Allocation of investments measured at fair value1 to levels of the fair value hierarchy €m Level 1 Level 2 Level 3 Total other securities available for sale investments in affiliated companies measured at fair value – – 214 214 investments in associates measured at fair value – – 16 16 other securities at fair value through profit or loss designated as at fair value through profit or loss – 166 – 166 investments for the benefit of life insurance policyholders 5,093 – – 5,093
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 in the financial year, we reallocated large portions of the asset-backed securities and certain collateralised loan obligations (clos) in our portfolio from level 3 to level 2, it now being possible to value these portfolios solely on the basis of observable market inputs again. at the same time, we reallocated the shares in real estate funds and the derivative components of variable annuities from level 2 to level 3, since we did not use inputs observable in the market for valuing them in the financial year.
Reconciliation for investments allocated to Level 3 at 31 December 2011
gains (losses) recognised in the income statement –26 –4 –1 – gains (losses) recognised in equity – 7 – –
to support hypo Real estate (hRe), the german federal government adopted a rescue package in october 2008, backed by the deutsche Bundesbank and also the german financial services industry. munich Re participated in this rescue package and also in its follow-up financing in 2009 and 2010. these measures have now expired, and further such steps are not envisaged.
Carrying amounts Amortised cost €m 31.12.2011 Prev. year 31.12.2011 Prev. year up to one year 10,914 9,297 10,846 9,221 over one year and up to two years 9,429 8,510 9,282 8,306 over two years and up to three years 10,303 9,690 10,019 9,398 over three years and up to four years 9,920 10,007 9,667 9,693 over four years and up to five years 9,411 9,670 8,862 9,509 over five years and up to ten years 32,131 35,809 31,066 35,377
the securities held for trading are made up of fixed-interest securities totalling €567m (475m), non-fixed-interest securities totalling €31m (29m) and derivatives held for trading amounting to €1,772m (867m). the securities designated as at fair value through profit or loss comprise €161m (233m) assignable to fixed-interest securities and €5m (8m) to non-fixed interest securities.
Disclosure of derivatives by balance sheet item €m 31.12.2011 Prev. year Qualifying for fair value hedge accounting Balance sheet item no investments, other securities held for trading 1,772 867 positive
Periods to maturity in years < 1 1–2 2–3 3–4 4–5 > 5 2011 Prev. year €m interest-rate risks traded on the stock exchange fair values 41 – – – – – 41 –56 over-the-counter total interest-rate risks
over-the-counter fair values –12 – – – – –23 –35 –14 total currency risks fair values –12 – – – – –23 –35 –14
We have introduced a new type of risk for insurance risks previously allocated to weather risks and other risks: “insurance risks”. under this risk type, we essentially subsume for property-casualty business the derivative portions of natural catastrophe bonds, individually structured insurance derivatives and derivative components separated from their host contract. for life and health business, the risk type “insurance risks” essentially includes the derivative components from securitisations of mortality and morbidity risks and of variable annuities. the securitisation of variable annuities previously allocated to various risk types has also been reallocated to the risk type “insurance risks”.
interest-rate risks in life insurance have been hedged using swaptions and total return swaps. these derivatives providing the right to receive a fixed interest rate are shown in the category “interest-rate risks/over-the-counter”. at the reporting date, the fair values of the derivatives totalled €537m (185m), and the underlying notional amounts €5,090m (7,467m). the investment result from derivatives includes a loss of €355m (76m) from fluctuations in value of these items.
fair value hedges in the case of fair value hedges, the change in the fair value of the hedging instrument and the change in the fair value of the hedged instrument are generally recognised in profit or loss under the items “investment income” and “investment expenses” in the income statement. With munich Reinsurance company’s hedged subordinated bond, this information is shown under finance costs. munich Re uses hedging relationships in the form of fair value hedges to selectively and efficiently mitigate interest-rate and other market-price risks. the main types of transaction employed for hedging are swaps and forwards. the fair value of the derivatives used for this amounted to €215m (168m) at the balance sheet date. in 2011, the following changes in value were recognised in the consolidated income statement: €60m for the hedging instruments and –€62m for the relevant underlyings.
at the balance sheet date, there is an equity item of €4m (–2m) from cash flow hedges. the net fair value of the derivatives falling into this category amounted to €39m (29m) at the balance sheet date.
Periods to maturity and amount of the hedged cash flows at the balance sheet date €m < 1 year 1–2 years 2–3 years 3–4 years 4–5 years > 5 years 31.12.2011 Prev. year notional amounts of
the fair values of tangible assets in renewable energies at the balance sheet date amount to €267m (46m). the tangible assets include items pledged as security and other restrictions on title amounting to €97m (−).
disposals loss of control – – other – 1 impairment losses reversed – – depreciation and impairment losses impairment losses – –
Reinsurance Life Property-casualty €m1 31.12.2011 Prev. year 31.12.2011 Prev. year unearned premiums – – 134 309 provision for future policy benefits 645 684 – – provision for outstanding claims 278 288 2,383 2,080 other technical provisions 6 15 – 4
Primary insurance Life Health Property-casualty €m1 31.12.2011 Prev. year 31.12.2011 Prev. year 31.12.2011 Prev. year provision for future policy benefits 1,806 1,742 – 2 – –
other technical provisions – – – – 23 20 1 after elimination of intra-group transactions across segments.
as at 31 december 2011, our accounts receivable on ceded business were split between the following ratings (based on those of standard & poor’s): €331m (379m) of all our receivables on underwriting business at the balance sheet date was outstanding for more than 90 days. the average defaults of the last three years amount to €144m (141m).
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 the amortisation includes accrued interest as well as write-downs. the impairment losses comprise write-ups and write-downs stemming from changes in the assumptions underlying the calculations which require an adjustment in the measurement.
Reinsurance Life Property-casualty €m1 31.12.2011 Prev. year 31.12.2011 Prev. year status at 31 dec. previous year 1,848 1,659 1,322 1,166 change in consolidated group/other – – – – new deferred acquisition costs 309 442 1,861 1,431 changes amortisation –259 –312 –1,785 –1,364 impairment losses –1 –57 4 17
Munich Health Total €m1 31.12.2011 Prev. year 31.12.2011 Prev. year status at 31 dec. previous year 126 71 9,165 8,604 change in consolidated group/other – –2 –7 –2 new deferred acquisition costs 176 89 3,334 2,806 changes amortisation –180 –35 –2,913 –2,300 impairment losses – – –246 –141
Primary insurance Life Health Property-casualty €m1 31.12.2011 Prev. year 31.12.2011 Prev. year 31.12.2011 Prev. year status at 31 dec. previous year 3,623 3,642 1,583 1,513 663 553 currency translation differences –4 1 – – –25 6 change in consolidated group/other –4 – –1 – –2 –
changes amortisation –236 –219 –163 –120 –290 –250 impairment losses –249 –101 – – – –
Status at 31 Dec. financial year 3,502 3,623 1,679 1,583 702 663 1 after elimination of intra-group transactions across segments.
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 15 // deferred tax the deferred tax assets and liabilities recognised in the consolidated balance sheet concern the following balance sheet items: the deferred taxes for technical provisions include the deferred taxes for deferred acquisition costs and €1,888m (2,437m) for claims equalisation provisions, which are not posted under ifRs.
no deferred taxes were posted for temporary differences of €45m (41m) in connection with investments in subsidiaries and associates, also referred to as outside basis differences.
Deferred tax 31.12.2011 Prev. year €m Assets Liabilities Assets Liabilities c. investments for the benefit of life insurance policyholders who bear the investment risk – 2 – 2
Subsequent additions and reduc- Set off tions due to Additions against changes in due to income/ valuation new Decon- €m Prev. year allowances losses solidation 31.12.2011 deferred tax assets for corporation tax loss carry-forwards 94 451 66 –187 424 trade tax loss carry-forwards 10 –1 55 –2 62 loss carry-forwards from capital losses – – – – –
tax credits expiring in up to three years – – – – – – expiring in over three years and up to ten years – – – – – – expiring in over ten years – – – – – –
expenditures recognised in the carrying amount for assets in the course of construction total €133m (144m) for property and €16m (14m) for plant and equipment. commitments to acquire property total €22m (28m) and commitments to acquire plant and equipment €16m (24m). assets pledged as security and other restrictions on title amount to €3m (3m) for plant and equipment.
Reclassification –23 5 – –18 –174 carrying amount at 31 dec. financial year 2,385 294 27 2,706 2,724 accumulated amortisation and accumulated impairment losses at 31 dec. financial year 1,000 682 30 1,712 1,631 gross carrying amount at 31 dec. financial year 3,385 976 57 4,418 4,355
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 17 // non-current assets and disposal groups held for sale in the first quarter of 2011, with economic effect from 29 april 2011, the eRgo insurance group sold its shares in the fully consolidated capital square pte. ltd., singapore, the sales price totalling €465m. the disposal group mainly included an office investment property with a carrying amount of €239m.
in the third quarter of 2011, with economic effect from 29 december 2011, the eRgo insurance group sold its shares in its fully consolidated subsidiaries VictoRia- seguros de Vida, s.a., lisbon, and VictoRia-seguros s.a., lisbon. the sale took place indirectly via the sale of the parent company of these subsidiaries. the provisional sales price is €69m.
in the fourth quarter of 2011, with expected economic effect from the first quarter of 2012, the eRgo insurance group sold an office investment property with a carrying amount of €13m. the sales price is €52m.
