Gross premiums written €bn 17.8 17.5 17.4 Investments (incl. insurance-related investments) €bn 139.7 141.4 139.4 Net technical provisions €bn 135.9 137.6 135.2 Combined ratio property-casualty Germany % 96.0 97.5 97.0 97.9 95.3
Net expenses for claims and benefits €bn –35.1 –41.6 –38.5 –38.7 –39.7 Net operating expenses €bn –12.6 –12.2 –12.3 –12.4 –12.0
Munich Reinsurance Company’s market capitalisation at 31 December €bn 28.5 28.0 28.9 30.8 28.7
Off-balance-sheet unrealised gains and losses1 €bn 16.1 15.0 17.3 16.0 17.4
Corporate governance 7 Report of the Supervisory Board 9 Corporate governance report 16
Consolidated financial statements and notes 89 Consolidated balance sheet 92 Consolidated income statement 94 Statement of recognised income and expense 95 Group statement of changes in equity 96 Consolidated cash flow statement 98
Dr. Joachim Wenning Chairman of Munich Reinsurance Company’s Board of Management 2018 was a good year for Munich Re. We increased our profit to €2.3bn and achieved our result target. And you, our shareholders, will participate in our success through a higher dividend. Subject to the approval of the Supervisory Board and Annual General Meeting, Munich Re will raise the figure to €9.25 per share. Our shares thus remain a high-return investment.
At the same time, Munich Re is a company that plays a significant economic and social role. The very purpose of our undertaking becomes clear when disaster strikes: by providing insurance, we redistribute funds from those spared by tragedy to those affected by it. We alleviate human suffering. After all, it is only because we make risks insurable that people are prepared and in a position to take on new challenges with an uncertain outcome. This benefits society and engenders progress, which increases the prosperity we all depend on.
We have become more ambitious, and that calls for clear goals. In that sense, 2018 was a year of transition. We are setting ourselves a medium-term profit target of €2.8bn for 2020. And we have geared our strategy to this target: we are driving digital transformation forward, reducing complexity and working towards our medium-term profit guidance on the basis of ambitious growth initiatives in reinsurance and primary insurance. In 2018, we made good progress in all three areas of our strategy.
We have also invested over US$ 250m in the acquisition of Relayr, a technology company that mainly helps small and medium-sized enterprises to increase their relevance by evaluating data from legacy and new versions of equipment
The number of digital undertakings we have become involved in has allowed us to secure a leading position in the markets, and it has reinforced not only our existing business but also provides us with new sources of income.
Munich Re is becoming more profitable. After four years of decreasing results, we succeeded in raising our profit – despite unexpectedly high major losses and weak capital markets – and thus made good on our promise.
Our result ambition is clear: in the coming two years, we intend to increase our consolidated result by a further €500m to €2.8bn. To this end, ERGO will rigorously pursue the successful path it has taken. In reinsurance, we will carry on expanding our new business selectively. The main levers for achieving these goals are growing demand, our technical excellence and our financial strength. In addition, we expect the appointment of a Chief Investment Officer to lead to a progressive increase in our investment income. For 2019, we envisage a profit of approximately €2.5bn.
Munich Re is becoming more digital, leaner, and more profitable. Going forward, we will continue to be a partner that is globally in demand – a provider of reinsurance, primary insurance and insurance-related risk solutions. On behalf of myself and around 41,000 colleagues across the world, I wish to thank you for the trust you place in Munich Re and for accompanying us on this journey.
In the 2018 financial year, the Supervisory Board fulfilled all the tasks and duties incumbent upon it by law and under the Articles of Association and the rules of procedure. All members of the Supervisory Board and of the committees took part in over half of the respective meetings. The overall average attendance for all members of the Supervisory Board was 98% in the reporting year.
Details on the disclosure of individual members’ attendance can be found at www.munichre.com/supervisory-board.
Between meetings, I met regularly with the Chairman of the Board of Management, Joachim Wenning. We discussed individual questions of strategic orientation and risk management, as well as Munich Re’s current business situation. Also between meetings, the Chairman of the Audit Committee, Henning Kagermann, remained in close contact with Jörg Schneider, the member of the Board of Management responsible for Group reporting.
Focal points of the meetings of the full Supervisory Board There were six meetings of the Supervisory Board in the year under review. We regularly held in-depth discussions with the Board of Management about business performance and current topics, with special focus on strategic considerations of the Board of Management with respect to the individual fields of business. The Board of Management reported regularly on Munich Re’s investments, addressing the development of the global economy and financial markets in detail, as well as their impact on the Group’s assets and earnings. In addition, we advised the Board of Management on matters of strategic importance for the future of the Group, including its digitalisation and growth strategies, the investment strategy and the Transformation Programme. We also conferred on matters involving the full Board of Management in the latter’s absence. Moreover, we dealt with the following topics at the individual meetings in 2018: The meeting on 14 March focused among other things on the Company and Group financial statements for 2017, the combined management report, the separate nonfinancial (Group) statement and the motions for resolution by the 2018 Annual General Meeting. Furthermore, we conferred and took decisions regarding the extension of a Board of Management appointment, and established the details of the assessment basis and the evaluation method used in determining the multi-year variable remuneration component for the members of the Board of Management. We also
Corporate governance Report of the Supervisory Board received updates on developments at ERGO and on the Group-wide compliance management system. Representatives of the German Federal Financial Supervisory Authority (BaFin) routinely attended this meeting as guests.
On 25 April, directly prior to the Annual General Meeting, we heard the Board of Management’s report on the present status of business performance in 2018. We also used the meeting to make last-minute preparations for the Annual General Meeting.
On 17 July, we resolved to appoint Christoph Jurecka to the Board of Management with effect from 1 January 2019 as successor to Jörg Schneider, who retired with effect from 31 December 2018. In addition, we adopted amendments to the allocation of responsibilities among the members of the Board of Management. We also resolved to commission voluntary external assurance of the separate non-financial (Group) statement for the 2018 financial year. We heard reports on current and strategic topics, as well as on the measures taken by Munich Re to guard against cyber risks. The Board of Management informed us about Munich Re’s asset management and the planned establishment of a Chief Investment Officer.
On 13 December, we resolved to appoint Nicholas Gartside to the Board of Management, and to make the requisite changes to the allocation of responsibilities among the members of the Board of Management. Furthermore, we established the amount of remuneration for the Board of Management from 2019, as well as the assessment basis for variable remuneration for 2019. The new remuneration system introduced on 1 January 2018 and approved by the Annual General Meeting on 25 April 2018 has remained unchanged. In addition, we adopted amendments to the Guideline on fringe benefits, and discussed the Group’s risk strategy against the backdrop of the yearly report on Munich Re’s risk situation provided by the Group Chief Risk Officer. The Board of Management further provided a report on Group planning for the period from 2019 to 2021. The Board also presented us with the 2017/2018 Group human resources report and detailed the focal points of human resources work within the Group. Moreover, it provided information on the overall growth strategy for reinsurance and on reinsurance growth in the Asia Pacific and Africa Division.
In addition, two resolutions were adopted by written consent in lieu of a meeting. In preparation of the planned issuance of a subordinated bond, we appointed the external auditor for a review of the quarterly financial report for the third quarter of 2018. Furthermore, in view of the legal requirement to change auditors, we decided to follow the Audit Committee’s recommendation and selected Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft (EY), Munich, as the (Group) auditor from the 2020 financial year.
The Personnel Committee held seven meetings in the period under review. It essentially prepared the resolutions on matters involving the Board of Management already mentioned in the report on the work of the full Supervisory Board, unless these fell under the remit of the Remuneration Committee established on 1 January 2018. As a first step, the Personnel Committee and the Remuneration Committee adopted a common set of rules to govern the cooperation between the two committees in evaluating the variable remuneration components for the members of the Board of Management. One of the key tasks of the Personnel Committee consisted in checking the fitness and propriety of two candidates to be appointed to the Board of Management, and of an existing member seeking reappointment. In addition, the Personnel Committee approved the assumption of seats on supervisory, advisory and similar boards by members of the Board of Management. It also dealt with Group-wide succession planning, especially with regard to Board-level appointments.
The Remuneration Committee met five times in 2018. Specifically, it was in charge of preparing resolutions on matters involving the Board of Management – as already mentioned above when reporting on the work of the full Supervisory Board – as far as these resolutions concerned the amount of remuneration, the establishment of the assessment basis for variable remuneration and the corresponding evaluation, as well as the sections of the Board members’ contracts relating to remuneration. In addition, it dealt with the fringe benefits for members of the Board of Management disclosed in the 2017 Group Annual Report.
At its five meetings in 2018, the Standing Committee dealt with the preparation of the respective Supervisory Board meetings and, in particular, with topics of corporate governance. On the basis of a comprehensive questionnaire, the Standing Committee carried out a survey among the members of the Supervisory Board to assess the efficiency of the Supervisory Board’s work in 2018. After analysing the survey, the Standing Committee discussed the findings and agreed on a small number of suggested improvements, which the Chairman of the Supervisory Board then presented to the full Supervisory Board. The Standing Committee determined that, overall, the reporting by the Board of Management and the work of the Supervisory Board were efficient and appropriate. Regular reports by the Chairman of the Board of Management covered changes to the shareholder structure and the status of the share buy-back programmes. In addition, the Standing Committee held various meetings where it dealt in great depth with the separate non-financial (Group) statement, which had to be produced for the first time for the 2017 financial year. On the basis of a resolution adopted by the full Supervisory Board, the Standing Committee commissioned EY to perform a limited assurance engagement on the separate non-financial (Group) statement for the 2018 financial year.
The Audit Committee held nine meetings in the period under review, and adopted one resolution by written consent in lieu of a meeting. Five of these meetings were attended by the external auditor. The Committee discussed the Company and Group financial statements, the combined management report, the auditor’s reports and the Board of Management’s proposal for the appropriation of the net retained profits for the 2017 financial year. The Committee also considered the quarterly statement for the first quarter of 2018, and conducted a detailed review of the 2018 Half-Year Financial Report and the Quarterly Report for the third quarter of 2018 in conjunction with the auditor. The Committee heard regular reports on the key Solvency II figures and discussed the
At the same time, after intensive preparation, the Audit Committee issued an invitation to tender for audit services for the 2020 financial year and beyond. Following a thorough evaluation of the tenders, the Audit Committee submitted a reasoned recommendation to the Supervisory Board for two proposals, with a preference for EY.
Details of this can be found in the corporate governance report on page 17 f.
Because of conflicting opinions regarding the validity of Ina Hosenfelder’s election to the Supervisory Board, her attendance at the meeting on 17 July 2018 was put to the vote. Ina Hosenfelder did not take part in the vote as it affected her directly.
Changes on the Board of Management Jörg Schneider retired from the Board of Management with effect from 31 December 2018. Christoph Jurecka was appointed his successor with effect from 1 January 2019, and assumed responsibility for the central divisions “Financial and Regulatory Reporting”, “Group Controlling”, “Integrated Risk Management”, “Group Taxation” and “Investor and Rating Agency Relations”.
Former members of the Supervisory Board Dr. Wolfgang Röller passed away on 9 March 2018. He served as Deputy Chairman on Munich Re’s Supervisory Board from 1994 to 1999. We have a great deal to thank him for, and mourn the loss of an exceptional man.
Further information on the general topic of corporate governance is available in the joint report of the Board of Management and Supervisory Board on page 16 ff.
Company and Group financial statements for 2018, Solvency II reporting and non-financial information Auditor KPMG duly audited the Company and Group financial statements and the combined management report as at 31 December 2018, and issued them with an unqualified auditor’s opinion. The German Public Auditor responsible for the engagement is Dr. Frank Ellenbürger. He first took charge of the audit of the Company and Group financial statements for the financial year ending 31 December 2013.
The above-mentioned reports and the Board of Management’s proposal for appropriation of the net retained profits were submitted directly to the members of the Supervisory Board. At its meeting on 5 February 2019, the Audit Committee had the opportunity to confer in detail about the preliminary year-end figures as at 31 December 2018. On 18 March 2019, it prepared the Supervisory Board’s resolution on the adoption of the Company financial statements and the approval of the Group financial statements. To this end, the Audit Committee examined in advance the Company and Group financial statements, the combined management report and the Board of Management’s proposal for appropriation of the net retained profits. It discussed these at length with the external auditor present at the meeting, and gave detailed consideration to the auditor’s reports. The Audit Committee paid particular attention to the key audit matters described in the auditor’s opinion, including audit activity. The Chair of the Audit Committee briefed the full Supervisory Board about the outcome of its consultations at the balance sheet meeting. In its March meeting, the Audit Committee discussed the preliminary key figures under Solvency II reporting – and the Solvency II ratio in particular – and reported on this in the plenary session.
The full Supervisory Board also reviewed the Company and Group financial statements and the combined management report, and the proposal of the Board of Management for appropriation of the net retained profits. The auditor’s reports were available to all members of the Supervisory Board and were discussed in detail at the balance sheet meeting of the Supervisory Board on 19 March 2019 in the presence of the external auditor. The auditor reported on the scope, the main points, and the key results of the audit, going into particular detail on the key audit matters (please refer to the auditor’s report on page 180 ff. for information) and the audit activity conducted. There were no reports of material weaknesses in the internal control system or the risk management system.
The Standing Committee dealt with the separate non-financial (Group) statement for the 2018 financial year on 13 December 2018 and 19 March 2019. Also on 19 March 2019, the full Supervisory Board examined the (Group) statement, taking due consideration of the external auditor’s findings, and approved it.
The supervisory requirements for (re)insurance companies, especially the German Insurance Supervision Act (VAG) and the European supervisory regulations (Solvency II implementing measures) are placing additional demands on corporate governance. They include specific rules on various issues such as business organisation or the qualifications and remuneration of members of the Board of Management, Supervisory Board members and other individuals.
The documents required by law for the Annual General Meeting will be available in conjunction with the agenda on the Munich Re website with effect from the day the AGM is convened. Shareholders who do not wish to attend the Annual General Meeting in person may also have their voting rights exercised at the Annual General meeting by one of the proxies nominated by Munich Reinsurance Company. These proxies will exercise the voting rights solely in accordance with the instructions they receive from the shareholders. Power of attorney and instructions may also be issued to the Company proxies via the internet. In addition, shareholders may also follow the whole Annual General Meeting on the internet and change their instructions right up to the end of the general debate – provided they have issued power of attorney to the Company proxies.
Pursuant to Article 16 of the Articles of Association, the Board of Management consists of at least two members; beyond this, the number of members is determined by the Supervisory Board. When appointing the Board of Management, the Supervisory Board pays due regard to diversity. In 2018, the Board of Management of Munich Reinsurance Company comprised eight members – one woman and seven men.
The Board of Management is responsible for managing the Company, in particular for setting the Company’s objectives and determining strategy. In doing so, it is obliged to safeguard Company interests and endeavour to achieve a sustainable long-term increase in the 1 In accordance with Section 3.10 of the German Corporate Governance Code.
In compliance with Munich Reinsurance Company’s Articles of Association, the Supervisory Board has 20 members. Half are representatives of the shareholders, elected by the Annual General Meeting. The other half are elected representatives of the Group’s employees in the European Economic Area.
Company’s value. It should take account of the interests of shareholders, employees, and other stakeholders of Munich Reinsurance Company. The Board of Management is responsible for effecting adequate risk management and risk control in the Company. It must ensure that statutory requirements and internal Company guidelines are observed, and works to achieve their compliance by Group companies.
The Company’s Group Compliance and Legal Division manages the compliance activities of Munich Re through Group-wide terms of reference, monitoring their implementation by means of the compliance management system (CMS). The CMS is the methodical framework for the structured implementation of early warning, risk control, consulting and supervision functions, as well as for the monitoring of legal frameworks.
At the instigation of the Board of Management, another channel has been established to complement the external, independent ombudsman and thus strengthen compliance within Munich Re: the compliance whistleblowing portal. Staff members and third parties can use the portal to report any activity that may cause reputational damage, or suspected contraventions of the law, especially financial crime (such as corruption offences or money laundering), antitrust law, insurance supervisory law, market abuse law, data protection law, and any alleged serious contraventions of associated internal rules and regulations.
Munich Re Group Annual Report 2018 17Corporate governance Corporate governance report www.munichre.com/en/compliance www.munichre.com/en/compliance
The Supervisory Board is also of the opinion that all 20 of its members are to be regarded as independent within the meaning of Section 5.4.2 of the German Corporate Governance Code. The shareholder structure was taken into account. The Supervisory Board is not aware of any business or personal relationship between a member and the Company, its governing bodies, a controlling shareholder or an entity affiliated with such a shareholder, as a result of which a major and not only temporary conflict of interest could arise. The Supervisory Board assumes that the employee representatives on the Supervisory Board elected in accordance with the Act on the Co-Determination of Employees in Cross-Border Mergers and the Co-determination Agreement are independent as a matter of principle.
If members of the Company’s Board of Management or Supervisory Board or any persons closely associated with them undertake transactions with shares, debt instruments of Munich Reinsurance Company or with associated derivatives or other related financial instruments, these transactions must be immediately notified to the Company if the total amount of transactions carried out by the Board member or person closely associated with them totals or exceeds €5,000 within a calendar year.
The aforementioned objectives apply to the Supervisory Board as a whole. Shareholder and employee representatives will each contribute towards meeting these objectives.
Dr. rer. nat. Torsten Jeworrek Chairman of the – Reinsurance Committee – Global Underwriting and Risk Committee – Board Committee IT Investments
Reinsurance Development Corporate Underwriting Claims Accounting, Controlling and Central Reserving for Reinsurance Information Technology
Hermann Pohlchristoph Germany, Asia Pacific and Africa (until 31 July 2018) Asia Pacific and Africa (since 1 August 2018) Central Procurement Services
ERGO Deutschland AG, Düsseldorf2 (Chair) ERGO Digital Ventures AG, Düsseldorf2 (Chair) ERGO International AG, Düsseldorf2 (Chair) MEAG MUNICH ERGO Kapitalanlagegesellschaft mbH, Munich2 (Chair)
Dr. jur. Jörg Schneider (until 31 December 2018) Chief Financial Officer Chairman of the Group Risk Committee
Financial and Regulatory Reporting Group Controlling Integrated Risk Management Group Compliance (until 31 October 2018) Group Legal (until 31 October 2018) Group Compliance and Legal (1 November 2018 to 31 December 2018) Group Taxation Investor and Rating Agency Relations
Munich Re Group Annual Report 2018 19Corporate governance Corporate governance report
Dr. rer. pol. Kurt Wilhelm Bock Chairman of the Board of Management of BASF SE (until 4 May 2018) Member of the Supervisory Board of Munich Reinsurance Company Member since 25 April 2018
Frank Fassin Regional Section Head Financial Services, ver.di North Rhine-Westphalia Member since 22 April 2009, last re-elected 30 April 2014
Prof. Dr. rer. nat. Dr. h.c. Ursula Gather Rector of TU Dortmund University Member since 30 April 2014 thyssenkrupp AG, Essen4
5 As at the date of departure. 6 Membership of a non-statutory supervisory board.
Gerd Häusler Member of the Supervisory Board of Auto1 Group SE, Munich Member since 30 April 2014
Beate Mensch Trades Union Secretary, ver.di, Hessen Member since 30 April 2014
Dr. phil. Ron Sommer Chairman of the Supervisory Board of MTS OJSC, Russia Member from 5 November 1998 until 25 April 2018
Angelika Wirtz Employee of Munich Reinsurance Company Member since 30 April 2014
Munich Re Group Annual Report 2018 21Corporate governance Corporate governance report
Important tools of corporate management 048 Munich Re’s management philosophy – based on value creation 048 The Group’s corporate management tools 048 Other performance indicators 049
Financial position 062 Analysis of our capital structure 062 Technical provisions 062 Restraints on disposal 062 Capital position 063 Information in accordance with Sections 315a(1) and 289a(1) of the German Commercial Code (HGB) and explanatory report of the Board of Management 063 Analysis of the consolidated cash flow statement 065
Opportunities report 075 Business environment 075 Innovation and digitalisation 075 Social and economic trends 075 Climate change and natural catastrophes 076 Expanding the limits of insurability 076
Prospects 077 Comparison of the prospects for 2018 with the result achieved 077 Outlook for 2019 079
Munich Reinsurance Company (Information reported on the basis of German accountancy rules) 081 Market environment and major factors of influence 081 Business performance 081 Financial position 085 Statement of Corporate Governance for the 2018 financial year pursuant to Section 289f and Section 315d of the German Commercial Code (HGB) 086 Further information 087
Group Munich Re is one of the world’s leading risk carriers and provides both insurance and reinsurance under one roof. This enables the Group to cover large stretches of the value chain in the risk market. Almost all reinsurance units operate under the uniform brand of Munich Re. ERGO Group AG (ERGO) is active in nearly all lines of life, health and property-casualty insurance. Munich Re’s investments worldwide are managed by MEAG, which also offers its expertise to private and institutional investors outside the Group. For up-to-date information about Munich Re, visit www.munichre.com.
