of Section 271 (2) of the German Commercial Code – HGB), the following fees have been recognised as an expense in the financial year: 51 Contingent liabilities, other financial commitments
Estimates and judgements are necessary for contingent liabilities where the likely impact cannot be clearly determined. This is the case, for example, with respect for contingent liabilities in legal disputes. Like the evaluation process for other accrued liabilities, the assessment is made by experts in the affected units on the basis of the best estimate. Contingent liabilities are stated unless the experts estimate that the possibility of an outflow of resources is remote.
ERGO companies have assumed unlimited liability for the sale of insurance products by insurance intermediaries acting exclusively on their behalf. In this respect, there is a risk of a claim being made by customers. In case of a claim, there is a general possibility of recourse against the insurance intermediary or the latter’s fidelity guarantee insurance carrier.
Munich Health 3,007 2,927 1 Thereof fees totalling €5,978k for KPMG Bayerische Treuhandgesellschaft AG Wirtschaftsprüfungs gesellschaft Steuerberatungsgesellschaft.
Breakdown of auditor’s fees pursuant to Section 314 (1) no. 9 of the German Commercial Code (HGB)
€k 2014 Audits of financial statements1 6,073 Other assurance and appraisal services 2,288 Tax consultancy services 946 Other services 1,752 Total 11,059
Besides this, Munich Re has entered into various other financial obligations amounting to €303m (192m) for work and service contracts and €1,075m (831m) for investment obligations. At the reporting date, there were loan commitments amounting to €610m (385m). These figures represent undiscounted nominal amounts. There are other financial commitments amounting to €7m (–).
Contingent liabilities and other financial commitments of associates and joint ventures are presented in the Notes to the consolidated balance sheet – Assets (5) Investments in affiliated companies, associates and joint ventures. These are included in the figures set out here.
Regulatory, legal or contractual restrictions and protective rights of non-controlling interests may restrict the Group’s ability to access or use assets, and settle liabilities.
The carrying amounts of Group assets with restrictions on title can be found in the notes to the consolidated balance sheet – Assets. The restrictions primarily result from contractual agreements, including pledged securities deposits to collateralise payment obligations from insurance business, the collateralisation of derivative transactions with securities or of bank liabilities with non-financial assets.
As insurers, we are subject to supervisory requirements that may restrict access to assets. Individual national regulations require that assets held to cover insurance liabilities be managed separately. In principle, there are special supervisory regulations governing access to these assets and their use.
Our subsidiary Munich American Reassurance Company shows a negative earned surplus in its local financial statements as at 31 December 2014 (Statutory Accounting Principles). For this reason, the company can only pay dividends or transfer capital to the parent company with the approval of the competent US regulatory authority.
The acquisitions are part of our infrastructure investment programme (including renewable energies and new technologies).
Munich Reinsurance Company’s net retained profits for 2014 according to its financial statements prepared on the basis of German GAAP accounting amount to €1,340,305,289.50. The Board of Management will propose to shareholders at the Annual General Meeting that these net retained profits be used for payment of a dividend of €7.75 per dividend-bearing share, with the remaining amount being carried forward to new account.
List of shareholdings as at 31 December 2014 pursuant to Section 313 (2) of the German Commercial Code (HGB)
