The year 2015 was marked by extremely low levels of claims from natural catastrophes. The combination of below-average major losses and the great difficulties in finding suitable investment opportunities in a low-interest-rate environment, has led outside investors to enter our markets. It has also resulted in continuing pressure on prices, terms and conditions. This pressure had eased slightly during the renewals at 1 January 2016, but it is still too early to speak of a lasting change for the better. Munich Re continues to stick to its strict underwriting discipline, and withdraws from unprofitable business. In view of the challenging competitive environment, we can realistically assume that we are unlikely to be able to maintain the very high profitability of property-casualty re insurance we have seen in the last two years, especially if expenditure for natural catastrophe claims returns to normal
Munich Re pays out a significantly increased dividend of €7.75 per share for the 2014 financial year (previous year: €7.25). Munich Re is making a total payout of almost €1.3bn to its shareholders.
The analysts’ current recommendations and result estimates can be found on our website.
The information material accompanying these events was simultaneously published on Munich Re’s website.
Warren E. Buffett and two companies in his group (Berkshire Hathaway Inc. and National Indemnity Company) notified us pursuant to Section 21 of the German Securities Trading Act (WpHG) that on 28 September 2015 their shareholdings in Munich Reinsurance Company had fallen below the 10% threshold, that on 10 December 2015 the shareholding had fallen below the 5% threshold, and that on 16 December 2015 the shareholding had fallen below the 3% threshold to around 2.5%. Before the notification of 28 September 2015, they held shares totalling around 12% of the share capital of Munich Reinsurance Company.
All our activities are based on a Group-wide corporate responsib embedded in our corporate strategy. Our aim is to take on globa our knowledge, experience and creativity to find innovative and s We systematically take into account environmental, social and g (ESG) across the whole value chain – from the acquisition and tr business to asset management. Most of our investments in shar corporate bonds meet recognised sustainability standards.
ERGO gears itself consistently to the needs and requirements of its clients and sales partners with a comprehensive, attractive and modern product range. This comprises not only insurance solutions but also consultancy, claims and benefits, and services. In combination with its very good financial strength, this makes ERGO and its specialists reliable partners for insurance and pension product requirements.
Munich Health combines the Group’s international health insurance activities under one roof. We tap the business potential of the global healthcare markets – which are still seeing disproportionate growth – via primary insurance and reinsurance offers and related services.
Munich Reinsurance Company is a joint-stock company (Aktiengesellschaft) within the meaning of the German Stock Corporation Act (AktG). It has three governing bodies: the Board of Management, the Supervisory Board and the Annual General Meeting. Their functions and powers are derived from the Act, the Articles of Association, the co-determination agreement, rules of procedure and internal guidelines. The principle of parity co-determination on the Supervisory Board has been strengthened in the codetermination agreement by taking into account staff employed in the rest of Europe.
Control and profit-transfer agreements are in place with many Group companies, especially between ERGO Versicherungsgruppe AG and its subsidiaries.
— Innovative insurance solutions push back the boundaries of insurability and tap new business potential in primary insurance and reinsurance
The Special and Financial Risks Division is in charge of the classes of credit, marine, aviation and space, agriculture, enterprise and other selected contingency risks. The Corporate Insurance Partner unit, which is dedicated to industrial clients and is part of Risk Solutions, also belongs to this division. Until early 2015, the Risk Trading Unit, which covers alternative capital market solutions and retrocession (our own reinsurance) was also a part of this division. During the course of the year, we pooled the Risk Trading Unit and other teams of experts in a new unit called Capital Partners. Structured prospective and retrospective reinsurance solutions have thus been added, so that we can offer our clients all the tools needed for dealing with complex issues from a single source.
We manage our worldwide activities in reinsurance via four decentralised units. The regions of Europe and Latin America are managed from Munich. Our North American business is based in Princeton. The Middle East and Africa are managed from Dubai, and the Asia-Pacific region via our office in Singapore. Our primary insurance units are managed centrally from Munich.
Net income – Interest rate x (1 – Tax rate) x Additional available economic equity Capital requirement
Group Investments Group Communications Group Compliance Group Audit Group Human Resources (since 1 July 2015)
Pension contribution > Retirement >Insured event > Premature termination 1 For the variable remuneration, the share shown presupposes 100% performance evaluation/achievement of objectives. 2 Target overall direct remuneration comprises basic remuneration plus variable remuneration based on 100% performance evaluation/achievement of objectives.