Notes to the consolidated balance sheet – Equity and liabilities the total share capital of €587,725,396.48 at 31 december 2011 is divided into 179,341,212 no-par-value registered shares, each fully paid up and entitled to one vote. By resolution of the annual general meeting on 28 april 2010, munich Reinsurance company was authorised to buy back shares amounting to a maximum of 10% of the share capital up to 27 april 2015. the annual general meeting on 20 april 2011 renewed this resolution, thereby authorising the Board of management to buy back shares amounting to a maximum of 10% of the share capital up to 19 april 2016. in the year under review, the number of shares in circulation developed as follows:
on 7 may 2010, munich Reinsurance company’s Board of management decided on a share buy-back programme, thus availing itself of the authorisation granted by the annual general meeting on 28 april 2010, in accordance with section 71 para. 1 item 8 of the german stock companies act. in the period from 25 may 2010 to 12 april 2011, 9,127,259 munich Reinsurance company shares were acquired via the stock exchange at an average price of €109.56. of these, 3,037,591 shares were acquired in the calendar year 2011 at an average price of €115.34. all shares from this buy-back programme were retired on 20 april 2011 in a simplified process, without reducing the share capital, by adjusting the proportion of the company’s share capital represented by each of the remaining no-par-value shares.
in the financial year 2011, companies of the eRgo insurance group acquired no shares to cover future commitments from the long-term incentive plans launched since 2002, but sold a total of 46,589 shares at a price of €118.18 each. together with the remaining munich Re shares acquired to hedge the stock appreciation rights granted in prior years, the eRgo insurance group had a total portfolio of 177,468 shares at 31 december 2011.
meag munich eRgo assetmanagement gmbh also acquired no shares in the financial year 2011 to safeguard obligations from its long-term incentive plan, but sold 15,157 shares at an average price of €116.22, leaving it with a portfolio of 151,939 munich Re shares.
the acquisition costs of all munich Re shares in the possession of group companies at the end of the financial year totalled €169,752,530 94.
Development of shares in circulation number of shares 2011 Prev. year status at 31 dec. previous year 180,378,583 191,910,177 additions disposal of remaining portfolio of employee shares – 255 disposals from hedging stock appreciation rights under long-term incentive plans 247,758 299,485
Composition of contingent capital €m 31.12.2011 contingent capital increase 2010 (until 27 april 2015) 117 Total 117
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 19 // subordinated liabilities on 29 march 2011, with a settlement date of 5 april 2011, we placed a subordinated bond of €1bn with a consortium of investors. as part of our active capital management, we bought back a nominal amount of €1,222m of the munich Reinsurance company subordinated bond 2003/2023 in the period under review.
1 in the financial year 2011, the issuer bought back bonds with a nominal value of €1,222m. 2 eRgo international ag holds bonds with a nominal value of €3m; the volume outstanding has been reduced accordingly. 3 eRgo ag holds bonds with a nominal value of €3m; the volume outstanding has been reduced accordingly.
Identifica- A.M. €m tion number Best Fitch Moody’s S&P 31.12.2011 Prev. year munich Reinsurance company, munich, WKn: a1KQYJ 6.00 % until 2021, thereafter floating isin: Xs0608392550 €1,000m, Bonds 2011/2041 Reuters: dea1KQYJ= Bloomberg: munRe a+ a – a 987 – munich Reinsurance company, munich, WKn: 843278 6.75% until 2013, thereafter floating, isin: Xs0166965797 €1,678m1, Bonds 2003/2023 Reuters: de016696579= Bloomberg: munRe a+ a a2 (hyb) a 1,669 2,884 munich Reinsurance company, munich, WKn: 843449 7.625% until 2018, thereafter floating, isin: Xs0167260529 £300m, Bonds 2003/2028 Reuters: de016726052= Bloomberg: munRe a+ a a2 (hyb) a 357 348 munich Reinsurance company, munich, WKn: a0n4eX 5.767% until 2017, thereafter floating, isin: Xs0304987042 €1,349m, Bonds 2007/perpetual Reuters: de030498704= Bloomberg: munRe a a a3 (hyb) a 1,562 1,513 Bank austria creditanstalt Versicherung ag, Vienna, 4.95%, €50m, Registered bonds 2004/2014 – – – – 51 49 Bank austria creditanstalt Versicherung ag, Vienna, 6% until 2011, thereafter floating, €12m2, Registered bonds 2001/perpetual – – – – 10 9 Bank austria creditanstalt Versicherung ag, Vienna, secondary market yield on federal government bonds (austria) +70 Bp, €13m3, Registered bonds 1998/perpetual – – – – 11 10 hsB group inc., delaware, liBoR +91 Bp, us$ 76m,
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 the fair value of the subordinated bond issued by munich Reinsurance company in June 2007 is hedged in respect of the risk-free interest rate by means of an interest-rate swap. the hedged changes in value of the subordinated liabilities and of the interestrate swap are shown in the finance costs with impact on profit or loss in each case.
the fair value of the subordinated liabilities at the balance sheet date amounted to €4,254m (4,777m). for the munich Reinsurance company bonds, we take the stock market prices as fair values. for the other subordinated liabilities, we determine the fair values using net present value methods with observable market parameters.
20 // unearned premiums 1 after elimination of intra-group transactions across segments.
Reinsurance Life Property-casualty €m1 31.12.2011 Prev. year 31.12.2011 Prev. year ceded share – – 134 309
Primary insurance Life Health Property-casualty €m1 31.12.2011 Prev. year 31.12.2011 Prev. year 31.12.2011 Prev. year
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 21 // provision for future policy benefits the provision for future policy benefits in life reinsurance largely involves contracts where the mortality or morbidity risk predominates. in reinsurance, annuity contracts have a significantly lower weight than in primary insurance.
essentially the same actuarial assumptions have been used as in the previous year for measuring the provisions for future policy benefits for business in force. for german primary insurance, to which approx. 88% of the provisions for future policy benefits are apportionable, biometric actuarial assumptions based on the tables of the german association of actuaries are used.
Gross provision for future policy benefits according to type of insurance cover €m 31.12.2011 Prev. year primary insurance 69,334 69,555 term life insurance 2,889 2,654 other life insurance 37,530 39,118 annuity insurance 27,763 26,697 disability insurance 1,138 1,073 contracts with combination of more than one risk 14 13 munich health 836 758 primary insurance 24,216 22,855 Property-casualty 409 724 Reinsurance – 317 primary insurance 409 407
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 further information on the underwriting risks and discount rates can be found under (37) Risks from life and health insurance business and (38) Risks from property- casualty insurance business.
Primary insurance Life Health Property-casualty €m1 31.12.2011 Prev. year 31.12.2011 Prev. year 31.12.2011 Prev. year 1 after elimination of intra-group transactions across segments.
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 the provision for annuity claims involves periodic payments for disability cases and is usually due long term. a major part of this provision is established in the life reinsurance and life primary insurance segment for future annuity payments; a small part refers to provisions for annuities in personal accident, liability and workers’ compensation insurance. the biometric actuarial assumptions are selected using appropriate actuarial principles. the assumptions regarding australian disability business were adjusted on the basis of recent biometric analyses. the adjustment mainly involves an update of the assumptions for calculating the duration of disability. provisions for annuity claims are calculated as the present value of the expected future payments. the discount rates used are shown under (37) Risks from life and health insurance business and (38) Risks from property-casualty insurance business.
Reinsurance Primary insurance %1 31.12.2011 Prev. year 31.12.2011 Prev. year up to one year 31.4 30.2 39.2 40.4 over one year and up to five years 44.1 46.5 38.6 37.3 over five years and up to ten years 13.2 14.3 13.0 13.0 over ten years and up to fifteen years 5.0 4.2 5.2 5.2 1 after elimination of intra-group transactions across segments.
the run-off triangles are prepared on a currency-adjusted basis. to this end, all figures are translated from the respective local currency into the group currency (euro), consistently using the exchange rates applicable at the end of the year under review (i.e. at 31 december 2011). this ensures that neutral net run-off results in the original currency (i.e. where the ultimate loss originally estimated for an accident year and current loss estimate are identical) do not lead to currency-related run-off effects when expressed in the group currency.
Reinsurance Primary insurance Munich Health Total €m1 31.12.2011 Prev. year 31.12.2011 Prev. year 31.12.2011 Prev. year 31.12.2011 Prev. year provision for premium refunds based on national regulations – – 5,711 5,213 – – 5,711 5,213 provision for deferred premium refunds – – 3,759 3,556 –47 1 3,712 3,557 thereof resulting from unrealised gains and losses on investments (recognised directly in equity) – – 856 617 20 1 876 618 thereof resulting from other revaluations (recognised in profit or loss) – – 2,903 2,939 –67 – 2,836 2,939
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 the above change resulting from unrealised gains and losses on investments reflects the proportional allocation to expected future policyholders’ bonuses of the change in fair values that has occurred in the past year. changes in the provision for deferred premium refunds are only recognised in the income statement to the extent that they result from valuation differences recognised in profit or loss. in german life primary insurance, an “additional interest reserve” was posted in accordance with local regulations. the reserve takes account of interest-rate commitments to policyholders insofar as these are not sufficiently covered by current or expected investment income. this increases the valuation differences recognised in profit or loss and thus the provision for deferred premium refunds. to determine the portion of the valuation differences allocable to the provision for deferred premium refunds, rates of between 50% and 92.5% after tax were used.
Development of gross provision €m 2011 Prev. year status at 31 dec. previous year 5,210 4,117 change in consolidated group and other influences 22 294 savings premiums 782 883 unrealised gains/losses on fund assets –259 275 Withdrawal for expenses and risk –73 –44 Withdrawal for benefits –309 –315 Status at 31 Dec. financial year 5,373 5,210
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 25 // other accrued liabilities
Funded status of defined benefit plans €m 31.12.2011 Prev. year unfunded obligations present value 1,445 1,432 past service cost not yet recognised 12 13 net balance sheet liability 1,457 1,445
Wholly/partly funded obligations present value 1,900 1,520 plan assets –1,725 –1,449 other receivables 56 43 net balance sheet liability 234 117
Change in the provision for defined benefit plans €m 2011 Prev. year status at 31 dec. previous year 1,562 1,424 currency translation differences 15 19 change in consolidated group 2 –
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 the actual return on plan assets amounts to €99m (115m), and the actual return on reimbursements to €5m (6m).
the fair value of the plan assets does not include any own shares.
for the financial year 2012, capital transfers of €72m (49m) to plan assets are expected.