ERGO Versicherung Aktiengesellschaft, Düsseldorf3 100.0000 ERGO Versicherung Aktiengesellschaft, Vienna 93.4536 ERGO Versicherungsgruppe AG, Düsseldorf 100.0000 ERGO Vida Seguros y Reaseguros, Sociedad Anónima, Saragossa 100.0000 ERGO Zivljenjska zavarovalnica d.d., Ljubljana 100.0000 ERGO Zivotno osiguranje d.d., Zagreb 100.0000 ERGO Zweite Beteiligungsgesellschaft mbH, Düsseldorf 99.9999 ERV Evropská pojišťovna, a. s., Prague 90.0000 ERV Försäkringsaktiebolag (publ), Stockholm 100.0000 Europaeiske Rejseforsikring A/S, Copenhagen 100.0000 EUROPÄISCHE Reiseversicherung Aktiengesellschaft, Munich3 100.0000 Everything Legal Ltd., Bristol 100.0000 FAIRANCE GmbH, Düsseldorf 100.0000 Flexitel Telefonservice GmbH, Berlin 100.0000 FOTOUNO S.r.l., Turin 100.0000 FOTOWATIO ITALIA GALATINA S.r.l., Turin 100.0000 GF 65, Vienna4 100.0000 Global Standards, LLC, Dover, Delaware 100.0000 Globality S.A., Luxembourg 100.0000 Great Lakes Reinsurance (UK) Plc., London 100.0000 Group Risk Services Limited, London 100.0000 Groves, John & Westrup Limited, London 100.0000 Habiriscos - Investimentos Imobiliarios e Turisticos, S.A., Lisbon 100.0000 Hartford Steam Boiler (M) Sdn. Bhd., Kuala Lumpur 100.0000 Hartford Steam Boiler (Singapore) PTE Ltd, Singapore 100.0000 Hartford Steam Boiler International-GmbH, Rheine 100.0000 HMV GFKL Beteiligungs GmbH, Düsseldorf 100.0000 HSB Brasil Servicos de Engenharia e Inspecao, Ltda., São Paulo 100.0000 HSB Engineering Finance Corporation, Dover, Delaware 100.0000 HSB Engineering Insurance Limited, London 100.0000 HSB Engineering Insurance Services Limited, London 100.0000 HSB Group, Inc., Dover, Delaware 100.0000 HSB International (India) Private Limited, Kolkata 100.0000 HSB Japan KK, Minato-KU, Tokyo 100.0000 HSB Solomon Associates Canada Ltd., Saint John, Providence of New Brunswick 100.0000 HSB Solomon Associates LLC, Dover, Delaware 100.0000 HSB Specialty Insurance Company, Hartford, Connecticut 100.0000 HSB Technical Consulting & Service (Shanghai) Company, Ltd, Shanghai 100.0000 Ibero Property Portugal - Investimentos Imobiliarios S.A., Lisbon 100.0000 Ibero Property Trust S.A., Madrid 100.0000 IDEENKAPITAL Financial Engineering GmbH, Düsseldorf 100.0000 IDEENKAPITAL Financial Service GmbH, Düsseldorf 100.0000 IDEENKAPITAL GmbH, Düsseldorf 100.0000 IDEENKAPITAL Media Finance GmbH, Düsseldorf 50.1000 IDEENKAPITAL Metropolen Europa GmbH & Co. KG, Düsseldorf 72.3477 iii, Munich4 100.0000 IK Einkauf Objekt Eins gmbH & Co. KG, Düsseldorf 100.0000 IK Einkauf Objektmanagement GmbH, Düsseldorf 100.0000 293Consolidated financial statements Notes
IK Einkaufsmärkte Deutschland GmbH & Co. KG, Düsseldorf 52.0387 IK Premium Fonds GmbH & Co. KG, Düsseldorf 100.0000 IK Premium Fonds zwei GmbH & Co. KG, Düsseldorf 100.0000 IKFE Properties I AG, Zurich 63.5708 Imofloresmira - Investimentos Imobiliarios S.A., Lisbon 100.0000 InterAssistance GmbH, Munich3 100.0000 IRIS Capital Fund II German Investors GmbH & Co. KG, Düsseldorf 85.7143 ITERGO Informationstechnologie GmbH, Düsseldorf3 100.0000 Joint Stock Insurance Company ERGO, Minsk 92.3114 Jordan Health Cost Management Services W.L.L., Amman 100.0000 K & P Pflegezentrum Uelzen IMMAC Renditefonds GmbH & Co. KG, Düsseldorf 84.8445 KA Köln Assekuranz.Agentur GmbH, Cologne 100.0000 Kapdom-Invest GmbH, Moscow 100.0000 Kuik & Partners Gerechtsdeurwaarders & Incassobureau B.V., Eindhoven 100.0000 Landelijke Associatie van Gerechtsdeurwaarders B.V., Groningen4 89.7640 LAVG Associatie van Gerechtsdeurwaarders Zuid Holding B.V., Breda4 100.0000 LAVG Zuid B.V., Breda 100.0000 LEGIAL AG, Munich 100.0000 LifePlans Inc., Waltham, Massachusetts 100.0000 LifePlans LTC Services, Inc., Toronto, Ontario 100.0000 Lloyds Modern Corporation, Dallas, Texas 100.0000 Longial GmbH, Düsseldorf 100.0000 m:editerran POWER GmbH & Co. KG, Nuremberg 100.0000 MAGAZ FOTOVOLTAICA, S.L.U., Alcobendas 100.0000 Mandaat B.V., Druten 100.0000 Marina Salud S.A., Alicante 