The same applies in principle to (re)insurance business. Only recently, we asked our clients what was especially important to them. Values like clarity and dependability headed the list. We at Munich Re strive to embrace these attributes. As a major handler of risks, excellence in risk management and the highest quality in underwriting have top priority for us. However, the reinsurance business is not as simple as football. It involves assessing and covering some very complex risks, which may change – owing to varying external parameters, for example. Just think of the financial market crisis and its impact on claims costs in credit insurance, D&O or marine covers. If such developments occur, it is clear that we have to adjust our prices, terms and conditions to take account of the new situation.
Since July 2009, ERV has been offering a medical consultancy service for cases such as these as part of its travel cancellation insurance. “Experienced travel medics provide customers with advice over the phone. They give recommendations based on a doctor’s certificate or diagnosis. If they advise against cancelling the trip and the person’s health does not improve contrary to all expectations, ERV carries the higher cancellation costs”, says Jürgen Reiss regarding the benefit to the customer.
What are the most important cornerstones of the new field of business?
The most important health market in the world is North America. How is Munich Health positioned there?
”The new Munich Health brand stands for our Group’s commitment to health business.”
In order to be equipped for any emergency, MEAG has put together a sophisticated database in cooperation with the Munich Re and ERGO experts over the past few years. It lists every security, right down to the very last detail. The objective was to achieve the greatest possible transparency and security. The expense was
thanks to their risk knowledge and innovative thinking, our highly qualified and motivated staff create sustained value.
nevertheless, Munich Re shares were not able to rally on from those first few months of the year, and they were outperformed by insurance stocks with greater recovery potential. altogether, the shares closed the year with an annual price performance of –2.1%. The corresponding figures for the euRO STOXX insurance and the MSci insurance index on a euro basis were +8.9% and +7.5% respectively.
the audit committee held six meetings in 2009. at two meetings with the external auditor, it discussed in detail the company and group financial statements, the com pany and group management report, the auditor’s report and the Board of Management’s proposal for the appropriation of the net retained profits for the fi nancial year 2008. the chief risk officer submitted his report on the group’s risk situation. in this context, we also debated the minimum requirements for the risk management of insurance undertakings, or Marisk (va), issued by Bafin in January 2009. the head of internal audit regularly reported on his reviews in 2008 and the audit planning for 2009. topics of compliance were dealt with by the audit committee at every meeting. additionally, the committee also had the compliance officer report personally on his department’s responsibilities and measures and on specific com­ pliance incidents.
the conference committee as stipulated by Section 27 para. 3 of the german co­ determination act and item 7.5 of the rules of procedure for the Supervisory Board did not need to be convened in the financial year ended.
Board of Management the Board of Management is responsible for managing the company, setting object­ ives and determining strategy. in doing so, it is obliged to safeguard company interests and endeavour to achieve a long­term increase in the company’s value. the Board of Management must ensure compliance with statutory requirements and internal company directives, and is responsible for effecting adequate risk management and risk control in the company. the chairman of the Board of Management provides for homogeneous management of the company, which he represents especially vis­à­vis the authorities, the press and associations.
Supervisory Board the Supervisory Board monitors the Board of Management and gives counsel where appropriate. certain transactions require its approval, but it is not authorised to take management action. the Supervisory Board also appoints the external auditor of the financial statements. remuneration of the members of the Supervisory Board is regulated in article 15 of the articles of association, i.e. is determined by the share­ holders. a breakdown is provided on page 50 ff.
the chairman of the Supervisory Board is authorised to make declarations on the Supervisory Board’s behalf. he signs minutes, copies of resolutions and other Super­ visory Board documents and publications.
Members of the nomination committee are dr. hans­Jürgen Schinzler (chairman), prof. dr. henning Kagermann and dr. Bernd pischetsrieder. up to the end of 2009 annual general Meeting, the members of the committee were as follows: dr. hans­ Jürgen Schinzler (chairman), dr. Bernd pischetsrieder and dr. albrecht Schmidt.
Structure and system of the Board of Management’s remuneration component Share assessment basis/
40 corporate governance corporate governance StateMent pensions up to and including 2008, the members of the Board of Management were members of a defined benefit plan, providing for payment of a fixed pension amount depending on their basic remuneration and years of service on the Board. the pension level started at 30% and could reach a maximum of 60% of annual basic remuneration.