A core guiding principle for Munich Re is acting in a farsighted and responsible manner in the interests of both the Group and society. We have thus based our Groupwide corporate responsibility strategy on the shared-value approach. This means that, in our business operations, we bring together economic and social progress to counter the most significant global challenges. For example, we focus on mitigating the consequences of climate change and enhancing general risk awareness by initiating a wide range of prevention and adaptation measures to protect people and make risk zones and regions more resilient.
We have the appropriate expertise and a broad international network of recognised partners to develop holistic and increasingly digital solutions that cover diverse and constantly changing risks. Our voluntary commitments, such as the ten principles of the United Nations Global Compact (UNGC), the Principles for Responsible Investment (PRI), and the Principles for Sustainable Insurance (PSI) are the foundations of our corporate responsibility approach. In our insurance business and investment management, we proactively embrace environmental, social and governance (ESG) factors. We have built up a Group-wide environmental management system, and our operations have been carbon-neutral since 2015. With our social involvement, we play our part as a responsible corporate citizen, focusing on projects and cooperations related to our core business. Further information on our endeavours is available from our corporate responsibility portal at www.munichre.com/cr-en.
As at 31 December 2018, our Group employed 41,410 (42,410) staff members worldwide, 29.8% (28.6%) of whom worked in reinsurance and 70.2% (71.4%) at ERGO.
The non-financial reporting requirements of the European Union’s Corporate Social Responsibility (CSR) Directive have been transposed into the German Commercial Code (HGB). The following have been identified as aspects to be reported for Munich Re and Munich Reinsurance Company within the meaning of the legal requirements: − Munich Re as an employer of choice, and diversity as a strategic success factor − Anti-corruption and bribery − Data protection − Corporate responsibility (CR) in insurance and investments
Besides assuming underwriting risks, we support our clients in developing new life insurance products. Moreover, we offer clients a wide range of increasingly digital services, from medical expertise to automated risk assessment and claims handling solutions.
In order to ensure proximity to our clients, we are represented in many markets with local subsidiaries and branches. We write the main portion of our business via our Canadian branch and our subsidiary in the USA. In Europe, we have operations in Germany, the United Kingdom, Spain and Italy. At the same time, we have a strong local presence in Australia and South Africa, and in all important growth markets in Latin America and Asia. Since 2017, we also have a branch in India. Asian business is centrally managed by a dedicated branch in Singapore, which underlines the strategic importance of this region for life and health reinsurance.
The property-casualty reinsurance divisions Global Clients and North America handles our accounts with major international insurance groups, globally operating Lloyd’s syndicates and Bermuda companies. It also pools our know-how in the North American market and is responsible for our property-casualty subsidiaries in this region and for international special-lines business such as marine, aviation and space, as well as agricultural risks.
The three major US-based subsidiaries are Munich Reinsurance America, Inc. (Munich Re, US), The Hartford Steam Boiler Inspection and Insurance Company (HSB), and American Modern Insurance Group, Inc. (American Modern). Munich Re, US writes property-casualty reinsurance business and niche primary insurance business. The primary insurers HSB and American Modern specialise in products for which client proximity and – like in reinsurance – risk understanding are paramount. The Risk Solutions segment within the division is also supported by the Corporate Insurance Partner unit, which is dedicated to industrial clients, and by Munich Re Specialty Group, a leading provider of marine insurance and insurance solutions for the energy industry.
Focus of life and health reinsurance operations Our international life and health reinsurance business is written in the Life and Health division. This is split into three geographical regions and one international unit that develops specialised solutions for capital market risks. The focus of the division’s business activities is on traditional reinsurance solutions that concentrate on the transfer of mortality risk. Moreover, we have been increasingly active in the market for living benefits products. These include products such as occupational disability, long-term care, and critical illness, which have seen increased demand. We also offer capacity for longevity risks. Until now, we have concentrated our efforts in this field on the United Kingdom, but are also closely monitoring other markets.
Via ERGO, we offer products in all the main classes of insurance: life insurance, health insurance, and in nearly all lines of property-casualty insurance, as well as travel insurance and legal protection insurance. With these products – in combination with the provision of assistance, other services and individual consultancy – we cover the needs of private and corporate clients. ERGO serves over 35 million (mainly private) clients in more than 30 countries, with the focus on Europe and Asia. The latest information on ERGO can be found at www.ergo-group.com.
In Germany, ERGO’s tied agents (agency sales) and ERGO Pro (structured sales force) are bundled under one roof in the sales company ERGO Beratung und Vertrieb AG. The agency sales force focuses on all-round consultancy, cementing the loyalty of portfolio clients, and developing new clients; ERGO Pro is geared to acquiring new business partners and clients. Both have made good progress in 2018 – particularly with regard to digitalisation. Today’s clients are the target, and are presented with the same range of products through all channels – online and offline. A standardised consultancy approach also ensures consistently high-quality advice and service.
The Special and Financial Risks Division (SFR) was dissolved with effect from 1 August 2018. Globally operating SFR units were assigned to the Global Clients and North America Division, whilst units whose business focus is on Europe were allocated to the Europe and Latin America Division. At the same time, responsibility for reinsurance business in Germany was shifted from the Germany, Asia Pacific and Africa Division to the Europe and Latin America Division, which shares the same regulatory environment and has similar business models. The purpose of the reorganisation was to leverage synergies in the best possible way and also to streamline structures and processes. The business models of all units concerned remained unchanged.
Combined management report Group market leader for property-casualty insurance in Greece. As experienced experts, our legal protection insurers number among the leading players in each of their markets.
The overview does not show all companies of the Group or give a precise representation. A detailed list of shareholdings can be found on page 170 ff. In the ERGO field of business, brands are shown as at 31 December 2018. In the course of 2019, ERGO will bring ERGO Direkt, ERGO Vorsorge and ERV under the ERGO brand.
As a result of the establishment of the Remuneration Committee, responsibility for all remuneration matters concerning members of the Board of Management has been transferred from the Personnel Committee to the Remuneration Committee. All other duties of the Personnel Committee, such as the appointment and dismissal of Board members, the conclusion of contracts or the assessment of the performance of the Board of Management, remain unaffected.
Remuneration comprises fixed (non-performance-related) and variable (performance-related) components and a company pension scheme. Details are included in the following table: 1 For the variable remuneration, the share shown presupposes 100% performance evaluation. 2 In light of the fact that the peer group is very small – with just seven companies (main competitors) – and comprises both primary and reinsurance companies, there are no further performance hurdles or thresholds. Moreover, to ensure sound and effective risk management, members of the Board of Management should not be encouraged to take excessive risks in an endeavour to achieve higher bonuses. The bonus amount must adequately reflect the performance of Munich Re shares compared with that of the peer group.
The exact target for the IFRS consolidated result used for the annual bonus, and the respective figures for a 0% and 200% achievement of objectives (linear scaling) are communicated externally. The target cannot be adjusted retroactively. After the assessment period has ended, the IFRS consolidated result achieved and the corresponding achievement of objectives are also disclosed.
As only one financial indicator each is used in the annual and multi-year bonus, the variable remuneration component is easier to understand. The IFRS consolidated result and TSR on Munich Re’s shares in comparison with the peer group are two ambitious and exacting indicators promoting long-term corporate strategy.
Targets/Achievement of objective for the multi-year bonus The objective of the multi-year bonus is the sustainable performance of Munich Re’s shares in terms of TSR in comparison with the peer group. The companies in the peer group were selected based on comparable business activities and size. Furthermore, they must be listed on the stock exchange and subject to similar accounting standards as Munich Re, which is why the peer group only includes European primary insurance and reinsurance companies. The peer group comprises Allianz, AXA, Generali, Hannover Re, SCOR, Swiss Re and Zurich Insurance Group. It is the same peer group as for the analysts’ conference.
Deferral The run-time of the flexible and deferred multi-year bonus takes account of the nature and time horizon of the Company’s business activities. The TSR in the multi-year
Targets/Achievement of objective for the annual bonus The aim of the annual bonus is to achieve a high IFRS consolidated result. The chosen targets are challenging for the members of the Board of Management given the prevailing low-interest-rate policies and fierce competition in the reinsurance markets.
Targets for 2019 A target of €2,500m was set for 2019, with the following linear scaling for the 0–200% target corridor: 1 Further key aspects may also be taken into consideration.
– Financial situation of the Company – Short-term and long-term profit prospects – Market environment (interest rates, situation in the industry, etc.)
Most of the members of the Board of Management serving in 2018 hold a large number of Company shares. Until 2020 moreover, members of the Board of Management are obliged to continue to invest a portion of their bonus payments from the multi-year performance plans (2016– 2018 and 2017–2019) in Company shares.
Contractual clawback provisions requiring reimbursement of variable remuneration components already paid out are triggered in the event of a serious breach of duty. All employment contracts of the members of the Board of Management include a provision according to which, in particular pursuant to Section 93 of the German Stock Corporation Act (AktG), a member of the Board of Management is required to reimburse the Company for any damage attributable to them as a result of a breach of duty.
2 Despite the number of shares being predominantly up on 2017’s figure, the overall value of the shares in relation to basic remuneration declined because the share of basic remuneration in the target overall direct remuneration was increased from 30% to 50% in 2018. 3 As regards the overall value of the shares in relation to basic remuneration, the basic remuneration that Markus Rieß received for his work at ERGO Group AG was also taken into consideration.
Remuneration for other board memberships In the case of seats held on other boards, remuneration for board memberships must be paid over to the Company. Exempted from this is remuneration for memberships explicitly classified by the Supervisory Board as private.
Board members appointed before 2009 were transferred to the new system. They kept their pension entitlement from the defined benefit plan (fixed amount in euros) existing at the date of transfer, which was maintained as a vested pension.
Other Continued payment of remuneration in the case of incapacity to work In the case of temporary incapacity to work due to illness or for another cause beyond the Board member’s control, the remuneration is paid until the end of the contract of employment. The Company may terminate the contract prematurely if Board members are incapacitated for a period of longer than 12 months and it is probable that they will be permanently unable to fully perform the duties conferred on them (permanent incapacity to work). In this event, the Board member will receive a disability pension.
Munich Re Group Annual Report 2018 non-extension or revocation of their appointment without the Board members having given cause for this through a gross violation of their duties or having requested it. This applies where the Board members have already passed the age of 50, have been in the employment of the Company for more than ten years when the contract terminates, and have had their appointment to the Board of Management extended at least once.
Benefit: − In the case of defined contribution plans: Annuity based on the policy reserve or payment of the policy reserve as a lump sum at the date the pension benefit is claimed. − In the case of a combination of defined benefit plans and defined contribution plans: Entitlement of between 30% and 60% of pensionable basic remuneration, reduced by 2% for each year or part thereof short of the Board member’s 65th birthday; the Company assumes payment of the difference between the monthly occupational pension and the monthly incremental pension from the external insurance.
Benefits on termination of employment Board members appointed before 2006 who are entitled to an occupational pension, disability pension, or reduced occupational pension on early retirement receive a pension in the amount of their previous monthly basic remuneration for a period of six months after retiring or leaving the Company.
Benefit: − In the case of defined contribution plans: Annuity based on the policy reserve or payment of the policy reserve as a lump sum. − In the case of a combination of defined benefit plans and defined contribution plans: Vested pension from the defined benefit plan and annuity from the policy reserve under the defined contribution plan or payment of a lump sum.
Reduced occupational pension on early retirement Board members appointed before 1 January 2017 are entitled to a reduced occupational pension on early retirement if the contract of employment is terminated as a result of
Pay ratios In the reporting year, the ratio of the target overall direct remuneration of the Chairman of the Board of Management to the average target overall direct remuneration of all Company employees (excluding the Board of Management) was 38. The ratio of the average target overall direct remuneration of all members of the Board of Management to the average target overall direct remuneration of all employees (excluding the Board of Management) was 24.
Fixed and variable remuneration components The serving members of Munich Reinsurance Company’s Board of Management in 2018 received remuneration totalling €20.5m (15.4m) for fulfilment of their duties in respect of the parent company and its subsidiaries in the financial year. Remuneration therefore increased by around €5.1m year on year, mainly because of a shift caused by the new remuneration system introduced in 2018. The increase in the fixed component under the new system is apparent in 2018, whereas the decrease in the variable component of the same amount will only become fully evident once the multi-year bonus granted from 2018 is paid out for the first time. Total remuneration received by the individual members of the Board of Management is shown in the table below.
Joachim Wenning (Chairman of the Board 2018 2,225,000 39,201 692,736 646,800 3,603,737
Munich Re Group Annual Report 2018 insurer under the defined contribution system, the visible pension costs since 2009 are noticeably higher. The Company accepts this increase in order to avoid higher costs in future and to eliminate long-term pensionspecific risks. The following defined benefits, present values, contribution rates and personnel expenses result for the individual members of the Board of Management: Penstion entitlements Personnel expenses of €5.7m (5.2m) were incurred in the financial year to finance the pension entitlements for serving members of the Board of Management in 2018. Of these, €0.8m was apportionable to defined benefit plans and around €4.9m to defined contribution plans. As a consequence of the risk transfer to an external pension
Joachim Wenning Thomas Blunck Board member (until 26 April 2017) Board member Chairman of the Board of Management (since 27 April 2017)
Multi-year variable remuneration Multi-year performance 2015–20171, 3 493,675 62 937,860 66
Other Total 2,173,801 1,433,520 3,132,001 2,230,739 Pension expenses 548,824 523,257 829,982 787,504 Total remuneration 2,722,625 1,956,777 3,961,983 3,018,243
Basic remuneration 2,225,000 1,045,000 1,075,000 615,000 Remuneration in kind/fringe benefits 39,201 128,254 33,797 31,466 Total 2,264,201 1,173,254 1,108,797 646,466 One-year variable remuneration
Other6 750,000 750,000 Total 4,148,351 2,980,011 1,419,600 1,463,418 Pension expenses 799,646 754,069 343,396 297,819 Total remuneration 4,947,997 3,734,080 1,762,996 1,761,237
Basic remuneration 1,012,500 410,000 Remuneration in kind/fringe benefits 49,237 29,940 Total 1,061,737 439,940 One-year variable remuneration
Multi-year variable remuneration Multi-year performance 2015–20171, 3 – Multi-year performance 2016–20183, 4 –
Other Total 1,353,337 605,700 Pension expenses 516,720 325,328 Total remuneration 1,870,057 931,028
Munich Re Group Annual Report 2018 1 In the 2017 Annual Report, the amounts to be paid for the 2017 annual performance and multi-year performance 2015–2017 were recognised on the basis of the reserves, as no Supervisory Board resolution had yet been passed on the actual bonus amounts to be paid. The Annual Report for 2018 shows the actual amounts set by the Supervisory Board and to be paid out for 2017.
Basic remuneration 1,075,000 615,000 1,550,000 885,000 Remuneration in kind/fringe benefits 31,713 30,278 37,719 41,782 Total 1,106,713 645,278 1,587,719 926,782 One-year variable remuneration
Remuneration of the members of the Supervisory Board in 2018 In the year under review, each member of the Supervisory Board received fixed annual remuneration of €90,000. The Chairman of the Supervisory Board received annual remuneration of €180,000, and the Deputy Chairman annual remuneration of €135,000.
A Remuneration Committee was formed as of 1 January 2018. The members of the Remuneration Committee that are not on the Personnel Committee each received an additional €27,000. For members of the Supervisory Board who are on both the Personnel Committee and the Remuneration Committee, their membership of the Remuneration Committee is also covered by their fee for the Personnel Committee.
The Chairs of these committees receive double the amounts stated for members. No additional remuneration is paid for serving on the Nomination Committee or the Conference Committee.
Munich Re Group Annual Report 2018 1 Plus value-added tax (USt) in each case, in accordance with the relevant Articles of Association. 2 The previous year’s figures do not include the remuneration of members who left the Supervisory Board in the 2017 financial year.
Bernd Pischetsrieder 2018 180,000 126,000 22,000 328,000 Chairman 2017 180,000 126,000 17,000 323,000 Marco Nörenberg 2018 135,000 13,500 7,000 155,500 35,000 – – 35,000
Andrés Ruiz Feger 2018 90,000 13,500 7,000 110,500 2017 90,000 13,500 6,000 109,500 Gabriele Sinz-Toporzysek 2018 90,000 – 5,000 95,000 15,000 – – 15,000
Overall, in 2018 global economic growth remained above its long-term average, but the major economies experienced different rates of growth. While the US economy gained momentum, the eurozone and Japanese economies slowed. Growth rates were high in China and India, but remained negligible in Brazil and Russia. Annual inflation rates in developed economies were slightly higher on average than in the previous year, but remained moderate overall.
These events and developments also led to repeated turbulence in international stock markets. As early as February, when bond yields in the USA rose significantly, there were global slumps in share prices. After recoveries in the second and third quarters, volatility increased in the fourth quarter because of fears about recession, and it remained high until the end of the year. Important stock indices such as the US Dow Jones index and the DJ Euro STOXX 50 closed the year with heavy losses.
Premium development in property-casualty reinsurance was supported by very solid growth in many key primary insurance markets. North America, Western Europe and China were the main contributors to the substantial increase in global primary insurance premiums. The renewals for property-casualty reinsurance treaties in January, April and July 2018 saw price increases in markets affected by natural catastrophes. Prices remained stable otherwise, and capacity in the markets is still high. Consequently, the renewals as at 1 January 2019 once again took place in a very competitive market environment. On average, prices remained largely unchanged.
The aim of Munich Re’s entrepreneurial thinking and activity is to analyse risks from every conceivable angle and to assess and diversify them, creating lasting value for shareholders, clients, and staff in relation to the risks assumed. This is the aim of our active capital manage ment and the consistent application of value and risk-based management systems.
Our key corporate management tools at Group level are economic earnings and the IFRS consolidated result.
RORAC1 = Net income – Interest rate x (1 – Tax rate) x Additional available economic equity
Business performance Board of Management’s overall assessment of the business performance and situation of the Group
We met our profit guidance of €2.1–2.5bn for the reporting year and posted a result of €2,275m – despite volatile capital markets and high natural catastrophe losses, especially in Q4. The result in property-casualty reinsurance increased to €1,135m (–476m), and the combined ratio improved to 99.4% (114.1%) of net earned premiums. The previous year had been marked by exceptionally high property losses from Hurricanes Harvey, Irma and Maria. Life and health reinsurance contributed €729m (596m) to the consolidated result. The technical result, including the result from business not recognised in the technical result owing to non-significant risk transfer, was €584m (428m), and therefore significantly above our target of at least €475m. Favourable claims experience in the USA was one of the contributing factors to the very good result. The ERGO field of business reported a profit of €412m (273m), thus exceeding its original target range of €250–300m. Apart from very good operational performance, particularly in the ERGO International segment, the good result for the year was also attributable to various one-off effects that partly offset each other.
The RORAC for the full financial year increased to 9.1% (1.5%). The return on overall equity (RoE) was 8.4% (1.3%).
In Q2, we bought back our subordinated bond 2003/2028 with a nominal value of £300m. We also issued a subordinated bond with a volume of €1.25bn in November. The bond will mature on 26 May 2049 and pays a fixed rate of 3.25% p.a. until the first call date on 26 May 2029, and a variable rate thereafter. The bond meets the criteria for classification as regulatory Tier 2 capital under Solvency II, as well as the current requirements for full recognition as rating capital. In light of the repayment options provided by our outstanding subordinated bonds in 2021 and 2022, this issue allows us to optimise our capital structure.
Carrying amounts Unrealised gains/losses1 Fair values €m 31.12.2018 Prev. year 31.12.2018 Prev. year 31.12.2018 Prev. year Land and buildings, including buildings on third-party land 5,851 5,121 4,769 2,744 10,620 7,865 Investments in affiliated companies, associates and joint ventures 2,509 2,216 983 959 3,312 3,008
Deposits retained on assumed reinsurance 7,241 5,690 0 0 7,241 5,690 1 Including on- and off-balance-sheet unrealised gains and losses.
Our portfolio of government bonds, covered bonds and corporate bonds had a good rating structure: as at 31 December 2018, some 84% of securities were rated AAA to A.
The portfolio of structured credit products at fair value increased slightly as a result of acquisitions, and totalled 2% of the overall portfolio of interest-bearing securities as at the reporting date. This asset class involves securitised receivables (asset-backed securities or mortgage-backed securities), e.g. securitisations of real estate finance, consumer credit or student loans. Around 56% of our structured credit products have a rating of AAA.