Breakdown of expenses booked in the business year €m 2011 Prev. year current service cost 107 101 interest cost 133 131 less expected return on plan assets –73 –66 expected return on reimbursements –6 –5 past service cost 9 4 effects of plan curtailments –3 –
% 31.12.2011 Prev. year non-fixed-interest securities 20.3 23.9 fixed-interest securities and loans 78.0 73.6 Real estate 0.1 0.2
% 2011 Prev. year discount rate 4.2 4.6 expected rate of return on fund assets 4.9 5.2 expected rate of return on reimbursements 4.9 4.6 future increases in entitlement/salary 2.3 3.2 future pension increases 1.5 1.6 medical cost trend rate 4.4 4.4
Other figures for the current financial year and previous years present value of defined benefit obligations (excluding medical-care benefits) 3,182 2,807 2,489 2,178 2,053 plan assets –1,725 –1,449 –1,229 –989 –965 not covered by plan assets 1,457 1,358 1,260 1,189 1,088 experience adjustments arising on the plan liabilities 14 –3 –44 7 –24 experience adjustments arising on the plan assets 20 52 20 –100 –7
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 26 // Bonds and notes issued outflows of liquidity occur annually in the amount of the interest payments until the notes mature. these totalled us$ 29m in the financial year. We calculate the fair value of the notes issued using a recognised valuation method with observable market inputs. the fair value at the reporting date amounts to €304m (317m).
the miscellaneous liabilities contain liabilities of €312m (150m) resulting from reinsurance contracts without significant risk transfer, derivative financial instruments with a negative fair value of €1,039m (441m), and derivative components of variable annuities with a negative fair value of €305m (186m). the miscellaneous liabilities also include €15m (17m) for social security and €227m (200m) for interest and rent.
€m number Best Fitch Moody’s S&P 31.12.2011 year munich Re america corporation, cusip-nr.: 029163ad4 Wilmington, 7.45%, us$ 342m1, isin, Reuters: – senior notes 1996/2026 Bloomberg: ameR Re coRp munRe bbb+ a+ a2 a– 263 290 1 in the financial year 2011, the issuer bought back notes with a nominal value of us$ 48m.
in the other liabilities, only derivatives with a negative market value are currently recognised at fair value. of these, as in the previous year, we allocated hedge fund certificates, the derivative portions of catastrophe bonds and weather derivatives to level 3. in addition, the derivative components of variable annuities have now also been allocated to this level of the fair value hierarchy. the strong increase in liabilities allocated to level 3 is primarily due to this change in allocation to hierarchy levels.
Carrying amounts €m 31.12.2011 Prev. year up to one year 7,801 8,120 over one year and up to two years 47 418 over two years and up to three years 73 61 over three years and up to four years 36 63 over four years and up to five years 136 51 over five years and up to ten years 730 306 over ten years 440 236
Allocation of other liabilities measured at fair value to levels of the fair value hierarchy 31.12.2011 Prev. year €m level 1 level 2 level 3 total level 1 level 2 level 3 total other liabilities
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 the following table presents the reconciliation from the beginning balances to the ending balances for other liabilities allocated to level 3.
Other liabilities at fair value through profit or loss €m 31.12.2011 Prev. year carrying amount at 31 dec. previous year 19 – gains and losses –71 –12 gains (losses) recognised in the income statement –71 –12 gains (losses) recognised in equity – –
acquisitions 8 – disposals 52 – transfer to/out of level 3 211 9 change in the market value of derivatives 14 2 carrying amount at 31 dec. financial year 243 19 gains (losses) recognised in the income statement that are attributable to investments shown at the end of the financial year –36 –12
Reinsurance Life Property-casualty €m 2011 Prev. year 2011 Prev. year change in unearned premiums – gross –8 –73 273 418 change in unearned premiums – ceded share – – –160 9
Munich Health Total €m 2011 Prev. year 2011 Prev. year change in unearned premiums – gross 13 66 438 586 change in unearned premiums – ceded share 2 3 –146 17
of the gross premiums written from short-term insurance business, the portions attributable to periods after the balance sheet date are posted as unearned premiums; cf. (20) unearned premiums. unearned premiums are reversed in accordance with the reduction in risk, over the duration of the contracts.
in the primary insurance and reinsurance property-casualty segments, we allow for the fact that provisions established in prior years were invested at higher interest rates than the current level of market interest rates. the income from technical interest therefore corresponds to the risk-free interest on our discounted technical provisions at the respective historical interest rate, taking into account the relevant period of insurance and currency. for balance sheet provisions in excess of the discounted provisions, short-term interest rates are applied.
for the life segment in reinsurance, the interest on the provisions is essentially based on contractually agreed allocations of interest (in germany, for example, at least the guaranteed interest rate).
for the life primary insurance segment, the income from technical interest for german life business comprises the gains and losses from unit-linked life insurance plus the guaranteed interest rate and profit sharing on the basis of the ifRs investment result. for the companies outside germany, the income from technical interest corresponds to the risk-free interest on the provision for future policy benefits at the relevant national interest rate, the gains and losses from unit-linked life insurance, and profit sharing where there are types of contract providing for this.
Reinsurance Life Property-casualty €m 2011 Prev. year 2011 Prev. year Gross claims and benefits paid 6,479 4,716 10,747 10,688 change in technical provisions provision for future policy benefits 179 724 –5 17 provision for outstanding claims 511 381 2,931 –328 provision for premium refunds – – 10 6
Net claims and benefits paid 6,181 4,528 10,187 9,632 change in technical provisions provision for future policy benefits 217 793 –5 17 provision for outstanding claims 520 300 2,670 –29 provision for premium refunds – – 10 6
Ceded share claims and benefits paid 108 92 6 7 108 85 change in technical provisions provision for future policy benefits 62 65 – – – – provision for outstanding claims –9 3 5 – 10 39 provision for premium refunds 1 1 – – – –
Munich Health Total €m 2011 Prev. year 2011 Prev. year Gross claims and benefits paid 4,708 3,512 36,169 32,052 change in technical provisions provision for future policy benefits 78 88 737 3,028 provision for outstanding claims 18 258 3,798 573 provision for premium refunds –1 –6 1,414 1,792
Net claims and benefits paid 4,674 3,488 35,055 30,600 change in technical provisions provision for future policy benefits 78 88 713 3,032 provision for outstanding claims –9 261 3,513 752 provision for premium refunds –1 –6 1,413 1,791
Reinsurance Life Property-casualty €m 2011 Prev. year 2011 Prev. year acquisition costs, profit commission and reinsurance commission paid 2,265 2,306 3,844 3,588 changes in deferred acquisition costs and contingent commissions, amortisation and impairment losses of acquired insurance portfolios –35 –245 –118 –114 ceded share of acquisition costs, profit commission and reinsurance commission paid 139 193 86 209 ceded share of changes in deferred acquisition costs and contingent commissions –6 –35 30 7 Operating expenses – Ceded share 133 158 116 216
Primary insurance Life Health Property-casualty €m 2011 Prev. year 2011 Prev. year 2011 Prev. year acquisition costs, profit commission and reinsurance commission paid 894 861 618 614 1,185 1,155 changes in deferred acquisition costs and contingent commissions, amortisation and impairment losses of acquired insurance portfolios 170 53 –93 –62 –65 –102 ceded share of acquisition costs, profit commission and reinsurance commission paid 15 16 5 4 34 21 ceded share of changes in deferred acquisition costs and contingent commissions 2 1 – – – 11
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 33 // investment result 1 after elimination of intra-group transactions across segments.
Investment result by type of investment and segment (before deduction of income from technical interest)1
Reinsurance Life Property-casualty €m 2011 Prev. year 2011 Prev. year Land and buildings, including buildings on third-party land 22 25 107 140 Investments in affiliated companies 7 –1 –9 –10
Other securities at fair value through profit or loss held for trading fixed-interest – – 11 16 non-fixed-interest – – – 1 derivatives –63 23 –268 –44 designated at fair value through profit or loss fixed-interest – – – – non-fixed-interest – – – –
Deposits retained on assumed reinsurance, and other investments 285 146 –46 –20 Investments for the benefit of life insurance policyholders who bear the investment risk – – – – Expenses for the management of investments, other expenses 34 35 165 167 continued on next page
Munich Health Asset management Total €m 2011 Prev. year 2011 Prev. year 2011 Prev. year Land and buildings, including buildings on third-party land 3 3 4 4 292 339
Other securities held to maturity – – – – 1 3 Other securities available for sale
Primary insurance Life Health Property-casualty €m 2011 Prev. year 2011 Prev. year 2011 Prev. year Land and buildings, including buildings on third-party land 57 98 59 39 40 30 Investments in affiliated companies 5 –9 –20 –9 263 35 Investments in associates – 7 5 6 –4 –4
Other securities at fair value through profit or loss held for trading fixed-interest 11 6 – – – – non-fixed-interest – – – – – –
Deposits retained on assumed reinsurance, and other investments –8 –8 –5 –7 –2 – Investments for the benefit of life insurance policyholders who bear the investment risk –263 271 – – – – Expenses for the management of investments, other expenses 162 172 55 49 27 36
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 the result for land and buildings includes rental income of €340m (340m). the result from investments in affiliated companies contains in particular the gain of €257m on the disposal of capital square pte. ltd., singapore. the gain is recognised under the item “investment income”. the expenses for the management of investments include running costs and expenses for repair and maintenance of property totalling €43m (53m). We earned interest income of €2,174m (2,123m) on loans and €1m (3m) on other securities held to maturity. other securities available for sale earned regular income of €4,647m (4,686m).