65.0000 Marina Sp.z.o.o., Sopot 100.0000 MEAG ANGLO CELTIC Fund, Munich4 100.0000 MEAG ATLAS, Munich4 100.0000 MEAG Benedict, Munich4 100.0000 MEAG BLN 2, Munich4 100.0000 MEAG Cash Management GmbH, Munich 100.0000 MEAG EDL CurryGov, Munich4 100.0000 MEAG EDL EuroValue, Munich4 100.0000 MEAG EDS AGIL, Munich4 100.0000 MEAG ERGO Belgium Equities, Munich4 100.0000 MEAG ESUS 1, Munich4 100.0000 MEAG EUR Global 1, Munich4 100.0000 MEAG Euro 1, Munich4 100.0000 MEAG Euro 2, Munich4 100.0000 MEAG EURO-FONDS, Munich4 100.0000 Meag Eurostar (Spezialfonds), Munich4 100.0000 MEAG EURO-Yield, Munich4 100.0000 MEAG GBP-Global-STAR, Munich4 100.0000 MEAG German Prime Opportunities (GPO), Munich4 100.0000 MEAG Gilagrent, Munich4 100.0000 MEAG Golf 1, Munich4 100.0000 MEAG HBG 1, Munich4 100.0000 MEAG HM Sach 1, Munich4 100.0000 MEAG HM Sach Rent 1, Munich4 100.0000 MEAG HM2000, Munich4 100.0000
NMU Group Limited, London 100.0000 Northern Marine Underwriters Limited, Leeds 100.0000 OIK Mediclin, Wiesbaden4 66.6672 P.A.N. GmbH & Co. KG, Grünwald2 99.0000 Princeton Eagle Holding (Bermuda) Limited, Hamilton, Bermuda 100.0000 Princeton Eagle Insurance Company Limited, Hamilton, Bermuda 100.0000 Princeton Eagle West (Holding) Inc., Wilmington, Delaware 100.0000 Princeton Eagle West Insurance Company Ltd., Hamilton, Bermuda 100.0000 Private Aktiengesellschaft “Europäische Reiseversicherung”, Kiev 99.9999 Queensley Holdings Limited, Singapore4 100.0000 Renaissance Hotel Realbesitz GmbH, Vienna 60.0000 Roanoke Group Inc., Schaumburg, Illinois 100.0000 Roanoke Insurance Group Inc., Schaumburg, Illinois 100.0000 Roanoke International Brokers Limited, London 100.0000 Scout Moor Group Limited, Manchester 100.0000 Scout Moor Holdings (No. 1) Limited., Manchester 100.0000 Scout Moor Holdings (No. 2) Limited, Manchester 100.0000 Scout Moor Wind Farm (No. 2) Limited, Manchester 100.0000 Scout Moor Wind Farm Limited, Manchester 100.0000 Seminaris Hotel- und Kongreßstätten- Betriebsgesellschaft mbH, Lüneburg 100.0000 Silvanus Vermögensverwaltungsges. mbH, Munich 100.0000 Solomon Associates Limited, London 100.0000 Sopocki Instytut Ubezpieczeń S.A., Sopot 100.0000 Sopockie Towarzystwo Ubezpieczen Ergo Hestia Spolka Akcyjna, Sopot 100.0000 Sopockie Towarzystwo Ubezpieczen na Zycie Ergo Hestia Spolka Akcyjna, Sopot 100.0000 Specialty Insurance Services Corp., Amelia, Ohio 100.0000 SunEnergy & Partners S.r.l., Brindisi 100.0000 Temple Insurance Company, Toronto, Ontario 100.0000 The Atlas Insurance Agency, Inc., Amelia, Ohio 100.0000 The Boiler Inspection and Insurance Company of Canada, Toronto, Ontario 100.0000 The Hartford Steam Boiler Inspection and Insurance Company of Connecticut, Hartford, Connecticut 100.0000 The Hartford Steam Boiler Inspection and Insurance Company, Hartford, Connecticut 100.0000 The Midland Company, Cincinnati, Ohio 100.0000 The Polytechnic Club, Inc., Hartford, Connecticut 100.0000 The Princeton Excess and Surplus Lines Insurance Company, Wilmington, Delaware 100.0000 Tir Mostyn and Foel Goch Limited, London 100.0000 UK Wind Holdings Ltd, London 100.0000 Union Beteiligungsholding GmbH, Vienna 100.0000 Unión Médica la Fuencisla, S.A., Compañía de Seguros, Saragossa 100.0000 US PROPERTIES VA GmbH & Co. KG, Düsseldorf4 46.0939 Van Arkel Gerechtsdeurwaarders B.V., Leiden4 100.0000 VHDK Beteiligungsgesellschaft mbH, Düsseldorf 100.0000 VICTERG Zrt., Budapest 100.0000
