Unconsolidated affi liated companies and associates not valued at equity 67 85
Notes Notes to the consolidated balance sheet – Equity and liabilities
1 Until change of issuer on 13 December 2007, Munich Re Finance B. V., Amsterdam. 2 Until maturity of the bonds from 2003 and the first possible call date of the bonds from 2007, annual outflows of liquidity occur for the interest payments of €289m and £23m respectively.
To optimise our capital structure and with it our cost of capital, we placed a subordinated bond with a total volume of €1.5bn in June 2007. It is a perpetual bond and callable by Munich Reinsurance Company from ten years after the date of issue. Up to then, it will have a fixed coupon rate of 5.767% and thereafter a floating rate. The fair value of the subordinated bond is hedged by means of an interest-rate swap. The changes in value of the subordinated liability and of the interest-rate swap are shown in the finance costs with impact on profit or loss in each case.
Life and health Property-casualty Life and health Property-casualty €m1 2007 Prev. year 2007 Prev. year 2007 Prev. year 2007 Prev. year .2007 Prev. year
Status at 31 Dec. fi nancial year 183 188 3,820 4,123 104 92 1,612 1,467 5,719 5,870 1 After elimination of intra-Group transactions across segments.
Gross provision for future policy benefi ts according to type of insurance cover €m 31.12.2007 Prev. year
Life and health Property-casualty Life and health Property-casualty €m1 31.12.2007 Prev. year 31.12.2007 Prev. year 31.12.2007 Prev. year 31.12.2007 Prev. year 31.12.2007 Prev. year e_23_Anhang_Pass1_207-212.indd 211e_23_Anhang_Pass1_207-212.indd 211 07.03.2008 18:42:28 Uhr07.03.2008 18:42:28 Uhr
Reinsurance Primary insurance Total €m1 31.12.2007 Prev. year 31.12.2007 Prev. year 31.12.2007 Prev. year
In the property-casualty segment, the claims reserve consists of the case reserve and the IBNR reserve. The case reserve reflects the amount which is expected to be needed to settle claims which are known and reported at the balance sheet date. The major part of this provision is measured at face value. A smaller part refers to provisions for annuities in personal accident, liability and workers’ compensation insurance. These are calculated as the present value of the expected future payments. The respective discount rates are disclosed in Note (38) Risks from insurance contracts in the property-casualty segment. The biometric actuarial assumptions are selected using appropriate actuarial principles. The IBNR reserve is calculated using actuarial methods on the basis of current run-off triangles for payments made and reported losses.
Status at 31 Dec. fi nancial year 94,935 94,660 e_23_Anhang_Pass1_207-212.indd 212e_23_Anhang_Pass1_207-212.indd 212 07.03.2008 18:42:28 Uhr07.03.2008 18:42:28 Uhr
With these estimates, it should be borne in mind that the expected timing of payments naturally involves considerable uncertainty.
Changes in the consolidated group result mainly from the acquisition of the
The claims expenses for the year under review show both payments made for the year under review and expenses for posting the claims reserve in that year. The provisions set up for claims from previous years are regularly updated using best estimates based on claims information and past claims experience. The respective change is shown under claims expenses for previous years.
Currency translation differences – 2,083 – 395 –1,688 –1,911 – 231 –1,680
For the year under review 4,264 182 4,082 3,493 163 3,330
Status at 31 Dec. fi nancial year 38,859 3,030 35,829 40,462 3,906 36,556 e_24_Anhang_Pass2_213-217.indd 213e_24_Anhang_Pass2_213-217.indd 213 07.03.2008 18:42:40 Uhr07.03.2008 18:42:40 Uhr
The values in the following run-off triangles cover more than 99% of our Group’s portfolio of property-casualty business.