Munich Health Asset management Total €m 2011 Prev. year 2011 Prev. year 2011 Prev. year gains on the disposal of investments 96 41 1 – 5,438 3,743
Primary insurance Life Health Property-casualty €m 2011 Prev. year 2011 Prev. year 2011 Prev. year losses on the disposal of investments 242 263 267 228 310 147 management expenses, interest charges and other expenses 590 282 74 62 34 46 1 after elimination of intra-group transactions across segments.
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 34 // other operating result other operating income mainly comprises income of €486m (470m) from services rendered, interest and similar income of €118m (125m), income of €181m (125m) from the release/reduction of miscellaneous provisions and adjustments of values for receivables, and income of €45m (64m) from owner-occupied property, some of which is also leased out.
in addition to expenses of €335m (323m) for services rendered, other operating expenses chiefly include interest charges and similar expenses of €136m (136m), other write-downs of €63m (68m), and other tax of €47m (34m).
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 35 // other non-operating result, impairment losses of goodwill and finance costs the other non-operating income and expenses are unrelated to the conclusion, administration or settlement of insurance contracts or the administration of investments.
Besides foreign currency exchange gains of €2,582m (3,683m), the other non-operating income contains other non-technical income of €154m (156m).
the other non-operating expenses comprise foreign currency exchange losses of €2,812m (3,736m), write-downs of €110m (135m) on other intangible assets and other non-technical expenses of €521m (422m), such as expenses unrelated to the accounting period, project costs and other amounts that cannot be allocated elsewhere and restructuring expenses.
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 information on the group’s strategic debt can be found in the management report on page 104 and under (19) subordinated liabilities and (26) Bonds and notes issued.
“tax for prior years” is for expected changes to tax assessments for previous years.
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011
Disclosures on risks from insurance contracts and financial instruments munich Re’s reporting is based on various legal regulations governing risks it is exposed to as a result of its business operations: ifRs 4 prescribes disclosures on the type and extent of risks from insurance contracts. under ifRs 7, analogous disclosures on risks from financial instruments are required. Besides this, section 315 para. 2 item 2 of the german commercial code prescribes disclosures in the management report on risk management objectives and methods, hedging transactions and risks in connection with financial instruments. these requirements are specified in more detail in the german accounting standard no. 15 (dRs 15) for management reports as well as dRs 5 and dRs 5-20 for risk reporting and risk reporting at insurance companies.
to obtain a complete overview of the risks to which munich Re is exposed, the reader needs to refer to both the risk report and the disclosures on risks from insurance contracts and financial instruments in the notes to the financial statements, along with further information in the notes. Where necessary, we refer to the relevant information in the risk report and information on the respective items.
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 37 // Risks from life and health insurance business the risks presented in this section concern business from the segments life and health primary insurance, life reinsurance and munich health. the munich health segment comprises primary insurance and reinsurance contracts. since the disclosures are geared to the presentation of the relevant risks, munich health is not shown separately but reflected either in primary insurance or reinsurance, depending on the type of business involved.
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 the quantitative structure of our business is shown in the notes under (21) provision for future policy benefits.
– largely long-term contracts guaranteeing assumption of costs for medical treatment; provisions are established for covering increased costs on ageing
– in most cases, short-term contracts under which morbidity risks are assumed from cedants important risks mortality (short term): – increase in claims expenditure due to exceptional, one-off circumstances (e.g. pandemics) mortality (long term): – increase in claims expenditure due to sustained rise in mortality in the portfolio longevity: – increase in expected expenditure for annuities due to sustained rise in life expectancy in the portfolio disablement: – increased expenditure due to rise in the number of cases of disablement in the portfolio or a reduction in the average age at which the insured event occurs longevity: – increased expenditure due to rise in the average duration of annuity period mortality (short term): – increase in claims expenditure due to exceptional, one-off circumstances (e.g. pandemics) mortality (long term): – increase in claims expenditure due to sustained rise in mortality in cedants’ portfolios disablement: – increased expenditure for disability insurances in cedants’
portfolios longevity: – increase in expected expenditure for annuities due to a sustained rise in life expectancy in cedants’ portfolios.
morbidity: – increase in medical costs that cannot be absorbed through premium adjustments – increase in claims expenditure due to exceptional, one-off events (e.g. pandemics)
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 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 measure sensitivity to changes in biometric assumptions in life insurance and for long-term contracts in health insurance using an embedded value analysis; cf. page 258.
in reinsurance, we use the following discount rates for the provision for future policy benefits and the provision for outstanding claims: Discount rates used for provisions – Reinsurance (gross)
€m1 31.12.2011 Prev. year Without discount rate 2,625 2,519 covered by deposits retained on assumed reinsurance 7,815 5,121 1 after elimination of intra-group transactions across segments.
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 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. for deposits amounting to €1,096m (1,146m), cedants do not provide any interest-rate guarantee. therefore, for the remaining group of all provisions whose interest is not guaranteed by cedants, the application of the li ability adequacy test as per ifRs 4 ensures that the expected income from the investments covering the technical provisions is sufficient to meet future obligations as a whole.
Lapse risks in reinsurance, a lapse risk derives primarily from the indirect transfer of lapse risks from cedants. as a rule, both this risk and the financial risk from extraordinary termination of reinsurance contracts are largely ruled out through appropriate contract design.
in life primary insurance, the reported technical provision in the case of contracts with a surrender option is generally at least as high as the relevant surrender value. expected surrenders are taken into account in the amortisation of deferred acquisition costs in life primary insurance and reinsurance. the policyholder’s right in some contracts to maintain the contract with a waiver of premium and an adjustment of the guaranteed benefits constitutes a partial lapse and is taken into account in the calculations analogously. Based on the relevant legal parameters, reserves for primary health insurance business are calculated considering amounts payable due to cancellation of policies. the underlying assumptions are regularly checked.
Liquidity risks for munich Re, there could be a liquidity risk if the cash outflow for insurance claims payments and the costs related to the business were to exceed the cash inflow from premiums and investments. for our mainly long-term business, we
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 therefore analyse the expected future balance from cash inflows due to premium payments and outflows for payment of insurance claims and benefits plus costs.
With these numerical estimates, it should be borne in mind that these forward-looking data may involve considerable uncertainty.
in primary insurance, there is substantial risk minimisation through product design. for the most part, prudent actuarial assumptions are used in fixing the guaranteed benefits, in addition to which policyholders are granted a performance-related participation in surplus. more than 98% (99%) of the amounts shown under (21) provision for future policy benefits is apportionable to such contracts. given the relevant margins in the actuarial assumptions, it is also possible to fulfil the future guaranteed obligations without adjusting the provisions in the case of moderate changes in assumptions. of great significance for risk-balancing in the case of adverse developments are parts of the provision for premium refunds based on national regulations, parts of the provision for deferred premium refunds resulting from other revaluations, and unrealised gains and losses on investments taken as a basis for posting the provision for deferred premium refunds. Reference is made to (23) other technical provisions.
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 in health primary insurance, there is the additional possibility of adjusting premiums for most long-term contracts. if it is foreseeable that the assumptions behind the cal culation are permanently inadequate to cover expenses for claims or the actual mortal ities deviate significantly from the calculated ones, premiums can be raised accordingly, thus closely limiting the financial and balance sheet effects of cost increases in healthcare and permanent changes in morbidity.
Quantitative impacts of changes in assumptions on long-term insurance business munich Re measures the sensitivity of its long-term insurance business in life and health using an economic valuation on the basis of the cfo forum’s market consistent embedded Value principles and guidance; cf. page 60. this covers 100% (100%) of the long-term business in reinsurance and more than 94% (94%) of the long-term business in primary insurance.
1 in reinsurance, the change in this sensitivity from the previous year to 2011 derives mainly from a refinement of the model.
Reinsurance Primary insurance €m 2011 Prev. year 2011 Prev. year Embedded value at the balance sheet date 9,992 8,284 875 4,108 change in the event of a sustained increase in interest rates of 100 Bp –337 –294 2,369 1,099 change in the event of a sustained decrease in interest rates of 100 Bp 230 260 –4,009 –1,632 change in the event of a 10% decrease in the value of equities and real estate –17 – –210 –143 change in the event of an increase in mortality by 5% in the case of contracts mainly covering the mortality risk –1,647 –1,479 –48 –29 change in the event of a decrease in mortality by 5% in the case of contracts mainly covering the longevity risk –53 –34 –186 –58 change in the event of an increase in morbidity by 5% –272 –281 –85 –28 change in the event of an increase in the lapse rate by 10%1 –570 –10 112 14
as the proportion of business ceded is small, the following analysis of underwriting risks largely adopts a gross approach.
Premium risks the degree of exposure to estimation risks differs according to class of business and also between primary insurance and reinsurance. on the basis of the loss ratios and combined ratios of past years, conclusions can be drawn about the historical volatilities in the different classes of business and about possible interdependencies. the differences in volatility are due equally to fluctuations in claims burdens and fluctuations in the respective market-price level for the covers granted.
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 the estimation of technological, social and demographic parameters plays an important part in assessing and pricing risks assumed in all classes of business. Beyond this, in liability insurance, workers’ compensation insurance, credit insurance and sections of motor insurance, the development of economic and legal parameters can be significant, whereas especially in the lines of business fire and marine, and also in sections of engineering business and primary insurance, there is a high degree of sensitivity regarding the underlying assumptions about natural catastrophes. in the latter area, we include expected trends in our considerations when assessing the risks, with special importance given to a precise analysis of climate-related changes in the risk profile. the following table shows the combined ratios for the reinsurance property-casualty segment, including and excluding natural catastrophes: 1 the figure for 2011 is not adjusted for relief of 4.8 percentage points from economic risk transfer to the capital markets.
Premiums, loss ratios and combined ratios by class of business 2011 2010 2009 2008 2007 Gross premiums written in €m Reinsurance
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 large losses, by which we mean individual losses exceeding €10m, are of particular rele vance for property-casualty business in reinsurance. the analysis below shows that the volatility of the individual years in this loss category is mainly attributable to the respective intensity of natural catastrophe losses, whilst the other accumulation risks exhibit a distinctly less volatile pattern.
further information on risks from large and accumulation losses can be found in the risk report on page 131 f.