Details of the assessment bases for the multi-year performance can be seen in the following table: 1 The objectives are weighted individually according to the responsibilities of the individual Board members. 2 Further information on RORAC is provided on page 42. 3 Further information on economic earnings is provided on page 41 f.
– Property-casualty reinsurance – Value added – Life reinsurance – Value added by new business – Change in the value of in-force business
Individual contribution 20%–80% to corporate success Personal objectives Personal objectives Special focal points such as (three-year period) per Board member – Strategic goals – Investment goals – Staff development, including diversity – Sustainable development – General tasks in the context of the business Overall performance evaluation 20% Overall performance of individual Assessment by Supervisory Board taking Board members and the Board into account Section 87 of the Stock of Management as a whole Corporation Act (AktG) and the German Corporate Governance Code 1 The objectives are weighted individually according to the responsibilities of the individual Board members. 2 Further information on economic earnings is provided on page 41 f. 3 The business-field objective for Munich Health and for ERGO is an “individual contribution to corporate success” for the Board member responsible.
Remuneration in kind/fringe benefits 38,717 38,717 38,717 46,133 33,996 33,996 33,996 40,860
The provisions in place since the financial year 2014 provide for fixed remuneration only. Each member of the Supervisory Board shall receive annual remuneration of €90,000. The Chairman of the Supervisory Board shall receive annual remuneration of €180,000, and the Deputy Chairman annual remuneration of €135,000.
We want our shareholders to participate in our gratifying result again, and will thus propose to shareholders at the Annual General Meeting payment of a dividend of €8.25 (7.75) per dividend-bearing share.
Key figures1 2015 Prev. year Change % Gross premiums written €bn 50.4 48.8 3.1 Combined ratio
At €335m (279m), the technical result was somewhat below our expectation of around €400m. It was impacted by expenditure for two large mortality claims, each with a payout in the double-digit million euro range.
Thereof: Major losses Percentage points 6.2 7.2 Expense ratio % 32.6 32.5 Combined ratio % 89.7 92.7 Operating result €m 3,641 2,824 28.9
The decline in the technical result is partly attributable to lower income from technical interest in life insurance business. At €143m, the investment result was below that of the previous year (€165m), one negative contributing factor being diminished regular income. All in all, the operating result decreased.
Other reserves 6,032 6,458 –6.6 Consolidated result attributable to equity holders of Munich Reinsurance Company 3,107 3,152 –1.4 Non-controlling interests 298 271 10.1
— Under Article 4 (1) of the Articles of Association, the Board of Management is authorised, with the consent of the Supervisory Board, to increase the Company’s share capital at any time up to 24 April 2018 by an amount of up to €280m by issuing new shares against cash or non-cash contribution (Authorised Capital Increase 2013). In accordance with the above-mentioned provisions of the Articles of Association, it may exclude subscription rights.
On 1 January 2016, the new European Solvency II regulatory regime came into force. Under the new supervisory regulations, capital requirements are linked much more closely to the actual risks incurred by insurance companies than under Solvency I. The method of calculation under Solvency I was applied for the last time as at 31 December 2015.
In the year under review, cash – which encompasses cash with banks, cheques and cash in hand – rose by €960m (including currency effects) to €4,041m overall. Of the cash held at the end of the financial year, €86m related to disposal groups. There were items pledged as security and other restrictions on title amounting to €23m (15m).
Munich Re’s global healthcare insurance and reinsurance expertise is combined under the Munich Health brand, enabling a very broad spectrum of clients to be served. Munich Health devises integrated solutions tailored to the individual needs of clients in the different markets. A key driver for the development of these solutions is the increasing digitalisation of interaction with our clients.
In addition to strategic integration of sustainability aspects, the topics of environment and climate protection, and of social commitment constitute major elements of our corporate responsibility strategy.
The objective of our social commitment is to create added value for society wherever possible. This is governed by the transparent sponsorship guidelines set out in our corporate citizenship concept. In addition to providing basic assistance for social and cultural projects at our corporate locations, we would like to make a difference on topics that are related to our business activities and generate effects for both the Group and for society in future on the basis of projects or cooperations. This applies particularly to the innovative national and international cooperations we have had in place since 2015 in the sectors of regenerative energy production, natural catastrophe prevention and the protection of natural resources. Munich Re has corporate foundations: the Munich Re Foundation, the Dr. Hans-Jürgen Schinzler Foundation and the ERGO Foundation "Jugend und Zukunft"(Youth & Future). They support both long-term projects and missions which show a measurable effect in meeting societal challenges at regional, national and international level.