Development of provision for premium refunds based on national regulations €m 2007 Prev. year
Reinsurance Primary insurance Total €m¹ 31.12.2007 Prev. year 31.12.2007 Prev. year² 31.12.2007 Prev. year²
Thereof resulting from other revaluations (recognised in profi t or loss) – – 3,354 2,753 3,354 2,753
Development of provision for deferred premium refunds €m 2007 Prev. year
Change resulting from unrealised gains and losses on investments (recognised directly in equity) – 1,371 – 1,305
Status at 31 Dec. fi nancial year 4,714 5,485 e_24_Anhang_Pass2_213-217.indd 216e_24_Anhang_Pass2_213-217.indd 216 07.03.2008 18:42:41 Uhr07.03.2008 18:42:41 Uhr
In the case of defined benefit plans, the amount of the defined benefits is largely dependent on salary and length of service. These benefits may be partially or fully financed through plan assets.
Change in the present value of obligations under defi ned benefi t plans €m 2007 Prev. year
In 2003, Munich Reinsurance Company established a contractual trust agreement in the form of a two-way trust for its unfunded company pension obligations. To finance these obligations, it is necessary for the trust assets to correspond to the present value of pension obligations. In the process, however, account has to be taken of the difference between the actuarial interest rate relevant for measuring the obligations and the return attainable on the investments. Therefore, the present value of the pension obligations was calculated using an actuarial interest rate equivalent to the expected investment return, which increased the present value of defined benefit obligations at
Based on studies of the portfolio of pensioners in the Munich Re Group – except Munich Reinsurance Company, which made the adjustment in the previous year – the mortalities of the currently used mortality tables were also modified. These adjustments increased the present value of defined benefit obligations by €130m.
Funded status of the defi ned benefi t plans €m 31.12.2007 Prev. year
Change in the provision for defi ned benefi t plans €m 2007 Prev. year
Breakdown of expenses booked in the business year €m 2007 Prev. year
The actual return on plan assets amounts to –€9m (24m), and the actual return on reimbursements to –€1m (4m).
Included in the recognised income and expenses are actuarial gains amounting to €157m (actuarial losses: €18m) in the financial year and €306m (463m) cumulative, taking currency fluctuations into account.
The consolidated companies used the following actuarial assumptions (weighted average values) for calculating their pension obligations: Actuarial assumptions
Present value of defi ned benefi t obligations 27 – 21
Other provisions €m Prev. year Additions Withdrawals Reversal Other changes 31.12.2007
Deposits retained on ceded business are collateral for technical provisions covering business ceded to reinsurers and retrocessionaires. As a rule, the changes in deposits retained on ceded business derive from the changes in the relevant technical provisions covering ceded business. Deposits retained on ceded business thus do not have a fixed maturity date, their release generally being dependent on run-off of the corresponding provisions.
The following table provides information on the remaining contractual maturities of the items shown under “other liabilities”. Since the amounts payable on primary insurance business are directly linked to the underlying insurance business, the liquidity risk arising from these is analysed together with the corresponding insurance contracts; cf. (37) Risks from insurance contracts in the life and health segment and (38) Risks from insurance contracts in the property-casualty segment. Derivatives are recognised at market value.
Remaining terms of the other liabilities according to carrying amounts (excluding amounts payable on primary insurance business)
Over four years and up to fi ve years 189 55
Notes Notes to the consolidated balance sheet – Equity and liabilities e_25_Anhang_Pass3_218-222.indd 222e_25_Anhang_Pass3_218-222.indd 222 07.03.2008 18:42:53 Uhr07.03.2008 18:42:53 Uhr
The result for land and buildings includes rental income of €344m (443m). The expenses for the management of investments include running costs and expenses for repair and maintenance of property totalling €65m (72m). We earned interest income of €1,441m (1,180m) on loans and €12m (17m) on other securities held to maturity. Reguar income from securities available for sale totalled €5,278m (5,183m).
1 After elimination of intra-Group transactions across segments. 2 The expenses for deposits retained on ceded reinsurance previously included here are now shown under expenses for claims and benefits.
Other securities held to maturity – – – – 11 16 1 1 – – 12 17
Prev. Prev. Prev. Prev. Prev. Prev. €m1 2007 year 2007 year 2007 year 2007 year 2007 year 2007 year
The change in the provision for future policy benefits (net) contains €38m
(100m) in unrealised gains/losses from unit-linked life insurance. Expenses for claims and benefits include expenses for policyholders‘ bonuses. Of this, €1,259m (1,504m) is for the allocation to the provision for premium refunds on the basis of national regulations, €600m (306m) for the change in the provision for deferred premium refunds recognised in the income statement, and €391m (387m) for direct crediting. The “other technical result” for life primary insurance mainly includes interest on policyholders‘ accumulated credit.