Benefits on termination of employment Occupational pension Board members are entitled to an occupational pension on retiring from active service with the company after reaching the age of 60 or, at the latest, 65.
Benefit amount: // for a period of six months after leaving the Board, previous monthly basic remuneration (only for Board members appointed prior to 2006) // for the share of the defined benefit plan: defined benefit of between 30% and 60% of the annual basic remuneration, reduced by 2% for each year or part thereof short of the Board member’s 60th birthday
70% corporate performance personal performance group objective company objective divisional objectives individual objectives 0–200% (fully achieved = 100%)
Reinsurance of the gross premiums totalling €24.8bn written in 2009, around 61% came from property-casualty and 39% from life and health business.
our europe and latin america Division is responsible for the property-casualty business of our clients from europe (except germany) and latin america. in order to simplify organisational structures within Munich Re, we merged Münchener Rück italia into Munich Reinsurance company in January 2009.
Munich and international special lines of business such as workers’ compensation and marine. the division additionally oversees the Watkins Syndicate, which was transferred from primary insurance to reinsurance in 2009.
64 management report munich re munich re group annual report 2009
Dr. rer. pol. Thomas Blunck Special and Financial Risks Reinsurance investments central procurement
Herbert Bach Member since 9 December 1994, last re-elected on 22 april 2009 Deputy chairman until 22 april 2009 employee of Munich Reinsurance company
Anton van Rossum Member since 22 april 2009 Member of the Board and Risk committee of the credit Suisse group, former chief executive officer and former member of the Board of Fortis
a report on the remuneration of the Board of Management and the Supervisory Board is provided on page 36 ff .
Dr. jur. Nikolaus von Bomhard chairman coMMeRZBanK ag eRgo Versicherungsgruppe ag2 (chairman) Munich health holding-ag2 (chairman)
General parameters our business environment is one of increasing complexity, with an upward trend in major insurance-relevant events. We are seeing a disproportionate rise in man-made losses in relation to economic activity, due to technological progress, advancing economic and geopolitical interdependencies, and climate change. concentrations of values are soaring and economic entities as well as regions are becoming ever more interdependent, leading to new risk potentials and accumulation hazards. it is therefore imperative to carry on refining risk models and to translate new findings into actuarial practice.
// Respectable combined ratio of 95.3%; major-loss expenditure totalling €1,158m, primarily for man-made losses
// Investment result of €3.9bn // Consolidated result of €2.6bn // Sharpened value proposition
Gross premiums by segment 2009 2008¹ 2007 2006 2005 €m life and health Property-casualty Total
In 2009, life reinsurance treaties were valued for the first time on the basis of MCEV Principles. unlike European Embedded Value (EEV) Principles used in the previous year, the costs of non-hedgeable risks are explicitly calculated under MCEV. The latter comprises a company’s equity and the present value of its future net earnings from business in force, this being the present value of future profits (where profits are post-taxation shareholder cash flows from the in-force covered business and the assets backing the associated liabilities) calculated using financial and actuarial methods (see page 64 f.).
Munich Reinsurance Company Canada branch (life), our unit in Canada, continues to dominate all segments of the Canadian life reinsurance market, having further strengthened its leading market position by creatively developing programmes to help its clients expand their business. Premium income rose to €1.6bn (0.8bn), particularly because we were able to take advantage of large-volume business opportunities in connection with the financial crisis. likewise, the operating result was up on the previous year, mainly thanks to favourable claims experience. Altogether, our Canadian branch is well positioned to again produce good results in 2010.