Our equity portfolio decreased due to disposals and market developments. We responded to the significant increase in volatility in Q4 by scaling back our portfolio and ratcheting up the derivatives used for hedging purposes. Our equity-backing ratio (before taking derivatives into account, and including investments in affiliated companies, associates and joint ventures at fair value) came to 6.2% (7.3%) at the end of the year. The equity-backing ratio including derivatives came to 5.2% (6.7%). We also protect ourselves against accelerated inflation in an environment of continuing low interest rates by holding inflation-linked bonds with a fair value of €7.6bn (8.5bn). Real and financial assets such as shares, property, commodities, and investments in infrastructure, renewable energies and new technologies also serve to guard against inflation. Additionally, our investments in real and financial assets have a positive diversification effect on the entire portfolio.
We expanded our portfolio of corporate bonds in the reporting year, but decreased our investments in government bonds and bank bonds.
The return on equities was buffeted by market developments in the financial year. The total return on our equity portfolio including equity derivatives decreased to –4.2% (8.0%).
Regular income increased slightly on the previous year, primarily due to higher income from rent and higher interest income from deposits retained on assumed reinsurance. The average reinvestment yield increased to 2.2% (1.9%) in the financial year. Due to the low interest rate level in the reporting year, yields on new investments remained lower than the average return on our existing portfolio of fixed-interest investments.
We posted higher net write-downs of non-derivative investments than in the previous year, in particular of our equity portfolio, which was affected by heavy price falls on the stock markets, especially in the fourth quarter of the year.
Net gains on disposal were lower than in the previous year, and chiefly came from our portfolio of fixed-interest securities. This is attributable to the significant decrease in the ERGO Life and Health Germany segment, which in the previous year had required higher gains on disposal to finance the additional interest reserve.
Write-ups/write-downs of non-derivative investments –1,054 –0.5 –241 –0.1 Gains/losses on the disposal of non-derivative investments 1,582 0.7 2,494 1.1 Net balance of derivatives 103 0.0 –470 –0.2 Other income/expenses –691 –0.3 –609 –0.3
Key figures 2018 Prev. year Change % Gross premiums written €m 10,849 13,726 –21.0 Share of gross premiums written in reinsurance % 34.7 43.5 Technical result incl. result from reinsurance treaties with insufficient risk transfer €m 584 428 36.6
We write the majority of our business in non-euro currencies (around 85%). Exchange-rate fluctuations therefore have a significant impact on premium development. If exchange rates had remained unchanged, our premium income would have fallen by 18.0%. Disregarding currency translation effects, the decrease was chiefly attributable to the planned termination and/or conversion of two large-volume structured reinsurance treaties. Excluding these two treaties, our premium volume would have increased, partly reflecting the persistently high demand for financially motivated reinsurance. Geographically speaking, growth was spread across Europe, Asia and the USA.
At €503m, the technical result was significantly higher than in the previous year (€376m), and thus in excess of our expectations for 2018.
The result from the part of the business that is not posted in the technical result as a consequence of nonsignificant risk transfer continued to develop in a very satisfying manner. At €81m, it was significantly higher than the previous year’s level (€51m).
The investment result was up €123m on the previous year, mainly on account of higher gains on the disposal of fixed-interest securities and a positive one-off effect from the sale of Ellipse in the fourth quarter.
Premium income in Europe increased to €2.7bn (2.3bn), of which €1.2bn (1.2bn) was from the United Kingdom, and a further €676m (381m) from Germany. The technical result continued to develop at a very pleasing level. Runoff profits were generated from the recapture of a treaty, whilst the technical result was negatively impacted at a comparable level by the sale of group life specialist Ellipse
Premium income in property-casualty reinsurance increased by 14.5% compared with the previous year. Changes in exchange rates had a negative impact on premium development. Approximately 11% of the portfolio is written in euros and 89% in foreign currency, of which 52 percentage points is in US dollars and 13 percentage points in pounds sterling. If exchange rates had remained the same, premium volume would have risen by 19.0% year on year.
The renewals for reinsurance treaties in 2018 saw prices rise in regions affected by natural catastrophes. In other markets and lines of business, prices remained stable or increased slightly. Despite the high losses from natural catastrophes in 2017, the supply of reinsurance capacity remained high during the 2018 renewals. While prices had fallen in the previous year, they rose by approximately 0.8% in the 2018 renewals. A higher interest-rate level compared with the previous year further strengthened the profitability of our business. Overall, we are adhering to our profit-oriented underwriting policy.
Key figures 2018 Prev. year Change % Gross premiums written €m 20,437 17,843 14.5 Share of gross premiums written in reinsurance % 65.3 56.5 Loss ratio % 65.2 80.6
We posted a significant decline in premium income to €1.5bn (5.1bn) in Canada, mainly owing to the planned termination and/or conversion of two large-volume structured reinsurance treaties. In traditional business, we were able to retain our leading market position. The technical result was somewhat lower than expected, but still accounts for a disproportionately large contribution to the overall result.
Premium generated by our business in Australia and New Zealand remained largely constant at €827m (850m). We continue to apply a very restrictive underwriting policy in the Australian market, as major parts of disability business still do not meet our profitability requirements. Our main focus here is on the rehabilitation of our existing portfolio. Claims expenditure in this market exceeded our expectations, and we have adjusted our provision for outstanding claims as a consequence. In addition, given the expected impact of planned changes in the applicable law, we have written off part of our deferred acquisition costs. On balance, we therefore posted a negative technical result.
Aggregate losses from natural catastrophes totalled €1,256m (3,678m) for the full year. This figure is equivalent to 6.7% (22.0%) of net earned premium. The biggest loss events of the year were Hurricanes Florence and Michael in the USA, for which we expect a total expenditure of around €560m, and Typhoons Jebi and Trami in Japan, with expected losses in the region of €540m. Two major wildfires in California in November 2018 caused additional losses of approximately €430m.
The combined ratio saw a significant improvement to 99.4% (114.1%) thanks to lower major-loss expenditure in 2018. Paid claims and the change in claims provisions totalled €12,132m (€13,474m), along with net operating expenses of €6,372m (€5,600m), compared to net earned premiums of €18,618m (16,723m).
In Canada, we are represented in the area of non-life business by the Munich Reinsurance Company of Canada and Temple Insurance Company. At €313m (284m), premium volume saw a gratifying increase thanks to the expansion of attractive business.
At our Swiss subsidiary New Reinsurance Company Ltd. (New Re), business volume in the area of property-casualty increased by 6% to €608m in the 2018 financial year.
In Germany, we succeeded in keeping premium income largely stable at €612m (646m) in 2018 – despite the stillchallenging market environment.
In China, premium volume grew strongly to €822m (615m) year on year as a result of organic growth and selective expansion of business.
In the Caribbean, Central and South America, we still provide high capacity for the coverage of natural hazards, in particular windstorm and earthquake. We were able to hold our strong market position with stable premium volume of €1,052m (1,050m), benefiting from higher prices and thus improved margins in the wake of the previous year’s windstorm events.
In marine business, total premium volume was up around 15% to €884m (766m), supported by a positive market environment. In addition, the combined ratio improved.
At €657m (634m), credit and bond reinsurance saw a slight increase in premium volume compared with the previous year. The pressure on rates in traditional credit business was offset by profitable new business in specialty and niche segments.
Owing to a positive market environment, premium income in direct industrial business, which we operate in our Corporate Insurance Partner unit, rose to €554m (431m). At the same time, the result was impacted by high major losses.
In aviation and space business, premium income remained largely unchanged at €504m (502m).
The Capital Partners unit offers our clients a broad spectrum of structured, individual reinsurance and capital market solutions. We also use this unit’s services for our own purposes in order to buy retrocession cover on the basis of our defined risk strategy. In the year under review, we structured client transactions worth US$ 200m. In addition, Capital Partners placed a sidecar transaction amounting to US$ 300m (Eden Re II Ltd., Series 2018-1) in the capital markets for its own purposes.
The decline in total premium income and gross premiums written was mainly attributable to lower single-premium income. New life business did not compensate for the decline in regular premium income from traditional life business caused by the planned reduction of the portfolio. In terms of annual premium equivalent (APE, i.e. regular premium income plus one-tenth of single-premium volume), which is the performance measure customary among investors, our new business volume dropped by 4.3% compared with the previous year.
Key figures 2018 Prev. year Change % Total premium income1 €m 9,974 9,902 0.7 Gross premiums written €m 9,345 9,210 1.5 Share of gross premiums written by ERGO % 52.6 52.5 Technical result €m 633 435 45.5 Investment result €m 3,502 4,196 –16.5
The rise in the technical result was partly due to lower claims expenditure and higher premium income. At €1,236m (1,384m), the investment result saw a decline. Negative contributing factors chiefly included lower gains on disposals and higher write-downs. Altogether, the operating result was slightly lower than in the previous year.
At 84.9% (82.0%), the 2018 combined ratio for propertycasualty business was up 2.9 percentage points on the previous year, but remained at a very good level.
Operating result 59 61 –3.2 1 The annual premium equivalent corresponds to the regular premium income plus 10% of single-premium volume.
New business direct life Germany 2018 Prev. year Change €m €m %
1 The annual premium equivalent corresponds to the regular premium income plus 10% of single-premium volume.
Gross premiums written developed favourably year on year, mainly on account of growth of 10.0% in the other classes of business. These included marine, where underwriting agent business developed positively, and engineering insurance, which saw an increase in new business. Fire and property insurance posted an increase of 7.4% in gross premiums written, mainly on account of growth in commercial building insurance, and positive development of our homeowners’ insurance portfolio. By contrast, in motor insurance and personal accident insurance we posted slightly lower premium income than in 2017, with decreases of 0.7% and 1.9% respectively.
The investment result was down on the previous year, chiefly on account of lower gains from the disposal of equities and interest-bearing investments, and a decline in regular income.
The technical result in the ERGO International segment improved significantly year on year. The reasons for this positive development were quantitative growth in Polish motor business, the positive effects of price adjustments in this field of business in 2017, and a higher technical result in Belgian life insurance business due to the absence of negative one-off effects.
The increase in the consolidated result was mainly attributable to the higher technical result.
In international health business, gross premiums written were down 2.2% to €1,374m (1,405m), partly due to the reallocation of Globality S.A.; by contrast, we posted higher premium income in our two major markets Spain and Belgium.
Development of Group equity 31.12.2018 Prev. year Change €m €m % Issued capital and capital reserve 7,418 7,418 0.0 Retained earnings 13,201 15,036 –12.2 Other reserves 3,440 5,183 –33.6 Consolidated result attributable to equity holders of Munich
We define as strategic debt all financial instruments with the character of outside financing that do not have a direct link to our operative business. Strategic debt supplements our financial resources, is essentially designed to optimise the cost of capital, and ensures that we have sufficient liquidity at all times. We quantify our debt leverage to make our capital structure transparent. Debt leverage is defined as the ratio – expressed as a percentage – of strategic debt to the sum of Group equity and strategic debt. Our technical provisions are not considered, even though they are mostly available to us on a long-term basis as a source of financing for investment.
Group equity 26,500 28,198 –6.0 1 The main components of our strategic debt are subordinated liabilities, and bonds and notes issued (see pages 144 and 153 of the Notes to the consolidated financial statements).
Under the supervisory regulations of Solvency II, subordinated liabilities are recognised as own funds provided that they are available at all times to cover losses on a going-concern basis. Munich Re’s subordinated liabilities amount to €3,689m. Of this sum, €3,643m were recognised as at the reporting date as eligible own funds pursuant to Solvency II. As a consequence, strategic debt is reduced to €372m and the debt leverage amounts to only 1.2%.
Since we are an international (re)insurance group, some of our financial resources are subject to restraints on disposal. Supervisory authorities in some countries, for example, require foreign reinsurers to establish premium and reserve deposits to the benefit of primary insurers, or set up trustee accounts or guarantees with certain financial institutions. At the reporting date, this involved investments with a volume of €9.2bn (8.8bn). In addition, there were contingent liabilities. Information on these can be found on page 167 in the Notes to the consolidated financial statements.
Information in accordance with Sections 315a(1) and 289a(1) of the German Commercial Code (HGB) and explanatory report of the Board of Management
As at 31 December 2018, Munich Reinsurance Company’s share capital of €587,725,396.48 was divided into 149,538,477 registered, no-par-value, fully paid shares. The rights and obligations deriving from these shares follow from the applicable statutory requirements and the Company’s Articles of Association. With respect to the Company, the only parties deemed shareholders in accordance with Section 67 of the German Stock Corporation Act (AktG) are those entered as such in the Company’s register of shareholders.
Munich Reinsurance Company has not been notified, nor has it otherwise learned, about any direct or indirect shareholdings in the Company that exceeded 10% of the voting rights as at 31 December 2018.
Between 2006 and 2018, we returned a total of €26.6bn to our shareholders. In March 2018, the Board of Management launched another share buy-back programme. We intend to buy back shares up to a maximum purchase price of €1bn by the Annual General Meeting on 30 April 2019. During the reporting year, we had bought back shares with a total volume of €1,013m.
Statutory regulations and provisions of the Articles of Association regarding appointment and dismissal of members of the Board of Management, and concerning amendments to the Articles of Association The legal parameters for the appointment and dismissal of members of the Board of Management are specified in the Company’s Co-determination Agreement, Articles 13(3) and 16 of the Articles of Association, Sections 84 and 85 of the Stock Corporation Act (AktG), and Sections 24, 47 and 303 of the German Insurance Supervision Act (VAG). Munich Re’s Co-determination Agreement and Articles of Association follow the legal tenets of the German Co-Determination Act (MitbestG). Pursuant to Article 16 of the Articles of Association, the Board of Management must comprise a minimum of two persons; beyond this, the number of members is determined by the Supervisory Board. There are currently nine members of the Board of Management (eight members until 17 March 2019). The Supervisory Board appoints the members of the Board of Management pursuant to Section 84 of the Stock Corporation Act and may dismiss them at any time for good cause. On initial appointment, members of the Board of Management are usually given contracts for a term of between three and five years, and extensions of up to five years are possible. For the appointment or dismissal of members of the Board of Management, Article 13(3) of the Articles of Association stipulates a two-thirds majority of the votes cast on the Supervisory Board. If the requisite majority is not obtained in the initial resolution, the appointment or dismissal of the Board of Management requires a simple majority of the votes cast. The second resolution is only possible following a suitable period of reflection and after the issue has been dealt with in the competent committee, but is thereafter also possible by written consent in lieu of a meeting. In exceptional cases, members of the Board of Management may also be appointed by a court of law, pursuant to Section 85 of the Stock Corporation Act.
The Stock Corporation Act contains general provisions governing amendments to the Articles of Association – Section 124(2) sentence 3, and Sections 179–181 of the Act. These state that only the Annual General Meeting can make resolutions on changes to the Articles of Association. In order to be carried, such a resolution must receive the votes cast by at least three-quarters of the share capital represented in the vote. The Articles of Association may stipulate a different capital majority (higher or lower) or other requirements, but the Company’s Articles of Association do not provide for any such special features.
The powers of the members of the Board of Management are defined in Sections 71 and 76–94 of the Stock Corporation Act (AktG). The Board of Management has the following powers to issue and buy back shares: − The Annual General Meeting of 25 April 2018 authorised the Company, pursuant to Section 71(1) no. 8 of the Stock Corporation Act, to buy back shares until 24 April 2023 up to a total amount of 10% of the share capital. The shares acquired, plus other own shares in the possession of the Company or attributable to the Company in accordance with Section 71a ff. of the Stock Corporation Act, may at no time amount to more than 10% of the share capital. In accordance with the provisions of the authorisation, the shares may be acquired in various ways. The Board of Management is authorised to use shares thus acquired for all legally permissible purposes, in particular those specified in the authorisation, whilst excluding subscription rights. Among other things, the Board of Management is empowered under Section 71(1) no. 8 of the Stock Corporation Act to retire the shares without requiring further approval from the Annual General Meeting. By resolution of 15 March 2018, the Board of Management decided to utilise this authorisation to acquire own shares. Around 3.7 million shares had been acquired by 31 December 2018 at a purchase price of approximately €697m.
− The Annual General Meeting of 23 April 2015 authorised the Board of Management to issue, with the consent of the Supervisory Board, in one or more issues up to 22 April 2020, convertible bonds, bonds with warrants, profit participation rights, profit participation certificates or combinations of such instruments (hereinafter collectively referred to as “bonds”) for a maximum nominal amount of €3bn with or without a limited term
Combined management report Financial position to maturity. Shareholders are generally entitled to a subscription right in respect of these bonds, but the Board of Management is authorised, with the consent of the Supervisory Board, to exclude this subscription right in the cases specified in the authorisation. The holders of such bonds may be granted conversion rights, warrants or conversion obligations in respect of shares issued by the Company up to a maximum amount of €117m of the share capital, in accordance with the respective bond or warrant conditions. As a precautionary measure, capital of €117m was conditionally authorised under Article 4(3) of the Articles of Association (Contingent Capital 2015).
Significant agreements which take effect, alter or terminate upon a change of control following a takeover bid, and resultant implications
Compensation agreements concluded with members of the Board of Management or employees for the event of a takeover bid
In the consolidated cash flow statement, the consolidated profit of €2,275m is used as the starting point for determining the cash inflows from operating activities. The consolidated result is also adjusted by €4,449m to take account of the higher technical provisions. The net gains on the disposal of investments – which in adjusting the consolidated profit have to be deducted from the cash flows – are essentially attributable to the disposal of securities available for sale.
The cash outflows for financing activities stem mainly from the dividend payment in 2018, the share buy-back programme and the issuance of a new subordinated bond.
Risk identification is performed by means of appropriate processes and indicators, which are complemented by expert opinions. Our process for early identification of risks also encompasses emerging risks, which we define as potential trends or sudden events that are characterised by a high degree of uncertainty in terms of occurrence probability, expected loss amount, and possible effects on Munich Re.
As part of the risk analysis, a quantitative and qualitative assessment of all risks at consolidated Group level is made in order to take into account possible interactions between risks across all fields of business. Internal risk reporting provides the Board of Management with regular, detailed information on the risk situation, as regards the individual risk categories and the entire Group alike. This ensures that negative trends are identified in sufficient time for countermeasures to be taken. The purpose of our external risk reporting is to provide clients, shareholders and the supervisory authorities with a clear overview of the Group’s risk situation. Actual risk limits are derived from the risk strategy: taking the defined risk appetite as a basis, limits, rules and any risk-reducing measures required are approved and implemented. We also have a comprehensive early-warning system that draws our attention to any potential shortages of capacity.
Quantitative risk monitoring based on indicators is carried out both centrally and within units. We monitor risks that cannot be expressed directly as an amount either centrally or in our units, depending on their materiality and allocation. The risk management system is regularly audited by Group Audit, external auditors and the Federal Financial Supervisory Authority (BaFin).
Our definition of a risk is a possible future development or event that could result in a negative deviation from the Group’s prognoses or targets. We classify risks as “significant” if they could have a long-term adverse effect on Munich Re’s assets, financial situation or profitability. We have applied this definition consistently to each business unit and legal entity, taking account of its individual risk-bearing capacity. In doing so, we differentiate between risks depicted in our internal model and other risks.
The table shows the solvency capital requirement for Munich Re and its risk categories as at 31 December 2018.
To achieve this, we use actuarial methods that are based on standard reserving procedures, but take into account the one-year time horizon. The calibration for these methodologies is based on our own historical loss and run-off data. Appropriate homogeneous segments of our property-casualty portfolio are used for the calculation of the reserve and premium risks. To aggregate the risk to whole-portfolio level, we apply correlations that take account of our own historical loss experience.
We limit our risk exposure by setting limits and budgets not only for natural catastrophe risks, for example, but also for potential man-made losses. Our experts develop scenarios for possible natural events, taking into account the scientific factors, occurrence probabilities and potential loss amounts. On the basis of these models, the impact of various events on our portfolio is calculated and represented in mathematical terms in the form of a stochastic model.
Munich Re Group Annual Report 2018 over the entire duration of the policies. This can mean that negative developments in risk drivers with long-term effects sustainably reduce the value of the insurance portfolio (trend risks). The risk drivers mortality and disability are dominated by the reinsurance field of business, particularly by exposure in North America and Asia. The longevity risk driver can be found in the products marketed by ERGO in Germany together with typical risks related to policyholder behaviour, such as the lapse risk, but we also underwrite longevity risk in the reinsurance field of business, especially in the United Kingdom. To a lesser extent, risks connected with the increase in treatment costs arise in the ERGO field of business in particular.