Life and health Property-casualty Life and health Property-casualty €m1 2007 Prev. year 2007 Prev. year 2007 Prev. year2 2007 Prev. year 2007 Prev. year2
Provision for future policy benefi ts 408 211 23 36 1,771 1,442 38 35 2,240 1,724
Provision for future policy benefi ts –12 3 –1 – 95 128 – – 82 131
Net expenses for claims and benefi ts 4,750 5,051 8,701 8,567 13,896 13,474 3,127 2,688 30,474 29,780 e_26_Anhang_223-226.indd 226e_26_Anhang_223-226.indd 226 07.03.2008 18:43:08 Uhr07.03.2008 18:43:08 Uhr
In addition to foreign currency exchange losses of €1,843m (1,176m), the other expenses mainly include expenses for services rendered of €310m (298m), interest and similar expenses of €161m (203m), other write-downs of €82m (119m), and other tax of €20m (22m). They also contain expenses of €76m (78m) for owner-occupied property, some of which is also leased out.
By finance costs we understand all interest and other expenses directly attributable to strategic debt. Debt has a strategic character for us if it does not have an original, direct link with our operative business.
1 Includes the subordinated bonds issued by Munich Re B. V. Finance, Amsterdam.
Recognised tax expenses/income broken down according to Germany and other countries €m 2007 Prev. year
Deferred tax resulting from the occurrence or reversal of temporary differences – 112 288
Deferred tax resulting from the occurrence or reversal of loss carry-forwards 277 103
Effects of changes in tax rates on deferred tax – 464 –10
Deferred tax assets are recognised for unused loss carry-forwards to the extent that, on the basis of tax result planning, it is sufficiently probable that they will be utilised.
The following table shows the reconciliation between the expected taxes on income and the tax on income actually shown. The expected tax expenses are calculated by multiplying the operating result before taxes on income (after “other tax”) by the Group tax rate. The Group tax rate amounts to 40%. This takes into account corporation tax including solidarity surcharge, and a mixed trade-tax rate.
On 30 November 2007, the Bundesrat approved the German Annual Tax Act 2008, which provides for tax to be paid on the EK 02 “equity basket” (posted for amounts involving a corporation tax increase on distribution) in ten equal annual instalments from 2008 to 2017. This has to be recognised as an expense with a present value of €22m at 31 December 2007.
The item “municipal trade earnings tax” includes the differences between the trade-tax rate applied by the respective Group companies and the Group mixed trade-tax rate. No deferred taxes were recognised for retained earnings of affiliated companies. The calculation of this unrecognised deferred tax would involve a disproportionately large amount of work.
Disclosures on type and extent of risks from insurance contracts and financial instruments
(37) Risks from insurance contracts in the life and health segment
Our portfolios’ degree of exposure to biometric risks depends on the type of insurance contracts: The quantitative structure of our business is shown in the notes under (20)
– Largely long-term contracts guaranteeing assumption of costs for medical treatment. Provisions are established for covering increased costs on ageing
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
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.
A distinction must be made between risks of changes in interest rates on the one hand and interest-rate guarantee risks on the other. Risks of changes in interest rates would result from the discounting of the provision for future policy benefits and of parts of the provision for outstanding claims. In accordance with accounting valuation rules, the discount rate is fixed at contract commencement and will generally not be adjusted during the term of the contract. To this extent, the accounting valuation of these technical provisions is not directly dependent on the level of the market interest rates.
In life primary insurance, an implicit or explicit interest-rate guarantee is granted for the majority of contracts over their whole duration, based on a fixed interest rate applying at the time the contract is concluded. As a rule, the discount rate used to calculate the provision for future policy benefits is identical with this interest rate. An appropriate minimum return needs to be earned in the long term from the investment result (possibly also with assistance from the underwriting result) for the contractually guaranteed benefits. In health primary insurance, a discount rate is also used for calculating the provision for future policy benefits, but for long-term business this rate can generally be altered by way of premium adjustment; for short-term business, there is no direct interest-rate risk.
