“People, Planet, Prosperity ” was the motto of the World Summit on Sustainable Development in Johannesburg, South Africa. For Munich Re, it was an important opportunity to present its assessment of future risks, such as man-made climate change.
– Very gratifying initial figures from our subsidiary American Re show that our restructuring measures, accompanied by key changes in business policy and personnel, are leading in the right direction. American Re is a completely different company from what it was one year ago. You can read more about this on page 71. We now expect positive sustained results from our us business.
Globalisation is also affecting reinsurance cycles: today capital flows more flexibly from one place to another, evening out differences in cycles more quickly than before. In addition, the capital markets have become more significant for the insurance industry.
The stock markets experienced their deepest trough in 2002 at the beginning of October: the year low for Munich Re shares was €98.99 on 9 October 2002 and the dax reached its nadir of 2,598 points on the same day, its lowest level since autumn 1996. The dj euro stoxx 50 also recorded its low of 2,150 points on 9 October.
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THE CLIMATE IS COSTING US DEARLY So far in its history the global insurance industry has had to deal with 35 natural catastrophes that cost over €1bn. Only two of these – both earthquakes – were not attributable to atmospheric influences. All the other major catastrophe losses were climate-related. Our statistics show that these claims costs are spiralling upwards.
Among other things, by giving visitors something “hands on”. For example, cross-sections of huge trees with annual rings, which give a fairly clear picture of whether warm or cold years predominated in the Middle Ages. You can even see a mini tornado close-up in a glass cylinder and try out how it reacts to natural obstacles or structural resistance by putting your hand in. Learning about the climate in this way is really fun.
Hon.-Prof. Dr. techn. h. c. Dipl.-Ing. ETH Ferdinand Piëch (until 16 April 2002) Chairman of the Supervisory Board of Volkswagen ag
>> American Re page 71 >> Asbestos page 73 >> Cyberrisks page 75 >> Cycle management page 16 >> Climate change page 81 >> Climate Exhibition page 44 >> esprit and gloria page 77 >> extremus ag page 252 >> Flaspöhler survey page 96 >> Flood page 78 >> Health insurance page 85 >> Knowledge management page 32 >> Nanotechnology page 66 >> Partnership between ergo and hvb page 83 >> Pensions page 69 >> Risk management page 128 >> Terrorism page 87 >> Unlimited cover page 80
04 Business issues 2002 American Re Munich Re Group Annual Report 2002
esprit and gloria Business issues 2002 04Munich Re Group Annual Report 2002 esprit and gloria: The end of isolated systems
Conversely, banking business that members of ergo’s sales force are introducing for the HypoVereinsbank Group is making good progress, especially instalment credit schemes and home loan products. Last year victoria and d.a.s. were joined by the large sales forces of ergo subsidiaries HamburgMannheimer and dkv in selling HypoVereinsbank products. Growth is especially notable in the area of instalment credit.
The healthcare market is expanding strongly worldwide and continues to offer great potential for growth. Constant advances in medical technology and therapeutics are being accompanied by a rising demand for healthcare services. This demand results partly from the increasing importance attached to good health and partly from the progressive ageing of society (see page 69). But in Germany, our most important market, economic and socio-political parameters are hindering the development of private health insurance.
Terrorism risks need to be completely re-evaluated. The insurance industry cannot carry them alone.
When it comes to covering such risks, the state must also play its part. The insurance industry could not cope if it alone were burdened with the risk potential of terrorist warfare, which deliberately aims to inflict the greatest possible damage. We consider it necessary and legitimate to question the previous distribution of roles in society’s risk partnership for covering terrorism risks. Munich Re therefore supports the initiatives of the German Insurance Association, and of similar associations and groups in other countries, to find a solution to this problem.
Staff Fairness and loyalty are the guiding forces for us in relations with our staff – whether in performance appraisal, advanced training or fringe benefits.
The Supervisory Board wishes to thank the members of the Board of Management and the staff of the individual Group companies for their hard work and commitment on behalf of the company. They all contributed to Munich Re successfully holding its own, even under the difficult circumstances of the business year 2002.
Dr. e. h. Dipl.-Ing. Dresdner Bank ag Tetra Laval Group, Pully Bernd Pischetsrieder metro ag (from 17 April 2002) Scania ab, Södertälje* (Chairman)
A. M. Best, which specialises in rating insurance companies, affirmed its top rating of a++ for Munich Re in December 2002 and again at the beginning of April 2003. The reasons cited by the agency were Munich Re’s outstanding capital strength and competitive position, and its excellent market profile in the primary insurance market. In March 2003, Standard & Poor’s reduced its rating for our company further from aa+ to aa–. The rating agency nonetheless stressed Munich Re’s leading position in many reinsurance markets and its first-class reputation worldwide. Moody’s downgraded its rating for Munich Re to aa3, and Fitch from aaa to aa+.