Reserve risks the provision for outstanding claims is subject to the risk that actual claims settlement may be less than or exceed the amount reserved (reserve risk). particular attention is given to those situations where the funds dedicated to future claims payments may be inadequate.
Combined ratio for the last ten years 1 the figure for 2011 is not adjusted for relief of 1.3 percentage points from economic risk transfer to the capital markets. 2 thereof World trade center and reserve strengthening at munich Re america: 17.1%.
in addition, there are loss scenarios which are highly influenced by the continuously evolving practice of jurisprudence under tort law, but also by a growing number of class actions. the main lines of business affected are product liability and professional liability in the usa. Besides this, we see increased uncertainties in the assessment of the liability scenarios for pure financial losses as a result of the massive change in economic parameters. We continue to carefully monitor trends and respond to the emergence of new information as appropriate.
in the area of bodily injury losses, munich Re carries a significant amount of reserves for individual claims where the claimant is severely injured and is in need of a high degree of individual, specialised medical treatment and care. us workers’ compensation business and motor liability business in some european countries are particularly affected by such claims. in both instances, coverage is provided for permanent disability cases where the claimant is expected to live for a considerable length of time and requires significant medical attention. accordingly, the loss provisions are highly sensitive especially to inflation of medical care costs and to the trend with regard to general life expectancy. owing to unexpectedly high price inflation, we have repeatedly had to increase these provisions in the past. actual claims reported are compared with projected amounts to check whether the loss development patterns used are still appropriate for projecting future claims payments.
Provisions for asbestos and environmental claims 31.12.2011 Prev. year €m1 Gross Net Gross Net 1 the previous year’s figures have been adjusted to eliminate currency translation effects.
for information on our risk management processes, reference is made to the risk report, pages 120–125.
the discounting of the provisions in primary insurance is also largely governed by supervisory law. an interest-rate risk arises for us here primarily for annuity insurance claims. however, as only around 15.0% (14.1%) of the actuarial and claims reserves to be considered in this connection in our property-casualty primary insurance are discounted, this risk can be assessed as small. if the investment income failed to cover the expenses arising from the discounting, this would result in losses not included in the calculations. in such a case, a reserve adjustment might be necessary. conversely, if the investment income were higher, this would result in unforeseen gains.
Impact of changes in underwriting assumptions on equity and the consolidated income statement as part of the monitoring of our portfolio, we check whether original assumptions need to be adjusted. By means of the ifRs 4 liability adequacy test, we review expected claims expenditure in the light of updated assumptions, taking into account our risk minimisation measures. if this test shows that an adjustment to technical provisions is required, the amount is recognised in the consolidated income statement.
the credit ratings of our retrocessionaires and reinsurers for the externally ceded share of our provisions are given on page 134 of the risk report, which also includes further information on credit risks on page 126 f.
40 // market risks from financing instruments – sensitivity analysis the sensitivity analysis shows the effect of capital market events on the value of investments and the corresponding impact on the consolidated income statement. sensitivities of investments to share prices, interest rates and exchange rates are analysed independently of one another, i.e. ceteris paribus, with the change in market value being determined under selected capital market scenarios as follows: the analysis of equities and equity derivatives is based on a change in market value of ±10 %, ± 30 % of the delta-weighted exposure. for interest-rate-sensitive instruments, on the other hand, the change in market value resulting from a global change in interest rates of ±200 Bp, ±100 and –50 Bp is determined using duration and convexity. owing to the low market interest-rate level, an assumed reduction in interest rates by 200 Bp would lead to interest rates becoming partially negative. By contrast, an interest-rate increase of 200 Bp is not unrealistic, which results in an asymmetrical presentation of the market interest-rate risk of investments sensitive to interest rates. the reaction of interest-rate derivatives to the change in market value of the underlying investment is taken into account using the delta of the derivative. By contrast, changes in exchange rates affect both interest-rate-sensitive and share-price-sensitive instruments. the sensitivity of instruments in foreign currency is determined by multiplying the euro market value by the assumed change of ±10 % in the exchange rates. alternative investments (private equity, hedge funds and commodities) are analysed together with the equities.
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 the non-linear effects of equity options or other asymmetrical strategies are not taken into account in this presentation owing to the delta-weighted approach selected.
Change in interest rates 31.12.2011 Prev. year Impact on Total change Impact on Total change profit Impact on in market profit Impact on in market €bn or loss1 equity1 value or loss1 equity1 value increase of 200 Bp –0.826 –12.026 –21.146 –0.930 –11.342 –18.909 increase of 100 Bp –0.539 –6.454 –11.521 –0.596 –5.957 –10.147 market values 171.288 162.777 1 gross before tax and policyholder participation in surplus.
Change in exchange rates 31.12.2011 Prev. year Impact on Total change Impact on Total change profit Impact on in market profit Impact on in market €bn or loss1 equity1 value or loss1 equity1 value decrease of 10% –4.774 –0.376 –5.150 –4.006 –0.463 –4.469 market values 55.014 52.053 1 gross before tax and policyholder participation in surplus.
42 // Related parties information on the remuneration of Board members and transactions with these persons can be found in the remuneration report, starting on page 32 and under (46) Remuneration report. transactions between munich Reinsurance company and subsidiaries that are to be deemed related parties have been eliminated in consolidation and are not disclosed in the notes. Business relations with unconsolidated subsidiaries are of subordinate importance as a whole; this also applies to business relations with associates.
43 // personnel expenses the following personnel expenses are included in the operating expenses, in the expenses for claims and benefits (for claims adjustment) and in the investment result: 44 // long-term incentive plan from 1999 to 2010, munich Reinsurance company set up long-term incentive plans, each with a term of seven years. from 1999 to 2009, the members of the Board of management and senior management in munich, and the top executives in munich Re’s international organisation were participants in the scheme. in 2010, this share-pricerelated remuneration plan was only provided for senior management members and selected top executives in the international organisation.
the personnel expenses and income incurred for the stock appreciation rights are determined on the basis of the change in the fair value of the underlying options. the fair value recognises not only the intrinsic value (difference between current share price and initial share price of the stock appreciation rights) but also the possibility of growth in value up to the date of forfeiture or expiry of the rights and is determined on the basis of recognised valuation models, taking into account the exercise conditions. at each balance sheet date, the fair value is calculated and reserved; this amount is recognised in full. in the year under review, provisions of €12.0m (36.7m) had to be posted for munich Reinsurance company. the personnel expense/income recognised in the income statement corresponds to the change in the provision in the year under review, taking into consideration any rights exercised. in 2011, this resulted in income of €18.3m (–15.1m). the weighted average share price for the stock appreciation rights exercised in 2011 was €118.35 for plan year 2004 and €122.85 for plan year 2005. the intrinsic value of the exercisable stock appreciation rights amounted to €0.7m at the balance sheet date.
Incentive Incentive Incentive Incentive Incentive Incentive Incentive Plan 2004 Plan 2005 Plan 2006 Plan 2007 Plan 2008 Plan 2009 Plan 2010 initial share price €88.65 €88.10 €108.87 €134.07 €121.84 €97.57 €109.11 intrinsic value 2011 for one right €4.13 €4.68 – – – – – fair value 2011 for one right – €5.07 €2.99 €1.83 €3.64 €7.78 €6.43 number of rights on 31 dec. 2004 456,336 forfeited 2,005 – – – – – –
number of rights on 31 dec. 2008 218,362 365,590 434,811 339,399 441,041 – –
number of rights on 31 dec. 2009 209,456 345,662 431,907 336,595 437,310 459,271 – additions – – – – – – 675,029 number of rights on 31 dec. 2010 87,292 271,064 430,254 335,216 435,848 457,984 675,029 additions – – – – – – 6,546
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 from 2002 to 2009, eRgo Versicherungsgruppe ag and some of its subsidiaries, as well as the meag companies, also set up long-term incentive plans at yearly intervals and with terms of seven years each. the persons eligible for participation – Board of management members, managing directors and, in individual cases, also top executives – were granted a defined number of stock appreciation rights in respect of munich Re shares. in 2010, these share-price-related remuneration plans were only provided for senior management at the meag companies and for the managing directors of meag munich eRgo Kapitalanlagegesellschaft mbh. the design of the plans is identical to that of munich Re’s long-term incentive plans and they are accounted for in the same way. the obligations arising from the long-term incentive plans are covered by munich Re shares or options on munich Re shares. in the year under review, provisions of €2.8m (8.9m) had to be posted for the eRgo and meag companies. the personnel expense/income recognised in the income statement corresponds to the change in the provision in the year under review, taking into consideration any rights exercised. in 2011, this resulted in income of €3.2m (–0.8m). the weighted average share price for the stock appreciation rights exercised in 2011 was €122.65 for plan year 2004 and €120.61 for plan year 2005. the intrinsic value of the exercisable stock appreciation rights amounted to €0.1m at the balance sheet date.
number of rights on 31 dec. 2007 60,297 149,579 166,199 111,399 – – – additions – – – – 173,153 – –
number of rights on 31 dec. 2008 49,993 125,360 162,233 109,802 172,552 – – additions – – – – – 148,834 –
the final number of psus is calculated by multiplying the number of psus at plan commencement by the percentage achievement of the performance target at plan termination. the number of psus may fluctuate between 0 and 1.5 times the initially allocated number. payment is capped if the tsR doubles. the maximum amount payable is limited to 150% of the target amount for members of the Board of management and company management, and to 300% of the target amount for senior management.
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 in the financial year 2011, expenses of €8.5m (11.3m) were recognised for the mid-term incentive plan. the provision at the reporting date amounted to €35.1m (27.0m).