The discount rates relevant for the portfolio in calculating the provision for future policy benefits and the provision for outstanding claims are as follows: Discount rates used for provisions – Primary insurance (gross)
Generally, provisions in reinsurance and primary insurance that are not covered by deposits retained are covered by investments. In the case of a discrepancy between the durations of these investments and the liabilities (“duration mismatch ”), the main risk lies in the fact that if interest rates fall markedly over the remaining settlement period of the liabilities, the return on the reinvested assets may be lower than the discount rates and thus necessitate further expenses. But a complete duration matching of liabilities with fixed-interest investments would not be expedient, because if interest rates rise, policy holders might make increasing use of their surrender rights (see below), resulting in a liquidity requirement for premature payouts.
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 health primary insurance, there is the additional possibility of adjusting premiums for most long-term contracts. If it is foreseeable that the assumptions behind the calculation are permanently inadequate to cover expenses for claims, premiums can be raised accordingly, thus closely limiting the financial and balance-sheet effects of cost increases in healthcare and permanent changes in morbidity.
Munich Re measures the sensitivity of its long-term insurance business in the segments life and health using an economic analysis in the embedded value calculation; cf. page 51. This covers 100% of the long-term business in reinsurance and more than 90% in primary insurance.
Embedded value at the balance sheet date 6,662 5,962 5,406 4,154
Change in the event of a sustained decrease in interest rates of 100 BP 515 474 – 895 –1,056
Change in the event of a 10% fall in the value of equities and real estate – 3 –16 –192 – 265
Asbestos insurance liabilities currently emanating predominantly from the US and some European counties are an area of concern for the entire insurance and reinsurance industry. Since the mid-eighties industrial insurers writing business worldwide have found themselves being confronted with losses from policies taken out decades before. This also applies to the Munich Re Group. In our case, the policies mainly cover claims which manifest themselves after a latency period of as long as 30 to 50 years. In response, we have posted provisions for claims under long-cancelled general liability policies which provided coverage according to the then-applicable legal environment.
In addition, there are loss scenarios which are highly influenced by the continuously evolving practice of jurisprudence under tort law, but also by the expansion of class action possibilities. Such scenarios include pure financial losses in developed markets, which show a rising trend, as well as the claims observable particularly in the USA involving toxic mould, construction defects and discrimination. We will continue to carefully monitor trends and to respond to the emergence of new information as appropriate. Given the unpredictable nature of court decisions and other loss-affecting factors in the markets concerned, only very vague estimates can be made of future development.
In the area of bodily injury losses, the Group 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 cases, 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 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. Future reported and paid loss amounts are constantly compared to projected amounts to check whether the existing loss development patterns are still appropriate for projecting future claims payments.
With our underwriting policy geared to systematic diversification, i.e. the greatest possible mix and spread of individual risks, we substantially reduce the volatility for our insurance portfolio as a whole.
Reinsurance Primary insurance Total €m 31.12.2007 Prev. year 31.12.2007 Prev. year 31.12.2007 Prev. year
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 of 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.
In connection with the business we cede, the default risk is also of relevance. For our externally placed reinsurance and retrocessions, we choose only business partners that have been approved by our Security Committee.
Apart from this, there are credit risks from the underwriting of credit reinsurance contracts. Information on these can be found in Note (38). Risks from insurance contracts in the property-casualty segment. We do not conduct any active credit insurance business in our primary insurance.
The sensitivity analysis shows the effect of capital market events on the value of investments and the corresponding impact on the income statement. Sensitivities of investments to share prices, interest rates and exchange rates are analysed independently of one another, i.e. ceteris paribus, with the change in market value being determined under selected capital market scenarios as follows: The analysis of equities and equity derivatives is based on a change in market value of ± 10%, ± 30% of the delta-weighted exposure. For interest-rate-sensitive instruments, on the other hand, the change in market value resulting from a global change in interest rates of ± 100 BP und ± 200 BP is determined using duration and convexity. The reaction of interest-rate derivatives to the change in market value of the underlying investment is taken into account using the delta of the derivative. By contrast, changes in exchange rates affect both interest-rate-sensitive and share-price-sensitive instruments. The sensitivity of instruments in foreign currency is determined by multiplying the euro market value by the assumed change of ± 10% in the exchange rates. Alternative investments (private equity, hedge funds and commodities) are analysed together with the equities.