Staff Corporate responsibility 05Munich Re Group Annual Report 2002 staff: Munich Re’s growth potential
Many of our business projects incorporate concepts of sustainable development. We are constantly working towards improving our operational and product ecology in both (re)insurance and asset management processes, using our environmental management tools based on emas (European Eco-Management and Audit Scheme). ergo subsidiary victoria was certified in accordance with this European environmental standard as far back as 1998, and Munich Re followed suit in December 2000. Detailed information on the environment and sustainability can be found in our publication “Perspectives”. This forms the basis on which Munich Re shares are classified as sustainable stocks and includes our environmental statement in line with emas.
Yes, of course. Our system is basically designed for the long term, but that doesn’t mean it’s not flexible. We adjust our tools to developments in our business environment on an ongoing basis. In the asset management sector, it has long been our practice to simulate the consequences of major price falls, and our risk management was well equipped for such eventualities according to the state of knowledge at the time. The extreme developments were not predicted by anyone or even thought possible. As with 11 September, everyone has had to learn from the recent stock market crash; we have adapted our scenarios to take account of the increased volatility.
The business year 2002 presented the Munich Re Group with particularly demanding challenges. The general economic situation deteriorated noticeably worldwide in the course of the year, and the price slumps on the stock exchanges destroyed a vast amount of capital. Active underwriting business, on the other hand, went well, and in reinsurance we moved significantly closer to risk-commensurate prices and conditions.
Ireland, Greece and Spain continued to enjoy relatively strong growth, whereas Italy, the Netherlands and Germany remained at the bottom end of the scale in Euroland. Economic growth in France was slightly above the average for Euroland as a whole. In the uk, strong private consumer demand was the mainstay of the relatively robust real growth of 1.6%. In Switzerland, on the other hand, economic output stagnated.
The life and health classes of business accounted for 25.8% (26.6%) of our premium in reinsurance.
There should be similar potential for growth in health insurance in the medium to long term. Rising benefits and a continuing cost explosion mean that state social security systems are in great difficulties, and not only in the German market, which is of particular importance to us; these systems urgently need privately financed supplementary cover, similar to life insurance. We are very well prepared for this development in both insurance and reinsurance. Our assessment of the situation is given on page 85.
Broken down by division, the combined ratio developed as follows: * Figures for health reinsurance only.
At Karlsruher Versicherung ag, gross premium grew more slowly than in the previous years, increasing by 3.6% (18%) to €250.8m (242.1m), although this growth rate was still above the market average of around 1%. On account of the exceptionally high claims burden from losses involving windstorm, hailstorm and other natural hazard events in 2002, the company‘s combined ratio increased to 113.5% (104.6%).
Now operating with a uniform logo and market presence, the Europäische Group is represented in all the main European countries through its international network of subsidiaries and participating interests, thus taking account of the further internationalisation of the travel industry. In its marketing, it is continuing to work on expanding innovative distribution channels such as the internet.
It was also agreed in May 2000 that Allianz would acquire Munich Re‘s 45% stake in Bayerische Versicherungsbank ag and its 49.9% stake in Frankfurter Versicherungs-ag. This was completed in the second quarter of 2002. In return, during the business year 2000 Munich Re acquired Allianz‘s 39% interest in Mercur Assistance ag Holding, and in mid-2002 Allianz‘s 36.1% stake in Karlsruher Lebensversicherung ag.
Our life and health business has continued to grow at our primary insurance and reinsurance companies. We seek to provide a balance to the more volatile classes of property-casualty business, whose results correlate only to a small extent with those of life and health insurance. Even though in the year under review the life and health insurers’ results were very poor owing to losses on disposals of investments and the need for writedowns, we are adhering to our strategy of stabilising results over the long term through a balance of risks between life and non-life business.
MANAGEMENT REPORT Risk report Financial report 06Munich Re Group Annual Report 2002
Our fixed-interest securities make up 66.7% of our investments available for sale and held to maturity. We perform regular duration analyses to counter the risks posed by changes in interest rates for the coverage of our obligations from insurance and reinsurance, and where necessary we hedge interestsensitive portfolios.
The dependence of our global business on central it systems also requires that operation of the most important systems can be quickly restored in the event of failure or outage of computer centres. In the course of 2002, a concept was developed for this on the basis of which the necessary organisational and technical preconditions were created and concrete measures implemented. The basic effectiveness of this concept, which will be regularly updated in future, was demonstrated by an emergency test in December 2002.