VICTORIA Asien Immobilienbeteiligungs GmbH & Co. KG, Munich 100.0000 Victoria Investment Properties Two L.P., Atlanta, Georgia 100.0000 VICTORIA Italy Property GmbH, Düsseldorf 100.0000 VICTORIA Lebensversicherung Aktiengesellschaft, Düsseldorf3 100.0000 Victoria US Holdings, Inc., Wilmington, Delaware 100.0000 VICTORIA US Property Investment GmbH, Düsseldorf 100.0000 VICTORIA US Property Zwei GmbH, Munich 100.0000 VICTORIA Vierte Beteiligungsgesellschaft mbH, Düsseldorf 100.0000 Victoria Vierter Bauabschnitt GmbH & Co. KG, Düsseldorf 100.0000 Vorsorge Lebensversicherung Aktiengesellschaft, Düsseldorf3 100.0000 VORSORGE Luxemburg Lebensversicherung S.A., Grevenmacher 100.0000 Watkins Syndicate Hong Kong Limited, Hong Kong 67.0000 Watkins Syndicate Labuan Limited (WSLAB), Labuan 100.0000 Watkins Syndicate Middle East Limited, Dubai 100.0000 Watkins Syndicate Singapore Pte. Limited, Singapore 100.0000 welivit GmbH, Nuremberg 100.0000 welivit Solarfonds GmbH & Co. KG, Nuremberg 100.0000 welivit Solarfonds S.a.s. di welivit Solar Italia S.r.l., Bolzano 100.0000 WFB Stockholm Management AB, Stockholm4 50.0000 Wind Farms Götaland Svealand AB, Hässleholm 100.0000 Windpark MR-B GmbH & Co. KG, Bremen2 100.0000 Windpark MR-D GmbH & Co. KG, Bremen2 100.0000 Windpark MR-N gmbH & Co. KG, Bremen2 100.0000 Windpark MR-S GmbH & Co. KG, Bremen2 100.0000 Windpark MR-T GmbH & Co.KG, Bremen2 100.0000 wse Solarpark Spanien 1 GmbH & Co. KG, Nuremberg 75.1243 X-Pact B.V., The Hague 62.5000
Non-consolidated subsidiaries “PORT ELISABETH” GmbH & Co. KG, Bramstedt4 31.9660 “PORT LOUIS” GmbH & Co. KG, Bramstedt4 26.0495 80e LIMITED, Bristol 100.0000 Aleama 150015 S.L., Valencia 100.0000 Amicus Ltd., Bristol 100.0000 ANOVA GmbH, Rostock 100.0000 Arridabra 130013 S.L., Valencia 100.0000 ARTES Assekuranzservice GmbH, Düsseldorf 100.0000 B&D Acquisition B.V., Amsterdam 100.0000 B&D Business Solutions B.V., Utrecht 100.0000 Badozoc 1001 S.L., Valencia 100.0000 Bank Austria Creditanstalt Versicherungsdienst GmbH, Vienna 100.0000 Baqueda 7007 S.L., Valencia 100.0000 Beaufort Dedicated No.3 Ltd, London 100.0000 Beaufort Dedicated No.4 Ltd, London 100.0000 Beaufort Dedicated No.6 Ltd, London 100.0000 Beaufort Underwriting Services Limited, London 100.0000 Blitz 01-807 GmbH, Munich 100.0000 Bobasbe 6006 S.L., Valencia 100.0000 Botedazo 8008 S.L., Valencia 100.0000
ERGO GmbH, Herisau 100.0000 ERGO Gourmet GmbH, Düsseldorf 100.0000 ERGO Immobilien-GmbH 15. Victoria & Co. KG, Kreien 100.0000 ERGO Immobilien-GmbH 4. DKV & Co. KG, Kreien 100.0000 ERGO Immobilien-GmbH 7. Hamburg-Mannheimer & Co. KG, Kreien 100.0000 ERGO Immobilien-Verwaltungs-GmbH, Kreien 100.0000 ERGO Leben Asien Verwaltungs GmbH, Munich 100.0000 ERGO PORTFÖY YÖNETIMI A.S., Istanbul 100.0000 ERGO Private Capital GmbH, Düsseldorf 100.0000 ERGO PRO S.r.l., Verona 100.0000 ERGO Pro Sp. z o.o., Warsaw 100.0000 ERGO Pro, spol. s r.o., Prague 100.0000 ERGO Specialty GmbH, Hamburg 100.0000 ERGO Versicherungs- und Finanzierungs-Vermittlung GmbH, Hamburg 100.0000 ERGO Zehnte Beteiligungsgesellschaft mbH, Düsseldorf 100.0000 ERGO Zwölfte Beteiligungsgesellschaft mbH, Munich 100.0000 ERIN Sigorta Aracilik Hizmetleri Limited Sirketi, Istanbul 99.9950 ERV (China) Travel Service and Consulting Ltd., Beijing 100.0000 ERV (India) Travel Service and Consulting Private Limited, Mumbai 99.9999 ERV Seyahat Sigorta Aracilik Hizmetleri ve Danismanlik Ltd.Sti., Istanbul 99.0000 Etics, s.r.o., Prague 100.0000 Etoblete 160016 S.L., Valencia 100.0000 EUREKA GmbH, Düsseldorf 99.9999 Euro-Center (Cyprus) Ltd., Larnaca 100.0000 Euro-Center (Thailand) Co. Ltd., Bangkok 100.0000 Euro-Center Cape Town (Pty.) Ltd., Cape Town 100.0000 Euro-Center China (HK) Co., Ltd., Beijing 100.0000 Euro-Center Holding North Asia (HK) Pte. Ltd., Hong Kong 100.0000 Euro-Center Holding SE, Prague 83.3330 Euro-Center Ltda., São Paulo 100.0000 Euro-Center North Asia Consulting Services (Beijing) Co., Ltd., Beijing 100.0000 Euro-Center Prague, s.r.o., Prague 100.0000 Euro-Center USA, Inc., New York City, New York 100.0000 Euro-Center Yerel Yardim, Istanbul 100.0000 Euro-Center, S.A. (Spain), Palma de Mallorca 100.0000 Europäische (UK) Ltd., London 100.0000 European Assistance Holding GmbH, Munich 100.0000 Evaluación Médica TUW, S.L., Barcelona 100.0000 EVV Logistik Management GmbH, Düsseldorf 100.0000 Exolvo GmbH, Hamburg 100.0000 First Legal Protection Limited, Bristol 100.0000 First Marine Financial Services, Amelia, Ohio 100.0000 Flexkonzept - Basis, Luxembourg4 100.0000 Flexkonzept - Wachstum, Luxembourg4 100.0000 FlexKonzept 1, Publikumsfonds, Munich4 100.0000 FlexKonzept 2, Publikumsfonds, Munich4 100.0000 FlexKonzept 3, Publikumsfonds, Munich4 100.0000 Forst Ebnath AG, Ebnath 96.7315 Gamaponti 140014 S.L., Valencia 100.0000 GBG Vogelsanger Straße GmbH, Cologne 94.7826 297Consolidated financial statements Notes
