O rd e r n u m b e r: -M
Unlike the reinsurers, the primary insurers in the Group were able to continue the positive development of the previous year: altogether they achieved higher growth and a better result than in 1998. We are particularly pleased with the figures of the property-casualty business, where we were able to buck the market trend and increase both premium income and profit. The life insurers achieved growth that was far above average, benefiting from the general reaction to the German government’s plans – since shelved – to tax income from endowment policies as from 1st January 2000.
Munich Re and Allianz recently agreed to reduce their cross holdings to around 20% each by the year 2003. In this connection Munich Re has issued a €1.15bn bond exchangeable into Allianz shares. Besides this, in an exchange operation scheduled for next year, we will be selling our shares in Bayerische Versicherungsbank AG and Frankfurter Versicherungs-AG to Allianz and in return will acquire Allianz’s stake in Karlsruher Lebensversicherung AG. Already this year Munich Re will also be acquiring Allianz’s shareholding in Mercur Assistance. We want to invest the considerable funds that will flow to Munich Re from these transactions in the further expansion of our business.
In the business year 1999 Munich Re again succeeded in consolidating or extending its position in both insurance and reinsurance in a difficult environment.
At four meetings in the business year 1999 the Supervisory Board obtained detailed information from the Board of Management on the situation in the important insurance and reinsurance markets, the development of business and the position of the company and its main participations. We discussed these reports and important individual measures in detail. Between the meetings the Chairman of the Supervisory Board remained in close contact with the Chairman of the Board of Management and obtained ongoing information on all relevant business transactions.
Dr. phil. Ron Sommer Chairman of the Board of Management of Deutsche Telekom AG
Our actions are guided by our responsibility towards shareholders, clients and staff, and towards the environment and society as a whole.
Given current demographic trends, insurances of the person in particular offer great potential for growth. We will expand our business in Germany further and take full advantage of opportunities in the rest of Europe.
Munich Re registered shares are becoming increasingly popular with German and international investors. The number of registered shareholders has quadrupled in the last two years to 65,000. This increase is largely due to private investors. We are proud that in 1999 we were able to enter a total of 34,000 new shareholders in our shareholders’ register. The proportion of shares held outside Germany now totals 23%.
In the current business year the upward trend has continued: on 11th May 2000 Munich Re’s share price stood at €308.00, or 22.3% higher than at 31st December 1999.
You can find further information on the capital markets under “Asset management” in Section 05 (see p. 68ff.).
Risks for the world economy lie above all in the USA, in the triangle of tension between growth to the limits of capacity, highs on the stock market and the countering of inflation risks with monetary policy. But besides this, disappointments from the emerging markets and a recent increase in the oil price also harbour risks of setbacks.
There are many reasons why insurers all over the world count on Munich Re.
The general market situation continued to be unsatisfactory. Overcapacity predominated in many markets, and premiums in important classes of business were eroded further.
We succeeded in expanding our premium in life business by 19.1%. Growth was above-average in Germany, favoured by the plans of the German government to tax life insurance as from 1st January 2000 (a project which has since been shelved). There was also greater demand for the reinsurance of annuity portfolios. In addition, especially abroad, we were able to support our clients with complex and very specialized reinsurance solutions: in connection with mergers, for example, or for the coverage of private long-term care insurance and the reinsurance of return-oriented and interest-sensitive life insurance products. We again managed to improve the result considerably on the previous year.
In 1999 our premium income in Europe rose by 3.1% to €9.1bn (8.8bn). We rank among the leading reinsurers in all the main markets. In the year under review, despite stiff competition, we were able to expand our market shares in some cases – above all in the UK, the Nordic countries, France, Italy, Spain, Portugal and Eastern Europe. Our underwriting result was distinctly worse than in the previous year, owing to the unusually high number of natural catastrophes. The three windstorms Anatol, Lothar and Martin in December 1999 cost as more than €500m alone.
