2019 2018 2017 2016 2015 Gross premiums written €m 51,457 49,064 49,115 48,851 50,374 Net earned premiums €m 48,280 45,735 47,164 47,118 48,309 Net expenses for claims and benefits €m –39,685 –35,116 –41,645 –38,498 –38,731 Net operating expenses €m –13,249 –12,587 –12,186 –12,295 –12,367 Operating result €m 4,004 3,725 1,241 4,025 4,819 Taxes on income €m –483 –576 298 –760 –476 Consolidated result €m 2,707 2,275 392 2,581 3,122
We see an important leverage effect for climate protection in the breakthrough of new technologies for a low-carbon economy – in electricity generation, transport, energy storage and industrial production. Here, too, we are taking responsibility. We offer innovative insurance solutions, and shoulder some special risks – such as offering performance guarantees for battery storage systems and photovoltaic systems.
In 2020, we seek to increase our profits to around €2.8bn – with €2.3bn coming from reinsurance, and more than €500m from ERGO. In reinsurance, we will foster our growth initiatives; ERGO will continue with the successful path of its Strategy Programme. In addition, the ongoing
Collaboration between Supervisory Board and Board of Management The Board of Management punctually and directly involved the Supervisory Board in all important business transactions and decisions of fundamental significance for the Group. In our meetings, we discussed the reports from the Board of Management in detail. Cooperation with the Board of Management was characterised in every regard by targeted and responsible action aimed at promoting the successful development of Munich Re. The Board of Management satisfied its reporting obligations towards the Supervisory Board in all respects, both verbally and in writing.
Work of the committees There are six Supervisory Board committees. These are assigned certain matters for resolution, and also prepare the topics which are to be addressed and decided upon by the full Supervisory Board. At each Supervisory Board meeting, detailed information about the work of the committees was provided to the full Supervisory Board by the respective chairs of the committees.
The Board of Management is responsible for managing the Company, in particular for setting the Company’s objectives and determining strategy. It is bound to act in the Company’s best interests. It should take account of the interests of shareholders, employees, and other stakeholders of Munich Reinsurance Company, with the objective of sustainable value creation. The Board of Management is responsible for effecting adequate risk management and risk control in the Company. It must ensure that statutory requirements and internal Company rules are observed, and works to ensure compliance by Group companies.
In its current composition, the Supervisory Board demonstrates diversity of professional training and education, and also has the overall knowledge, expertise and professional experience necessary for the proper performance of its duties. Members have diverse professional and educational focuses (including law, economics, mathematics, natural sciences, and commercial and insurance-specific training). The Supervisory Board members also have management experience in various sectors (such as finance and insurance, IT, chemicals, the automobile industry), and extensive experience in academia and politics. The different CVs and personalities within the Supervisory Board reflect the wide range of duties of the Board and meet the associated requirements.
The reinsurance companies of the Group operate globally and in virtually all classes of business. We offer a full range of products, from traditional reinsurance to innovative solutions for risk assumption. Our companies conduct their business from their respective headquarters and via a large number of branches, subsidiaries and affiliated companies. The reinsurance group also includes specialty primary insurers, whose business requires special competence in finding appropriate solutions.
External consultants Munich Re does not use the services of external consultants to draft or implement remuneration systems for the Board of Management.
Pension entitlements Personnel expenses of €5.7m (4.9m) were incurred in the financial year to finance the pension entitlements for members of the Board of Management active in 2019. Of these, €0.6m was apportionable to defined benefit plans and around €5.1m to defined contribution plans. As a consequence of the risk transfer to an external pension insurer under the defined contribution system, the visible pension costs since 2009 are noticeably higher. The Company accepts this increase in order to avoid higher costs in future and to eliminate long-term pension-specific risks. The following defined benefits, present values, contribution rates and personnel expenses result for the individual members of the Board of Management: Pension entitlements
Board member € 2019 2019 (min) 2019 (max) 2018 Basic remuneration 1,075,000 1,075,000 1,075,000 1,012,500 Remuneration in kind/fringe benefits 48,370 48,370 48,370 49,237 Total 1,123,370 1,123,370 1,123,370 1,061,737 One-year variable remuneration
Multi-year variable remuneration Multi-year performance 2016–20181, 3 – 879,305 97 Multi-year performance 2017–20193, 4 – 965,927 96
Members of the Audit Committee each received an additional €55,000; members of the Standing Committee each received an extra €15,000; and members of the Personnel Committee and the Remuneration Committee each received an additional €30,000. For members of the Supervisory Board who are on both the Personnel Committee and the Remuneration Committee, their membership of the Remuneration Committee is also covered by their fee for the Personnel Committee. The Chairs of these committees receive double the amounts stated for members. No additional remuneration is paid for serving on the Nomination Committee or the Conference Committee.