In reinsurance, we control the assumption of biometric risks by means of a risk-commensurate underwriting policy. Interest-rate and other market risks are frequently ruled out by depositing the provisions with the cedant, with a guaranteed rate of interest from the deposit. In individual cases, these risks are also hedged by means of suitable capital-market instruments. For primary insurance, substantial risk minimisation is achieved through product design. In case of adverse developments, parts of the provision for premium refunds – which are recognised and reversed in profit or loss – are of great significance for risk-balancing. In health primary insurance, most longterm contracts include the possibility and/or obligation to adjust premiums. Practically, however, there are limits to the resilience of policyholders.
Solvency capital requirement – Property-casualty The 21% jump in the reinsurance segment capital requirement is largely a consequence of the strong growth in the course of 2018 of business exposed to natural hazards. It should further be highlighted that a major change in the methodology used for the basic loss model has driven the SCR increase.
Our internal model considers the accumulation-risk scenarios as independent events. Munich Re’s greatest natural hazard exposure lies in the scenarios “Atlantic Hurricane” and “Earthquake North America”. The exposure to cyber risks was up on the previous year, but remained significantly lower than the exposure to natural catastrophes. The diagrams show how we estimate our exposure for the coming year to the peak scenarios for a return period of 200 years.
Earthquake North America Aggregate VaR (return period: 200 years) €bn (before tax), retained
Life and health underwriting risk The underwriting risk is defined here as the risk of insured benefits payable in life or health insurance business being higher than expected. Of particular relevance are biometric risks and policyholder-behaviour risks, such as lapses and lump-sum options. We differentiate between risks that have a short-term or long-term effect on our portfolio. In addition to the simple risk of random fluctuations resulting in higher claims expenditure in a particular year, the adverse developments with a shortterm impact that we model notably include rare – but costly – events such as pandemics. More information on the risks in life and health insurance can be found in the Notes to the consolidated financial statements on page 159 ff.
Life primary insurance products in particular, and a large part of our health primary insurance business, are long term in nature, and the results they produce are spread
Solvency capital requirement – Life and health In the reinsurance field of business, the elevated solvencycapital requirement was primarily due to new business, while in the ERGO field of business, the lower euro interest rates and a change in method in health primary insurance led to an increase in the solvency capital requirement.
Market risk We define market risk as the risk of economic losses resulting from price changes in the capital markets. It includes equity risk, general interest-rate risk, specific interest-rate risk, property-price risk and currency risk. The general interest-rate risk relates to changes in the basic yield curves, whereas the specific interest-rate risk arises from changes in credit risk spreads – for example, on euro government bonds from various issuers, or on corporate bonds. We also include in market risk the risk of changes in inflation rates and implicit volatilities (cost of options). Fluctuations in market prices affect not only our investments, but also the underwriting liabilities – especially in life insurance. Due to the longterm interest-rate guarantees given in some cases and the variety of options granted to policyholders in traditional life insurance, the amount of the liabilities can be highly dependent on conditions in the capital markets. Market risks are modelled by means of Monte Carlo simulation of possible future market scenarios. We revalue our assets and liabilities for each simulated market scenario, thus showing the probability distribution for changes to basic own funds.
General interest-rate risk 1,194 1,383 3,362 3,339 –891 –1,306 Specific interest-rate risk 1,381 1,394 2,530 3,329 –692 –798
Interest-rate risk The fall in the general interest-rate risk in the reinsurance field of business was substantially the result of a reduction in long-term liabilities. The specific interest-rate risk fell considerably in the ERGO field of business. A large part of the decrease was caused by an improved reflection of these risks in the life and health units.
Munich Re determines credit risks using a portfolio model, which is calibrated over a longer period (at least one full credit cycle), and which takes account of both changes in fair value caused by rating migrations and debtor default. The credit risk arising out of investments (including deposits retained on assumed reinsurance, government bonds and credit default swaps – CDSs) and reserves ceded is calculated by individual debtor. We use historical capital-market data to determine the associated migration and default probabilities. Correlation effects between debtors are derived from the sectors and countries in which they operate, and sector and country correlations are based on the interdependencies between the relevant stock indices. The calculation of the credit risk in “other receivables” is based on internal expert assessments. For life and health primary insurance business, we also take account of the share of the mitigating effect on the credit risk resulting from policyholders’ participation in profits. We also capitalise the credit risk for highly rated government bonds. Information on the ratings of the fixed-interest securities and loans can be found in the Notes to the consolidated financial statements on page 132 ff.
We use a cross-balance-sheet counterparty limit system valid throughout the Group to monitor and control our Group-wide credit risks. The limits for each counterparty (a group of companies or country) are based on its financial situation as determined by the results of our fundamental analyses, ratings and market data, and the risk appetite defined by the Board of Management. The utilisation of limits is calculated on the basis of creditequivalent exposure (CEE). There are also volume limits for securities lending and repurchase transactions. Group-wide rules for collateral management – for example, for over-the-counter (OTC) derivatives and catastrophe bonds issued – enable the associated credit risk to be reduced. Exposure to issuers of interest-bearing securities and CDSs in the financial sector is limited by a financial sector limit at Group level.
With the help of defined stress scenarios, our experts forecast potential consequences for the financial markets, the fair values of our investments, and the present values of our underwriting liabilities. At Group level, we counter any negative effects with the high degree of diversification in both our investments and our liability structure, and with our active Group-wide asset-liability management. We 1 The liabilities mainly comprise the technical provisions in accordance with Solvency II (best estimate and risk margin). In the previous year, the entire liabilities side, including economic own funds, was considered here. The previous year’s figures have been adjusted accordingly.
We use appropriate procedures to specifically identify and analyse reputational risk, strategic risk, liquidity risk and security risk. These risks are also assessed and managed in our risk management process.
The eligible own funds as at the balance sheet date take into account deductions for the dividend agreed by the Board of Management for the 2018 financial year of €1.3bn, and purchases not yet made under the share buyback programme for 2018/2019 in the amount of €303m. In order to make the effects of potential further capital measures on the Solvency II ratio transparent to financial statement users, we further recognise a possible share buy-back programme for 2019/2020 in the amount of €1bn. At the time the consolidated financial statements were prepared, this had neither been resolved nor approved by the competent bodies.
Solvency II ratio1 31.12.2018 Prev. year2 Change Eligible own funds3 €m 35,995 35,060 935 Solvency capital 1 Eligible own funds excluding the application of transitional measures for technical provisions; including the application of transitional measures for technical provisions, the own funds amounted to €43.2bn (42.6bn); Solvency II ratio: 295% (297%).
2 The redemption of a subordinated bond callable in 2018 in the amount of £300m had already been anticipated as a deduction in eligible own funds for the 2017 financial year, and was made accordingly in 2018.
3 Economic earnings and the newly issued subordinated bond increased the eligible own funds as at the reporting date by a total of around €3.2bn. At the same time, the dividend approved by the Board of Management for the 2018 financial year and the potential 2019/2020 share buy-back had a reducing effect of approximately €2.3bn.
monitoring the implementation of measures deemed necessary. The Chief Risk Officer is involved in operational business planning and the processes for significant company mergers and acquisitions.
The solvency ratio under Solvency II is the ratio of the eligible own funds to the solvency capital requirement.
Further escalation of the trade war, political imponderables in Europe, political and economic challenges in emerging markets (particularly Turkey and Argentina), a flare-up in the differences between the USA and North Korea, an escalation in the Middle East (especially where Iran is concerned), or heightened confrontation between Russia and the West could significantly elevate uncertainty and have noticeable consequences for the respective region and global capital markets alike.
Markets are being increasingly shaped by digitalisation, and changes in client behaviour call for flexibility in terms of coverage and solutions. Munich Re is investing heavily in our digital infrastructure and skills as well as in cooperation with strategic partners – including start-ups – in order to help bring about the requisite changes in terms of innovative products, services and internal processes. With Munich Re’s presence in major start-up hubs, the collaboration with accelerators, and the new Digital
Together with the primary insurance and reinsurance undertakings of our Group, MEAG plays an important role with its expertise in asset management; as a reinsurer, we also provide life insurance companies outside our Group with integrated financial and reinsurance solutions for the benefit of clients.
At the beginning of the year, we projected gross premium in the range of €46–49bn for the 2018 financial year. Given the positive premium development in propertycasualty reinsurance, we adjusted this range to €48–49bn in the third quarter. Despite negative currency translation effects, we exceeded the adjusted range and posted €49.1bn, thus achieving roughly the same level as in the previous year.
At €6.5bn, the Group’s investment result (excluding insurance-related investments) fell significantly short of our expectations of over €7bn, especially owing to lower gains on disposal. In the previous year, we had achieved higher gains on disposal to finance the additional interest reserve, in particular in the ERGO Life and Health
Gross premiums written €bn 46–49 49.1 Technical result life and health reinsurance1 €m at least 475 584 Combined ratio property-casualty reinsurance % 99 99.4 Combined ratio ERGO Property-casualty Germany % 96 96.0 Combined ratio ERGO Property-casualty International % 97 94.6 Return on investment2 % around 3 2.8 Economic earnings €bn over 2.1–2.5 1.9 Consolidated result €bn 2.1–2.5 2.3 1 Including the result from business with non-significant risk transfer. 2 Excluding insurance-related investments.
Germany segment. Munich Re posted a higher net year-on-year balance of write-downs of non-derivative investments for 2018, which owing to price losses on the stock markets mainly affected our equities portfolio. This contrasted with higher regular income, especially owing to increased income from rent and deposit interest, as well as a positive net balance of derivatives. The investment result represents a return of 2.8% overall, which is slightly below the originally anticipated target return on investment of around 3%.
For the 2018 financial year, we had forecast an economic earnings target corridor of “just over €2.1–2.5bn”. With our economic earnings totalling €1.9bn, we did not meet this target. Although the result contribution from business operations met our expectations overall, negative capital market developments had an adverse impact on the measurement of our assets and liabilities. However, effects caused by wider risk spreads on fixed-interest securities and lower share prices were largely offset for the Group by positive developments – in particular from updated property valuations.
For the ERGO Life and Health Germany segment, we had forecast total premium income of €9.5–10bn; at €10.0bn, the figure was at the very upper end of our expectations. At €9.3bn, gross premiums written were within the projected range of €9–9.5bn. At the beginning of the year, we had anticipated a decline in premium income to €3–3.5bn for the Life Germany division. Despite the shrinking portfolio, we posted premium volume of €3.4bn, i.e. almost the same level as in the previous year (€3.5bn). Gross premium in Health Germany – €5.4bn – was at the upper end of the target corridor of €5–5.5bn. In German direct business, we had anticipated a marginal increase in gross premium to €1–1.2bn at the beginning of the year. We achieved this target and posted €1.1bn.
The Property-casualty Germany segment posted gross premiums of €3.4bn, which were comfortably within our original target corridor of €3–3.5bn. Our forecast at the start of the year for the combined ratio had been around 96% – provided major losses remained within normal bounds. Although in the first quarter of the year natural catastrophe losses, particularly those from Winter Storm Friederike, had exceeded expectations, we achieved a ratio of exactly 96.0% thanks to a low level of natural catastrophe losses in the second and third quarters.
In ERGO International, we posted a slight increase in gross premiums written to €5.1bn (5.0bn), thus exceeding our forecast of €4.5–5bn from the beginning of the year – despite negative currency translation effects. At €5.3bn, total premium income was in the medium range of our target corridor of €5–5.5bn. At the beginning of the year, we had aimed for a combined ratio of around 97% in the ERGO Property-casualty International segment, provided major losses remained within normal bounds. Thanks to our good performance in the first six months, we were able to reduce our forecast to 96% in the second quarter. Especially in Poland, the positive performance continued into the third and fourth quarters, enabling us to achieve a combined ratio of 94.6% at year-end – considerably better than the forecast.
The combined ratio envisaged for property-casualty reinsurance at the beginning of the financial year was 99% of net earned premiums. Given the low major-loss expenditure in the first quarter, we reduced our forecast for the full year to 97%. Mainly owing to exceptionally high major losses from natural catastrophes in the fourth quarter, we missed this target by 2.4 percentage points and recorded a combined ratio of 99.4%.
In the Life and Health Germany segment, we expect gross premiums written of around €9bn and total premium income of around €10bn. While we anticipate a portfolio reduction in the Life Germany division, both Health Germany and German direct business should see slight growth.
Gross premium in reinsurance as a whole should be around €31bn in 2019, i.e. roughly at the same level as the previous year. Currency translation effects could potentially have a considerable impact on this estimate. We project a consolidated result in reinsurance of around €2.1bn, up on the profit for 2018.
We expect gross premiums written in life and health reinsurance to be around €10bn, some €0.8bn short of the previous year’s figure. The technical result plus the result from business with non-significant risk transfer should amount to about €500m. The result from reinsurance treaties without sufficient risk transfer is recognised under “other operating result” and thus forms part of the nontechnical result.
The reinsurance renewals as at 1 January 2019 once again took place in a very competitive market environment, as reinsurers and capital market players continued to offer substantial capacity for the renewals. Prices for the Munich Re portfolio remained stable overall (+0.0%). Rising interest rates – especially in the US dollar area – led to improved economic profitability despite the lack of price increases.
In the period from June 2018 to the end of February 2019, we bought back shares with a value of €834m; another €166m are to be used for share buy-backs before the Annual General Meeting in April 2019. We are using this measure to return unneeded capital to shareholders. Despite the buy-backs, our good capital position will allow us to continue paying attractive dividends and selectively utilising opportunities for profitable growth.
Subject to approval by the Annual General Meeting, the dividend will rise by 65 cents to €9.25 per share. This is equivalent to a total payout of €1.3bn.
In the ERGO International segment, we aim to achieve gross premiums written of approximately €5bn, and generate overall premium volume of just over €5bn. There is some uncertainty concerning the demand for singlepremium business in life insurance. We expect premium volume to increase year on year in health insurance, and to see a slight reduction in property-casualty insurance. The combined ratio should be around 95%, provided major losses remain within normal bounds.
For the 2019 financial year, we predict economic earnings of over €2.5bn. The higher target figure compared with the envisaged IFRS result is chiefly due to new business in the life and health reinsurance segment. In economic metrics, corresponding profit contributions fully materialise in the underwriting year and thus earlier than in IFRS.
81Combined management report Munich Reinsurance Company Information reported on the basis of German accountancy rules
The macroeconomic and industry environment of Munich Reinsurance Company essentially corresponds to that of the Group. Further information on this can be found on page 47.
In the 2018 financial year, Munich Reinsurance Company’s business performance was pleasing overall. Major-loss expenditure was much lower than in the previous year – which had seen exceptionally high property losses from the Hurricanes Harvey, Irma and Maria – and was below the expected range. The release of loss reserves for prior accident years, which we were able to make following a review of our reserving position, also made a positive contribution to the underwriting result before claims equalisation provision.
For the 2018 financial year, Munich Re again utilised the option of publishing a combined management report in accordance with Section 315(5) in conjunction with Section 298(2) of the German Commercial Code (HGB). Supplementary to our Munich Re (Group) reporting, this section provides details on the performance of Munich Reinsurance Company.
Investment expenses –2,305 –1,257 –83.4 Interest income on technical provisions –403 –493 18.3
Other expenses –617 –546 –13.0 Non-technical result 1,929 2,241 –13.9 Operating result before tax 2,179 2,634 –17.3 Taxes on income and profit and other taxes –20 –434 95.5 Profit for the year 2,160 2,199 –1.8 Profit brought forward from previous year 47 52 –8.9 Transfers from other revenue reserves 0 0 – Appropriations to revenue reserves –824 –918 10.3 Net retained profits 1,383 1,333 3.7
Nevertheless, aggregate natural catastrophe losses of €599m (2,862m) were significantly lower than in the previous year, which had been marked by exceptionally high property losses from Hurricanes Harvey, Irma and Maria. In terms of net earned premium, aggregate natural catastrophe losses accounted for 4.7 (20.8) percentage points of the loss ratio.
In property-casualty reinsurance, man-made losses totalled €686m (554m), equivalent to 5.4 (4.0) percentage points of net earned premiums.
In life reinsurance, the decrease in premium income was chiefly attributable to the planned termination and conversion of two large-volume structured reinsurance treaties.
Gross premium volume in life and health reinsurance in 2018 was much lower than in the previous year. Gross premium fell sharply by 35.0% to €7,014m (10,798m). A large part of the fall in premium volume was due to the planned termination and conversion of two large-volume structured reinsurance treaties. If exchange rates had remained unchanged, our premium income in life and health reinsurance would have fallen by 33.3% .
The underwriting result before claims equalisation provision amounted to €1,031m in the 2018 financial year, compared with a loss of €1,990m in the previous year. This improvement in the result was primarily due to much lower major-loss expenditure in comparison with the previous year. In addition, a customary review of provisions for the full year resulted in a reduction in the provisions for claims from prior years, which was at a higher level than in the previous year. Over the years, the safety margin in the provisions has remained unchanged at a high level.
Munich Re Group Annual Report 2018 provision to improve significantly year on year. In addition, more loss reserves for prior accident years could be released.
Marine 2018 Prev. year Change % Gross premiums written €m 317 277 14.3 Combined ratio % 30.0 73.1 Underwriting result before claims equalisation provision and similar provisions €m 180 73 148.1
Third-party liability 2018 Prev. year Change % Gross premiums written €m 1,937 1,668 16.1 Combined ratio % 106.7 138.3 Underwriting result before claims equalisation provision and similar provisions €m –123 –634 80.6
Other classes 2018 Prev. year Change % Gross premiums written €m 2,358 2,332 1.1 Combined ratio % 92.3 102.7 Underwriting result before claims equalisation provision and similar provisions €m 163 –42 –
The increase in premium income in fire reinsurance was largely attributable to new business in various markets. After generating a loss in the previous year, the underwriting result before claims equalisation provision moved into positive territory in the reporting year. The main reason for this positive development was a significant reduction in major-loss expenditure.
In engineering reinsurance (machinery, EAR, CAR, EEI, etc.), premium income increased slightly on the previous year. After recording a loss in the previous year, the technical result for 2018 was positive. This was partly due to a fall in major-loss expenditure, partly because more loss reserves for prior accident years were released than in the previous year.
Fire 2018 Prev. year Change % Gross premiums written €m 3,658 3,278 11.6 Combined ratio % 91.9 142.8 Underwriting result before claims equalisation provision and similar provisions €m 237 –1,248
In the 2018 financial year, Munich Reinsurance Company’s return on investment (including deposits retained on assumed reinsurance) totalled 3.3% (3.9%) on the basis of carrying amounts.
The gains on disposal resulted mainly from property contributions to affiliated companies of Munich Reinsurance Company, taking into account organisational, tax and commercial law aspects.
The result was driven by a solid technical result – which was in part marked by significant allocations to the claims equalisation provision – an improved currency result and a reduced tax burden.
The lower tax expenditure in 2018 compared with the previous year is due to the fall in taxable income at the German parent company and a decrease in the tax burden for previous years.
In the 2018 financial year, Munich Reinsurance Company generated net retained profits of €1,383m (1,333m) according to German accountancy rules (HGB). Including these net retained profits, the Company’s revenue reserves amounted to €4,283m (4,422m) as at the reporting date, of which €465m (376m) is subject to a restriction on distribution. The distributable funds thus amount to €3,818m (4,046m).
Balance sheet structure of Munich Reinsurance Company 2018 Prev. year Change €m €m % Intangible assets 186 188 –1.3
Technical provisions 59,133 60,036 –1.5 Other provisions 1,991 2,299 –13.4 Deposits retained on retroceded business 1,407 1,686 –16.5
The shareholders’ equity of Munich Reinsurance Company as determined under German accountancy rules is protected effectively against the risk of loss arising from a random accumulation of losses by the claims equalisation provision totalling €8,479m (7,724m). Given our robust capital position according to all calculation methods, we intend – subject to the approval of the Annual General Meeting – to pay our shareholders an increased dividend of €9.25 per share for the 2018 financial year, or €1,334m in total, from Munich Reinsurance Company’s net retained profits.
The carrying amount of Munich Reinsurance Company’s investments excluding deposits retained on assumed reinsurance increased slightly to €64,296m (64,010m).
1 Information on Section 160(1) no. 2 of the German Stock Corporation Act can be found on page 23 of Munich Reinsurance Company’s Annual Report 2018.
The balance sheet item “claims equalisation provision and similar provisions” increased by €780m to €9,043m (8,263m) in the 2018 financial year. Owing to the positive results, we had to allocate significant amounts to the claims equalisation provision in some classes of business – especially in third-party liability €190m (–258m), fire €152m (–1,419m) and motor €150m (77m), as well as in other classes €103m (72m), personal accident €82m (166m), credit €81m (–100m) and engineering €37m (–127m).