In terms of market value, the Munich Re Group’s fixed-interest investments respond to changes in interest rates in a similar way to an interest-bearing bond with a period of around seven years to maturity. As a portion of the investments are recognised at amortised cost, however, the effects shown deviate from this.
An increase of 10% in exchange rates on 31 December 2007 would have led to a change in market value of €3.616bn (3.735bn) in the investments sensitive to exchange rates totalling €43.772bn (41.245bn). Conversely, a decline of 10% in exchange rates on 31 December 2007 would have resulted in market-value changes of –€3.620bn (–3.735bn) in the investments sensitive to exchange rates. The changes in value would for the most part affect the income statement.
Our asset-liability management gears the currency structure of our assets to that of our liabilities. As a substantial portion of our non-euro liabilities is in US dollars, around 60% of the investments’ sensitivity to exchange rates shown above stems from the US dollar. The British pound and the Canadian dollar contribute a further 30%. In this analysis, an increase of 10% in the exchange rate means that the foreign currencies appreciate by 10% against the euro.
Number of rights on 31 Dec. 2000 80,582 – – – – – – –
Number of rights on 31 Dec. 2001 80,582 109,474 – – – – – –
Number of rights on 31 Dec. 2003 77,855 107,428 135,200 439,581 – – – –
Number of rights on 31 Dec. 2006 77,394 106,286 133,772 195,736 336,665 485,527 442,590 –
Incentive Incentive Incentive Incentive Incentive Incentive Plan 2002 Plan 2003 Plan 2004 Plan 2005 Plan 2006 Plan 2007
New initial share price after 2003 capital increase €247.64 €82.02 €88.65 €88.10 €108.87 €134.07
Intrinsic value 2007 for one right – €46.16 €39.53 €40.08 €19.31 –
Number of rights on 31 Dec. 2004 54,795 156,917 154,189 – – –
Number of rights on 31 Dec. 2005 42,892 59,108 122,059 187,530 – –
Number of rights on 31 Dec. 2006 42,892 28,081 90,669 184,458 173,682 –
Exercisable at year-end 42,892 23,823 60,297 149,579 – – 1 Owing to retirement from the Board of Management, payments in the amount of the grant value were made in lieu of the stock appreciation rights and rights already granted under the conditions reduced pro rata temporis.
Notes Other information of the plan. The gross amount that may be obtained from the exercising of the stock appreciation rights is limited to an increase of 150% of the initial share price.
The total remuneration of Munich Reinsurance Company’s Board of Management amounted to €17.0m (19.5m) and that of the Supervisory Board to €2.0m (1.9m). All other disclosures on the remuneration of and loans to Board members, share trading and shares held by the members of the Board of Management and the Supervisory Board, and the structure of the Board of Management’s remuneration system can be found in the remuneration report, as from page 123.
For services rendered to the parent and consolidated subsidiaries by the Group auditor (KPMG Bayerische Treuhandgesellschaft AG Wirtschaftsprüfungsgesellschaft, Munich, and its affiliated companies within the meaning of Section 271 paragraph 2 of the German Commercial Code), the following fees have been recognised as an expense in the financial year: Breakdown of auditor’s fees €’000 2007 Prev. year
KPMG provided Munich Re with quality assurance services in technical accounting and performed systems reviews and project audits in connection with the introduction of new IT systems. The expenses for this work are shown under “other services”.
The Munich Re Group enters into contingent liabilities in connection with its normal business operations. Commitments under rental, work and service contracts amounted to €143m (189m). Investment obligations total €613m (376m). These figures represent undiscounted nominal amounts. Beyond this, there are other financial commitments of €82m (48m) and obligations from guarantees totalling €184m (279m). There is a letter of support for €14m (–) vis-à-vis one associate. In connection with a sale of shares, a liability towards the purchaser totalling a maximum of £2m has been assumed. There are contingent liabilities of €72m (91m) from a lease transaction with property.