Invesco MEAG US Immobilien Fonds IV B, Luxembourg4 37.1375 Janus Vermögensverwaltungsgesellschaft mbH, Munich 100.0000 Juventus Vermögensverwaltungs AG, Hamburg 100.0000 K & P Objekt Hamburg Hamburger Straße GmbH, Düsseldorf 100.0000 K & P Objekt Hamburg Hamburger Straße Immobilien- fonds GmbH & Co.KG, Düsseldorf4 36.6889 K & P Objekt München Hufelandstraße GmbH, Düsseldorf 100.0000 Koole & Sennef Gerechtsdeurwaarders kantoor B.V., The Hague 100.0000 KQV Solarpark Franken 1 GmbH & Co. KG, Fürth 100.0000 Kuik & Partners Credit Management BVBA, Brussels 98.9000 Larus Vermögensverwaltungsgesellschaft mbH, Munich 100.0000 Law On The Web Limited, Bristol 100.0000 LawAssist Limited, Bristol 100.0000 Legal Net GmbH, Munich 100.0000 Lietuva Demetra GmbH, Munich 100.0000 m:editerran POWER FRANCE GmbH, Nuremberg 100.0000 m:editerran Power S.a.s. di welivit Solar Italia S.r.l., Bolzano 100.0000 MAM Munich Asset Management GmbH, Munich 100.0000 Marbury Agency, Inc., Amelia, Ohio 100.0000 MAYFAIR Financing GmbH, Munich 100.0000 MAYFAIR Holding GmbH, Düsseldorf 100.0000 MEAG EmergingMarkets Rent A-Anteile, Munich4 99.9000 MEAG EuroAktien Dynamic Floor, Munich4 93.2300 MEAG EuroRenten Dynamic Floor, Munich4 94.5000 MEAG GlobalRent A, Munich4 99.9700 MEAG Hong Kong Limited, Hong Kong 100.0000 MEAG Luxembourg S.à r.l., Luxembourg 100.0000 MEAG OptiErtrag FCP, Munich4 39.3900 MEAG Osteuropa A, Munich4 43.4600 MEAG Pension Rent, Munich4 29.1500 MEAG Pension Safe, Munich4 70.2400 MEAG Property Fund II, Munich4 100.0000 MEAG Property Fund III, Munich4 100.0000 MEAG Real Estate Erste Beteiligungsgesellschaft, Munich 100.0000 MEAG RealReturn Inhaber-Anteile A, Munich4 50.0500 Mediastream Consulting GmbH, Grünwald 100.0000 Mediastream Dritte Film GmbH, Grünwald 100.0000 Mediastream Film GmbH, Grünwald 100.0000 Mediastream Vierte Medien GmbH, Grünwald 100.0000 Mediastream Zweite Film GmbH, Grünwald 100.0000 MedNet Europa GmbH, Munich 100.0000 MedNet International Offshore SAL, Beirut 99.6700 MESA ASISTENCIA, S.A., Madrid 99.9000 miCura Pflegedienste Berlin GmbH, Berlin 100.0000 miCura Pflegedienste Bremen GmbH, Bremen 100.0000 miCura Pflegedienste Düsseldorf GmbH, Düsseldorf 100.0000 miCura Pflegedienste GmbH, Cologne 100.0000 miCura Pflegedienste Hamburg GmbH, Hamburg 100.0000 miCura Pflegedienste Krefeld GmbH, Krefeld 100.0000 miCura Pflegedienste München / Dachau GmbH, Dachau 51.0000 miCura Pflegedienste München GmbH, Munich 100.0000 miCura Pflegedienste München Ost GmbH, Munich 65.0000 miCura Pflegedienste Münster GmbH, Münster 100.0000 miCura Pflegedienste Nürnberg GmbH, Nuremberg 51.0000
PRORENDITA VIER Verwaltungsgesellschaft mbH, Hamburg 100.0000 PRORENDITA ZWEI Verwaltungsgesellschaft mbH, Hamburg 100.0000 ProVictor Immobilien GmbH i.L., Düsseldorf4 50.0000 Reaseguradora de las Américas S. A., La Habana 100.0000 Roanoke Trade Insurance Inc., Schaumburg, Illinois 100.0000 SAINT LEON ENERGIE S.A.R.L., Saargemünd 100.0000 Schloss Hohenkammer GmbH, Hohenkammer 100.0000 Schrömbgens & Stephan GmbH, Versicherungsmakler, Düsseldorf 100.0000 Sensus Group B.V., Stadskanaal 100.0000 Solarfonds Garmisch-Partenkirchen 2011 GmbH & Co. KG, Nuremberg 100.0000 Sopockie Towarzystwo Doradcze Sp. z o.o., Sopot 100.0000 Stichting Aandelen Beheer D.A.S. Holding, Amsterdam 100.0000 Sydney Euro-Center Pty. Ltd., Sydney 100.0000 Synkronos Italia SRL, Milan 60.1000 TAS Assekuranz Service GmbH, Frankfurt/Main 100.0000 TAS Touristik Assekuranz Service International GmbH, Frankfurt/Main 100.0000 TAS Touristik Assekuranzmakler und Service GmbH, Frankfurt/Main 100.0000 TGR Biztosítás