Many of our staff members wish to get involved with charitable projects. Under the slogan “Join in and lend encouragement”, since 2015 ERGO has offered its staff members the opportunity of spending a day together with their colleagues getting involved in social facilities in a corporate volunteering programme. Be it offering handson help, a group outing or imparting knowledge – staff members could choose between various projects supporting or meeting with senior citizens, disabled people, children, disadvantaged youths or refugees.
The Group Actuarial Committee considers the appropriateness of the methodology and assumptions applied to determine the technical provisions, and the uncertainties in the modelling involved. It also supports the actuarial function in assessing the general acceptance policy for underwriting risks and the retrocession arrangements made.
We use our limit systems and have permanent working groups in place to monitor continuously all significant credit and country risks, and the quality of our main retrocessionaires. We also make use of credit derivatives, especially CDSs, in our management of credit risks.
Our reserves ceded to reinsurers were assignable to the following rating categories as at 31 December 2015: The shifts are mainly due to changes in the ratings of a small number of reinsurers and the reclassification of ERGO Italia as “held for sale”.
Finally, capital calculated in accordance with sectoral regulations that is allocated to other financial sectors is included to determine the Group’s “eligible own funds”.
In the present economic environment, life insurance presents challenges and oppor- tunities, with rising demand for old-age provision due to greater life expectancy on the one hand, and volatile capital markets with low interest rates on the other. As a reinsurer, we are a competent partner for life primary insurance companies thanks to our tailored range of asset protection solutions, and we develop integrated reinsurance and financial solutions for life insurers in cooperation with our asset manager MEAG.
The technical result in life reinsurance totalled €335m, which meant that we fell short of our 2015 target of around €400m, mainly owing to two mortality claims, for each of which Munich Re paid out an amount in the two-digit-million euro range.
At the beginning of the year, we had aimed at a result of around €500m for the ERGO field of business. At –€227m, we clearly fell short of this target, chiefly owing to the revaluation of goodwill in the ERGO Life and Health Germany segment.
At €5.6bn, gross premium volume significantly surpassed the target of “a good €5bn”. The combined ratio – 99.9% – was higher than our target of around 99%. Munich Health’s consolidated result totalled €88m, meaning that we met our original target of posting a profit in the range of €50–100m.
Thanks to our strongly diversified investments, we are well prepared for a great variety of capital market scenarios, each of which involves potential losses in individual asset classes. Given the diversification of our portfolio, however, we are proceeding on the assumption that these losses will be absorbed by increases in value in other asset classes. This balanced investment strategy has proved its worth in recent years. For 2016, we are planning to reduce our portfolio of government bonds in individual industrialised countries somewhat further, and to very selectively build up investments in corporate and emerging-market bonds.
In engineering reinsurance (machinery, EAR, CAR, EEI, etc.) premium income remained at a constant level year on year. Having posted a loss for 2014, we were able to show a positive result for 2015, mainly owing to lower major-loss expenditure and higher loss reserve releases.
Premium income increased marginally year on year. Essentially, this is linked to positive currency translation effects, which compensated for decreases in premium income due to treaty terminations and lower commodity prices for agricultural products. The combined technical result of these other classes of business showed a profit in the financial year, whereas in 2014 we had recorded a loss. The result improved year on year, especially because loss expenditure was low.
Corporate governance statement in accordance with Section 289a of the German Commercial Code (HGB) Munich Reinsurance Company has submitted the Statement on Corporate Governance in accordance with Section 289a of the Commercial Code and has made it publicly accessible on the Company website.
Further information can be found in the risk report on page 114 ff. and the opportunities report on page 136 ff.
On 16 December 2015, it was decided that, with effect from 1 January 2016, all assets and liabilities of subsidiary Victoria US Holdings, Inc. would be transferred to Munich Reinsurance America, Inc. against payment of the provisional net asset value of US$ 60.2m determined on the basis of market value. Payment of the purchase price was effected to Munich Reinsurance Company at the same time. The transferring company is to be dissolved in due course.