46 // Remuneration report the members of munich Reinsurance company’s Board of management received remuneration totalling €9.8m (11.7m). the total remuneration of munich Reinsurance company’s supervisory Board amounted to €1.5m (1.6m); not included in this figure is €0.2m (0.2m) for membership of supervisory boards at other group companies, so that the overall amount came to €1.7m (1.8m).
payments to retired members of the Board of management or their surviving dependants totalled €5.8m (5.6m).
number of rights (for 100% achievement of objectives) on 31 december 2009 87,436 – – number of rights (for 100% achievement of objectives) on 1 January 2010 87,436 38,284 –
number of rights (for 100% achievement of objectives) on 31 december 2010 87,191 38,284 – number of rights (for 100% achievement of objectives) on 1 January 2011 87,191 38,284 63,769 additions – – –
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 47 // number of staff the number of staff employed by the group at year-end totalled 24,299 (24,537) in germany and 22,907 (22,378) in other countries.
Breakdown of auditor’s fees €k 2011 Prev. year audits of financial statements 7,374 8,601 other assurance and appraisal services 2,767 3,131 tax consultancy services 1,368 1,427 other services 918 1,295
consolidated financial statements // notes munich Re gRoup annual RepoRt 2011 in accordance with the german insurance control act (Vag), all german life and health insurers of our group are obliged to be members of a protection fund. for life insurers, the protection fund can levy special contributions of up to one per mille of total net technical provisions, in addition to a regular contribution of 0.2 per mille of total net technical provisions. for the health insurers, there is no pre-financing, but the fund may levy special contributions of up to two per mille of net technical provisions to fulfil its functions. this could give rise to a potential payment obligation of €111m (113m) at group level. the functions and powers of the statutory protection fund for life insurance rest with protektor lebensversicherungs-ag, and those of the statutory protection fund for health insurance with medicator ag.
50 // Restrictions regarding transfer of capital our subsidiaries munich Re america und munich american Reassurance company show a negative earned surplus in their local financial statements as at 31 december 2011 (statutory accounting principles). for this reason, the companies can only pay dividends or transfer capital to the parent company with the approval of the competent us regulatory authority.
payments from operating leases concern in particular rents for offices and business premises of the group. they include extension options as well as restrictions regarding the agreement of subleases. in the period under review, minimum lease payments of €82m (74m) and contingent lease payments of €7m (9m) were recognised as an expense. the total of future minimum sublease payments expected to be received under non-cancellable subleases was €22m (24m) at the reporting date.
Munich Re as lessor operating leases mainly involve leased property. the total of future minimum lease payments under non-cancellable leases at the balance sheet date was €974m (911m).
there were several finance leases for property at the balance sheet date: net investments in leases correspond to the carrying amounts of the lease payments receivable at the balance sheet date.
Due dates 31.12.2011 Prev. year Gross Interest Net Gross Interest Net €m investment element investment investment element investment minimum lease payments not later than one year 1 1 – – – – minimum lease payments later than one year and not later than five years 2 – 2 – – – minimum lease payments later than five years 74 57 17 – – – Total minimum lease payments 77 58 19 – – – unguaranteed residual values 41 37 4 – – –
53 // earnings per share diluting effects to be disclosed for the calculation of earnings per share were not pres ent either in the financial year or in the previous year. earnings per share can be potentially diluted in future through the issue of shares or subscription rights from amounts authorised for increasing the share capital and from contingent capital.
54 // proposal for appropriation of profit munich Reinsurance company’s net retained profits for 2011 according to its financial statements prepared on the basis of the german commercial code amount to €1,118,842,577.07. 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 €6.25 per dividend-bearing share, with the remaining amount apportionable being carried forward to new account.
list of shareholdings as at 31 december 2011 in accordance with section 313 para. 2 of the German commercial code
consolidated financial statements // notes munich Re GRoup annual RepoRt 2011
� %�share Company�and�registered�seat� of�capital mR Beteiligungen GBp aG & co. KG, Grünwald2 100.0000 mR Beteiligungen usd aG & co. KG, Grünwald2 100.0000 mR Rent-investment Gmbh, munich 100.0000 mR solar Gmbh & co. KG, nuremberg 100.0000 mR solaR sas deR WeliVit solaR italia sRl, Bolzano 100.0000 msp underwriting ltd., london 100.0000 mtu moje towarzystwo ubezpieczeniowe s. a., sopot 100.0000 mu068 mR placem (fcp), munich4 1.0500 munich american holding corporation, Wilmington, delaware 100.0000 munich american life Reinsurance company, atlanta, Georgia 100.0000 munich american Reassurance company, atlanta, Georgia 100.0000 munich-american Reassurance company pac, inc., atlanta, Georgia4 0.0000 munich atlanta financial corporation, atlanta, Georgia 100.0000 munich health holding aG, munich3 100.0000 munich health north america, inc., Wilmington, delaware 100.0000 munich holdings ltd., toronto 100.0000 munich holdings of australasia pty. ltd., sydney 100.0000 munich life management corporation ltd., toronto 100.0000 munich mauritius Reinsurance co. ltd., port louis 100.0000 munich Re america corporation, Wilmington, delaware 100.0000 munich Re america services inc., Wilmington, delaware 100.0000 munich Re capital limited, london 100.0000 munich Re capital markets new York, inc., Wilmington, delaware 100.0000 munich Re do Brasil Resseguradora s.a., são paulo 100.0000 munich Re holding company (uK) ltd., london 100.0000 munich Re of malta holding limited, floriana 99.9999 munich Re of malta p.l.c., floriana 99.9999 munich Re stop loss, inc., Wilmington, delaware 100.0000 munich Re uK services limited, london 100.0000 munich Re underwriting limited, london 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 100.0000 munichre General services limited, london 100.0000 n.m.u. (holdings) limited, leeds 100.0000 neckermann lebensversicherung aG, fürth 100.0000 neckermann Versicherung aG, nuremberg 100.0000 new Reinsurance company ltd., Zurich 100.0000 nightingale legal services ltd., colchester 100.0000 nmu Group limited, london 100.0000 northern marine underwriters limited, leeds 100.0000 oiK mediclin, Wiesbaden4 66.6672 olympic health management services inc., Bellingham, Washington 100.0000 meaG lambda euR em local, munich4 100.0000 meaG lambda euR, Grünwald4 100.0000 meaG lambda GBp, Grünwald4 100.0000 meaG lambda usd, Grünwald4 100.0000 meaG lambda usd-cop, Grünwald4 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 placemant, Grünwald4 100.0000 meaG new York corporation, Wilmington, delaware 100.0000 meaG noK-fonds, munich4 100.0000 meaG optimaX, munich4 100.0000 meaG pK-noRd, munich4 100.0000 meaG pK-West, munich4 100.0000 meaG prestige, munich4 100.0000 meaG Renditeplus, munich4 100.0000 meaG ReVo, munich4 100.0000 meaG saG 1, munich4 100.0000 meaG sustainability, munich4 100.0000 meag tandem (spezialfonds), munich4 100.0000 meaG uK Reserve 1, munich4 100.0000 meaG us dollar Bond, munich4 100.0000 meaG us Real estate management holdings, inc., Wilmington, delaware 100.0000 meaG us Reserve, munich4 100.0000 meaG usd equities, munich4 100.0000 meaG Vertical, munich4 100.0000 meaG Vidas 4, munich4 100.0000 meaG Vidas Rent 2, munich4 100.0000 meaG Vidas Rent 3, munich4 100.0000 meaG Vigifonds, munich4 100.0000 meaG Vla, munich4 100.0000 mednet Bahrain W.l.l., Bahrain 100.0000 mednet Greece s.a., athens 78.1419 mednet Gulf e.c., manama 100.0000 mednet holding Gmbh, munich 100.0000 mednet international ltd., nicosia 100.0000 mednet saglik hizmetleri Yönetim ve danismanlik anonim sirketi, istanbul 100.0000 mednet saudi arabia llc, Riyadh 100.0000 mednet uae fZ l.l.c., dubai 100.0000 merkur Grundstücks- und Beteiligungs-Gesellschaft mit beschränkter haftung, düsseldorf 100.0000 midland-Guardian co., amelia, ohio 100.0000 midwest enterprises, inc., miami, florida 100.0000 modern life insurance company of arizona, inc., phoenix, arizona 100.0000 mR Beteiligungen 1. Gmbh, munich3 100.0000 mR Beteiligungen 18. Gmbh & co. immobilien KG i.G., Grünwald2 100.0000 mR Beteiligungen 19. Gmbh, munich 100.0000 mR Beteiligungen 2. euR aG & co. KG, Grünwald2 100.0000 mR Beteiligungen 3. euR aG & co. KG, Grünwald2 100.0000 mR Beteiligungen euR aG & co. KG, Grünwald2 100.0000