At the balance sheet date, future minimum lease payments under non-cancellable operating leases totalled €362m (398m): Due dates €m 31.12.2007 Prev. year
Payments from operating leases mainly concern rents for the Group’s office and business premises. At €3m (3m), the payments from operating leases at the balance sheet date were insignificant.
Under the share buy-back programme decided on by the Munich Re Board of Management in the second quarter of 2007, we repurchased a further 3.4 million Munich Re shares with a volume of €444m after the balance sheet date up to 23 January 2008.
Diluting effects to be disclosed for the calculation of earnings per share were not present either in the financial year or in the previous reporting period. 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.
Consolidated result attributable to Munich Re equity holders €m 3,854 3,425
Münchener Rück Italia S. p. A., Milan 100.00 % 217,354 14,362
Munich Holdings of Australasia Pty. Ltd., Sydney 100.00 % 45,984 11,603
Munich Mauritius Reinsurance Co. Ltd., Port Louis 100.00 % 1,505 4,253
Munich Reinsurance Company of Australasia Ltd, Sydney 100.00 % 81,842 8,291
Victoria General Insurance Company S. A., Athens 94.69 % 18,221 2,732
Victoria Life Insurance Company S. A., Thessaloniki 94.69 % 5,507 – 379
DKV Seguros y Reaseguros, Sociedad Anónima Española, Saragossa 94.69 % 86,546 20,489
Unión Médica la Fuencisla, S.A., Compañía de Seguros, Saragossa 94.69 % 6,694 100
D. A. S. Deutscher Automobil Schutz Versicherungs-Aktiengesellschaft, Munich3 94.69 % 56,299 12,000
DAS Legal Expenses Insurance Company Limited, Bristol 94.69 % 57,836 2,820
DAS Nederlandse Rechtsbijstand Verzekeringmaatschappij N. V., Amsterdam 48.29 % 45,476 17,530
ERGO Generales Seguros y Reaseguros, S. A., Madrid 94.69 % 18,578 5,109
ERGO Latvija Versicherung AG (ERGO Latvija Apdrosinasanas Akciju Sabiedriba), Riga 93.73 % 4,501 – 1,308
The Princeton Excess and Surplus Lines Insurance Company, Wilmington, Delaware 100.00 % 38,927 8,469
PICC Health Insurance Company Limited, Beijing 17.99 % 75,332 – 12,237
Saudi National Insurance Company B. S. C.(c), Manama 22.50 % 18,726 6,199
Munich American Capital Markets, Inc., Wilmington, Delaware 100.00 % 5,407 – 165,367
Österreichische Volksbanken-AG, Vienna 9.47 % 1,267,657 171,305 1 Some of these selected participating interests are held indirectly. They are calculated proportionally in each case. 2 The amounts are taken from the individual companies’ financial statements. They have been translated using the exchange rates applicable on 31 December 2007. 3 Result for the year after profit transfer.
Accumulation The situation where a number of risks insured or reinsured with the same company may be affected simultaneously by a loss event.
Alternative risk financing Utilising the capacity of the capital markets to cover insurance risks. An example is the securitisation of natural catastrophe risks that can no longer be borne in full by the insurance and reinsurance industry.
Associate Company on whose financial and operating decisions a significant (but not a controlling) influence can be exercised, regardless of whether this influence is actually exercised or not. A significant influence is presumed if the proportion of voting rights lies between 20% and 50%. Investments in associates are valued according to the ➔ equity method.
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.
Consolidation Combining the items from the individual financial statements of the companies belonging to the Group into one ➔ consolidated financial statement, in which items involving intra-Group transactions are eliminated.
Customised Portfolio Solutions (CPS) CPS is Munich Re’s centre of competence for retrospective reinsurance cover in non-life classes of business. Frequently also referred to as run-off cover, this protects the cedant against the risk of loss portfolios producing worse run-off results than expected.
Deposits retained on assumed Receivables which reinsurers have vis-à-vis their cedants for collateral reinsurance and ceded business (cash deposits) that has been retained by the cedants as a security to cover future reinsurance claims. The cedants show the retained funds as deposits withheld on ceded business.
Duration The average term of an interest-sensitive investment (or ➔ portfolio) and a measure of the risk of its sensitivity to changes in interest rates.