Carrying amounts Unrealised gains/losses1 Fair values €m 31.12.2019 Prev. year 31.12.2019 Prev. year 31.12.2019 Prev. year Land and buildings, including buildings on third-party land
The regional weighting of corporate bonds in our portfolio was 36% for the USA and 38% for the eurozone.
Our investment in bank bonds is limited, and was further reduced in the course of the year. The share in our overall portfolio of interest-bearing securities was 1% at the reporting date. Financial instruments from states in southern Europe made up 3% of this portfolio. Most of our bank bonds were senior bonds (82%), i.e. bonds that are not subordinated or subject to loss participation. Subordinated bonds and loss-bearing bonds made up 18% of our bank bond holdings.
The combined ratio deteriorated significantly to 101.0% (99.4%) due to higher major-loss expenditure in 2019. Paid claims and the change in claims provisions totalled €13,705m (12,132m), along with net operating expenses of €7,066m (6,372m), compared with net earned premiums of €20,566m (18,618m).
Premium income at Hartford Steam Boiler Group (HSB Group) amounted to €1,072m (950m). This increase is mainly attributable to growth generated not only by new products, but also with our core business. American Modern also posted a rise in premium income to €1,168m (1,032m) owing to higher prices and new business. The result situation of both companies was gratifying.
At €787m, credit and bond reinsurance saw a slight increase in premium volume compared with the previous year (€657m). The increase was attributable mostly to profitable new business in specialty and niche segments, with traditional credit business managing to remain stable.
Key figures 2019 Prev. year Change % Total premium income1 €m 10,232 9,974 2.6 Gross premiums written €m 9,238 9,345 –1.1 Share of gross premiums written by ERGO % 52.3 52.6 Technical result €m 271 552 –51.0 Investment result €m 3,916 3,502 11.8 Operating result €m 681 790 –13.8 Consolidated result €m 187 264 –29.1 1 Total premium income includes not only gross premiums written but also savings premiums for unit-linked life insurance and capitalisation products in accordance with the applicable statutory accounting guidelines.
The cash outflows for financing activities stem mainly from the dividend payment in 2019 and the share buy-back programme.
Solvency capital requirement – Credit In comparison with the previous year, credit risk rose by €1,045m to €4,206m. This was mainly driven by the fall in interest rates, which duly increased the credit risk SCR due to increases in the fair value of fixed-interest securities. This effect is more pronounced for the ERGO life insurance companies, as the fall in interest rates reduces the risk-mitigating effect of policyholders’ bonuses.
Munich Re is heavily invested in the eurozone, and in reinsurance in particular in the US dollar currency area. We attach importance to maintaining a correspondingly broad diversification of investments to cover our technical provisions and liabilities. However, low interest rates continue to pose major challenges, in particular for life insurance companies in the eurozone. We take various risk management measures to counter fluctuations in the capital markets that can lead to volatilities in the Company’s own funds.
Target 2019 Gross premiums written €bn 49 51.5 Technical result life and health reinsurance1 €m 500 456 Combined ratio property-casualty reinsurance % 98 101.0 Combined ratio ERGO Property-casualty Germany % 93 92.3 Combined ratio ERGO Property-casualty International % 95 94.3 Return on investment2 % 3 3.2 Consolidated result €bn 2.5 2.7 Economic earnings €bn over 2.5 7.4 1 Including the result from business with non-significant risk transfer. 2 Excluding insurance-related investments.
Gross premium volume in reinsurance as a whole should be around €34bn in 2020, i.e. roughly at the same level as the previous year. Currency translation effects could potentially have a considerable impact on this estimate. In reinsurance, the consolidated result should be around €2.3bn, as in the previous year.
The reinsurance renewals as at 1 January 2020 once again took place in a very competitive market environment. The capacity of reinsurers and capital market participants in the renewals remained high. Prices for the Munich Re portfolio increased moderately (+1.2%). Economic profitability was negatively impacted by the sustained low level of interest rates.
In the 2019 financial year, Munich Reinsurance Company’s business performance was satisfactory overall. Major-loss expenditure was above the expected range, especially owing to high losses from typhoons in Asia in the second half of the year, and thus significantly higher than in the previous year. By contrast, the release of loss reserves for prior accident years, which we were able to make following a review of our reserving position, made a positive contribution to the underwriting result before claims equalisation provision.