The 2009 renewal negotiations were satisfying. On balance, stable or increased prices were achieved and attractive new business generated. The price level for offshore energy business in particular show a marked improvement, and natural catastrophe treaties (especially with uS hurricane exposure) were written at considerably better rates. Agricultural business, which has produced profitable results for many years, was expanded. As in the past, we systematically refrained from writing business that did not meet our requirements for risk-commensurate prices and conditions. because of inadequate original rates, we therefore scaled back casualty business in Germany, workers’ compensation in the uSA and business volume in China. Key to our cycle management is the agreement of differential terms, i.e. terms and conditions that are better than those obtained by other reinsurers. Our financial security and acknowledged risk expertise are being more and more frequently rewarded with a higher price level than that achieved by our competitors. In some cases, we have concluded exclusive agreements, or “private placements”, where we are the sole reinsurer of our clients. Altogether, approximately one-third of our treaty business was written at a comparatively higher price level or on the basis of a private placement. While growth through acquisitions and new business led to a rise in gross premiums written, overall premium volume rose only slightly to €15.1bn (14.7bn) owing to our consistent cycle management.
We were also able to post further premium growth in Australia and New Zealand. notwithstanding the financial-market turbulences, the capitalisation of Australia’s insurance companies remained very solid, but there is demand for capital-intensive natural-catastrophe cover. We registered a significant increase in this area. The business of our primary insurer Great lakes Australia is developing positively, and we are pursuing further expansion of its business in the Australian insurance market.
A very satisfactory result was posted by our Swiss subsidiary New Re, which relocated from Geneva to Zurich on 1 January 2010. In traditional business, new Re continued to focus on non-proportional covers and wrote a considerable volume of natural catastrophe business. It is rigorously pursuing its anticyclical strategy and has actively withdrawn from underpriced business. The decline in premium volume triggered by this withdrawal was offset by the expansion of new fields of business. All in all, premium volume climbed to Sfr 1,518m (1,124m). new Re benefited from the low frequency of major losses, its combined ratio thus improving to 89.4% (102.0%).
// Growth of 5.3% in overall premium volume to €19.1bn year on year; increase of 19.2% in international business
Overall premium income in life insurance was up 9.9% to €7.9bn (7.2bn) in 2009. In international business, premium showed significant growth of 53.7%, reaching a total of €2.0bn. The substantial rise is partly due to the fact that we expanded our stake in bACAV, Austria, as at 30 September 2008 and that the company was only included in the previous year’s figures for one quarter. In Germany, we recorded premium income of €5,854m (5,858m), representing a decrease of 0.1%. Gross premiums written in Germany and other countries were up 4.3% to €6.3bn (6.1bn). The reason for the less pronounced increase is that gross premiums written, unlike overall premium income, do not include the savings premiums from unit-linked life insurance and capitalisation products. In the latter in particular, we generated strong single-premium business.
German new business improved by 10.7% to €1.6bn, compared with the previous year, mainly owing to the positive development of single-premium business. The decline in regular-premium business was assignable to a basic underlying effect, i.e. a major boost to new business in early 2008 as a result of the fourth and last subsidisation stage for Riester policies. For the same reason, the annual premium equivalent (APE) of €466m was down 17.1% on the previous year: it includes only 10% of the strong single-premium result.
Our investment strategy considers supervisory requirements aimed at ensuring optimum security and profitability, with sufficient liquidity at all times, and an appropriate mix and spread. We continue to satisfy all applicable accounting and taxation requirements, and invest only in assets from which we expect an appropriate return, our asset managers paying strict attention to the risk tolerance of each company. As far as possible, we reduce currency risks by matching our expected liabilities with assets in correlated currencies. We also take care that the maturities of our fixed-interest securities are aligned with those of our liabilities. The methods we use to control investment risks are described in detail in the risk report on page 145; our approach to asset-liability management is explained on page 121.
With the capital markets recovering, we achieved an investment result of €7.9bn (5.9bn), which represented a significant increase of 33.2% on the previous year, when the result had been impacted by capital market upheavals, particularly the slump in global stock markets. These had necessitated high write-downs of €4.7bn on our equity holdings, whereas in 2009 – with the general improvement in the stock markets and our significantly reduced equity portfolio – our write-downs on equities were markedly lower at €218m. In addition, our result from the disposal of equities in 2009 amounted to €887m (137m).
The bond markets also recovered, and therefore risk spreads fell in the course of the year across all asset classes. The market value of our fixed-interest securities available for sale therefore increased, contributing to the rise in the value of our investments by €7.2bn or 4.1% to €182.2bn. In addition, particularly in primary insurance, we post long-term interest-bearing securities which are not traded on an active market as loans at the time of acquisition, recognising these at amortised cost. At carrying amounts, our investments in loans thus increased appreciably by €6.2bn or 15.3%. For the additional investment in loans, we used cash flows from insurance business as well as liquid funds from disposals. These reallocations led to shifts in our investment mix.