Effective interest method Method of determining the ➔ amortised cost of financial instruments and the distribution of interest earnings and expenses between individual periods. IAS 39 requires that effective interest must include fees, other transaction costs and any premiums or discounts.
Equity method Investments in ➔ associates have to be valued in the consolidated financial statements using the equity method. The “at equity” value corresponds to the Group’s proportionate share of the shareholders’ equity of the entity concerned.
Facultative reinsurance The reinsurer assumes a share of selected individual risks. The primary insurer can offer an individual risk in reinsurance, which the reinsurer for its part can either accept or decline (cf. ➔ obligatory reinsurance).
Fair value The amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s-length transaction. Where there is an active market, the fair value of an asset is its current ➔ market value. Alternatively, the fair value may be determined on the basis of recognised valuation methods.
IBNR reserve Provision for claims that are not yet known to the insurer (IBNYR = incurred but not yet reported) but also for claims whose case reserves are not sufficient (IBNER = incurred but not enough reserved).
Investments for the benefit of life Investments for policyholders under ➔ unit-linked life insurances. They also insurance policyholders who bear include investments under index-linked life insurance policies whose the investment risk performance depends on share or currency indices. Obligations arising from this type of contract are mainly recognised under the balance sheet item “technical provisions for life insurance policies where the investment risk is borne by the policyholders”.
Liquidity risk The risk of not being able to meet payment obligations when they are due.
Medicator Medicator AG is the German private health insurers’ fund for the protection of policyholders. It guarantees that a health insurance company’s contractual obligations will be fulfilled in the event that the company encounters financial difficulties.
Net premium Amount relevant for determining the provision for future policy benefits as per FAS 120. The net premium derives from the gross premium less the premium portions used to amortise the acquisition costs
Obligatory reinsurance 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 (cf. facultative reinsurance).
Parametric trigger Predefined objective criteria that a natural catastrophe has to meet in terms of severity (moment magnitude in the case of earthquake; wind speed in the case of windstorm) for cover to attach.
Premium The amount that has to be paid for the insurance cover provided by an insurer. It may be paid as a regular or single premium. In the case of products that are largely of an investment nature (e.g. financing treaties and unit-linked life insurance) it only includes – under IASs/IFRSs – the amount serving to cover the risk and costs. In IAS/IFRS financial statements there are no “premiums from the provision for premium refunds” either. Premiums written means all premium income that has become payable in the financial year. The portion of this premium income that constitutes payment for insurance cover in the financial year is referred to as earned premiums.
Property-casualty One of the segments in our segment reporting; chiefly containing the classes liability, accident, motor, marine, aviation, space, fire and engineering.
Proportional reinsurance Form of reinsurance in which the sum insured written by the primary insurer is divided proportionally between the primary insurer and the reinsurer, and the reinsurer is allocated a corresponding share of the premiums and claims.
Protektor Protektor Lebensversicherungs-AG is the protection facility created by German life insurers to safeguard policyholders’ interests. It protects insureds against the consequences of a life insurer’s insolvency. Policies are maintained and maturity benefits are preserved, as are risk protection and the policyholder bonuses already granted.
Provision for outstanding claims Provision for claims that have already been incurred at the balance sheet date but have either not yet been reported or not yet been fully settled.
Retention That part of the risk assumed which the insurer/reinsurer does not reinsure/ retrocede, i.e. retains net for own account.
Solvency II Project of the European Commission to revise European insurance supervisory regulations to protect policyholders against loss. The project’s main objectives are further harmonisation of the financial services sector, creation of a level playing field, risk-based determination of capital-adequacy requirements, inclusion of qualitative factors in the supervisory process, promotion of active internal risk management, and enhancement of risk transparency for supervisory authorities and the public. Solvency II follows the three-pillar approach used in Basel II: minimum capital requirements (quantitative), supervisory review process (qualitative), and market discipline (disclosure).
(Re)Takaful Islamic form of (re)insurance which attaches particular significance to the idea of mutual assistance and solidarity among the community of insureds. Pre miums are therefore paid as a kind of donation to help members of the community who sustain losses. In addition to this communal risk-sharing, surpluses are placed at the disposal of the community. Premiums are invested according to strictly Islamic principles (interest is prohibited and sectors such as gambling or alcohol excluded). Most of the resultant profits are also returned to the community. The (Re)Takaful company receives a fee for managing the funds.