Gross premiums Sfr m 971 1,834 Net premiums Sfr m 785 1,534 Loss ratio non-life % 84.1 77.7 Expense ratio non-life % 22.9 20.3 Profit for the year Sfr m –13.6 6.8 Investments Sfr m 2,319 2,012 * Owing to a change in the business year in underwriting, 1998 included the year 1997 as well as 1998.
Our poor result in this region is due to the earthquake that devastated northwest Turkey in August. This natural catastrophe gave rise to claims costs for us of over €60m.
PROPERTY-CASUALTY Our property-casualty insurers again succeeded, counter to the trend, in achieving growth in the German market: their premium income rose by 4.7% to €3.7bn (3.5bn), whereas the German market as a whole recorded a decline of 0.4%. Premium revenues of €0.7bn (0.5bn) were from business written abroad.
Our primary insurers write 90% of their business in Germany. Their foreign premium income of €1.4bn (1.2bn) derives mainly from five countries; in order of size these are the Netherlands, Belgium, Spain, Austria and the UK. In view of this fact, we consider it more informative to report on the individual subgroups rather than according to regions, as we do in reinsurance. Where appropriate, however, we will also deal with developments in the individual markets in the course of this reporting.
There was growth of 11% to DM 166bn (149bn) in ERGO’s investments; the investment result improved to DM 10.3bn (9.5bn).
In the first half of 2000 Munich Re acquired the majority of shares in Alte Leipziger Europa, a management holding company which mainly holds majority stakes in Central and Eastern European insurers. In close coordination with the strategic development of ERGO’s operations in Europe, we have thus extended our position in these markets – which are considered to have particularly strong growth potential – in primary insurance as well.
In this way we transform risks into opportunities, opportunities into earnings, and earnings into growth in the value of our Group. For the business year 2000 we expect our result to improve by over ten per cent. On the following pages you can find out why we are so confident and how we deal with our own risks.
Interested in finding out what else is going on in the Munich Re Group? Then please read Section 06 Perspectives.
Munich Re is known for its continual growth in value. But how do we safeguard value and growth for the future?
– We select our management staff with care and give them a thorough grounding in the skills they will require for their tasks. To this end, we are partnered by respected management training schools.
In our primary insurance group, we are engaged in a significant number of projects aimed at using e-commerce, i.e. electronic trading, to expand service and support processes in the value-added chain. The ERGO companies and EUROPÄISCHE and Karlsruher already offer a range of online services, from pure product information and calculation facilities to, in some cases, online conclusion of policies and notification of claims.
– the value contributions and risks of the individual fields of business (reinsurance, primary insurance and asset management) are made transparent and comparable.
Change in notes and debentures and amounts owed to banks 210 58
In accordance with IAS 27, the consolidated financial statements include the Munich Reinsurance Company (the parent company) and all the enterprises in which Munich Re owns, directly or indirectly, the majority of the voting shares (subsidiaries). The only exceptions are subsidiaries which are determined as being not material for assessing the Group’s financial position; insurance and reinsurance companies are consolidated regardless of their size. An overview of the group of consolidated companies and other important shareholdings is provided on p. 154f.
Real estate pledged as security and other restrictions on title amount to €28m (28m). The expenses for investments under construction amount to €38m (4m) at the balance sheet date.
The “Other reserves” include €3,342m (2,954m) unrealized gains and losses from valuation at equity, €3,953m (3,973m) unrealized gains and losses on other investments, and €3m (10m) miscellaneous reserves.
Total (net) 20,310 18,282 €18,016m (17,535m) of the provision for premium refunds is profitrelated and €2,294m (747m) is profit-unrelated.
The expenses are shown in the income statement mainly under “Operating expenses” and “Expenses for claims and benefits”.
The consolidated companies used the following actuarial assumptions (weighted average values) for calculating their pension commitments: 31.12.1999 Prev. year
Derived tax on earnings 755 Tax effect of – trade earnings tax 57 – non-deductible expenses 67 – tax-free income –131 – changes in tax rates –300 – miscellaneous –88
Balance sheet 104f., 110ff. Board of Management 6f. Bond markets 31, 72f.
P ic tu re c re d it s : J o