As protection against the risks of future inflation and the rise in interest rates typically associated with this, we hold bonds worth approximately €7.8bn (6.5bn) for which the interest and redemption amounts are linked to the rate of inflation (inflation-indexed bonds). In this way, we also compensated to some degree for the risks arising from the inflation-related increase in our claims payment obligations. As at 31 December 2009, these inflation-indexed bonds made up 4.2% of our portfolio of fixed-interest securities and loans at market values.
MEAG MunICh ERGO AssetManagement Gmbh is the asset manager of Munich Re and ERGO. In addition to its function as asset manager for the Group, MEAG also offers its expertise to private and institutional clients. The monies managed by MEAG in private-client business via investment funds increased to €2.0bn (1.8bn).
Composition of the issued capital as at 31 December 2009, Munich Reinsurance company’s share capital of €587.7m was divided into 197,401,624 registered, no-par-value, fully paid shares. the shares are endowed with full voting and dividend rights, with the exception of the 5,491,447 shares held by Munich Re itself at 31 December 2009 (section 71b of the german stock companies act). each voting share carries one vote at the annual general Meeting. article 5 para. 1 of the articles of association excludes the right of shareholders to have share certificates issued for their shares. shareholders’ participation in the company ’s profit is based on the proportion of the share capital they hold (section 60 of the german stock companies act).
134 ManageMent RepoRt otheR success factoRs as a special service for our clients, we staged more than 100 seminars and workshops on topics related to insurance, reinsurance and risk management in 2009, both in Munich and at our many offices and subsidiaries around the world. our two scholarship programmes, the “alois alzheimer scholarship – Development programme for high potentials” and the “horst K. Jannott scholarship – Management programme for future executives”, also foster close collaboration with our cedants. More than 540 former scholarship holders from all over the world are registered in the Munich Re alumni network, established at the end of 2007.
Primary insurance: Staff by region at 31 December 2009 (prev. year)
142 ManageMent RepoRt otheR success factoRs 1) increasing our energy efficiency: Reducing carbon emissions by 10% per employee 2) using green electricity 3) investing in renewable energy projects: compensating for carbon emissions and achieving carbon credits 4) Making up for inevitable emissions through the purchase and/or retirement of emission credits
significant risks in property-casualty insurance are the premium and reserve risks. premium risk is the risk of future claims payments relating to insured losses that have not yet occurred being higher than expected. the reserve risk is the risk of technical provisions raised to cover losses that have already been incurred being insufficient.
We calculate the reserves for losses and claims settlement costs in accordance with actuarial practice based on substantiated assumptions, methods and assessments. the assumptions are updated and reviewed regularly from a variety of perspectives, for example by actuaries in our Reserving Department, underwriters, claims staff, the chief financial officer and the Board of Management.
Market risk We define market risk as the risk of economic losses resulting from changes in values in the capital markets. this includes equity risk, interest-rate risk, property risk and currency risk. We also include in market risk the risk of changes in credit risk spreads, inflation rates and implicit volatilities (cost of options). fluctuations in market prices affect not only our investments but also our underwriting liabilities, especially in life insurance. Due to the long-term interest-rate guarantees given in some cases and the variety of options granted to policyholders in traditional life insurance, the amount of the liabilities is highly dependent on the capital markets.
Atlantic Hurricane ceded Retained aggregate VaR (return period: 200 years) €bn (before tax)
however, particularly the products of life primary insurance and reinsurance, and a large part of our health primary insurance business, are characterised by their longterm nature and the distribution of results over the duration of the policies. We show the value of business in force and value sensitivities for such long-term portfolios in the notes to the consolidated financial statements under (37) Risks from insurance contracts in the life and health segment. for these portfolios it is, in particular, adverse developments of risk drivers with a long-term impact and changes in the forecast mortality and disablement trends in the insured portfolio that would be most likely to cause a fall in value (trend risks). the value sensitivities disclosed in the notes to the financial statements (37) reflect the impact of a defined change in the assumptions for a specific risk driver. the risk modelling, on the other hand, stochastically depicts simultaneous changes in assumptions for value sensitivities.