VictoRia us property investment Gmbh, düsseldorf 100.0000 VictoRia us property Zwei Gmbh, düsseldorf 100.0000 VictoRia Vierte Beteiligungsgesellschaft mbh, düsseldorf 100.0000 Victoria Vierter Bauabschnitt Gmbh & co. KG, düsseldorf 100.0000 Victoria Zivotno osiguranje d.d, Zagreb 74.9000 VictoRia-VolKsBanKen eletbiztosító Zrt., Budapest 74.8000 VictoRia-VolKsBanKen poist´ovna, a.s., Bratislava 74.8000 VictoRia-VolKsBanKen Biztosító Zrt., Budapest 74.8000 VictoRia-VolKsBanKen pojišt´ovna, a.s., prague 74.5373 VictoRia-VolKsBanKen Versicherungsaktiengesellschaft, Vienna 74.6269 Vorsorge lebensversicherung aktiengesellschaft, düsseldorf 100.0000 Vorsorge luxemburg lebensversicherung s.a., munsbach 100.0000 Watkins syndicate hong Kong limited, hong Kong 67.0000 Watkins syndicate middle east limited, dubai 100.0000 Watkins syndicate singapore pte. limited, singapore 100.0000 welivit aG, nuremberg 100.0000 WfB stockholm management aB, stockholm4 50.0000 Windpark Geisleiden Gmbh & co KG, Bremen 100.0000 Windpark Großberendten 2 Gmbh & co KG, Bremen 100.0000 Windpark hilmersdorf Gmbh & co KG, Bremen 100.0000 Windpark Klein Bünzow Gmbh & co KG, Bremen 100.0000 Windpark Kruge Gmbh & co KG, Bremen 100.0000 Windpark langengrassau Gmbh & co KG, Bremen 100.0000 Windpark marwitz Gmbh & co KG, Bremen 100.0000 Windpark mittelhausen Gmbh & co KG, Bremen 100.0000 Windpark sassenberg Gmbh & co KG, Bremen 100.0000 Windsor health Group, inc., Brentwood, tennessee 100.0000 Windsor health plan, inc., Brentwood, tennessee 100.0000 Windsor homecare network, llc, Brentwood, tennessee 100.0000 Windsor management services, inc., nashville, tennessee 100.0000 wpd Windpark Wergzahna Gmbh & co KG, Bremen 100.0000 wse solarpark spanien 1 Gmbh & co. KG, fürth 75.1243
� %�share Company�and�registered�seat� of�capital münchener de argentina servicios técnicos s. R. l., Buenos aires 100.0000 münchener de colombia s.a. corredores de Reaseguros, santa fe de Bogotá d.c. 100.0000 münchener de mexico s. a., mexico 100.0000 münchener de Venezuela c.a. intermediaria de Reaseguros, caracas 100.0000 münchener ecoconsult Gmbh i.l., munich 100.0000 münchener finanzgruppe aG Beteiligungen, munich 100.0000 münchener Vermögensverwaltung Gmbh, munich 100.0000 munich canada systems corporation, toronto 100.0000 munich columbia square corp., Wilmington, delaware 100.0000 munich health daman holding ltd., abu dhabi 51.0000 munich management pte. ltd., singapore 100.0000 munich Re america Brokers, inc., Wilmington, delaware 100.0000 munich Re america management ltd., london 100.0000 munich Re capital markets Gmbh, munich 100.0000 munich Re General (uK) plc, london 100.0000 munich Re india services private limited, mumbai 100.0000 munich Re Japan services K. K., tokyo 100.0000 munich Re life and health (uK) plc., london 100.0000 munich Re underwriting agents (difc) limited, dubai 100.0000 munich Reinsurance company life Reinsurance eastern europe / central asia i.l., moscow 100.0000 munich-american Global services (munich) Gmbh, munich 100.0000 munich-american Risk partners Gmbh, munich 100.0000 munich-canada management corp. ltd., toronto 100.0000 munichfinancialGroup aG holding, munich 100.0000 munichfinancialGroup Gmbh, munich 100.0000 munichfinancialservices aG holding, munich 100.0000 munichre new Zealand service limited, auckland 100.0000 munichre service limited, hong Kong 100.0000 naretoblera 170017 s.l., madrid 100.0000 nassau incasso services den haag B.V., the hague 100.0000 nerruze 120012 s.l., madrid 100.0000 nicamballo 1001 s.l., playa del inglés 100.0000 ohm services of texas, inc., Bellingham, Washington 100.0000 olbodeca 4004 s.l., playa del inglés 100.0000 one state street intermediaries, hartford, connecticut 100.0000 oracuet 160016 s.l., playa del inglés 100.0000 oragulno 9009 s.l., playa del inglés 100.0000 oraunte 130013 s.l., playa del inglés 100.0000 orrazipo 110011 s.l., madrid 100.0000 otusleme 3003 s.l., playa del inglés 100.0000 p.a.n. Verwaltungs Gmbh, Grünwald 99.0000 platinia Verwaltungs-Gmbh, munich 100.0000 pRoRendita dRei Verwaltungsgesellschaft mbh, hamburg 100.0000 pRoRendita eins Verwaltungsgesellschaft mbh, hamburg 100.0000 pRoRendita fÜnf Verwaltungsgesellschaft mbh, hamburg 100.0000 pRoRendita VieR Verwaltungsgesellschaft mbh, hamburg 100.0000
Kuik & partners Gerechtsdeurwaarders & incassobureau B.V., eindhoven 100.0000 larus Vermögensverwaltungsgesellschaft mbh, munich 100.0000 laVG Zuid B.V., Breda 100.0000 legal net Gmbh, munich 100.0000 longial Versicherungsmakler Gmbh, düsseldorf 100.0000 m:editerran power der welivit solar italia Gmbh & co. KG, Bolzano 100.0000 m:editerran poWeR fRance Gmbh, nuremberg 100.0000 m:editerran poWeR Gmbh & co. KG, nuremberg 100.0000 mam munich asset management Gmbh, munich 100.0000 marbury agency, inc., amelia, ohio 100.0000 maYfaiR financing Gmbh, munich 100.0000 maYfaiR holding Gmbh & co. singapur KG, düsseldorf 71.4285 maYfaiR holding Gmbh, düsseldorf 100.0000 meaG hong Kong limited, hong Kong 100.0000 meaG luxembourg s.à r.l., luxembourg 100.0000 meaG property management Gmbh, munich 100.0000 meaG Real estate erste Beteiligungsgesellschaft, munich 100.0000 mechanical & materials engineering, Wilmington, delaware 100.0000 mediastream consulting Gmbh, Grünwald 100.0000 mediastream dritte film Gmbh, Grünwald 100.0000 mediastream film Gmbh, Grünwald 100.0000 mediastream Vierte medien Gmbh, Grünwald 100.0000 mediastream Zweite film Gmbh, Grünwald 100.0000 mednet europa Gmbh, munich 100.0000 mednet international offshore sal, Beirut 99.6700 medWell Gesundheits-aG, cologne 100.0000 micura pflegedienste Berlin Gmbh, Berlin 100.0000 micura pflegedienste Bremen Gmbh, Bremen 100.0000 micura pflegedienste dachau Gmbh, dachau 51.0000 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 munich Gmbh, munich 100.0000 micura pflegedienste munich ost Gmbh, munich 65.0000 micura pflegedienste münster Gmbh, münster 100.0000 micura pflegedienste nürnberg Gmbh, nuremberg 51.0000 mR Beteiligungen 14. Gmbh, munich 100.0000 mR Beteiligungen 15. Gmbh, munich 100.0000 mR Beteiligungen 16. Gmbh, munich 100.0000 mR Beteiligungen 18. Gmbh, Grünwald 100.0000 mR Beteiligungen aG, Grünwald 100.0000 mR eRGo Beteiligungen Gmbh, munich 100.0000 mR parkview holding corporation, Wilmington, delaware 100.0000 mR Rent-management Gmbh, munich 100.0000 mR solar Beneixama Gmbh, nuremberg 100.0000 multiasistencia europea, s.a., madrid 100.0000 münchener consultora internacional s.R.l., santiago de chile 100.0000
VictoRia immobilien-fonds Gmbh, düsseldorf 100.0000 VictoRia us Beteiligungsgesellschaft mbh, munich 100.0000 Victoria Vierter Bauabschnitt management Gmbh, düsseldorf 100.0000 Victoria Vip ii, inc., Wilmington, delaware 100.0000 Viwis Gmbh, munich 100.0000 Vorsorge service Gmbh, düsseldorf 100.0000 VV-consulting Gesellschaft für Risikoanalyse, Vorsorgeberatung und Versicherungsvermittlung Gmbh, Vienna 100.0000 VV-consulting többesügynöki Kft., Budapest 100.0000 VV-immobilien Gesellschaft für haus- und Grundbesitzverwaltung Gmbh, Vienna 100.0000 welivit new energy Gmbh, fürth 100.0000 welivit solar españa Gmbh, nuremberg 100.0000 Welivit solar italia s.r.l., Bolzano 100.0000 Windpark langengrassau infrastruktur GbR, Bremen 83.3300 Windpark osterhausen-mittelhausen infrastruktur GbR, Bremen 85.7100 Windsor dme operations, inc., Brentwood, tennessee 100.0000 Windsor long term care, llc, Brentwood, tennessee 100.0000 Wisma atRia holding Gmbh & co. singapur KG, düsseldorf 65.0000 Wne solarfonds süddeutschland 2 Gmbh & co. KG, nuremberg 100.0000 Wohnungsgesellschaft Brela mbh, hamburg 100.0000 Zacobu 110011 s.l., madrid 100.0000 Zacuba 6006 s.l., madrid 100.0000 Zacubacon 150015 s.l., madrid 100.0000 Zafacesbe 120012 s.l., madrid 100.0000 Zagacobl 180018 s.l., playa del inglés 100.0000 Zapaceba 170017 s.l., playa del inglés 100.0000 Zapacubi 8008 s.l., madrid 100.0000 Zarzucolumbu 100010 s.l., madrid 100.0000 Zetaza 4004 s.l., madrid 100.0000 Zicobucar 140014 s.l., madrid 100.0000 Zucaelo 130013 s.l., madrid 100.0000 Zucampobi 3003 s.l., madrid 100.0000 Zucarrobiso 2002 s.l., madrid 100.0000 Zucobaco 7007 s.l., madrid 100.0000 Zulazor 3003 s.l., madrid 100.0000 Zumbicobi 5005 s.l., madrid 100.0000 Zumcasba 1001 s.l., madrid 100.0000 Zuncabu 4004 s.l., madrid 100.0000 Zuncolubomcasa 9009 s.l., madrid 100.0000
Associates�accounted�for�using�the�equity�method 13th & f associates limited partnership, Washington d.c.9 80.0000 apollo munich health insurance co. ltd., hyderabad 25.5300 Bhs tabletop aG, selb1 (mc €41m) 28.9134 Bloemers holding B. V., Rotterdam 22.7273 consorcio internacional de asecuradores de crédito, s.a., madrid5 19.4982 consortia Versicherungs-Beteiligungsgesellschaft mbh, nuremberg 33.7027 pRoRendita ZWei Verwaltungsgesellschaft mbh, hamburg 100.0000 proVictor immobilien Gmbh, düsseldorf7 50.0000 proVictor property fund iV management, inc., atlanta 51.0000 proVictor property fund V management, inc., atlanta 51.0000 proVictor property fund Vi management, inc., atlanta 51.0000 proVictor us corporation, atlanta 100.0000 Ra-hart investment company, dallas, texas 100.0000 Reaseguradora de las américas s. a., la habana 100.0000 Roanoke international insurance agency inc., schaumburg, illinois 100.0000 Roanoke trade insurance inc., schaumburg, illinois 100.0000 Roanoke trade services of texas inc., schaumburg, illinois 100.0000 Romney holdings limited, dublin 100.0000 schloss hohenkammer Gmbh, hohenkammer 100.0000 schrömbgens & stephan Gmbh, Versicherungsmakler, düsseldorf 100.0000 seldac 1. Kommunaler-Rendite-fonds Gmbh & co. KG, düsseldorf 100.0000 seldac 1. Verwaltungs-Gmbh, düsseldorf 100.0000 solarfonds Garmisch-partenkirchen 2011 Gmbh & co. KG, nuremberg 99.7500 sopockie towarzystwo doradcze sp. z o.o., sopot 100.0000 staRsun s.R.l., corciano 100.0000 stichting aandelen Beheer d.a.s. holding, amsterdam 100.0000 sydney euro-center pty. ltd., sydney 100.0000 synkronos italia sRl, milan 60.1000 tas assekuranz service Gmbh, frankfurt/main 100.0000 tas touristik assekuranz service international Gmbh, frankfurt/main 100.0000 tas touristik assekuranzmakler und service Gmbh, frankfurt/main 100.0000 teginago 2002 s.l., playa del inglés 100.0000 tennessee utilities assistance fund, inc., Brentwood, tennessee 100.0000 tenoslema 110011 s.l., playa del inglés 100.0000 tGR Biztosítás többesügynöki Zrt., Budapest 100.0000 the national senior membership Group, Bellingham, Washington 100.0000 three lions underwriting ltd., london 100.0000 tillobesta 180018 s.l., madrid 100.0000 tis holdings inc., schaumburg, illinois 100.0000 titus aG, düsseldorf 100.0000 trade insurance services inc, schaumburg, illinois 100.0000 trusted documents Gmbh, nuremberg 100.0000 us pRopeRties Va Verwaltungs-Gmbh, düsseldorf 100.0000 VB VictoRia Zastupanje u osiguranju d.o.o., Zagreb 74.9000 Verwaltungsgesellschaft “poRt VictoRia” Gmbh, hamburg 100.0000 VfG Vorsorge-finanzierungsconsulting Gmbh, Vienna 100.0000 VictoRia asien immobilienbeteiligungs Gmbh & co. KG, munich 100.0000 VictoRia asien Verwaltungs Gmbh, munich 100.0000 VictoRia erste Beteiligungsgesellschaft mbh, düsseldorf 100.0000 VictoRia immobilien management Gmbh, munich 100.0000