Total equity and liabilities 196,441 202,054 * Group shareholders’ equity and minority interests.
Life and health Property-casualty 2002 Prev. year 2002 Prev. year 2002 Prev. year 2002 Prev. year 2002 Prev. year €m €m €m €m €m €m €m €m €m €m
Fixed-interest securities held to maturity are – like loans – stated at amortised cost. The main investments shown here are registered bonds and promissory notes.
Provisions for anticipated losses are posted if the future premiums and proportional investment income in a portfolio will probably not be sufficient to cover the expected claims and costs.
Over one year and up to five years 463 554 495 550
Valuation at market value results in valuation reserves of €1,046m (3,613m) in comparison with amortised costs. After deduction of provisions for deferred premium refunds, deferred taxes, minority interests and consolidation effects, we have allocated unrealised gains and losses of €168m (1,756m) to shareholders ’ equity.
Disposal proceeds in the business year were as follows: All figures in €m 2002 Prev. year
The securities held for trading include fixed-interest securities totalling €296m (155m) and non-fixed-interest securities and derivatives totalling €156m (257m).
Unrealised gains and losses on other investments – – – –3,208 – –3,208
The table on the following page shows the provisions for outstanding claims in property-casualty business for the primary insurers and reinsurers for the last ten years. This covers around 98% of the total claims provisions of the Group. What the table considers is not the run-off of the provisions for individual accident years, but the run-off of the provision posted at each balance sheet date, which contains the provisions for the respective current accident year and for all previous accident years. The figures for the years 1997 and earlier were determined on the basis of the relevant national accounting regulations; the figures for the years 1998 to the present have been based on International Accounting Standards.
Net provision for the year concerned and previous years, plus payments already made from
(20) Other underwriting provisions 31.12.2002 31.12.2002 31.12.2002 Prev. year Prev. year Prev. year All figures in €m Gross Ceded Net Gross Ceded Net
ERGO International AG, Düsseldorf 2.25%, €345m, Bonds Exchangeable into E.ON AG Shares 2001/2006 0.75%, €345m, Bonds Exchangeable into Aventis AG Shares 2001/2006 609 581
– Change in deferred acquisition costs (gross) –267 –297 –151 45 –74 –665 –46 5 –538 –912 * After elimination of intra-Group transactions across segments.
The current and deferred tax mainly result from the following: All figures in €m 2002 Prev. year
Tax effect of tax rate differences between Group companies 42 –52 tax-free income –4,373 –744 non-deductible expenses 3,004 271 changes in tax rates –5 –284 municipal trade earnings tax 443 –25 corporation tax reduction/increase from dividends –38 –37
The Munich Re Group assumes and cedes reinsurance and retrocessions from and to the Allianz Group under a large number of reinsurance and retrocession agreements. The following table shows Munich Re’s premiums assumed from and ceded to Allianz as at 31 December: In the year under review, Allianz’s cessions to Munich Re amounted to 9.6% (11.8%) of our gross premiums in reinsurance or 6.1% (7.3%) of our overall consolidated premiums. Munich Re’s cessions to Allianz amounted to 27.4% (31.9%) of our ceded premiums.
The number of staff employed by the Group at year-end totalled 31,063 (27,894) in Germany and 10,333 (10,423) in other countries.
The following is a translation of the auditor’s opinion in respect of the original German consolidated financial statements and Group management report: We have audited the consolidated financial statements, consisting of the balance sheet, the income statement and the statements of changes in shareholders ’ equity and cash flows as well as the notes to the financial statements, prepared by the Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München, Munich, for the business year from 1 January 2002 to 31 December 2002. The preparation and the content of the consolidated financial statements in accordance with the International Financial Reporting Standards (ifrs) are the responsibility of the Company’s Board of Management. Our responsibility is to express an opinion on the financial statements based on our audit.
RY 31 SE 38,787 das International Rückversicherungs - u. Beteiligungs -Aktiengesellschaft, Munich
What is the most important lesson for the insurance industry from the terrorist attack of 11 September 2001?
You can find the full financial calendar on the back cover flap.
The process of providing existing clients with advice that encourages them to consider and to buy other (allied) products that they do not yet have.
Insurance of liabilities arising from the performance of professional or official company duties.
Duration refers to the average term of an interestsensitive investment (or portfolio) and is a measure of the risk of its sensitivity to changes in interest rates.
Capital market instruments 25 Capital markets 133, 160 Cash flow statement 173 Catastrophe bonds 25, 166
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