The increase in premium income in fire reinsurance was largely attributable to new business and business growth in various markets. The underwriting result before claims equalisation, which had reflected a profit in the previous year, was significantly negative in the reporting year, mainly on account of a stark rise in major-loss expenditure, including typhoon losses in Asia.
Munich Reinsurance Company generated a profit of €1,492m (2,160m). The much improved investment result could not fully compensate for a fall in the technical result or the greater tax burden.
Segment reporting 123 Segment assets 124 Segment equity and liabilities 124 Segment income statement 126 Other disclosures 126 Notes on determining the combined ratio 128 Non-current assets by country 128 Investments in non-current assets per segment 128 Gross premiums written 128
Notes to the consolidated balance sheet – Assets 129 01 Goodwill 129 02 Other intangible assets 130 03 Land and buildings, including buildings on third-party land 132 04 Hierarchy for the fair value measurement of investments 132 05 Investments in affiliated companies, associates and joint ventures 138 06 Loans 138 07 Other securities available for sale 139 08 Other securities at fair value through profit or loss and insurance-related investments
Notes 31.12.2019 Prev. year Change €m €m €m €m €m % A. Intangible assets I. Goodwill (1) 2,941 2,904 37 1.3 II. Other intangible assets (2) 1,240 1,161 79 6.8 4,180 4,064 116 2.9 B. Investments I. Land and buildings, including buildings on third-party land (3)
The consolidated income statement and the segment income statement for the 2018 financial year have been adjusted retroactively (see section “Changes in accounting policies and other adjustments”). The other previous-year figures have been calculated on the same basis as the figures for the 2019 financial year. An exception to this is the fine-tuning of the method used for managing investments; please refer to the section “Segment reporting”.
Measurement is not made at the individual contract level, but on the basis of portfolios that are subdivided into specified groups. This should largely take account of all cash flows resulting from insurance contracts, which by implication means that certain items currently shown separately in our financial statements will not be included in future.
Sponsored unconsolidated structured entities Munich Re provides structuring and consultancy services for clients within the context of the foundation and structuring of third-party securitisation vehicles. As at 31 December 2019, Munich Re did not have any interests in these structured entities.
Technical provisions are shown as gross figures in the balance sheet, i.e. before deduction of the ceded share; see the explanatory remarks on Assets – D Ceded share of technical provisions. The ceded share is calculated and accounted for on the basis of the individual reinsurance agreements. Acquisition costs for insurance contracts are recognised and amortised over the terms of the contracts; see Assets – G Deferred acquisition costs. The measurement of technical provisions is based on US GAAP FAS 60 (life primary insurance without performance-related participation in surplus, health primary insurance and the bulk of reinsurance treaties), FAS 97 (life primary insurance based on the universal life model, unit-linked life insurance and life reinsurance for assumed business based on FAS 97) and FAS 120 (life primary insurance with performance-related participation in surplus). Credit insurance contracts are accounted for in accordance with the rules of IFRS 4.
This item includes provisions for post-employment benefits and similar obligations. Under defined contribution plans, the companies pay fixed contributions to an insurer or a pension fund. This fully covers the companies’ obligations. Under defined benefit plans, the staff member is promised a particular level of retirement benefit either by the companies or by a pension fund. The companies’ contributions needed to finance this are not fixed in advance. If pension obligations are covered by assets held by a legally separate entity (e.g. a fund or a contractual trust agreement in the form of a two-way trust) – assets that may only be used to cover the pension commitments given and are not accessible to creditors – the pension obligations are shown less the amount of these plan assets. If the fair value of the assets exceeds the related outsourced pension commitments, this reimbursement right is recognised under “Other receivables”.
Pension obligations are recognised in accordance with IAS 19, Employee benefits, using the projected unit credit method. The calculation includes not only the pension entitlements and current pensions known at the balance sheet date, but also their expected future development. The assumptions for the future development are determined on the basis of the circumstances in the individual countries.
Property-casualty Germany International2 €m 2019 Prev. year 2019 Prev. year 2019 Prev. year Net earned premiums 20,566 18,618 3,362 3,252 3,309 3,292 Net expenses for claims and benefits –13,714 –12,140 –2,056 –2,075 –2,129 –2,088 Net operating expenses –7,066 –6,372 –1,077 –1,087 –1,012 –1,068
Disposals Loss of control 0 0 0 0 0 –5 Other 0 0 –5 0 –5 –7
Disposals Loss of control 0 0 0 0 0 0 Other 0 0 –3 0 0 0
Intangible assets pledged as security and other restrictions on title amount to €107m (110m). Contractual commitments to acquire intangible assets amount to €82m (7m).