By contrast, due to the fall in the maximum amount allowed the claims equalisation provision in marine was reduced by –€41m (–92m).
Our liquidity is ensured at all times by means of detailed liquidity planning. As a rule, the Company generates significant liquidity from its premium income, from regular investment income and from investments that mature. We also attach great importance to the credit rating and fungibility of our investments. Given the maturity structure of the outstanding bonds and the credit facilities employed (which are, in any case, relatively insignificant in scope), there are no refinancing requirements.
The projections by Munich Reinsurance Company about the future development of its business are essentially subject to the same influences as the reinsurance life and health and reinsurance property-casualty segments presented in the consolidated financial statements. You will find this information on page 79.
The business performance of Munich Reinsurance Company is largely subject to the same risks and opportunities as the performance of the reinsurance field of business presented in the consolidated financial statements. Munich Reinsurance Company generally participates in the risks of its shareholdings and subsidiaries in accordance with its respective percentage interest held. Munich Reinsurance Company is integrated in the Group-wide risk management system and internal control system of the Group. Further information is provided in the risk report on page 66 ff. and in the opportunities report on page 75 f.
Remuneration report of Munich Reinsurance Company The principles regarding the structure and design of the compensation system of Munich Reinsurance Company correspond to those of the Group. The remuneration report can be found on page 29 ff.
Assets 109 A Intangible assets 109 B Investments 109 C Insurance-related investments 111 D Ceded share of technical provisions 112 E Receivables 112 F Cash at banks, cheques and cash in hand 112 G Deferred acquisition costs 112 H Deferred tax assets 112 I Other assets 112 J Assets held for sale 112
Equity and liabilities 113 A Equity 113 B Subordinated liabilities 113 C Gross technical provisions 113 D Gross technical provisions for unit-linked life insurance 115 E Other provisions 115 F Liabilities 115 G Deferred tax liabilities 115 H Liabilities related to assets held for sale 115
Segment reporting 117 Segment assets 118 Segment equity and liabilities 118 Segment income statement 120 Other disclosures 120 Notes on determining the combined ratio 122 Non-current assets by country 122 Investments in non-current assets per segment 122 Gross premiums written 122
Notes to the consolidated balance sheet – Assets 123 02 Other intangible assets 124 03 Land and buildings, including buildings on third-party land 126 04 Hierarchy for the fair value measurement of investments 126 05 Investments in affiliated companies, associates and joint ventures 132 07 Other securities available for sale 133 08 Other securities at fair value through profit or loss and insurance-related investments 134
91Consolidated financial statements Contents 09 Deposits retained on assumed reinsurance 135 10 Other investments 135 11 Ceded share of technical provisions 136 12 Other receivables 136 13 Deferred acquisition costs 137 14 Deferred tax 138 15 Other assets 139 16 Assets held for sale 140
B. Investments I. Land and buildings, including buildings on third-party land (3) 5,851 5,121 730 14.3 II. Investments in affiliated companies, associates and joint ventures (5) 2,509 2,216 293 13.2 Thereof: Associates and joint ventures accounted for using the equity method 2,296 2,010 286 14.2
Notes 31.12.2018 Prev. year Change €m €m €m €m % A. Equity (17) I. Issued capital and capital reserve 7,418 7,418 0 0.0 II. Retained earnings 13,201 15,036 –1,834 –12.2 III. Other reserves 3,440 5,183 –1,743 –33.6 IV. Consolidated result attributable to Munich Reinsurance Company equity holders 2,310 375 1,934 515.4 V. Non-controlling interests 131 186 –55 –29.8
G. Deferred tax liabilities (14) 1,368 1,456 –87 –6.0 H. Liabilities related to assets held for sale (16) 823 65 758 >1,000.0 Total equity and liabilities 270,168 265,722 4,446 1.7
Thereof: Income from associates and joint ventures accounted for using the equity method 187 145 41 28.5 7. Insurance-related investment result (35) –685 443 –1,128 –
9. Other operating expenses (36) –976 –924 –52 –5.6 10. Deduction of income from technical interest –4,747 –6,376 1,629 25.5 13. Other non-operating result (37) –672 –926 253 27.4 14. Impairment losses on goodwill (37) –6 –9 3 32.7 16. Taxes on income (38) –576 298 –873 –
Thereof: Attributable to Munich Reinsurance Company equity holders 2,310 375 1,934 515.4 Attributable to non-controlling interests (17) –34 17 –51 –
Change resulting from cash flow hedges Gains (losses) recognised in equity 0 –1 Recognised in the consolidated income statement 0 0
Group statement of changes in equity for the 2018 financial year
Equity attributable to Munich Reinsurance Company Non-controlling Total equity holders interests equity Consolidated Issued capital Capital reserve Retained earnings Other reserves result Retained Remeasurement earnings before Unrealised Currency gains/losses deduction of Treasury gains and translation from cash flow €m own shares shares losses reserve hedges Balance at 31.12.2016 573 6,845 15,544 –654 4,441 2,195 –8 2,580 269 31,785
Total recognised income and expense 0 0 –76 0 370 –1,831 16 375 9 –1,138 Change in shareholdings in subsidiaries 0 0 –9 0 0 0 0 0 –87 –97
Purchase/sale of own shares –21 0 0 –993 0 0 0 0 0 –1,014
Net change in technical provisions 4,449 6,003 Change in deferred acquisition costs 118 107 Change in deposits retained and accounts receivable and payable –2,072 –1,580 Change in other receivables and liabilities –1,232 –1,544 Gains and losses on the disposal of investments and insurance-related investments –1,672 –2,134 Change in securities at fair value through profit or loss –534 300 Change in other balance sheet items –119 –286 Other non-cash income and expenses 1,785 575
II. Cash flows from investing activities –95 2,326 Inflows from increases in capital and from non-controlling interests 0 0 Outflows to ownership interests and non-controlling interests –1,015 –1,034 Dividend payments –1,287 –1,338 Change from other financing activities 963 –1,382
Effect of exchange-rate changes on cash and cash equivalents –40 –130 Cash at the beginning of the financial year 3,625 3,353 Cash at the end of the financial year 5,150 3,628
Additional information Income tax paid (net) – included in the cash inflows from operating activities –638 –225 Dividends received 700 638 Interest received 5,225 5,236 Interest paid –315 –362 1 Cash mainly comprises cash at banks. 2 For a definition of the disposal group, see Assets – J Assets held for sale.
Discretionary judgements and estimates are of significance for the following items in particular and are described in more detail in the respective explanatory Notes: − Consolidated group − Goodwill and other intangible assets − Fair values and impairments of financial instruments − Deferred acquisition costs − Technical provisions − Provisions for post-employment benefits − Deferred tax − Contingent liabilities
Our presentation currency is the euro (€). Amounts are rounded to million euros. Due to rounding, there may be minor deviations in summations and in the calculation of percentages, with figures in brackets referring to the previous year. Expenses, outflows and losses are shown using the minus sign unless it is clear from the context that these figures represent expenses, outflows and losses; income and inflows are shown without a plus or minus sign.
− IFRS 15 (5/2014), Revenue from Contracts with Customers − Clarification of IFRS 15 (4/2016), Revenue from Contracts with Customers − Amendments to IFRS 2 (rev. 6/2016), Classification and Measurement of Share-based Payment Transactions − Amendments to IFRS 4 (rev. 9/2016): Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts − Amendments to IAS 40 (rev. 12/2016), Transfers of Investment Property − Annual Improvements to IFRS Standards 2014–2016 Cycle (12/2016): Amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards, and IAS 28, Investments in Associates and Joint Ventures − IFRIC 22 (12/2016), Foreign Currency Transactions and Advance Consideration
In November 2018, the Board of Management and Supervisory Board of Munich Reinsurance Company published an updated Declaration of Conformity with the German Corporate Governance Code in accordance with Section 161 of the German Stock Corporation Act (AktG), and made this Declaration permanently available to shareholders on the internet at www.munichre.com/cg-en.
In addition, in March 2018 the IASB published a revised version of the Conceptual Framework for Financial Reporting (2018). This is not an IFRS, and is thus not subject to the European endorsement process. The Conceptual Framework includes general principles of financial reporting, and is to be applied whenever there is an area that is not covered by a standard. The Framework does not have a mandatory date for first-time application, and the IASB itself has taken it into account since publication.
The amendments will have little or no material effects on Munich Re, except for the Amendments to IFRS 4 described below.
Ratings for investments that meet the cash flow requirement €m 31.12.2018 AAA 64,792 AA 51,811 A 23,149 BBB 21,231 Lower 5,572 No rating 1,070 Total 167,625
Other securities available for sale Fixed-interest securities Government bonds Germany 6,513 6,826 –313 11 11 0
IFRS 16 (1/2016), Leases, mainly involves a revision of the accounting rules for lessees. IFRS 16 introduces universal accounting rules, according to which leases must be reported on the lessee’s balance sheet. Pursuant to the new standard, the lessee must recognise a right-of-use asset and a lease liability. Accounting rules for the lessor remain largely unchanged.
Munich Re will apply the standard from 1 January 2019, i.e. the date for mandatory first-time application. In future, assets and liabilities from operating leases will be recognised for property, office premises, and the vehicle fleet. Previous leasing expenditure will continue to be recognised by means of an amortisation expense for rights of use and interest expenses for the liabilities. Up to now, operating lease expenditures have been recognised on a straight-line basis over the term of the lease. As Munich Re will make use of the simplified rules for shortterm leases and leases for low-value assets, this leasing expenditure will continue to be recognised on a straightline basis in the income statement. The measurement of rights of use and lease liabilities relies on assumptions and estimates, especially when establishing the interest rate, determining the term of lease, and assessing termination and extension options.
We will use the modified retrospective approach on transitioning to IFRS 16, and will not retrospectively adjust comparative information for the year prior to first-time application. As at 1 January 2019, rights of use will be measured at the amount of the lease liability, adjusted for any prepaid or accrued lease payments. In addition, we will take advantage of the exception regarding maintenance of the definition of leasing.
We do not expect the new rules to have any material effects on the consolidated financial statements of Munich Re.
Due to the great importance of this standard for Munich Re, we established a Group-wide project shortly after the publication of IFRS 9 to analyse the provisions in detail, and we are currently driving forward the required implementation processes.
IFRS 17 is applicable to all primary insurance contracts, reinsurance contracts and investment contracts with a discretionary participation in surplus. The valuation rules are mainly based on a “building block approach”, which is made up of a fulfilment value (discounted expected future cash flows and an explicit risk margin) and a contractual service margin. Under certain conditions, a simplified measurement approach is permitted for short-term contracts. The general measurement model in adjusted form is to be applied to primary insurance contracts with a discretionary participation in surplus and to ceded reinsurance, in order to take account of the special features of this business.
Another new feature is the clearly stipulated differentiation in the income statement between the technical result – which is precisely defined in IFRS 17 and comprises insurance revenue and insurance service expenses – and insurance finance income or expenses. Insurance revenue is defined in order to allow for comparability with the revenues of other industries. In particular, savings premiums (“deposit components”) may no longer be recognised as result components. The new definition will thus require a fundamental rethink of the way we disclose revenue, which currently includes all premium components. IFRS 17 contains an option regarding the recognition of changes in value because of amendments to financial inputs. The option allows for recognition either in the income statement or directly in equity. It can be exercised at individual portfolio level.
The amendments will become mandatory in 2019 or 2020, but have little or no material effects on Munich Re.
Other assets 44 48 Technical provisions (net) 0 –1 Other liabilities –86 –375
Cash flows arising from losing control €m 2018 Prev. year Total consideration for losing control 149 9 Non-cash consideration for losing control 0 0 Cash consideration for losing control 149 9 Cash over which control was lost –77 0
We include a small number of entities in the consolidated group on the basis that contractual rights are taken into consideration that result in determination of control over the relevant business activities. In assessing the need to consolidate shares in investment funds, we take particular account of the degree of variability in the remuneration of the fund manager, of dismissal rights, and of the role of the investors in committees and bodies of the investment fund. As a result, an assessment that we do exercise control sometimes occurs even though the shareholding is below 50%.
On 30 August 2018, via its subsidiary MR RENTInvestment GmbH, Munich, Munich Re acquired 100% of the voting shares in the wind-park company Eolus Vindpark Sex AB, Hässleholm, Sweden, from Eolus Vindpark Fem AB, Hässleholm, Sweden. Upon conclusion of the transaction, Eolus Vindpark Sex AB was renamed Wind Farm Jenasen AB. The company operates a completed wind farm that is connected to the power grid and has an installed capacity of 79 megawatts. The purchase price of €106.3m for the wind-park company was settled in cash and cash equivalents. In the period between acquisition and 31 December 2018, Wind Farm Jenasen contributed revenue of €4.6m and a net profit of €1.3m to the consolidated result. Because the wind farm was only completed shortly before the business combination, no disclosure can be made about what revenues and profit contribution would have been achieved had the business combination taken place as at 1 January 2018. The acquisition is part of our infrastructure invest ment strategy.
relayr is an Internet of Things (IoT) company providing end-to-end enterprise IoT software, hardware and professional services solutions for commercial and industrial players across a wide range of sectors. The investment strengthens Munich Re’s IoT activities, which began in 2014 when the Group started building its own solutions, acquiring IoT technology providers, and establishing partnerships with leading IoT players. The fair value of Munich Re’s equity in relayr immediately prior to the acquisition was €46.8m. A profit of €25.9m from the remeasurement of this share was recognised as investment income. The transaction resulted in goodwill of €220.2m mainly attributable to the expertise of relayr employees and expected synergies with the Group’s other IoT products. As part of the acquisition, agreements concerning remuneration were made for future payments to existing shareholders who remain employed by relayr following the acquisition. Remuneration obligations will be recognised as other liabilities in the consolidated balance sheet. In the period between acquisition and 31 December 2018, relayr contributed revenue of €0.5m and a net loss of €4.0m to the consolidated result. Had the acquisition taken place at 1 January 2018, relayr would have contributed revenue of €2.2m and a negative result of €21.7m to the consolidated result.
be made about what revenues and contribution to the consolidated profit would have been achieved had the business combination taken place as at 1 January 2018. The total installed capacity of the completed solar park is estimated at 175 megawatts peak. This acquisition is part of our infrastructure investment strategy.
Fair values of the assets and liabilities at the acquisition date
FS FREE Wind Farm San FS MOUNTAIN €m relayr Jenasen Augustine Louisiana II SYSTEMS
Contingent liabilities recognised pursuant to IFRS 3.232 4 0 0 0 0
Munich Re also invests in the area of catastrophe risks. Munich Re invests in various securities whose repayment and interest is generally linked to the occurrence of natural catastrophes. The securities are issued by securitisation vehicles which as a matter of general policy are not set up by Munich Re.
Managed fund assets MEAG MUNICH ERGO Kapitalanlagegesellschaft mbH also manages investment funds for private clients and institutional investors, for which it receives a management fee. The management fees are recognised as an expense in the consolidated income statement.
The maximum exposure to loss relates to the loss of future management fees. Fund management activities generated income of €42m (41m) in the financial year. The value of fund assets under management provides information about the size of the unconsolidated structured entities. As at 31 December 2018, the managed fund assets amounted to €3,815m (4,239m), and Munich Re itself also holds a small interest in these funds.
Software assets are carried at cost and are amortised on a straight-line basis over a useful life of three to five years. The depreciations and amortisations are distributed in the consolidated income statement between investment expenses, expenses for claims and benefits, and operating expenses. If it is not possible to allocate impairments to the functional areas, they are shown under “other nonoperating result”. Impairments or impairment losses reversed are recognised if required.
Investments in affiliated companies, associates and joint ventures that are not material for assessing the Group’s financial position are generally accounted for at fair value. Changes in the fair value are recognised in “other reserves” under unrealised gains and losses. For the consolidated financial statements, investments in associates and joint ventures are measured using the equity method, i.e. with our share of their equity. Our share in the earnings is included in the investment result. As a rule, the equity and annual result from the most recent individual or consolidated financial statements of the associate or joint venture are used. In the case of financial statements of important associates or joint ventures, appropriate adjustments are made to ensure they conform with Munich Re’s accounting policies and exceptional transactions are recognised in the same reporting period.
Determining fair values IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. All investments and other assets and liabilities that are recognised at fair value, and such investments and other items for which a fair value is disclosed solely in the Notes, are allocated to one of the fair value hierarchy levels of IFRS 13, which provides for three levels.
The allocation reflects which of the fair values derive from transactions in the market and where valuation is based on models because market transactions are lacking. If market prices are available, these are an objective yardstick for recognition at fair value. If valuation is based on models, there is a certain amount of scope for applying such methods. The greater the number of inputs used that are not observable on the market but are based on internal estimates, the greater the amount of discretionary scope available to Munich Re.
Forestry investments fall into the category of biological assets and include standing wood. These investments are measured at fair value less costs of disposal, with impact on profit or loss.
IAS 39.59 contains a list providing evidence of impairment of financial assets. In addition, IAS 39.61 states that, for equity investments, a significant or prolonged decline in the fair value of the investment below its acquisition cost is objective evidence of impairment. These rules are given more concrete form by means of internal guidelines. For equities quoted on the stock exchange, we assume a significant decline in fair value if the market price at the review date is at least 20% below the average purchase price or has been lower than this amount for at least six months. In the case of fixed-interest securities and loans, the main basis for establishing impairment is an indication of substantial financial difficulty on the part of the issuer, the current market situation or media reports on the issuer.
Other insurance-related investments Other insurance-related investments are not utilised for asset-liability management. They include insurancelinked derivatives, derivatives to hedge variable annuities, weather and commodity derivatives, and physical gas. Insurance-linked derivatives include derivatives embedded in variable annuities, the derivative components of natural catastrophe bonds and from securitisations of mortality and morbidity risks, individually structured insurancelinked derivatives, and derivative components which are separated from their host insurance contract in accounting. Insurance-linked derivatives also include retrocessions in the form of derivatives to hedge insurance risks assumed. Insurance risks are defined as risks which – in a modified form – can also be covered by an insurance contract within the meaning of IFRS 4. Other insurance-related investments are accounted for at fair value, and we recognise changes in value in profit or loss. For physical gas, the fair value is reduced by estimated costs to sell.
For assets allocated to Level 3, we use valuation techniques that are also based on unobservable inputs. This is only permissible insofar as no observable market data is available. The inputs used reflect Munich Re’s assumptions regarding the factors which market players would consider in their pricing. We use the best available information for this, including internal company data. The financial instruments allocated to this level of the fair value hierarchy largely comprise land and buildings, real estate funds, funds that mainly invest in theoretically valued instruments, investments in infrastructure and private equity, certain credit structures, and investments in subsidiaries, associates and joint ventures measured at fair value. Insurance-linked derivatives are also allocated to Level 3.
In the case of loans, bank borrowing, liabilities from financial transactions, and bond and note liabilities not traded on an active market, we have decided on a case- by-case basis to which level of the fair value hierarchy to allocate the respective fair values.
Deferred acquisition costs comprise commissions and other variable costs directly connected with acquisition or renewal of insurance contracts. In accordance with IFRS 4, we do not use shadow accounting for deferred acquisition costs in life primary insurance. In life business and long-term health primary insurance, deferred acquisition costs are recognised and amortised over the duration of the contracts. In determining the amount of amortisation, we take into account an actuarial interest rate and changes resulting from the disposal or withdrawal of contracts from the portfolio. In property-casualty business, short-term health primary insurance and health reinsurance, the deferred acquisition costs are amortised on a straight-line basis over the average term of the policies, from one to five years.
Assets held for sale are assets that can be sold in their current condition and whose sale is highly probable. The item may comprise individual assets or groups of assets. We account for assets held for sale at fair value less sales cost, provided the fair value is lower than the carrying amount. They are no longer depreciated. Measurement of financial instruments remains unchanged; the only difference is how they are disclosed.
Technical provisions are shown as gross figures in the balance sheet, i.e. before deduction of the ceded share; see the explanatory remarks on Assets – D Ceded share of technical provisions. The ceded share is calculated and accounted for on the basis of the individual reinsurance agreements. Acquisition costs for insurance contracts are recognised and amortised over the terms of the contracts; see Assets – G Deferred acquisition costs. The measurement of technical provisions is based on US GAAP FAS 60 (life primary insurance without performancerelated participation in surplus, health primary insurance and the bulk of reinsurance treaties), FAS 97 (life primary insurance based on the universal life model, unit-linked life insurance and life reinsurance for assumed business based on FAS 97) and FAS 120 (life primary insurance with performance-related participation in surplus). Credit insurance contracts are accounted for in accordance with the rules of IFRS 4.