Többesügynöki Zrt., Budapest 100.0000 Three Lions Underwriting Ltd., London 100.0000 Tillobesta 180018 S.L., Valencia 100.0000 Titus AG, Düsseldorf 100.0000 Trusted Documents GmbH, Nuremberg 100.0000 UAB VL Investment Vilnius 5, Vilnius 100.0000 UAB VL Investment Vilnius 6, Vilnius 100.0000 UAB VL Investment Vilnius 7, Vilnius 100.0000 UAB VL Investment Vilnius 8, Vilnius 100.0000 UAB VL Investment Vilnius 9, Vilnius 100.0000 UAB VL Investment Vilnius 1, Vilnius 100.0000 UAB VL Investment Vilnius 10, Vilnius 100.0000 UAB VL Investment Vilnius 2, Vilnius 100.0000 UAB VL Investment Vilnius 3, Vilnius 100.0000 UAB VL Investment Vilnius 4, Vilnius 100.0000 UAB VL Investment Vilnius, Vilnius 100.0000 US PROPERTIES VA Verwaltungs-GmbH, Düsseldorf4 100.0000 VB VICTORIA Zastupanje u Osiguranju d.o.o., Zagreb 74.9000 VFG Vorsorge-Finanzierungsconsulting GmbH, Vienna 100.0000 VICTORIA Erste Beteiligungsgesellschaft mbH, Düsseldorf 100.0000 VICTORIA Immobilien Management GmbH, Munich 100.0000 VICTORIA Immobilien-Fonds GmbH, Düsseldorf 100.0000 Victoria Vierter Bauabschnitt Management GmbH, Düsseldorf 100.0000 Victoria VIP II, Inc., Wilmington, Delaware 100.0000 Viwis GmbH, Munich 100.0000 Vorsorge Service GmbH, Düsseldorf 100.0000 VV-Consulting Gesellschaft für Risikoanalyse, Vorsorge- beratung und Versicherungsvermittlung GmbH, Vienna 100.0000 VV-Consulting Többesügynöki Kft., Budapest 100.0000 welivit New Energy GmbH, Fürth 100.0000 welivit Solar España GmbH, Nuremberg 100.0000 Welivit Solar Italia s.r.l., Bolzano 100.0000 Windpark Langengrassau Infrastruktur GbR, Bremen 83.3300 299Consolidated financial statements Notes
Associates and joint ventures accounted for at fair value “REISEGARANT” Gesellschaft für die Vermittlung von Insolvenzversicherungen mbH, Hamburg 24.0000 Agricultural Management Services S.r.l., Verona 33.3333 Allianz Pegasus Fonds, Frankfurt/Main 46.0000 Assistance Partner GmbH & Co. KG, Munich 21.6600 BF.direkt AG, Stuttgart 27.2000 carexpert Kfz-Sachverständigen GmbH, Walluf 25.0000 Fernkälte Geschäftsstadt Nord Gesellschaft bürgerlichen Rechts, Hamburg 39.3354 Finsure Investments (Private) Limited, Harare 24.5000 Grundeigentümer – Interessengemeinschaft City Nord GmbH, Hamburg 20.0000 Hannover Finanz-Umwelt Beteiligungsgesellschaft mbH, Hillerse 20.0000 Hartford Research, LLC, Lewes, Delaware 41.7500 IK Objektgesellschaft Frankfurt Theodor-Heuss-Allee GmbH & Co. KG, Düsseldorf 47.4000 LCM Logistic Center Management GmbH, Hamburg 50.0000 MCAF Management GmbH, Düsseldorf 50.0000 PERILS AG, Zurich5 10.0000 POOL Sp. z o.o., Warsaw 33.7500 RM 2264 Vermögensverwaltungs i.L, Lübeck 25.0000 Rumba GmbH & Co. KG i.L., Lübeck 25.0000 Rural Affinity Insurance Agency Pty Limited, Sydney 50.0000 Secundi CVBA, Brussels 33.0000 Teko - Technisches Kontor für Versicherungen Gesellschaft mit beschränkter Haftung, Düsseldorf 30.0000 Trend Capital GmbH & Co. Solarfonds 2 KG, Mainz 34.4234 Triple IP B.V., Amsterdam 50.0000 Verwaltungsgesellschaft “PORT ELISABETH” mbH, Bramstedt 50.0000
4 Control pursuant to IFRS 10. 5 Significant influence owing to representation of Munich Re on the board of directors and/or equivalent governing body of the associate. 6 No significant influence, as there are no close links with Munich Re of the kind defined in IAS 28.6.
11 No significant influence because, under the articles of association, statutes or other agreement, all key decisions regarding the company‘s financial and operating policy are subject to a quorum which cannot be attained by the majority shareholder without the non-controlling shareholders.
We conducted our audit of the consolidated financial statements in accordance with Section 317 of the German Commercial Code and German generally accepted standards for the audit of financial statements promulgated by the Institute of Public Auditors in Germany (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the Group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the Group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and Group management report. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315a (1) of the German Commercial Code and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The Group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.