Pandemic a further example of an overarching accumulation risk is a major pandemic. like other companies in the insurance industry, Munich Re would be exposed to risks from a marked increase in mortality and morbidity and from disruptions in the capital markets. We counter this risk by analysing our overall exposure in detail (scenario analysis), defining suitable limits, and optimising our risk structure by transferring risk, e.g. through the launch of the nathan pandemic bond programme.
For the capital markets, 2010 will be a year of transition, in which the after-effects of the crisis and reduction in monetary and fiscal policy stimuli will need to be absorbed. in this environment, we anticipate a modest increase in the yield levels of long-term government bonds. higher-risk investments should be subject to high volatility again in 2010, reflecting the remaining uncertainty about the economy, the stability of the financial system, and a withdrawal – with minimum impact on the market – from the expansive monetary policy practised thus far.
Risks although the prospects for the economy have brightened considerably, the outlook remains comparatively uncertain. the durability of economic recovery is still unclear. a repeated slump or even extended period of stagnation with deflationary consequences cannot yet be completely ruled out. furthermore, the implications of the massive government and central bank interventions and the reactions they provoke are difficult to estimate. for instance, a misguided monetary policy that, in the event of a sustained economic recovery, results in a higher rate of inflation in the medium term constitutes a significant risk for the insurance industry. further risks may derive from the long-term impact of the crisis – for example in the form of subdued future growth potential. the implications for international trade, in particular as regards protectionist restrictions, remain unclear. geopolitical threats, for instance in the Middle east or in eastern and southern asia, are also still a significant risk for the insurance industry.
for 2010, we project gross premiums written of €15bn in property-casualty reinsurance. over the market cycle as a whole, we reckon with a combined ratio of around 97% of our net earned premiums, based on an expected average major-loss burden from natural catastrophes of 6.5%. since we were affected by very severe accumulation loss events at the end of february 2010, i.e. the earthquake in chile and Winter storm Xynthia over europe, we will only be able to achieve our target if random major losses remain below expectations in the further course of the year. uncertainties result not only from the random incidence of major individual losses but also from the fact that recession-related exceptional burdens cannot be disregarded in view of the still difficult economic situation.
in the health primary insurance segment (including Munich health’s international primary insurance business), we aim to grow our premium income to a good €6bn. We should achieve growth especially in comprehenseive health cover, given that we had to raise premiums appreciably at the beginning of 2010 to take account of the increases in healthcare costs. from 2010 onwards, international business will be reported in the Munich health field of business.
the consolidated result for the primary insurance segment (including the health primary insurers in the Munich health field of business) should develop positively in 2010. for the eRgo sub-group, we expect a consolidated result of around €350–450m (last year: €173m). We anticipate a slight increase in the results for 2011.
We do not expect any significant increase in capital market interest rates for 2010; regu lar income from fixed-interest securities and loans is therefore likely to be relatively low. We have also considerably reduced the proportion of our investments in equities compared with previous years. our exposure to impairments is thus marginal, but so is our opportunity to realise capital gains. as things stand at present, we therefore project lower investment results overall for the coming years, with a return on investment of below 4% and a particularly significant decrease for reinsurance business.
Notes to the consolidated balance sheet – Equity and liabilities Equity 240 Subordinated liabilities 244 unearned premiums 245 provision for future policy benefits 245 provision for outstanding claims 247 Other technical provisions 251 Gross technical provisions for life insurance policies where the investment risk is borne by the policyholders 253 Other accrued liabilities 253 Bonds and notes issued 257 deposits retained on ceded business 257 Other liabilities 258
6. Investment result (33) Investment income Investment expenses total thereof: Income from associates 7. Other operating income (34) 8. Other operating expenses (34) 9. Deduction of income from technical interest 10. Non-technical result (6– 9)
11. Operating result 12. Other non-operating result (35) 13. Impairment losses of goodwill (35) 14. Finance costs (35) 15. Taxes on income (36) 16. Consolidated result Thereof: Attributable to Munich Reinsurance Company equity holders Attributable to minority interests (18)
Our reporting on the Group cash flow is based on IaS 7 and the principles of German accounting Standard no. 2 (dRS 2) issued by the German Standards Board (dSR) for the presentation of cash flow statements. this has been supplemented by the requirements of dRS 2–20, which applies specifically to insurance companies. In accordance with the recommendations of the dSR for insurance companies, we have applied the indirect presentation method. the “cash fund” within the meaning of the German accounting Standard is limited to cash and cash equivalents shown under balance sheet item f “cash at bank, cheques and cash in hand”. further information on the consolidated cash flow statement can be found in the management report on page 132.