The line item issued capital and capital reserve contains the amounts that the equity holders of Munich Reinsurance Company have paid in on shares.
Own shares are deducted from equity. The purchase, sale or retirement of these shares are recognised in equity items, without impact on profit or loss.
Other reserves primarily contain unrealised gains and losses resulting from the recognition at fair value of other securities available for sale and from interests in unconsolidated affiliated companies, and in associates and joint ventures not accounted for using the equity method. These reserves also include unrealised gains and losses from the measurement of associates and joint ventures using the equity method, differences resulting from the currency translation of foreign subsidiaries’ figures, and remeasurement gains/losses from the hedging of cash flows.
Consolidated financial statements Notes actuarial projection methods. Where ranges have been calculated, a realistic estimated value for the ultimate loss is determined within these. In applying the statistical methods, we regard large exposures separately.
In primary insurance, measurement is generally carried out individually for each risk. In German life primary insurance, biometric actuarial assumptions are used. These are based on the tables of the German Association of Actuaries (Deutsche Aktuarvereinigung e. V.). We also largely use the tables of the national actuarial associations for the rest of primary insurance business. The actuarial interest rate employed for discounting in life primary insurance is limited by the respective maximum actuarial interest rate prescribed by the supervisory authorities. In health primary insurance, discount rates are chosen that reflect the best estimate of expected investment income, less a safety margin.
The provision for outstanding claims is for payment obligations arising from insurance contracts in primary insurance and reinsurance where the size of the claim or the timing of the payment is still uncertain. Part of the provision is for known claims for which individually calculated provisions are posted. Another part is for expenses for claims whose occurrence is not yet known. There are also provisions for claims that are known, but whose extent has turned out to be greater than originally foreseen. All these provisions include expenses for internal and external loss adjustments. The provision for outstanding claims is based on estimates: the actual payments may be higher or lower. The amounts posted are the realistically estimated future amounts to be paid; they are calculated on the basis of past experience and assumptions about future developments (e.g. social, economic or technological factors). Future payment obligations are generally not discounted; exceptions are some provisions for occupational disability pensions and annuities in workers’ compensation and other lines of property-casualty business. For determining the provision for outstanding claims, Munich Re uses a range of
Deferred tax liabilities must be recognised if asset items have to be valued higher, or liabilities items lower, in the consolidated balance sheet than in the tax accounts of the reporting company, and these differences will be eliminated at a later date with a corresponding impact on taxable income (temporary differences); see Assets – H Deferred tax assets.
Munich Re’s presentation currency is the euro (€). Our subsidiaries largely recognise differences resulting from the translation into their respective national currencies in profit or loss. These differences are shown under the “other non-operating result”. The thus converted net assets of foreign subsidiaries whose national currency is not the euro are then translated using the year-end exchange rates, and results using quarterly average exchange rates. Any exchange differences arising in the process are recognised in equity (reserve for currency translation adjustments).
In accordance with the management approach, the segmentation of our business operations is based on the way in which Munich Re is managed internally.
We have identified five segments to be reported: − Life and health reinsurance (global life and health reinsurance business) − Property-casualty reinsurance (global property-casualty reinsurance business) − ERGO Life and Health Germany (German life and health primary insurance business, German property-casualty direct insurance business, and global travel insurance business) − ERGO Property-casualty Germany (German propertycasualty insurance business, excluding direct business) − ERGO International (ERGO’s primary insurance business outside Germany)
Income and expenses from intra-Group loans are shown unconsolidated under “Other non-operating result, impairment losses on goodwill and net finance costs” for the segments concerned. These are otherwise shown after elimination of intra-Group transactions and shareholdings.
E. Liabilities related to assets held for sale 0 0 392 0 168 3 0 0 263 63 823 65
V. Deposits retained on assumed reinsurance 4,890 3,759 2,286 1,870 44 40 21 21 0 1 7,241 5,690
D. Ceded share of technical provisions 858 735 2,709 2,727 19 15 74 78 603 615 4,263 4,169 1 Previous year’s figures adjusted owing to IAS 8; see “Changes in accounting policies and other adjustments”.
Reinsurance ERGO Total Life and Health Property-casualty Life and health Property-casualty Germany Germany International €m 2018 Prev. year 2018 Prev. year 2018 Prev. year 2018 Prev. year 2018 Prev. year 2018 Prev. year
Reinsurance ERGO Property-casualty Property-casualty Germany International2 €m 2018 Prev. year 2018 Prev. year 2018 Prev. year
Investments in non-current assets per segment1 €m 2018 Prev. year Life and health reinsurance 190 51 Property-casualty reinsurance 1,043 150 ERGO Life and Health Germany 241 772 ERGO Property-casualty Germany 151 108 ERGO International 62 65
Key assumptions regarding the planning In the detailed planning phase (three years), For the detailed planning phase (three years), calculation (at the time of planning) we expected increasing premium income we expected a moderate rise in premium and a slight improvement in the combined income with an improved combined ratio. ratio if major losses remained stable.
Our general assumption was that there Our general assumption was that there would would be moderate upward movement on be moderate upward movement on the equity the equity markets and a stable interest-rate markets and a stable interest-rate level. level.
In the context of the reorganisation of the divisions, any goodwill allocated to reinsurance is now monitored uniformly at the level of the individual division. This had no impact on the result of the impairment testing of goodwill.
Acquired Acquired distribution Acquired licences/ brand names networks/client bases patents €m 2018 Prev. year 2018 Prev. year 2018 Prev. year Gross carrying amount at 31 Dec. previous year 222 235 679 733 295 298 Accumulated amortisation and impairment losses at 31 Dec. previous year –193 –199 –568 –576 –84 –76 Carrying amount at 31 Dec. previous year 29 36 111 158 211 222 Currency translation differences 1 –4 4 –15 0 –8 Additions
Miscellaneous Total €m 2018 Prev. year 2018 Prev. year Gross carrying amount at 31 Dec. previous year 85 85 4,243 4,277 Accumulated amortisation and impairment losses at 31 Dec. previous year –66 –64 –3,137 –2,974 Carrying amount at 31 Dec. previous year 18 21 1,105 1,303 Currency translation differences 0 0 0 –59 Additions
Amortisation –3 –3 –200 –231 Impairment losses 0 0 –1 –18
Consolidated financial statements Notes 3 Land and buildings, including buildings on third-party land
Development of investments in land and buildings, including buildings on third-party land €m 2018 Prev. year Gross carrying amount at 31 Dec. previous year 6,423 5,668 Accumulated amortisation and impairment losses at 31 Dec. previous year –1,302 –1,224 Carrying amount at 31 Dec. previous year 5,121 4,444 Currency translation differences 15 –67 Additions
Under reclassifications, we mainly recognise the land and buildings that are classified as held for sale, as well as owner-occupied property reclassified as investment property.
Bonds Pricing method Parameters Pricing model Interest-rate risks Loans against borrower’s note/ Theoretical price Sector-, rating- or Present-value method registered bonds issuer-specific yield curve Cat bond (host) Theoretical price Interest-rate curve Present-value method Mortgage loans Theoretical price Sector-specific yield curve Present-value method
Bonds with embedded Pricing method Parameters Pricing model derivatives 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 CMS floaters with variable cap Theoretical price OIS/swap interest-rate curve Replication model (Hagan) Issuer-specific spreads Volatility skew Inverse CMS floaters Theoretical price OIS/swap interest-rate curve Replication model (Hagan) Issuer-specific spreads Volatility skew CMS steepeners Theoretical price OIS/swap interest-rate curve Replication model (Hagan) Issuer-specific spreads Stochastic volatility model Volatility skew Correlation matrix Convergence bonds Theoretical price Money-market/swap interest-rate curves Replication model (Hagan) Issuer-specific spreads Stochastic volatility model Volatility matrix Correlation matrix Multi-tranches Theoretical price At-the-money volatility matrix and Bachelier/ skew Normal Black, Swap curve Present-value method Money-market interest-rate curve Sector-, rating- or issuer-specific yield curve FIS loans against borrower’s note Theoretical price At-the-money volatility matrix and Bachelier/ skew Normal Black, Swap curve Present-value method Money-market interest-rate curve Sector-, rating- or issuer-specific yield curve Swaption notes Theoretical price At-the-money volatility matrix and Bachelier/ skew Normal Black, Swap curve Present-value method Money-market interest-rate curve Sector-, rating- or issuer-specific yield rate curve
Among the associates and joint ventures accounted for using the equity method, there is only one company for which a quoted market price is available. This price amounts to €96m (104m) and is allocated to Level 1 of the fair value hierarchy.
Gains (losses) recognised in the consolidated income statement are shown in the investment result or insurancerelated investment result, while gains (losses) recognised in equity are shown in the statement of recognised income and expense for the 2018 financial year under “Unrealised gains and losses on investments, Gains (losses) recognised in equity”. Gains (losses) recognised in the consolidated income statement that are attributable to investments recognised at the end of the financial year are shown in the statement of recognised income and expense for the 2018 financial year under “Unrealised gains and losses on investments, Recognised in the consolidated income statement”.
Insurance-linked derivatives (excluding variable annuities) are allocated to Level 3 of the fair value hierarchy. The derivative components of catastrophe bonds are measured based on the values supplied by brokers for the underlying bonds, which is why it is not possible to quantify the inputs used that were not based on observable market data. If no observable inputs are available for customised insurancelinked derivatives, the present-value method on the basis of current interest-rate curves and historical event data is used. Due to the low volume involved, the effects of alternative inputs and assumptions are immaterial.
The inputs requiring consideration in measuring variable annuities are derived either directly from market data (in particular volatilities, interest-rate curves and currency spot rates) or from actuarial data (especially biometric and lapse rates). The lapse rates used are modelled dynamically and range between 0.5% and 50%, depending on the specific insurance product and current situation of the capital markets. Compared with the relevant market risk inputs for the determination of fair values, the impact on the fair value of an increase or decrease in lapse rates would be immaterial. The assumptions with regard to mortality are based on published mortality tables, which are adjusted with a view to the target markets and the actuaries’ expectations. The impact of these and other nonobservable assumptions is not material. The dependency between different capital market inputs is modelled by correlation matrices. We allocate these products to Level 3 of the fair value hierarchy.
The other investments allocated to Level 3 are mainly external fund units (in particular, private equity, real estate and funds that invest in a variety of assets that are subject to theoretical valuation) as well as relatively illiquid credit structures (especially commercial mortgage-backed securities and collateralised loan obligations). In the case of external fund units, market quotes are not available on a regular basis; rather, net asset values (NAVs) are provided by the asset managers. With regard to the NAVs, the quality
Investments not measured at fair value Loans 0 62,632 1,663 64,295 1 Including hedging derivatives of €20m (27m) accounted for under “Other assets”.
Prev. year €m Level 1 Level 2 Level 3 Total Investments measured at fair value Investments in affiliated companies measured at fair value 0 0 171 171 Investments in associates and joint ventures measured at fair value 0 0 34 34 Other securities available for sale
Gains (losses) recognised in the income statement 33 128 7 192 Gains (losses) recognised in equity 10 –22 74 –95
Transfer out of Level 3 0 0 –2 –30 Changes in the fair value of derivatives –1 3 –1 3 Carrying amount at 31 Dec. financial year 233 304 7,249 6,082 Gains (losses) recognised in the income statement that are attributable to investments shown at the end of the financial year –50 45 –118 70
Gains (losses) recognised in the income statement –15 74 24 1 Gains (losses) recognised in equity –35 –89 93 3
Designated as at fair value Held for trading, Other through profit or loss and hedging derivatives investments €m 2018 Prev. year 2018 Prev. year 2018 Prev. year Carrying amount at 31 Dec. previous year 0 2 2 0 36 37
Changes in the fair value of derivatives 0 0 0 0 0 0 Carrying amount at 31 Dec. financial year 0 0 1 2 255 36 Gains (losses) recognised in the income statement that are attributable to investments shown at the end of the financial year 0 0 0 0 –15 –1
Rating of “other loans” on the basis of amortised cost €m 31.12.2018 Prev. year
Reversed impairment losses with respect to associates and joint ventures amounted to €36m (15m). They are distributed between the following segments: €35m (14m) is apportionable to property-casualty reinsurance, €0m (1m) to ERGO Life and Health Germany, and €1m (0m) to ERGO International.
Impairment losses with respect to these companies amounted to €62m (11m). They are distributed between the following segments: €62m (0m) is apportionable to property-casualty reinsurance, and €0m (11m) to ERGO International.
Realised gains and losses €m 2018 Prev. year Gains on disposal 2,027 2,067
Losses on disposal –768 –481 Fixed-interest securities –533 –334 Non-fixed-interest securities –234 –148
Carrying amounts Unrealised gains/losses Amortised cost €m 31.12.2018 Prev. year 31.12.2018 Prev. year 31.12.2018 Prev. year Fixed-interest securities Government bonds
Derivative financial instruments are used by Munich Re to manage and hedge against interest-rate, currency, and other market risks. This is done at the Group companies within the framework of individual supervisory regulations and additional internal company guidelines. Given the daily margining process, the risk of default is practically non-existent in the case of products traded on the stock exchange. Over-the-counter products, on the other hand, harbour a theoretical risk in the amount of the replacement costs. Therefore, Munich Re selects only top-quality counterparties for such transactions, and exchanges collateral daily on the basis of current fair values.
8 Other securities at fair value through profit or loss and insurance-related investments
Securities at fair value through profit or loss comprise securities of €2,206m (1,623m) held for trading as well as securities and loans of €410m (357m) designated as at fair value through profit or loss.
The securities held for trading are made up of fixedinterest securities totalling €15m (18m), non-fixed-interest securities totalling €113m (67m) and derivatives held for trading amounting to €2,078m (1,538m). The securities designated as at fair value through profit or loss comprise €217m (146m) assignable to fixed-interest securities and loans and €193m (211m) to non-fixed interest securities. Some €2m (15m) of the instruments at fair value through profit or loss is due within one year.
For securities designated as at fair value through profit or loss, items pledged as security and other restrictions on title amount to €30m (36m).
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 item “investment result”. 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. No fair value hedges existed at year-end.
Assets pledged as security and other restrictions on title amount to €73m (62m).
Breakdown of other receivables €m 31.12.2018 Prev. year Amounts receivable on primary insurance business 2,586 2,615 Accounts receivable on reinsurance business 6,808 6,202 Miscellaneous receivables 7,845 4,568
Development of investments in renewable energies €m 2018 Prev. year Gross carrying amount at 31 Dec. previous year 699 676 Accumulated amortisation and impairment losses at 31 Dec. previous year –231 –195 Carrying amount at 31 Dec. previous year 468 482 Currency translation differences –4 –6 Additions
The investments in renewable energies include items pledged as security and other restrictions on title amounting to €173m (182m).
In the ERGO Life and Health Germany segment, there was an adjustment in 2018 to the assumptions regarding future lapses, expenses and long-term interest-rate levels that are geared to the long-term regular return on investments. Overall, these adjustments led to impairment losses on deferred acquisition costs.
Development of gross deferred acquisition costs €m 31.12.2018 Prev. year Status at 31 Dec. previous year 9,563 9,634 Currency translation differences –38 –257 Change in consolidated group/Other –133 –4 New deferred acquisition costs 3,147 2,533 Changes
Equity and liabilities C. Net technical provisions 3,045 4,625 2,910 4,374
Tax loss carry-forwards and tax credits 31.12.2018 Prev. year For which For which For which For which deferred deferred deferred deferred tax assets tax assets tax assets tax assets are are not are are not €m recognised recognised Total recognised recognised Total Corporation tax loss carry-forwards
These mainly comprise property, plant and equipment, with owner-occupied property totalling €2,178m (2,280m), and operating and office equipment amounting to €219m (241m). Advance payments on insurance amounted to €303m (333m), derivatives totalled €20m (27m), and miscellaneous deferred items came to €177m (170m).
Disposals Loss of control 0 –2 0 –2 Other –2 –5 –1 –8
Disposals Loss of control 0 –1 0 –1 Other –9 –19 –1 –29
In the segment reporting, we disclose how the noncurrent assets held for sale are allocated between the segments. Transactions between the disposal group and the Group’s continuing operations continued to be fully eliminated. The assets and liabilities of the disposal group and assets held for sale are shown in the following table: Of the “other securities available for sale” shown in the table, €70m (52m) is allocated to Level 1, €129m (23m) to Level 2 and €89m (0m) to Level 3 of the fair value hierarchy.
The fair value of the land and buildings amounts to €3,222m (2,936m). This is allocated to Level 3 of the fair value hierarchy; see Assets – B Investments – Determining fair values. The methodology for determining the fair values is described in the Notes to the consolidated balance sheet – Assets (3) Land and buildings, including buildings on thirdparty land.
As at the balance sheet date, nine ERGO insurance companies and/or branches primarily operating in eastern Europe were classified as held for sale. No value adjustments were required in the process. The sales are expected to take place in 2019 and support our strategic alignment.
Furthermore, as at 31 December 2018, we recognised MSP Underwriting Ltd., London, including its Beaufort subsidiaries as a disposal group. It was classified as such in the third quarter of 2018. The sale was completed at the end of February 2019.
Number of shares 2018 Prev. year Status at 31 Dec. previous year 151,259,431 156,902,293 Additions
On 31 December 2018, a total of 3,741,099 Munich Reinsurance Company shares with a calculated nominal value of around €14.7m were held by Group companies. This represents around 2.5% of the share capital.
The taxes of €405m (121m) recognised directly in equity comprise an amount of €368m (120m) for deferred tax assets, and current taxes on unrealised gains and losses of €37m (1m) on investments.
At each reporting date, we assess whether the allocation of these liabilities to the levels of the fair value hierarchy is still appropriate. If changes in the basis of valuation have occurred – for instance, if a market is no longer active or the valuation was performed using inputs requiring another allocation – we make the necessary adjustments.
For information on the valuation models used for measuring derivatives, please see the table and explanations in the Notes to the consolidated balance sheet – Assets (4) Hierarchy for the fair value measurement of assets. The measurement of subordinated bonds for which no market prices are available is conducted using the present-value method and taking observable market inputs into account. For the bonds we have issued, we use the market prices provided by price quoters for the corresponding assets. The fair values of our amounts due to banks are determined using the present-value method, in part exclusively using observable market inputs, and partly also taking into account non-observable inputs.
Income and expenses recognised directly in equity –2,064 405 –1,659 –1,651 121 –1,530
Gains (losses) recognised in the consolidated income statement are shown in the insurance-related investment result, while gains (losses) recognised in equity are shown in the statement of recognised income and expense for the 2018 financial year in the item Unrealised gains and losses on investments, Gains (losses) recognised in equity. Gains (losses) recognised in the consolidated income statement that are attributable to liabilities shown at the end of the financial year are shown in the statement of recognised income and expense for the 2018 financial year under “Unrealised gains and losses on investments, Recognised in the consolidated income statement”.
Other liabilities at fair value through profit or loss €m 31.12.2018 Prev. year Carrying amount at 31 Dec. previous year 471 545 Gains and losses –59 51
Disposals –116 –211 Transfer to Level 3 0 0 Transfer out of Level 3 0 0 Change in the fair value of derivatives –1 3 Carrying amount at 31 Dec. financial year 652 471 Gains (losses) recognised in the income statement that are attributable to liabilities shown at the end of the financial year –23 143
Liabilities not measured at fair value Subordinated liabilities 4,002 55 2 4,059 Bonds and notes issued 354 0 0 354 Amounts due to banks 0 101 463 564 Other liabilities from financial transactions 0 388 32 419
The fair value of the subordinated liabilities at the balance sheet date amounted to €4,059m (3,309m). 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 presentvalue methods with observable market inputs.
The item Changes in consolidated group/Other includes unearned premiums of the disposal group totalling –€124m (–16m).
Munich Re Group Annual Report 2018 21 Provision for future policy benefits
Gross provision for future policy benefits according to type of insurance cover €m 31.12.2018 Prev. year Life and health 110,469 108,287
Term life insurance 3,000 3,317 Other life insurance 24,403 25,490 Annuity insurance 34,082 33,210 Disability insurance 1,417 1,337 Contracts with combination of more than one risk 0 47
The change shown under “Changes in consolidated group/other” contains €360m (321m) in savings premiums for capitalisation products and €548m (707m) for reclassifications from the provision for premium refunds. This still includes the provision for outstanding claims of the disposal group amounting to €130m (8m).