H. Liabilities related to assets held for sale2 (16) 6,301 0 6,301 – Total equity and liabilities 276,520 272,984 3,536 1.3
Purchase/sale of own shares –30 0 0 –1,383 0 0 0 0 0 –1,413
Net change in technical provisions 3,798 5,195 Change in deferred acquisition costs 62 60 Change in deposits retained and accounts receivable and payable 196 1,262 Change in other receivables and liabilities –86 455 Gains and losses on the disposal of investments –1,943 –1,808 Change in securities at fair value through profit or loss –1,683 –1,129 Change in other balance sheet items 77 –88 Other income/expenses without impact on cash flow 784 410
In accordance with the provisions of IFRS 4, Insurance contracts, underwriting items are recognised and measured on the basis of US GAAP (United States Generally Accepted Accounting Principles) at first-time adoption of IFRS 4 on 1 January 2005.
Pursuant to IAS 28, associates are generally all entities which are not subsidiaries or joint ventures, but on whose financial and operating policies the investors can exercise a significant influence. In the case of shareholdings amounting to between 20% and 50% of the voting power, the entities in question are deemed to be associates unless it can be clearly demonstrated that there is no significant influence.
The investments in debt securities comprise asset-backed securities (ABS), mortgagebacked securities (MBS), collateralised debt obligations (CBO) and collateralised loan obligations (CLO).
Goodwill resulting from the first-time consolidation of subsidiaries is tested for impairment at least annually, in accordance with IAS 36. We additionally carry out ad-hoc impairment tests if there are indications of impairment. For impairment testing, the goodwill is allocated to the cash-generating units or groups of cash-generating units expected to derive benefit from the synergies of the business combination. To ascertain whether there is any impairment, the carrying amount (including allocated goodwill) of a cash-generating unit or a group of cash-generating units is compared with that unit’s or group’s recoverable amount. The recoverable amount is the greater of the fair value less costs to sell and the value in use. If this recoverable amount is lower than the carrying amount, a write-down is made on the goodwill. To determine the recoverable amount, numerous assumptions are required which may lead to significant differences in value. Information on the key assumptions is provided in the Notes to the consolidated balance sheet – Assets (1) Goodwill. Sensitivity analyses of expected changes to the key assumptions are performed as part of the impairment tests. If as a result of these analyses the recoverable amount has fallen below the carrying amount, this is reported in the above-mentioned note.
Securities at fair value through profit or loss comprise securities held for trading and securities designated as at fair value through profit or loss. Securities held for trading are all fixed-interest and non-fixed-interest securities that we have acquired for trading purposes to earn short-term profits from price changes and differences. In addition,
Under retained earnings, we show the profits which consolidated companies have earned and retained since becoming part of Munich Re, and income and expenses resulting from changes in the consolidated group. In addition, the adjustment amount resulting from changes in accounting policies for earlier periods not included in the consolidated financial statements is recognised in the opening balance of the retained earnings for the earliest prior period reported. The retained earnings are reduced by the externally generated costs directly connected with equity capital measures, after taking into account tax effects.
II. Provision for future policy benefits 12,924 13,902 26 26 85,867 84,896 429 428 8,209 12,328 1,118 1,068 108,572 112,648 III. Provision for outstanding claims 7,376 6,707 42,060 39,868 2,792 2,653 4,080 3,866 2,233 2,231 1,215 1,037 59,756 56,362
Cash-generating unit or group of Reinsurance property-casualty segment ERGO Property-casualty Germany segment cash-generating units Basis for calculating the Value in use Value in use recoverable amount Key assumptions regarding the planning In the detailed planning phase (three years), For the detailed planning phase (three years), calculation (at the time of the planning) we expected largely constant premium we expected a slight rise in premium income income with a higher combined ratio. with an improved combined ratio.
Bonds Pricing method Parameters Pricing model Interest-rate risks Loans against borrower’s note/ Theoretical price Sector-, rating- or Present value method registered bonds issuer-specific yield curve Cat bond (host) Theoretical price Interest-rate curve Present value method Mortgage loans Theoretical price Sector-specific yield curve Present value method
Fund Pricing method Parameters Pricing model Real estate funds – – Net asset value Alternative investment funds (e.g. private equity, infrastructure, forestry) – – Net asset value
The fair value of the loans is based on recognised valuation methods in line with the present value principle and taking observable market inputs into account; see (4) Hierarchy for the fair value measurement of investments. The fair value totalled €66,126m (68,950m) at the reporting date.