Capital Asset Pricing Model (CAPM) Capital market model used to evaluate securities, based on the portfolio theory. The CAPM expands the portfolio theory to include the question of which part of a security’s overall risk cannot be eliminated by means of risk diversification, and explains how investment opportunities entailing risk are assessed in the capital markets. Accordingly, in efficient markets where prices already incorporate all the information available, a greater return can only be achieved by assuming more risk.
Chain ladder method Standard (multiplicative) actuarial method used to estimate the reserves needed for future claims expenditure. It assumes that the cumulative loss rises by the same factor in all accident years. With this method, the overall loss expected is determined exclusively on the basis of historical data on the run-off of losses in the insurer’s portfolio.
Compliance Acting in accordance with applicable laws and internal company rules. Internal company rules also include the principles and values set forth in Munich Re’s Code of Conduct. Compliance requires that a company has the necessary organisational and control measures in place – including appropriate information and documentation systems – to prevent violations of laws and regulations.
Credit Equivalent Exposure (CEE) Reference figure used to combine and compare the credit exposure from various product types involving credit risk under a common counterparty limit. The CEE is calculated regardless of the likelihood of a counter- party’s default and reflects the estimated loss amount in the event of a default.
Cycle management Continuously analysing and managing the course of a cycle. Insurance, reinsurance and retrocession markets are subject to global and regional cycles that may have external (interest-rate development, economic development, major losses, etc.) and internal causes (price competition, premium calculation methods, etc.). Managing the cycle means using an analysis to take proactive strategic measures and ensure risk-commensurate terms (prices, scope of cover, and conditions) in every phase.
Guaranteed interest Interest rate to be paid out by the insurer on the savings component of the insurance premium under an endowment insurance policy. This minimum interest rate is contractually guaranteed.
Munich Re Group Annual Report 2014 risk further, reinsurance covers are often ceded or taken out. Types of pool include coinsurance pools, where all members act as primary insurers, and reinsurance pools, where primary insurers write the risks and then divide these between the participating insurers via reinsurance.
Longevity Insurer’s risk that an insured person lives longer than expected or that life expectancy within an insured portfolio rises as a whole.
Loss ratio Percentage ratio of net expenses for claims and benefits to net earned premiums.
Market Consistent Embedded Value (MCEV) Valuation measure for long-term insurance business. Embedded value is the total of a company’s equity (at market price) and the value of its in-force covered business. The latter is the present value of future profits (where profits are post-taxation shareholder cash flows from the in-force covered business and the assets backing the associated liabilities) calculated using actuarial methods. The value of in-force covered business additionally takes into consideration the time value of the financial options and guarantees, the explicitly determined cost of holding capital for the whole term of the portfolio, and the costs for non-hedgeable risks. Munich Re calculates embedded value in accordance with the MCEV Principles.