Development of the claims reserve in the property-casualty segment1 2018 Prev. year Ceded Ceded €m Gross share Net Gross share Net Balance at 31 Dec. previous year 51,831 –2,757 49,074 48,877 –2,235 46,643 Currency translation differences 1,024 –81 943 –3,266 164 –3,102 Changes in consolidated group/Other –545 74 –471 –30 0 –30 Claims expenses
€m Accident year Calendar year ≤ 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total
Breakdown of other technical provisions €m 31.12.2018 Prev. year Provision for premium refunds based on national regulations 8,549 8,642 Provision for deferred premium refunds 8,041 9,709
Thereof resulting from unrealised gains and losses on investments (recognised directly in equity) 3,254 4,820 Thereof resulting from other remeasurements (recognised in profit or loss) 4,788 4,889
The ceded share of “Other technical provisions” amounts to €46m (125m), of which €3m (0m) is apportionable to the ceded share of the provision for premium refunds based on national regulations.
Development of provision for deferred premium refunds €m 2018 Prev. year Status at 31 Dec. previous year 9,709 10,155 Changes in consolidated group 0 0 Change resulting from unrealised gains and losses on investments (recognised directly in equity) –1,566 –769 Change resulting from other remeasurements (recognised in profit or loss) –101 323 Status at 31 Dec. financial year 8,041 9,709
Development of gross provisions €m 2018 Prev. year Balance at 31 Dec. previous year 8,971 8,429 Changes in consolidated group/Other –178 43 Savings premiums 465 755 Unrealised gains/losses on fund assets –733 414 Withdrawal for expenses and risk –33 –63 Withdrawal for benefits –567 –606 Balance at 31 Dec. financial year 7,925 8,971
Provisions for post-employment benefits and similar obligations Munich Re companies generally give pension commitments to their employees in the form of defined contribution plans or defined benefit plans. Special regional economic, legal and tax features are taken into account. The type and amount of the pension obligations are determined by the conditions of the respective pension plan. The pension commitments comprise obligations towards active members or retired members with vested benefits, and current pension payments. Defined benefit plans are funded internally through provisions for post-employment benefits, and externally through funds and insurance contracts concluded to cover the benefit obligations.
The present value of obligations under defined pension plans is €5,921m (5,924m), and the plan assets to be offset amount to €3,301m (3,253m). Defined benefit plans comprise the following main plans: Munich Reinsurance Company‘s pension obligations account for €1,521m (1,490m) of the present value of obligations under defined pension plans and €1,710m (1,619m) 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 Munich Reinsurance America, Inc. account for €661m (694m) of the present value of obligations under defined benefit plans, and €484m (501m) 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 medical-care benefit obligations.
Development of the present value of the defined benefit obligations €m 2018 Prev. year Status at 31 Dec. previous year 5,924 6,095 Currency translation differences 35 –150 Changes in consolidated group –1 1 Current service cost 145 163 Past service cost 9 –41 Gains and losses from plan settlements 0 0 Contributions by plan participants 3 7 Interest expense 121 120 Payments –145 –145 Payments from plan settlements –4 –3 Transfer of obligations 0 4 Actuarial gains/losses: Change in demographic assumptions –9 –9 Actuarial gains/losses: Change in financial assumptions –148 –58 Actuarial gains/losses: Experience adjustments –6 –30 Other –2 –29 Status at 31 Dec. financial year 5,921 5,924
The present value of medical-care benefit obligations amounted to €274m (281m) at the balance sheet date.
Development of the reimbursement rights for defined benefit plans €m 2018 Prev. year Balance at 31 Dec. previous year 280 276 Changes in consolidated group –1 1 Interest income 5 5 Return excluding interest income –4 –4 Contributions by the employer 21 20 Contributions by plan participants 0 0 Payments –8 –7 Transfer of assets 0 –10 Other –1 –1 Balance at 31 Dec. financial year 292 280
% 31.12.2018 Prev. year Active members 48 50 Deferred members 16 15
Development of the fair value of plan assets for defined benefit plans €m 2018 Prev. year Balance at 31 Dec. previous year 3,253 3,388 Currency translation differences 20 –109 Changes in consolidated group 0 0 Interest income 72 74 Return excluding interest income –45 –75 Contributions by the employer 70 84 Contributions by plan participants 1 6 Payments –68 –78 Payments from plan settlements –1 –5 Transfer of assets 0 –1 Other –1 –30 Balance at 31 Dec. financial year 3,301 3,253
Funded status of defined benefit plans €m 31.12.2018 Prev. year Obligations funded through provisions
Present value of defined benefit obligations 3,140 3,181 Plan assets –3,301 –3,253 Assets from the defined benefit plan 365 303 Effect of asset ceiling 12 13 Other –6 –4 Net balance sheet liability 212 241
Market fluctuations may give rise to changes in the fair value of the plan assets over 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).
Breakdown of expenses booked in the financial year €m 2018 Prev. year Net interest cost 44 42 Service cost 156 129
The actual losses on plan assets amount to €27m (actual losses of €1m), and the actual gains on reimbursements to €0m (€1m).
% 2018 Prev. year Discount rate 2.2 2.1 Future increases in entitlement/salary 1.8 2.0 Future pension increases 1.5 1.4 Medical cost trend rate 3.6 3.7
Salary obligations and other remuneration for desk and field staff 100 2 –10 0 0 92
Munich Re Group Annual Report 2018 with a negative fair value of €631m (665m), and negative fair values totalling €948m (719m) for insurance-linked derivatives and hedging derivatives of variable annuities. The miscellaneous liabilities also include €21m (25m) for social security and €148m (131m) for interest and rent.
Outflows of liquidity occur annually in the amount of the interest payments until the notes mature. These totalled US$ 25m (25m) in the financial year. The fair value at the reporting date amounts to €354m (354m).
The miscellaneous liabilities contain liabilities of €3,989m (1,622m) resulting from reinsurance contracts with nonsignificant risk transfer, derivative financial instruments
A.M. €m Best Fitch Moody’s S&P 31.12.2018 Prev. year Munich Re America Corporation, Wilmington, 7.45%, US$ 334m, Senior Notes 1996/2026 a A+ A2 A– 292 277
Assets held Short-term Long-term to hedge long-term Liabilities from borrowings borrowings borrowings from financing activities €m 2018 Prev. year 2018 Prev. year 2018 Prev. year 2018 Prev. year Balance at 31 Dec. prev. year 602 396 3,068 4,542 0 –31 3,670 4,907
Changes in the fair value 0 0 0 –31 0 31 0 –1 Changes in consolidated group/ other 0 220 4 5 0 0 5 224
Balance at 31 Dec. financial year 674 602 3,980 3,068 0 0 4,654 3,670
Quantitative information on technical interest can be found in the segment income statement.
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. Short-term interest rates are applied to the difference between the discounted provisions and balance sheet provisions.
The income from technical interest for health primary insurance business is based on the interest on other technical provisions at the relevant national risk-free interest rate and, where applicable, on the interest allocated to the provision for future policy benefits.
Operating expenses €m 2018 Prev. year Gross Acquisition costs, profit commission and reinsurance commission paid –10,098 –9,615 Administrative expenses –3,027 –2,962 Change in deferred acquisition costs and contingent commissions, amortisation and impairment losses on acquired insurance portfolios 20 78 Gross operating expenses –13,105 –12,498
Ceded share Acquisition costs, profit commission and reinsurance commission paid 635 355 Change in deferred acquisition costs and contingent commissions –116 –42 Operating expenses – Ceded share 518 313
Net operating expenses –12,587 –12,186 32 Expenses for claims and benefits
Provision for future policy benefits 211 –914 Provision for outstanding claims –1,933 –6,577 Provision for premium refunds –839 –1,968
Ceded share Claims and benefits paid 851 934 Change in technical provisions
Provision for future policy benefits 346 –12 Provision for outstanding claims 45 646 Provision for premium refunds 3 –1
Other technical result 6 –17 Expenses for claims and benefits – Ceded share 1,250 1,549
Net Claims and benefits paid –32,829 –32,547 Change in technical provisions
Provision for future policy benefits 556 –926 Provision for outstanding claims –1,888 –5,931 Provision for premium refunds –836 –1,969
Result from insurance-related investments €m 2018 Prev. year Result from investments for unit-linked life insurance contracts –696 479 Result from other insurance-related investments 12 –36 Total –685 443 36 Other operating result
Other operating result €m 2018 Prev. year Other operating income 827 778
Thereof: Interest and similar income 135 111 Write-ups of other operating assets 83 21
Investment result by type of investment (before deduction of income from technical interest)
€m 2018 Prev. year Land and buildings, including buildings on third-party land 563 324 Investments in affiliated companies –3 –40 Investments in associates and joint ventures 186 146
Other securities available for sale Fixed-interest 3,408 3,637 Non-fixed-interest 389 1,359 Other securities at fair value through profit or loss Held for trading
Deposits retained on assumed reinsurance, and other investments 280 247 Expenses for the management of investments, other expenses –610 –554
Consolidated financial statements Notes 37 Other non-operating result, impairment losses on goodwill and net finance costs
Other non-operating result, impairment losses on goodwill and net finance costs €m 2018 Prev. year Other non-operating result –672 –926 Impairment losses on goodwill –6 –9 Net finance costs –196 –211
Net finance costs by financing instrument €m 2018 Prev. year Subordinated bonds of Munich Reinsurance Company, Munich –170 –181 Senior notes of Munich Re America Corporation, Wilmington –21 –25 Subordinated bonds of HSB Group Inc., Delaware –3 –3 Other –1 –2 Total –196 –211 38 Taxes on income
8335 Main components of tax expenses/income €m 2018 Prev. year Current tax for financial year –893 –787 Current tax for other periods 550 193 Deferred tax resulting from the occurrence or reversal of temporary differences –182 1,038 Deferred tax resulting from the occurrence or utilisation of loss carry-forwards 41 –224 Valuation allowances for deferred taxes/loss carry-forwards –93 –38 Effects of changes in tax rates on deferred tax 1 116 Taxes on income –576 298
Underwriting risk Of importance for the underwriting risks are biometric risks and lapse risks. Biometric risks mainly relate to mortality, disability, morbidity and longevity. The biometric assumptions we use for measuring insurance contracts in our portfolios are regularly reviewed on the basis of updated portfolio information. Especially in primary insurance, this includes considering country-specific reviews by supervisory authorities. We also take account of market standards when checking the adequacy of biometric actuarial assumptions and the trend assumptions included in them. In reinsurance, a lapse risk also derives from the indirect transfer of lapse risks from cedants. As a rule, both this risk and the financial risk from extraordinary termination of reinsurance contracts are largely ruled out through appropriate contract design. The lapse risk in primary insurance is allowed for by means of appropriate liquidity planning and adequate calculation of the surrender value.
If provisions are covered by deposits retained on assumed reinsurance, the interest is directly secured by an inflow of investment income generally guaranteed by the cedants. Consequently, for provisions for which at least the discount rate is guaranteed by the cedants, there is no interest-rate risk.
Some primary insurance and reinsurance contracts contain derivative components of variable annuities. These are measured separately from the underlying contract and their changes in value are recognised in the insurance-related investment result. The valuation of these embedded derivatives is sensitive to share prices, exchange rates, commodity prices and interest rates, but these sensitivities are nearly fully compensated for by the fact that such derivatives are for the most part directly matched by financial derivatives for hedging purposes.
Life Health Total €m 31.12.2018 Prev. year 31.12.2018 Prev. year 31.12.2018 Prev. year
Thereof losses from natural catastrophes –1,256 –3,678 –929 –149 –537 Thereof other accumulation losses –896 –636 –613 –897 –625
Claims payments for financial year –5,901 –5,360 –5,882 –5,659 –5,495 Claims payments for previous years –8,873 –6,675 –8,545 –7,619 –8,193 Costs –9,234 –8,093 –7,719 –7,501 –7,298
The value-based performance targets are set in the form of an average target to be achieved over the following three years of the plan and are allocated according to responsibilities.
All other disclosures on the remuneration and structure of the remuneration system for the Board of Management can be found in the management report under the remuneration report. Information on share trading and shares held by Board members is provided in the corporate governance report.
The number of staff employed by the Group at year-end totalled 19,191 (19,960) in Germany and 22,219 (22,450) in other countries.
The members of Munich Reinsurance Company’s Board of Management received remuneration totalling €20.5m (19.8m). The total remuneration of Munich Reinsurance Company’s Supervisory Board amounted to a total of €2.8m (2.8m); this figure includes €0.2m (0.2m) for reported remuneration for membership of supervisory boards at other Group companies.
Payments to retired members of the Board of Management or their surviving dependants totalled €10.9m (8.6m). Included in this amount is compensation in the amount of €2.3m paid to a former member of the Board of Management for a post-contractual non-competition agreement.
The Board members did not receive any cash advances or loans in the 2017 financial year. For their service as employees of the Group, Supervisory Board members received remuneration in the amount of €1.3m (1.3m). The Board members hold insurance policies with companies belonging to Munich Re, and have small MEAG fund holdings. There were no significant notifiable transactions between Board members and Munich Re.
Number of rights (for 100% achievement of objectives) on 31 December 2016 38,004 32,525 0 0 Number of rights (for 100% achievement of objectives) on 1 January 2017 38,004 32,525 0 0
Number of rights (for 100% achievement of objectives) on 31 December 2018 0 31,509 30,814 27,390
The application of fiscal regulations may yet be unresolved at the time of calculation of tax refund claims and tax liabilities. The calculation of tax items is based on the regulations most likely to be applied in each case. Regardless of this, the tax authorities may take a different view, which may give rise to additional tax liabilities.
Other assurance and appraisal services concern statutory or contractual audit services, voluntary audit services, and mandatory assurance and appraisal services for submission to the competent authorities.
Other services essentially relate to quality assurance support and consulting services in connection with accounting issues, the introduction of regulatory requirements or of new accounting standards, each based on solutions and concepts produced by us. In addition, the auditor provided administrative support.
Munich Re enters into contingent liabilities in connection with its normal business operations. At the reporting date, the obligations from guarantees are insignificant. The obligations from legal disputes total €31m (31m). Moreover, there is a letter of support in the amount of €3m (0m) issued to a non-consolidated subsidiary. There are other contingent liabilities amounting to €28m (8m). Furthermore, there is a contingent liability of £26m (20m) from our investments in associates and joint ventures. These concerned a payment obligation in the event of an associate’s over-indebtedness.
Our subsidiary Munich American Reassurance Company reported a negative earned surplus in its local financial statements as at 31 December 2018 (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.
There were several finance leases for property at the balance sheet date, which are listed in the following table: Future minimum lease payments under operating leases €m 31.12.2018 Prev. year Up to one year 95 92 Over one year and up to five years 181 184 Over five years 161 133
Under the share buy-back programme decided on by Munich Reinsurance Company’s Board of Management in March 2018, we repurchased a further 0.7 million Munich Re shares with a volume of €138m from the balance sheet date to the end of February 2019.
Earnings per share 2018 Prev. year Consolidated result attributable to Munich Reinsurance Company equity holders €m 2,310 375 Weighted average number of outstanding shares 148,703.565 154,060.991 Earnings per share € 15.53 2.44
Munich Reinsurance Company’s net retained profits for 2018 according to its financial statements prepared on the basis of German GAAP accounting amount to €1,383,230,912.25. 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 €9.25 per dividend-bearing share, with the remaining amount being carried forward to new account.