Derivatives Pricing method Parameters Pricing model Equity and index risks OTC stock options Theoretical price Listing of underlying shares
Currency forwards Theoretical price Currency spot rates Currency forward rates/ticks Money-market rates
Gains (losses) recognised in the income statement –15 –17 4 –3 Gains (losses) recognised in equity 0 3 4 3
Gains (losses) recognised in the income statement 83 –15 –29 24 Gains (losses) recognised in equity 142 –35 11 93
Disposal proceeds €m 2019 Prev. year Fixed-interest securities 57,377 54,803 Non-fixed-interest securities
Realised gains and losses €m 2019 Prev. year Gains on disposal 2,658 2,027
Losses on disposal –322 –768 Fixed-interest securities –221 –533 Non-fixed-interest securities –100 –234
As at the balance sheet date, the Cannock Chase Group, a group of seven Dutch companies belonging to DAS Legal Finance B.V., Amsterdam, was classified as held for sale. No value adjustments were required in the process. The sale of the group is expected to occur in the course of 2020.
A total of €1,335m was distributed to Munich Reinsurance Company’s equity holders for the financial year 2018 in the form of a dividend of €9.25 per dividend-bearing share.
In the case of Munich Reinsurance Company bonds, annual outflows of liquidity amounting to the respective interest payments occur until the first possible call dates. In the financial year, these amounted to €171m (176m). Thereafter, the liquidity outflows will vary, depending on the respective interest-rate level. For the registered bonds of ERGO Versicherung Aktiengesellschaft, and for the HSB Group bonds, the annual outflow is variable, depending on the respective interest-rate levels.
Unearned premiums €m 31.12.2019 Prev. year Gross 10,518 9,790 Ceded share –443 –390 Net 10,075 9,400
The ceded share of “Other technical provisions” amounts to €67m (46m), of which €3m (3m) is apportionable to the ceded share of the provision for premium refunds based on national regulations.
Development of the fair value of plan assets for defined benefit plans €m 2019 Prev. year Balance at 31 Dec. previous year 3,301 3,253 Currency translation differences 45 20 Changes in consolidated group –1 0 Interest income 80 72 Return excluding interest income 348 –45 Contributions by the employer 66 70 Contributions by plan participants 1 1 Payments –83 –68 Payments from plan settlements –11 –1 Transfer of assets 0 0 Other –1 –1 Balance at 31 Dec. financial year 3,746 3,301
Development of the reimbursement rights for defined benefit plans €m 2019 Prev. year Balance at 31 Dec. previous year 292 280 Changes in consolidated group 0 –1 Interest income 5 5 Return excluding interest income 47 –4 Contributions by the employer 19 21 Contributions by plan participants 0 0 Payments –8 –8 Transfer of assets 0 0 Other –1 –1 Balance at 31 Dec. financial year 357 292
Outflows of liquidity occur annually in the amount of the interest payments until the notes mature. These totalled US$ 25m (25m) in the financial year. The fair value at the reporting date amounts to €384m (354m).
Changes in consolidated group/ other 0 0 120 4 122 0 0 0 242 5 Balance at 31 Dec. financial year
Provision for future policy benefits –342 556 Provision for outstanding claims –3,539 –1,888 Provision for premium refunds –1,875 –836
Other technical result –143 –119 Net expenses for claims and benefits –39,685 –35,116
The other operating result also includes a large share of the result from reinsurance treaties with non-significant risk transfer totalling €115m (80m). A total of €114m (81m) derives from the life and health reinsurance segment.
Estimation of the provision for outstanding claims is subject to uncertainty and depends on the exercise of judgement. Uncertainties in estimation arise in particular from the occurrence, amount and speed of settlement of large claims, long-term claims development (especially in third-party liability) and in relation to the estimation of special loss scenarios, such as provisions for asbestos and environmental claims. With major losses in particular – such as for hurricane events – it can take a long time before all claims notifications are received from cedants. Where no adequate claims notifications are available, provisions for these major losses are estimated on the basis of internal analyses of market loss and the company’s own losses on the basis of cover it has provided.
Our observations The valuation process for the provision for outstanding claims in property-casualty business is appropriate, and the valuation assumptions applied, including those for major losses, were appropriately derived. The explanatory notes and disclosures in the notes to the consolidated financial statements are complete and appropriate.
28 February 2020 Balance sheet media conference for 2019 consolidated financial statements (preliminary figures)