Munich Re Group Annual Report 2014 other factors, often taking into account demographic trends. Mortality tables with provision for adverse deviation are generally used for measuring technical provisions.
Non-proportional reinsurance Form of reinsurance under which the reinsurer assumes payment of the primary insurer’s losses above a certain amount. Calculation of the reinsurance premium is based on claims experience with the type of business concerned.
Policyholders’ bonuses Appropriate share of the surplus earned by insurers in life and health insurance to which policyholders are entitled contractually and by law. The amount of this bonus is newly determined each year. As a rule, in life insurance these bonuses increase the benefit payable on maturity of the policy or on occurrence of the insured event; in health insurance, they are paid by way of premium refunds.
Premium Amount that has to be paid for insurance cover. It may be paid as a regular or single premium. Premiums written means all premium income that has become payable in the financial year. The portion of this premium income that constitutes payment for insurance cover in the financial year is referred to as earned premiums. In the case of products that are largely of an investment nature (e.g. capitalisation products and unit-linked life insurance), it only includes – under IFRSs – the amount serving to cover the risk and costs. However, under applicable statutory accounting rules, premium income may also include the policyholders’ savings premiums from unit-linked life insurance and capitalisation products.
Present value of future profits (PVFP) Present value, capitalised in the balance sheet, of the expected earnings from the business acquired when insurance companies or individual insurance portfolios are taken over. This intangible asset arises in particular when life or health insurance companies are acquired.
Provision for outstanding claims Provision for claims that have already been incurred at the balance sheet date, but have either not yet been reported or not yet fully settled.
Run-off triangle Also known as „loss triangle“. A tabular representation of claimsrelated parameters (such as payment, claims reserve, ultimate loss) in two, time-related dimensions. One of these is the calendar year, while the other is usually the accident year (year of the loss occurrence). Run-off triangles – as the basis for measuring claims reserves – make clear how the claims reserve changes over the course of time due to payments made and new estimates of the expected ultimate loss at the respective balance sheet date.
Shadow accounting Non-binding practice wherein an insurer changes its accounting policies so that a recognised but unrealised gain or loss on an asset affects the measurement of technical provisions, related deferred acquisition costs and related intangible assets in the same way that a realised gain or loss does.
Solvency II Project of the European Commission to fundamentally reform and harmonise European insurance supervisory regulations. Solvency II follows the threepillar approach: minimum capital requirements (quantitative), supervisory review processes (qualitative) and market discipline (disclosure).
Structured entities Entities that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant business activities are directed by means of contractual arrangements.
Universal life Contracts in life primary insurance where the amount of the premiums and benefits is flexible, the policyholder being able to vary the premium payments within certain limits.
Accumulation risks 134 f. Annual General Meeting. 12 ff., 29, 104 f., 114 Asset-liability management (ALM) 40, 102 Audit Committee 23, 45 Auditor’s report 303
Intangible assets 182 ff. International Financial Reporting Standards (IFRS) 41 ff.
Report of the Supervisory Board 20 ff. Return on equity 39 f., 72 Return on risk-adjusted capital (RORAC) 40 f., 72 Risk capital 17, 40, 126 ff. Risk management 16, 118 ff. Risk model 126 ff.
Share price performance 12 ff. Shares 12 ff., 72 f., 103, 105, 231 Solvency 106
Staff 111 ff., Strategic debt 101 Subordinated bonds 101 Supervisory Board 20 ff., 28 ff., 43 ff., 66 ff.
ERGO Lebensversicherung AG Überseering 45 22297 Hamburg Tel.: 0800 37 46-2 22 Tel.: +49 211 4 77-71 00 (from outside Germany) www.ergo.de
Munich Health Europe/Latin America Munich Health Northern/Eastern/Central Europe Königinstrasse 107 80802 München Germany
Any description in this document is for general information purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product.
Editorial deadline: 25 February 2015 Online publication date: 11 March 2015 Print publication date: 26 March 2015
Ceded –1,603 –483 –391 –351 –378 3. Expenses for claims and benefits Gross –40,415 –10,106 –9,872 –10,340 –10,097
Net –39,693 –9,909 –9,672 –10,143 –9,969 4. Operating expenses Gross –12,264 –3,556 –2,950 –3,064 –2,694
Thereof: Income from associates accounted for using the equity method 77 24 17 31 5 9. Other operating expenses –875 –277 –197 –186 –215 10. Deduction of income from technical interest –7,503 –1,923 –1,776 –1,882 –1,922 13. Other non-operating result –496 –30 –126 –225 –115 14. Impairment losses of goodwill –445 –445 – – – 15. Net finance costs –228 –58 –56 –58 –56
Munich Reinsurance Company’s market capitalisation €bn 28.7 27.1 28.0 28.4 Other Combined ratio
The diagram provides a general overview of our Group and makes no claim to completeness. For further details, please see the list of shareholdings on page 292 ff.