Unearned premium The portion of premium income in the financial year that is attributable to periods after the balance sheet date is accounted for in the technical provisions as unearned premiums.
Universal life Contracts in life primary insurance where the amount of the premiums or benefits is not guaranteed or fixed, and the policyholder can vary the premium payments within certain limits.
Munich American Reassurance Company 56 Perimeter Center East, N.E. Atlanta, GA 30346-2290 Tel.: +1 770 350 3200 www.marclife.com
South Africa Munich Reinsurance Company of Africa Limited (MRoA) Munich Re Centre 47 Empire Road, Parktown Johannesburg 2193, P.O. Box 6636 Johannesburg 2000
Victoria Lebensversicherung AG Victoria Versicherung AG Victoria Pensionskasse AG Victoriaplatz 1 und 2 40198 Düsseldorf
E-mail: info@victoria.de www.victoria.de e_30_Glossar_253-264 262e_30_Glossar_253-264 262 11.03.2008 8:56:18 Uhr11.03.2008 8:56:18 Uhr
Hamburg-Mannheimer Versicherungs-AG Hamburg-Mannheimer Sach versicherungs-AG Hamburg-Mannheimer Rechtsschutz versicherungs-AG Hamburg-Mannheimer Pensionskasse AG Überseering 45 22297 Hamburg
D. A. S. Deutscher Automobil Schutz Allgemeine Rechtsschutzversicherungs-AG D. A. S. Deutscher Automobil Schutz Versicherungs-AG Thomas-Dehler-Strasse 2 81728 München
E-mail: info@meag.com www.meag.com e_30_Glossar_253-264 263e_30_Glossar_253-264 263 11.03.2008 8:56:18 Uhr11.03.2008 8:56:18 Uhr
Asset management 92 ff., 101 f., 144 Asset-liability management (ALM) 21, 52, 101 f., 137, 143 ff., 148
Equity 51 ff., 100 ff., 103 f., 107, 140 ff., 145 ERGO 3 f., 16, 40 ff., 45, 49, 87 ff., 95, 99, 109, 112, 114 ff., 118, 135 f.,
Investments 52 ff., 56, 70, 74, 90, 92 ff., 100 ff., 109 f., 132, 137 ff., 143 ff., 154
Munich Re Foundation 9, 117 Munich Re Life Reinsurance E. E. C. A. 20 f. Munich Reinsurance Canada Non-Life Group 84 Munich Reinsurance Company Canada Branch (Life) 77
Munich Reinsurance Company of Africa (MRoA) 78 Munich Reinsurance Company of Australasia (MRA) 78 Munich Reinsurance Company of Canada 47 Munich-American RiskPartners (MARP) 86
Return on equity (RoE) 53, 138 Return on risk-adjusted capital (RORAC) 53 ff., 69, 123, 131 f., 138 Risk capital 12, 51 ff., 132, 140 ff.
Multi-year overview Quarterly fi gures 1 Adjusted pursuant to IAS 8.
Amortisation and impairment losses of goodwill 11 4 7 344 687
Our subsidiary MEAG manages our assets and offers investment products for private clients and institutional investors.
1. Earned premiums 2. Investment result 4. Expenses for claims and benefi ts 5. Operating expenses 7. Result before impairment losses of goodwill 5,089 1,109 1,132 1,535 1,313 8. Impairment losses of goodwill 11 11 – – –
n n u a l R e p o rt 2
Picture credits Mierswa-Kluska, Munich, cover, pp. 4, 6 f., 10 f., 14 f., 18 f., 22 f ., back cover Oliver Soulas, Munich, pp. 8, 13, 21, 25 Frank Bauer, Munich, pp. 2, 28 f., 30 Claudia Kempf, Wuppertal, p. 28 f. Travelpix Ltd/Getty, p. 12 Pueschner/laif, p. 20 Hoffmann/Picture Press/picture alliance, p. 25 Munich Reinsurance Company, pp. 9, 17