6 no significant influence, as there are no close links with munich Re of the kind defined in ias 28.7.
We conducted our audit of the consolidated financial statements in accordance with section 317 of the German commercial code and German generally accepted standards for the audit of financial statements promulgated by the institute of public auditors in Germany (idW). those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the Group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. the effectiveness of the accounting -related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the Group management report are examined primarily on a test basis within the framework of the audit. the audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and Group management report. We believe that our audit provides a reasonable basis for our opinion.
Asset-liability management // management of a business in a way that coordinates decisions on assets and liabilities. specifically, it is the ongoing process of formulating, implementing, monitoring, and revising strategies related to assets and liabilities in an attempt to achieve financial objectives for a given set of risk tolerances and constraints.
Captive // an insurance company established as a subsidiary of one or more industrial/trading companies or groups mainly for the purpose of insuring the risks of these companies and their affiliates.
Composite insurer // insurer that writes both life and non-life business.
Cycle management // insurance, reinsurance and retrocession markets are subject to global and regional cycles that may have external (interest-rate development, economic development, major losses, etc.) and internal causes (price competition, premium calculation methods, etc.). managing the cycle means continuously analysing its course, taking proactive strategic measures and ensur ing risk-adequate terms (prices, scope of cover, and conditions) in every phase of the cycle.
Deferred acquisition costs // costs incurred for the acquisition or the renewal of insurance policies (e.g. commission, cost of processing applications) which are capitalised and amortised over the term of the contracts.
Embedded value // a valuation measure for long-term insurance business. embedded value is the total of a company‘s equity and the value of its in-force covered business and the assets backing the associated liabilities. the latter is the present value of net future profits from the in-force covered business, established using actuarial methods. the value of in-force covered business additionally takes into account the determined cost of holding capital for the whole term of the portfolio. munich re calculates embedded value in accordance with the mceV (market consistent embedded Value) principles developed by the cfo forum.
Expense ratio // percentage ratio of operating expenses to earned premiums.
Guaranteed interest // interest rate to be paid out by the insurer on the savings component of the insurance premium under an endowment insurance policy. this minimum interest rate is contractually guaranteed.
Longevity // the insurer’s risk that an insured person lives longer than expected or that life expectancy within an insured portfolio rises as a whole.
Loss ratio // percentage ratio of claims expenses to earned premiums.
Major loss // loss which is of particular significance to insurers or reinsurers because its amount or other criteria are exceptional in relation to historical loss experience. a distinction is typically made between man-made major losses and those caused by natural catastrophes.
Policyholders’ bonuses // in life and health insurance, policyholders are entitled contractually and by law to an appropriate share of the surplus earned by their insurers. the amount of this bonus is fixed anew each year. as a rule, in life insurance these bonuses increase the benefit payable on maturity of the policy or on occurrence of the insured event; in health insurance, they are paid by way of premium refunds.
Provision for future policy benefits // technical provision calculated using actuarial methods to cover future benefits to which policyholders are entitled, especially in life, health and personal accident insurance. it amounts to the balance of the present value of future obligations less the present value of future premiums.
Public private partnership (PPP) // long-term arrangement between private companies and public bodies with the aim of providing public services in a more economical manner.
Renewals // although obligatory reinsurance agreements contain agreed periods of notice, they are generally concluded for an unlimited duration. these treaties between insurers and reinsurers may therefore run for long periods. in such cases, the treaty conditions are usually adjusted in renewal negotiations each year, and the treaties renewed.
Retrocessionaire // company that reinsures reinsurance business assumed by other insurance companies. retrocession enables the reinsurer to lay off part of its risk to other insurance companies.
Risk exposure // essentially, the extent of a risk in terms of its potential deviation from the expected value under certain probability assumptions; in connection with accounting, the term is also used to quantify the potential balance sheet loss resulting for a company from certain assets.
Scenario analysis // type of analysis used to investigate how certain key figures (market values or carrying amounts) change in the event that predefined market developments occur. scenario analyses usually take the form of average if-then analyses.
Tail dependencies // the result of risk drivers interacting in exceptional situations, i.e. different lines of business, geographies and risk types being affected by extreme events at the same time. compared with a situation where the risks are assumed to be independent, this results in a lesser diversification effect, which is reflected in a higher capital requirement.
Technical result // Balance of income and expenses apportionable to (re)insurance business. the technical result includes an interest component, the income from technical interest, which is reallocated from the non-technical result.
Variable annuities // a special form of unit-linked life insurance where the investment risk is borne primarily by the policyholder but the insurer guarantees a minimum payment on occurrence of the insured event.
Annual General Meeting 10 ff, 24, 31, 106 ff, 148 asset-liability management (alm) 61, 105 ff audit committee 23 ff, 30, 64 auditor’s report 288
Capital management 12 ff, 105 f cash flow statement 110 ff, 160 ff clients and client relationships 112 ff corporate climate centre (ccc) 137 corporate governance 19 ff corporate governance report 26 ff corporate governance statement 26 ff corporate responsibility 32, 118 f credit and bonding 53, 55, 84 cycle management 84, 293
Earnings per share 13, 156, 276 erGo direkt 7, 114 financial position 103 ff
Letter to shareholders 3 ff life 76 ff, 86 ff microinsurance 119 munich health 17, 56 f, 113 ff
General information // important aDDresses munich re Group annual report 2011 important addresses
Germany münchener rückversicherungs-Gesellschaft aktiengesellschaft in münchen königinstrasse 107 80802 münchen www.munichre.com
Australia munich holdings of australasia pty limited munich re house 143 macquarie street sydney, nsW 2000
Switzerland new reinsurance company ltd. Zollikerstrasse 226 ch-8008 Zürich tel.: +41 (0)58 226 65 00 fax: +41 (0)44 811 99 01 info@newre.com www.newre.com
USA munich reinsurance america, inc. 555 college road east princeton, nJ 08543-5241 info@munichreamerica.com www.munichreamerica.com munich american reassurance company 56 perimeter center east, n.e. suite 500 atlanta, Ga 30346-2290 info@marclife.com www.marclife.com further addresses may be obtained at www.munichre.com
info@ergo.de www.ergo.de erGo Versicherung aG Victoriaplatz 1 40198 Düsseldorf tel.: +49 211 4 77-71 00 (from outside Germany)
Service for investors and analysts if you have general questions on munich re shares, please use our shareholder hotline: // tel.: +49 89 38 91-22 55 // shareholder@munichre.com if you are an institutional investor or analyst, please contact our investor relations team: christian Becker-hussong
Service for media Journalists may address their queries to our media relations Department: Johanna Weber
Editorial deadline: 28 February 2012 Online publication date: 13 March 2012 Print publication date: 2 April 2012
Picture credits pp. 3, 8, 9, 21: Robert Brembeck p. 7: Getty Images
Munich Re’s market capitalisation €bn 17.0 21.4 21.5 22.9 29.0 Other Combined ratio