ERGO Neunte Beteiligungsgesellschaft mbH, Düsseldorf 100.0000 ERGO osiguranje d.d., Zagreb 100.0000 ERGO Partners N.V., Brussels 100.0000 ERGO Pensionsfonds Aktiengesellschaft, Düsseldorf 100.0000 ERGO Pensionskasse AG, Düsseldorf 100.0000 ERGO Poist’ovna a.s., Bratislava 100.0000 ERGO pojišt’ovna, a.s., Prague 100.0000 ERGO Private Capital Dritte GmbH & Co. KG, Düsseldorf 100.0000 ERGO Private Capital Gesundheit GmbH & Co. KG, Düsseldorf 100.0000 ERGO Private Capital Komposit GmbH & Co. KG, Düsseldorf 100.0000 ERGO Private Capital Leben GmbH & Co. KG, Düsseldorf 100.0000 ERGO Private Capital Vierte GmbH & Co. KG, Düsseldorf 100.0000 ERGO Private Capital Zweite GmbH & Co. KG, Düsseldorf 100.0000 ERGO Sigorta A.Ş., Istanbul 100.0000 ERGO Versicherung Aktiengesellschaft, Düsseldorf 100.0000 ERGO Versicherung Aktiengesellschaft, Vienna 100.0000 ERGO Vida Seguros y Reaseguros S.A., Zaragoza 100.0000 ERGO Vorsorge Lebensversicherung AG, Düsseldorf 100.0000 ERGO Zivotno osiguranje d.d., Zagreb 100.0000 ERV Evropská pojišt’ovna, a.s., Prague 90.0000 Euro-Center Holding SE, Prague 83.3332 Europaeiske Rejseforsikring A/S, Copenhagen 100.0000 EUROPÄISCHE Reiseversicherung Aktiengesellschaft, Munich 100.0000 Everything Legal Ltd., Bristol 100.0000 FAIRANCE GmbH, Düsseldorf 100.0000 Faunus Silva LLC, Wilmington, Delaware 100.0000 Flexitel Telefonservice GmbH, Berlin 100.0000 Forst Ebnath AG, Ebnath 100.0000 FOTOUNO S.r.l., Brixen 100.0000 FOTOWATIO ITALIA GALATINA S.r.l., Brixen 100.0000 FREE MOUNTAIN SYSTEMS S.L., Barcelona 100.0000 FS Louisiana I LLC, Wilmington, Delaware 100.0000 FS Louisiana II LLC, Wilmington, Delaware 100.0000 FS San Augustine LLC, Wilmington, Delaware 100.0000 Fundo Invest Exclusivo referenciado di Munich Re Brasil, São Paulo4 98.2000 Gaucheret S.A., Brussels 100.0000 GF 65, Vienna4 100.0000 Global Standards LLC, Dover, Delaware 100.0000 Globality S.A., Munsbach 100.0000 Great Lakes Insurance SE, Munich 100.0000 Groves, John & Westrup Limited, Liverpool 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
MEAG Euro 1, Munich4 100.0000 MEAG Euro 2, Munich4 100.0000 MEAG EURO-FONDS, Munich4 100.0000 MEAG European Prime Opportunities, Munich4 56.5871 MEAG Eurostar, Munich4 100.0000 MEAG EURO-Yield, Munich4 100.0000 MEAG FlexConcept – Basis, Luxembourg4 100.0000 MEAG FlexConcept – Eurobond, Luxembourg4 100.0000 MEAG FlexConcept – Wachstum, Luxembourg4 100.0000 MEAG GBP Global-STAR, Munich4 100.0000 MEAG German Prime Opportunities (GPO), Munich4 100.0000 MEAG HBG 1, Munich4 100.0000 MEAG HM Sach Rent 1, Munich4 100.0000 MEAG HMR 1, Munich4 100.0000 MEAG HMR 2, Munich4 100.0000 MEAG Hyperion Fund, Munich4 100.0000 MEAG IREN, Munich4 100.0000 MEAG Janus, Munich4 100.0000 MEAG Kapital 2, Munich4 100.0000 MEAG Kapital 5, Munich4 100.0000 MEAG Kubus 1, Munich4 100.0000 MEAG Lambda EUR EM Local, Grünwald4 100.0000 MEAG Lambda EUR, Grünwald4 100.0000 MEAG Lambda GBP Grünwald4 100.0000 MEAG Lambda USD Grünwald4 100.0000 MEAG Multi Life, Munich4 100.0000 MEAG Multi Sach 1, Munich4 100.0000 MEAG MUNICH ERGO AssetManagement GmbH, Munich 100.0000 MEAG MUNICH ERGO Kapitalanlagegesellschaft mbH, Munich 100.0000 MEAG Munich Re Placement, Grünwald4 100.0000 MEAG New York Corporation, Wilmington, Delaware 100.0000 MEAG PEGASUS, Munich4 100.0000 MEAG Pension Invest, Munich4 100.0000 MEAG Pensionskasse Nord, Munich4 100.0000 MEAG Pensionskasse West, Munich4 100.0000 MEAG PREMIUM, Munich4 100.0000 MEAG PROF III Beteiligungsgesellschaft mbH, Düsseldorf 100.0000 MEAG Property Fund I, Munich4 100.0000 MEAG Property Fund III, Munich4 100.0000 MEAG RenditePlus, Munich4 100.0000 MEAG REVO, Munich4 100.0000 MEAG Tandem, Munich4 100.0000 MEAG US Fonds, Munich4 100.0000 MEAG Venus, Munich4 100.0000 MEAG Vidas Rent 3, Munich4 100.0000 MEAG VLA, Munich4 100.0000 MedNet Holding GmbH, Munich 100.0000 MedWell Gesundheits-AG, Cologne 100.0000 Merkur Grundstücks- und Beteiligungs-Gesellschaft mit beschränkter Haftung, Düsseldorf 100.0000 Meshify Inc., Dover, Delaware 100.0000 MFI Munich Finance and Investment Holding Ltd.,Ta’ Xbiex 100.0000
Munich Re New Ventures Inc., Toronto, Ontario 100.0000 Munich Re of Bermuda Ltd., Hamilton, Bermuda 100.0000 Munich Re of Malta Holding Limited, Ta’ Xbiex 100.0000 Munich Re of Malta p.l.c., Ta’ Xbiex 100.0000 Munich Re PCC Limited, Ta’ Xbiex 100.0000 Munich Re Reserve Risk Financing Inc., Dover, Delaware 100.0000 Munich Re Specialty Group Ltd., London 100.0000 Munich Re Syndicate Labuan Limited, Labuan 100.0000 Munich Re Syndicate Limited, London 100.0000 Munich Re Syndicate Middle East Ltd., Dubai 100.0000 Munich Re Syndicate Singapore Ltd., Singapore 100.0000 Munich Re Trading LLC, Wilmington, Delaware 100.0000 Munich Re UK Services Limited, London 100.0000 Munich Re US Life Corporation, Minneapolis, Minnesota 100.0000 Munich Re Ventures Inc., Dover, Delaware 100.0000 Munich Re Ventures LLC, Dover, Delaware 100.0000 Munich Re Weather & Commodity Risk Holding Inc., Wilmington, Delaware 100.0000 Munich Reinsurance America Inc., Wilmington, Delaware 100.0000 Munich Reinsurance Company of Africa Ltd, Johannesburg 100.0000 Munich Reinsurance Company of Australasia Ltd, Sydney 100.0000 Munich Reinsurance Company of Canada, Toronto, Ontario 100.0000 MunichFinancialGroup GmbH, Munich 100.0000 Munichre New Zealand Service Ltd., Auckland 100.0000 Neokami GmbH, Munich 100.0000 Neokami Inc., Wilmington, Delaware 100.0000 New Reinsurance Company Ltd., Zurich 100.0000 nexible Versicherung AG, Nuremberg 100.0000 Nightingale Legal Services Ltd., Bristol 100.0000 NMU Specialty Ltd., Leeds 100.0000 OIK Mediclin, Wiesbaden4 70.7073 Pan Estates LLC, Wilmington, Delaware 100.0000 Pegasos Holding GmbH, Munich 100.0000 Picus Silva Inc., Wilmington, Delaware 100.0000 Prosper Pass-Thru Trust I Series 2018-1, Wilmington, North Carolina 95.0000 Prosper Pass-Thru Trust I Series 2018-2, Wilmington, North Carolina 95.0000 Proximetry LLC, Wilmington, Delaware 100.0000 Proximetry Poland Sp. Z o.o, Katowice 100.0000 PS Louisiana I LLC, Wilmington, Delaware 100.0000 PS Louisiana II LLC, Wilmington, Delaware 100.0000 Relayr Gmbh, Pullach i. Isartal 100.0000 Relayr Inc., Wilmington, Delaware 100.0000 Relayr Limited, Watford 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, London 100.0000 Scout Moor Holdings (No. 1) Limited, London 100.0000 Scout Moor Holdings (No. 2) Limited, London 100.0000 Scout Moor Wind Farm (No. 2) Limited, London 100.0000 Scout Moor Wind Farm Limited, London 100.0000
Victoria US Property Investment GmbH, Düsseldorf 100.0000 Victoria Vierte Beteiligungsgesellschaft mbH, Düsseldorf 100.0000 Victoria Vierter Bauabschnitt GmbH & Co. KG, Düsseldorf 100.0000 Vorsorge Service GmbH, Düsseldorf 100.0000 welivit GmbH, Düsseldorf 100.0000 welivit Solarfonds GmbH & Co. KG, Düsseldorf 100.0000 welivit Solarfonds S.a.s. di welivit Solar Italia S.r.l., Bolzano 100.0000 WFB Stockholm Management AB, Stockholm 100.0000 Wind Farm Jenasen AB, Hässleholm 100.0000 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, Düsseldorf 75.1243 X-Pact B.V., The Hague 62.5000
Unconsolidated subsidiaries Aleama 150015 S.L., Valencia 100.0000 ANOVA GmbH, Rostock 100.0000 Arridabra 130013 S.L., Valencia 100.0000 ARTES Assekuranzservice GmbH, Düsseldorf 100.0000 B&D Business Solutions B.V., Utrecht 100.0000 Backpack Insurance Agency Inc., Dover, Delaware 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 Bobasbe 6006 S.L., Valencia 100.0000 Botedazo 8008 S.L., Valencia 100.0000 Callopio 5005 S.L., Valencia 100.0000 Camcichu 9009 S.L., Valencia 100.0000 Cannock Chase Incasso II B.V., The Hague 100.0000 CAPITAL PLAZA Holding GmbH, Düsseldorf 100.0000 Caracuel Solar Catorce S.L., Valencia 100.0000 Caracuel Solar Cinco S.L., Valencia 100.0000 Caracuel Solar Cuatro S.L., Valencia 100.0000 Caracuel Solar Dieciocho S.L., Valencia 100.0000 Caracuel Solar Dieciseis S.L., Valencia 100.0000 Caracuel Solar Diecisiete S.L., Valencia 100.0000 Caracuel Solar Diez S.L., Valencia 100.0000 Caracuel Solar Doce S.L., Valencia 100.0000 Caracuel Solar Dos S.L., Valencia 100.0000 Caracuel Solar Nueve S.L., Valencia 100.0000 Caracuel Solar Ocho S.L., Valencia 100.0000 Caracuel Solar Once S.L., Valencia 100.0000 Caracuel Solar Quince S.L., Valencia 100.0000 Caracuel Solar Seis S.L., Valencia 100.0000
Silvanus Vermögensverwaltungsges. mbH, Munich3 100.0000 Solarpark Fusion 3 GmbH, Düsseldorf 100.0000 Solomon Associates Limited, Farnborough 100.0000 Sopockie Towarzystwo Ubezpieczen Ergo Hestia Spolka Akcyjna, Sopot 100.0000 Sopockie Towarzystwo Ubezpieczen na Zycie Ergo Hestia Spolka Akcyjna, Sopot 100.0000 Specialty Insurance Services Corp., Amelia, Ohio 100.0000 SunEnergy & Partners S.r.l., Brixen 100.0000 Temple Insurance Company, Toronto, Ontario 100.0000 The Atlas Insurance Agency Inc., Amelia, Ohio 100.0000 The Boiler Inspection and Insurance Company of Canada, Toronto, Ontario 100.0000 The Hartford Steam Boiler Inspection and Insurance Company of Connecticut, Hartford, Connecticut 100.0000 The Hartford Steam Boiler Inspection and Insurance Company, Hartford, Connecticut 100.0000 The Midland Company, Cincinnati, Ohio 100.0000 The Polytechnic Club Inc., Hartford, Connecticut 100.0000 The Princeton Excess and Surplus Lines Insurance Company, Wilmington, Delaware 100.0000 Tir Mostyn and Foel Goch Limited, London 100.0000 UAB Agra Aurata, Vilnius 100.0000 UAB Agra Corp., Vilnius 100.0000 UAB Agra Optima, Vilnius 100.0000 UAB Agrofondas, Vilnius 100.0000 UAB Agrolaukai, Vilnius 100.0000 UAB Agrora, Vilnius 100.0000 UAB Agrovalda, Vilnius 100.0000 UAB Agrovesta, Vilnius 100.0000 UAB G.Q.F., Vilnius 100.0000 UAB Lila, Vilnius 100.0000 UAB Sietuve, Vilnius 100.0000 UAB Terra Culta, Vilnius 100.0000 UAB Ukelis, Vilnius 100.0000 UAB Vasaros Brizas, Vilnius 100.0000 UAB VL Investment Vilnius 1, 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 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 10, Vilnius 100.0000 UAB VL Investment Vilnius, Vilnius 100.0000 UK Wind Holdings Ltd., London 100.0000 Unión Médica La Fuencisla S.A., Compañía de Seguros, Zaragoza 100.0000 US PROPERTIES VA GmbH & Co. KG i.L., Düsseldorf4 46.0939 VHDK Beteiligungsgesellschaft mbH, Düsseldorf 100.0000 VICTORIA Asien Immobilienbeteiligungs GmbH & Co. KG, Munich 100.0000 Victoria Italy Property GmbH, Düsseldorf 100.0000 Victoria Lebensversicherung Aktiengesellschaft, Düsseldorf 100.0000
Caracuel Solar Siete S.L., Valencia 100.0000 Caracuel Solar Trece S.L., Valencia 100.0000 Caracuel Solar Tres S.L., Valencia 100.0000 Caracuel Solar Uno S.L., Valencia 100.0000 Centrum Pomocy Osobom Poszkodowanym Sp.z.o.o., Gdansk 100.0000 Copper Leaf Research, Bingham Farms, Michigan 100.0000 Cotatrillo 100010 S.L., Valencia 100.0000 D.A.S. Prawo i Finanse Sp.z.o.o., Warsaw 100.0000 D.A.S. Rechtsschutz Leistungs-GmbH, Munich 100.0000 D.A.S., Tomasz Niedzinski Kancelaria Prawna Spolka komandytowa, Warsaw 95.0000 DAS Incasso Arnhem B.V., Elst 100.0000 DAS Incasso Eindhoven B.V., ‚s-Hertogenbosch 100.0000 DAS Incasso Rotterdam B.V., Rotterdam 100.0000 DAS Legal Protection Inc., Toronto, Ontario 100.0000 DAS Legal Services B.V., Amsterdam 100.0000 DAS Lex Assistance S.L., L’Hospitalet de Llobregat 100.0000 DEAX Õigusbüroo OÜ, Tallinn 100.0000 Digital Edge Insurance Company, Wilmington, Delaware 100.0000 DKV Beteiligungs- und Vermögensverwaltungs GmbH & Co. KG, Cologne 100.0000 DKV Erste Beteiligungsgesellschaft mbH, Cologne 100.0000 DKV Servicios S.A., Zaragoza 100.0000 DKV-Residenz am Tibusplatz gGmbH, Münster 100.0000 DKV-Residenz in der Contrescarpe GmbH, Bremen 100.0000 DRA Debt Recovery Agency B.V., The Hague 100.0000 Economic Data Resources B.V., The Hague 100.0000 ERGO (China) Consulting Ltd., Beijing 100.0000 ERGO Alpha GmbH, Düsseldorf 100.0000 ERGO Asia Management Pte. Ltd. (In Member’s Voluntary Liquidation), Singapore 100.0000 ERGO Digital IT GmbH, Berlin 100.0000 ERGO Direkt AG, Fürth 100.0000 ERGO Fund Golden Aging, Brussels4 100.0000 ERGO Fünfzehnte Beteiligungs AG, Düsseldorf 100.0000 ERGO Gourmet GmbH, Düsseldorf 100.0000 ERGO Infrastructure Investment Gesundheit GmbH, Düsseldorf 100.0000 ERGO Infrastructure Investment Komposit GmbH, Düsseldorf 100.0000 ERGO Infrastructure Investment Leben GmbH, Düsseldorf 100.0000 ERGO Infrastructure Investment Pensionskasse GmbH, Düsseldorf 100.0000 ERGO Infrastructure Investment Victoria Leben GmbH, Düsseldorf 100.0000 ERGO LatAm S.A.S., Bogota 100.0000 ERGO Leben Asien Verwaltungs GmbH, Munich 100.0000 ERGO Mobility Solutions GmbH, Düsseldorf 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 Vermögensmanagement Flexibel A, Munich4 38.4468
MedNet Europa GmbH, Munich 100.0000 MedNet Global Healthcare Solutions LLC, Dubai 100.0000 MedNet Greece S.A., Athens 78.1419 Mednet Jordan Co. W.L.L., Amman 100.0000 MedNet Saudi Arabia LLC, Jeddah 100.0000 MedNet UAE FZ LLC, Dubai 100.0000 miCura Pflegedienste Berlin GmbH, Berlin 100.0000 miCura Pflegedienste Bremen GmbH, Bremen 100.0000 miCura Pflegedienste Düsseldorf GmbH, Düsseldorf 100.0000 miCura Pflegedienste GmbH, Cologne 100.0000 miCura Pflegedienste Hamburg GmbH, Hamburg 100.0000 miCura Pflegedienste Krefeld GmbH, Krefeld 100.0000 miCura Pflegedienste München/Dachau GmbH, Dachau 51.0000 miCura Pflegedienste München GmbH i. L., Munich 100.0000 miCura Pflegedienste München Ost GmbH, Munich 65.0000 miCura Pflegedienste Münster GmbH, Münster 100.0000 miCura Pflegedienste Nürnberg GmbH, Nuremberg 51.0000 MR Beteiligungen 2. GmbH, Munich 100.0000 MR Beteiligungen 3. GmbH, Munich 100.0000 MR Beteiligungen 15. GmbH, Munich 100.0000 MR Beteiligungen 18. GmbH, Grünwald 100.0000 MR Beteiligungen AG, Grünwald 100.0000 MR Digital Innovation Partners Insurance Agency LLC, Columbus, Ohio4 0.0000 MR Financial Group GmbH, Munich 100.0000 MR Forest GmbH, Munich 100.0000 MR HealthTech Ltd., Nicosia 100.0000 MR Infrastructure Inc., Dover, Delaware 100.0000 MR RENT-Management GmbH, Munich 100.0000 MRHCUK Dormant No.1 Limited, London 100.0000 Münchener Consultora Internacional SRL, Santiago de Chile 100.0000 Münchener de Argentina Servicios Técnicos S.R.L., Buenos Aires 100.0000 Münchener de Mexico S.A., Mexico 100.0000 Münchener de Venezuela C.A. Intermediaria de Reaseguros, Caracas 100.0000 Münchener Finanzgruppe AG Beteiligungen, Munich 100.0000 Münchener Vermögensverwaltung GmbH, Munich 100.0000 Münchener, ESCRITÓRIO DE REPRESENTACAO DO BRASIL Ltda, São Paulo 100.0000 Munich American Reassurance Company PAC Inc., Atlanta, Georgia4 0.0000 Munich Atlanta Financial Corporation, Atlanta, Georgia 100.0000 Munich Canada Systems Corporation, Toronto, Ontario 100.0000 Munich Columbia Square Corp., Wilmington, Delaware 100.0000 Munich Management Pte. Ltd., Singapore 100.0000 Munich Mauritius Reinsurance Co. Ltd., Port Louis 100.0000 Munich Re America Brokers Inc., Wilmington, Delaware 100.0000 Munich Re America Management Ltd., London 100.0000 Munich Re Automation Solutions GmbH, Munich 100.0000 Munich Re Automation Solutions Inc., Wilmington, Delaware 100.0000 Munich Re Automation Solutions K.K., Tokyo 100.0000 Munich Re Automation Solutions Pte. Ltd., Singapore 100.0000
Associates and joint ventures accounted for using the equity method 1818 Acquisition LLC, Dover, Delaware 20.6400 Apollo Munich Health Insurance Co. Ltd., Hyderabad 48.6157 Bazos CIV L.P., Dover, Delaware7 100.0000 Consorcio Internacional de Aseguradores de Crédito S.A., Madrid5 15.0353 Consortia Versicherungs-Beteiligungsgesellschaft mbH, Nuremberg 33.7027 D.A.S. Difesa Automobilistica Sinistri S.p.A. di Assicurazione, Verona 49.9920 DAMAN – National Health Insurance Company, Abu Dhabi 20.0000 EGM Wind SAS, Paris 40.0000 ERGO China Life Insurance Co., Ltd., Jinan, Shandong Province 50.0000 Europai Utazasi Biztosito Rt, Budapest 26.0000 Europäische Reiseversicherungs-Aktiengesellschaft, Vienna 25.0100 Global Aerospace Underwriting Managers Ltd., London7 51.0000 Global Insurance Corporation, Ho Chi Minh City 43.7500 Group Health Group Holdings Inc., Surrey, British Columbia 40.0000 HDFC ERGO General Insurance Company Ltd., Mumbai 48.2642
Invesco MEAG US Immobilien Fonds IV B, Luxembourg 37.1375 KarstadtQuelle Finanz Service GmbH i. L., Düsseldorf 50.0000 King Price Financial Services (Pty) Ltd, Pretoria5 15.0000 Marchwood Power Limited, Southampton 50.0000 MEAG Pacific Star Holdings Ltd., Hong Kong 50.0000 MEDICLIN Aktiengesellschaft, Offenburg 35.0042 Rendite Partner Gesellschaft für Vermögensverwaltung mbH i. L., Frankfurt am Main 33.3333 RP Vilbeler Fondsgesellschaft mbH i. L., Frankfurt am Main 40.0000 Sana Kliniken AG, Munich 22.4904 SAS Le Point du Jour, Paris 50.0000 SEBA Beteiligungsgesellschaft mbH, Nuremberg 48.9966 SEIF II Texas Wind Holdings 1 LLC, Dover, Delaware 49.0000 SNIC Insurance B.S.C. (c), Manama 22.5000 STEAG Fernwärme GmbH, Essen 49.0000 Storebrand Helseforsikring AS, Oslo 50.0000 Suramericana S.A., Medellin5 18.8672 Taunus Holding B.V., Rotterdam 23.1913 Thaisri Insurance Public Company Limited, Bangkok 40.2576 T-Solar Global Operating Assets S.L., Madrid 37.0000 Vier Gas Investments S.à r.l., Luxembourg 43.7516
PRORENDITA VIER GmbH & Co. KG, Hamburg (equity: €8,682k; result for year: €88k) 0.0029 PRORENDITA Zwei GmbH & Co. KG, Hamburg (equity: €4,449k; result for year: –€436k) 0.0100 Ridecell Inc., Wilmington, Delaware (equity: €12,879k; result for year: €0k) 3.2300 RMS Forest Growth International L.P., Grand Cayman, Cayman Islands8 (equity: €85,291k; result for year: –€4,816k) 43.4700 Slice Labs Inc., Ottawa, Ontario (equity: €3,953k; result for year: –€6,295k) 9.0400 Solarpark 1000 Jahre Fürth GmbH & Co. KG, Düsseldorf (equity: €662k; result for year: €107k) 0.9091 T&R MLP GmbH, Bonn (equity: €24k; result for year: –€2k) 10.0020 T&R Real Estate GmbH, Bonn (equity: €140,827k; result for year: –€15k) 10.0020 Team8 Partners II L.P., George Town, Grand Cayman, Cayman Islands (equity: €2,539k; result for year: €0k) 8.5300 Trov Inc., Dover, Delaware (equity: €34,929k; result for year: –€18,305k) 4.7359 Umspannwerk Hellberge GmbH & Co. KG, Treuenbrietzen (equity: €0k; result for year: –€132k) 6.9000 welivit TOP SOLAR GmbH & Co. KG, Düsseldorf (equity: €71k; result for year: €49k) 0.0000 Zeguro Inc., Wilmington, Delaware (equity: –€730k; result for year: €0k) 4.5000 1 Not currently utilised.
3 This fully consolidated German subsidiary intends to fulfil the conditions required in Section 264(3) of the German Commercial Code (HGB) and, in the 2018 financial year, to avail itself of the relevant provision exempting it from preparing annual financial statements.
4 Control due to voting majority or other control pursuant to IFRS 10. 5 Significant influence owing to representation of Munich Re on the board of directors and/or supervisory body or an equivalent governing body of the associate.
Other shareholdings as defined in Section 271(1) of the German Commercial Code (HGB) Asia Property Fund II GmbH & Co. KG, Munich (equity: €109,164k; result for year: €7,370k) 5.8889 Autobahn T&R Management GmbH, Bonn (equity: €25k; result for year: €1k) 10.0020 Autobahn Tank & Rast Gruppe GmbH & Co. KG, Bonn (equity: €371,387k; result for year: –€106,819k) 9.9980 B3i Services AG, Zurich (equity: €6,300k; result for year: €0k) 7.9400 Bought by Many Limited “BBM”, London (equity: €5,756k; result for year: –€3,952k) 11.4000 CBRE U.S. Core Partners Parallel Limited Partnership, Wilmington, Delaware8 (equity €28,603k; result for year: €2,334k) 99.9000 Equidate Inc., Wilmington, Delaware (equity: €4,000k; result for year: €3,591k) 4.9400 FIA Timber Partners II LP, Wilmington, Delaware8