the following disclosures regarding first­time recognition are provisional, since among other things there may still be changes in the purchase price and the tax items in the balance sheet.
in connection with the acquisition of the hsB group, other intangible assets of €115.2m and goodwill of €61.1m have been recognised. the goodwill is based mainly on the exploitation of additional future business potential and the use of the sales, marketing and insurance know­how by Munich Re. the goodwill includes the value assigned to the hsB group’s staff.
Securities at fair value through profit or loss comprise securities held for trading and securities designated at fair value through profit or loss. securities held for trading are all fixed­interest and non­fixed­interest securities that we have acquired for trading purposes to earn short­term profits from price changes and differences; in addition, they include all derivative financial instruments with positive fair values which we have acquired for hedging purposes but which do not meet the strict requirements of ias 39 for hedge accounting, and the positive fair values of the derivative components of variable annuities. securities designated as at fair value through profit or loss comprise structured securities. this designation may only be made at the time of acquisition; reallocation to this category in later periods is not possible.
205consolidated financial stateMents notes impairment Regularly, at each balance sheet date, we assess whether there is any substantial objective evidence of impairment in a financial asset or group of financial assets. in the case of all fixed­interest securities held to maturity or available for sale, as well as all non­fixed­interest securities, impairments in value – in contrast to temporary diminutions – are recognised as an expense in the income statement. ias 39.59 contains a list of factors providing substantial objective evidence of impairment of such financial assets. in addition, ias 39.61 states that for equity investments, a significant or prolonged decline in the fair value of the investment below its acquisition cost is objective evidence of impairment. these rules are given more concrete form by means of internal guidelines. for equities quoted on the stock exchange, we assume a signifi­ cant decline in fair value if the market value at the review date is at least 20% below the average purchase price or has been lower than this amount for at least six months. in the case of fixed­interest securities and loans, the main basis for establishing impair­ ment is indication of substantial financial difficulty on the part of the issuer, the current market situation or media reports on the issuer.
other reserves contain unrealised gains and losses resulting from the recognition of other securities available for sale at fair value and from investments in unconsolidated affiliated companies and in associates that we do not value at equity. these reserves also include unrealised gains and losses from the valuation of associates at equity, differences resulting from the currency translation of foreign subsidiaries’ figures, and the valuation result from the hedging of cash flows. Write­ups of equity investments available for sale are also recognised in this equity item.
of the carrying amount of €4,086m (3,957m) at 31 december 2009, €90m (16m) concerns investment property classified as “held for sale”; cf. (17) non-current assets and disposal groups held for sale.
an overview of the most important shareholdings is provided on page 298 ff .
236 consolidated financial stateMents notes 13 // Other receivables €622m (608m) of the amounts receivable on primary insurance business is apportionable to receivables from insurance agents. the miscellaneous receivables contain amounts of €400m (258m) resulting from reinsurance contracts without signifi cant risk transfer, which do not fall within the scope of ifRs 4. in deviation from the purely economic view, the carrying amount of the receivables represents the maximum exposure to credit risk at the balance sheet date, in accordance with ifRs 7.
239consolidated financial stateMents notes 17 // Non-current assets and disposal groups held for sale the property and liabilities of hge haus- und grundbesitzgesellschaft elsterwerda mbh, which had been classified in disposal groups as “held for sale” since the second quarter of 2007, ceased to be relevant with economic effect from the third quarter of 2009, as we sold our shares in the company. the property, with a carrying amount of €16m, is therefore no longer recognised at the reporting date.