Realised gains and losses €m 2015 Prev. year Gains on disposal 3,279 2,691
Open positions 31.12. Periods to maturity in years < 1 1–2 2–3 3–4 4–5 > 5 2015 Prev. year €m Interest-rate risks Traded on the stock exchange
Fair value hedges In the case of fair value hedges, the change in the fair value of the hedging instrument and the change in the fair value of the hedged instrument are generally recognised in profit or loss under the items “investment income” and “investment expenses”. With Munich Reinsurance Company’s hedged subordinated bond, this information is shown under net finance costs. Munich Re uses hedging relationships in the form of fair value hedges to selectively and efficiently mitigate interest-rate and other market risks. The main types of transaction employed for hedging are swaps and forwards. The fair value of the derivatives used for this purpose amounted to €94m (153m) at the balance sheet date. In 2015, the following changes in value were recognised in the consolidated income statement: –€59m for the hedging instruments and €57m for the relevant underlyings.
Munich Re Group Annual Report 2015 9 Deposits retained on assumed reinsurance
8060 Development of tangible assets in renewable energies €m 2015 Prev. year Gross carrying amount at 31 Dec. previous year 589 584 Accumulated depreciation and accumulated impairment losses at 31 Dec. previous year –119 –86 Carrying amount at 31 Dec. previous year 470 498 Changes due to currency translation 7 5 Additions
Breakdown of other receivables €m 31.12.2015 Prev. year Amounts receivable on primary insurance business 1,281 1,373 Accounts receivable on reinsurance business 5,389 4,382 Interest and rent 2,570 2,748 Miscellaneous receivables 2,582 2,966
Subsequent additions and reduc- Set off tions due to Additions against changes in due to income/ valuation new Decon- €m Prev. year allowances losses solidation 31.12.2015 Deferred tax assets for
The impairment losses are distributed between the following different Group segments: in reinsurance, €3m (2m) is apportionable to life and €4m (2m) to property- casualty; in the ERGO field of business, €3m (0m) is apportionable to Life and Health Germany, €0m (1m) to Property-casualty Germany, €1m (0m) to ERGO International and €1m (1m) is allocable to Munich Health.
In the first quarter of 2015, Munich Health Holding AG, Munich, sold its shares in the fully consolidated company DKV Luxembourg S.A., Luxembourg. The sales price was in the low double-digit million euro range. The sale had an impact of around €3m on our consolidated result.
The change under “Changes in consolidated group/Other” contains €367m (433m) in savings premiums for capitalisation products and –€1,255m (–647m) for portfolio entries and withdrawals. This item also includes the provision for future policy benefits of the disposal group amounting to –€4,208m.
Development of provision for premium refunds based on national regulations €m 2015 Prev. year Status at 31 Dec. previous year 7,557 6,652 Changes in consolidated group 0 0 Allocations/Withdrawals 173 905 Status at 31 Dec. financial year 7,730 7,557
The provisions for restructuring mainly concern €106m (140m) for the ERGO Group’s “Continuous improvement of our competitive position” project and €253m (327m) for the comprehensive restructuring of its sales organisation. The miscellaneous other provisions comprise a large number of different items, including €25m (22m) for competitions for sales staff, €13m (22m) for settlements, and €18m (42m) for litigation risks. The “other changes” include other provisions of the disposal group amounting to €19m.
The major portion of the liabilities up to one year involve interest-free items, where the carrying amounts and the undiscounted cash flows are identical. A total of €51m (50m) of the amounts owed to banks and €401m (399m) of the liabilities from derivatives are due within one year. Any deviations in the liabilities with remaining terms of over one year from the undiscounted cash flows are not material for the presentation and significance of the financial liabilities for our financial position and performance.
Munich Re Group Annual Report 2015 technical interest for primary insurance business corresponds to the allocation of interest to the ageing reserve (actuarial interest) and the allocation to the provision for premium refunds. The latter is based on the allocation of interest to the provision for non-performance-related premium refunds, on the investment result exceeding the actuarial interest rate, and on policyholders’ participation in the other non-technical result components.