5 eRgo ag holds bonds with a nominal value of €3m; the volume outstanding has been reduced accordingly. 6 in the third quarter of 2009, hsB capital i, delaware, was dissolved. the bonds it had issued were replaced by bonds of the hsB group inc., delaware, in the amount of the liabilities outstanding, with unchanged terms and conditions.
Claims payments for the individual accident years (per calendar year, net) €m accident year
Remaining terms of the other liabilities according to carrying amounts carrying amounts 31.12.2009 prev. year opening balance sheet prev. year (excluding amounts payable on primary insurance business and excluding liabilities from derivative components embedded in variable annuities) €m up to one year over one year and up to two years over two years and up to three years over three years and up to four years over four years and up to five years over five years and up to ten years over ten years Total
Net expenses for Reinsurance primary insurance total claims and benefits1 life and property- life health property- health casualty casualty €m 2009 prev. 2009 prev. 2009 prev. 2009 prev. 2009 prev. 2009 prev. year year year year year year Gross Claims and benefits paid Change in technical provisions provision for future policy benefits provision for outstanding claims provision for premium refunds Other technical result Gross expenses for claims and benefits
Net Claims and benefits paid Change in technical provisions provision for future policy benefits provision for outstanding claims provision for premium refunds Other technical result Net expenses for claims and benefits
expenses for profit commission in reinsurance are shown under operating expenses, not under expenses for claims and benefits.
Other securities at fair value through profit or loss other securities held for trading fixed-interest non-fixed-interest derivatives designated at fair value through profit or loss fixed-interest non-fixed-interest
the other non-operating expenses comprise foreign currency exchange losses of €3,133m (3,653m), write-downs of €142m (77m) on other intangible assets and other non-technical expenses of €480m (467m), such as expenses unrelated to the accounting period, project costs and other amounts that cannot be allocated elsewhere, and restructuring expenses. an amount of €138m (136m) in restructuring expenses is attributable to the eRgo group’s “continuous improvement of our competitive position” project.
273consolidated financial stateMents notes the quantitative structure of our business is shown in the notes under (21) provision for future policy benefits.
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
We measure sensitivity to this interest-rate risk using an embedded value analysis; cf. page 278 f.
Munich Re continues to adhere to the strict rules of market-consistent evaluation as at the end of the year. the extraordinary situation on the capital markets at the reporting date 31 december 2008 and the capital market parameters derived from it result in distortions for 2008, especially for primary insurance (and there particularly in the determination of the time value of options and guarantees). however, these distortions clearly diminished in the course of 2009.
282 consolidated financial stateMents notes a particular sensitivity exists in the case of contracts with long run-off periods. this characteristic applies especially to casualty insurance, where liabilities may manifest themselves with a considerable time lag. in addition, changes in court verdicts, class actions, infl ation in medical care costs and modifi cations in general life expectancy can alter the valuation of reserves. the following section discusses the areas in the current reserve portfolio where, within the framework of an appropriate reserve estimate, the uncertainty is the greatest.
Munich Reinsurance company’s net retained profits for 2009 according to its financial statements prepared on the basis of the german commercial code amount to €1,291,060,272.38. 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 €5.75 per dividend-bearing share and an allocation of €156,000,934.38 to retained earnings, with the amount apportionable to own shares held or already retired at the time of the annual general Meeting being carried forward to new account.
Earnings per share 2009 prev. year consolidated result attributable to Munich Reinsurance company equity holders €m number of shares at 1 Jan. financial year addition of own shares Weighted average number of shares earnings per share €
Convexity // a volatility measure to describe how a bond’s price will change as interest rates rise or fall. as with duration, the concept of convexity is based on an estimate of the bond’s present value. a customary bond with regular coupon payments and complete repayment of the principal on maturity will rise in price more strongly if interest rates decline than it will fall in price if interest rates rise. this phenomenon of convexity is caused by a change in the bond’s duration when interest rates change. falling interest rates result in an increase in the bond’s duration and thus in its interest rate sensitivity, so that if interest rates continue to fall, the price rise accelerates. in the case of rising interest rates, the converse occurs.
Mortality // the ratio of deaths to the entire population or to a particular age group. it is globally expressed in numbers or rates and set out in mortality tables.
Provision for future policy benefits // technical provision calculated using actuarial methods to cover future benefits to which policyhold ers 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.