Provision for future policy benefits 6 0 –210 –126 Provision for outstanding claims –18 33 147 –140 Provision for premium refunds 0 0 2 –2
Net Claims and benefits paid –4,348 –4,150 –35,273 –35,103 Change in technical provisions
The change in the provision for future policy benefits (net) contains €233m (495m) in unrealised gains/losses from unit-linked life insurance. Expenses for claims and benefits include expenses for policyholders’ bonuses. Of this, €903m (1,414m) is for the allocation to the provision for premium refunds on the basis of national regulations, €75m (763m) for the change in the provision for deferred premium refunds recognised in the income statement, and €87m (102m) for direct crediting. The other technical result for life primary insurance mainly includes interest on policy holders’ accumulated credit.
ERGO Life and Health Property-casualty Germany Germany International €m 2015 Prev. year 2015 Prev. year 2015 Prev. year Write-downs of non-derivative investments –232 –107 –119 –27 –76 –30 Losses on the disposal of non-derivative investments –142 –49 –46 –27 –116 –4 Write-downs and losses on the disposal of derivatives –599 –389 –179 –162 –92 –42 Management expenses, interest charges and other expenses –240 –244 –20 –21 –26 –28
Thereof: Interest income 6 5 2 2 3 4 Write-ups of other operating assets 7 5 8 1 3 1
The tax effect of €99m (48m) from changes in valuation allowances for deferred taxes/ loss carry-forwards involves an amount of €72m (66m) in expenses from the subsequent revaluation of deferred tax assets for loss carry-forwards/tax credits from previous years and the non-application for new loss carry-forwards/tax credits, and an amount of €11m (14m) in tax savings from the offsetting of positive taxable income with tax loss carry-forwards/tax credits for which no deferred tax assets had previously been recognised. The remaining amount involves effects from the change in valuation allowances for deferred tax assets from temporary differences.
Biometric risks mainly relate to mortality, disability, morbidity and longevity. The bio metric assumptions we use for measuring insurance contracts in our portfolios are regularly reviewed on the basis of updated portfolio information. Especially in primary insurance, this includes considering country-specific reviews by supervisory authorities. We also take account of market standards when checking the adequacy of biometric actuarial assumptions and the trend assumptions included in them. In reinsurance, a lapse risk derives primarily from the indirect transfer of lapse risks from cedants. As a rule, both this risk and the financial risk from extraordinary termination of reinsurance contracts are largely ruled out through appropriate contract design. In life primary insurance, the reported technical provision in the case of contracts with a surrender option is generally at least as high as the relevant surrender value. The lapse risk in primary insurance is allowed for by means of appropriate liquidity planning and adequate calculation of the surrender value.
Other market risks are of particular importance to unit-linked life insurance policies, the lump-sum option in the case of deferred annuity policies and derivatives embedded in variable annuities.
The lump-sum option in the case of deferred annuity policies gives policyholders the option of having their annuity paid out in a single payment at a fixed date. As a result, there is a potential risk if an unexpectedly large number of policyholders exercise their option at an interest-rate level markedly higher than the discount rate used for the annuity calculation. But there is no direct interest-rate sensitivity or market sensitivity, since the exercise of the option by the policyholder is determined to a crucial extent by individual factors and relates to the insurance components.
1 The figure for 2011 is not adjusted for relief of 4.9 percentage points from economic risk transfer to the capital markets.
Number of rights on 31 Dec. 2015 0 8,577 28,498 Exercisable at year-end 0 8,577 28,498
Estimates and judgements are necessary for contingent liabilities where the likely impact cannot be clearly determined. This is the case, for example, with respect to contingent liabilities in legal disputes. Like the evaluation process for other accrued liabilities, the assessment is made by experts in the affected units on the basis of the best estimate. Contingent liabilities are stated unless the experts estimate that the possibility of an outflow of resources is remote.
We conducted our audit of the consolidated financial statements in accordance with Section 317 of the German Commercial Code and German generally accepted standards for the audit of financial statements promulgated by the Institute of Public Auditors in Germany (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the combined management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the combined management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and combined management report. We believe that our audit provides a reasonable basis for our opinion.
Fair value The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (definition in accordance with IFRS 13 “Fair value measurement“).
Shadow accounting Non-binding practice wherein an insurer changes its account ing policies so that a recognised but unrealised gain or loss on an asset affects the measurement of technical provisions, related deferred acquisition costs and related intangible assets in the same way that a realised gain or loss does.