Munich Re is becoming more digital. We are investing systematically in digital transformation. Our focus is on solving the specific problems that our primary insurance clients or sales partners face, and in return we want to participate in the business this generates. We are one of the leading providers of cyber risk insurance, and we offer our clients insurance cover and a wide array of services ranging from preventive measures to the recovery of lost data. In 2018, our purely online insurer nexible almost doubled the number of policies sold, and is now also active in the Austrian market. ERGO is one of the first insurers in Europe to enable its customers to buy insurance using the Alexa voice assistant. We insure algorithms, such as those developed by the start-up company Fraugster, and thus help online traders to check for suspicious transactions more quickly and effectively. Furthermore, the platform of our new digital insurance agent in Canada offers partners with or without an insurance licence the opportunity to sell insurance products online.
Corporate governance and Declaration of Conformity The Supervisory Board pays close attention to good corporate governance. Together with the Board of Management, we therefore published the mandatory annual Declaration of Conformity pursuant to Section 161 of the German Stock Corporation Act (AktG) in November 2018. The Company has complied and intends to continue to comply with all of the recommendations of the German Corporate Governance Code as amended on 7 February 2017. We confirmed our assessment that all 20 members of the Supervisory Board are to be regarded as independent and that they do not have any relevant conflicts of interests.
Munich Re again offered the members of the Supervisory Board specific training at an internal information event in 2018. Almost all members took the opportunity to learn more about selected topics related to reinsurance and risk management.
Renata Jungo Brüngger Member of the Board of Management of Daimler AG Member since 3 January 2017
In our estimation, the talent and performance of our staff are the keystones to Munich Re’s long-term success. Our international and diversity-focused human resources work sets great store by a corporate and leadership culture which promotes motivation and innovation in our highly qualified staff members. More information can be obtained at www.munichre.com/employees.
Targets for 2018 A target of €2,300m was set for 2018, with the following linear scaling for the 0–200% target corridor: €1,600m = 0% achievement of objective €2,300m = 100% achievement of objective €3,000m = 200% achievement of objective
Benefit: − In the case of defined contribution plans: Annuity based on the policy reserve or payment of the policy reserve as a lump sum at the date the insured event occurs. − In the case of a combination of defined benefit plans and defined contribution plans: The entitlement under the vested pension is a proportion of the vested pension based on the ratio of actual service with the Company to the period the Board member would have worked for the Company altogether up to the fixed retirement age (m/n-tel process, Section 2(1) of the Company Pension Act). The entitlement from the incremental pension comprises the pension benefits fully financed under the insurance contract up to the occurrence of the insured event based on the pension contributions made up to the date of leaving the Company – (Section 2(5a) of the Company Pension Act). This entitlement is paid out as an annuity or a lump sum.
Total remuneration of the Board of Management Amount of remuneration The level of the target overall direct remuneration for the individual members of the Board of Management is set by the full Supervisory Board, acting on recommendations from the Supervisory Board’s Remuneration Committee, and taking into account the responsibilities and performance of each member of the Board of Management, the performance of the full Board of Management and the situation, performance and future prospects of Munich Re. It takes into consideration whether the remuneration is standard practice and appropriate compared with other companies of the peer group (including DAX 30 companies). The target overall direct remuneration for the Chairman of the Board of Management is based on the median remuneration paid to the chairs of the boards of management of DAX 30 companies. In addition, the Supervisory Board takes into account the level of the salaries paid to the Board of Management in relation to the level of salaries paid to senior managers and to general staff members over time.
Annual bonus (from 2018) Remuner- Annual Basic ation in perform- Multi-year Financial remuner- kind/fringe ance (until perform- Name year ation benefits 2017)1 ance2, 3 Other Total
4 Entitled to a reduced occupational pension on early retirement in the event of premature or regular termination of employment. 5 Entitled to a reduced occupational pension on early retirement in the event of premature termination of employment, and to an occupational pension in the event of regular termination of employment. 6 Entitled to vested benefits under the Company Pension Act in the event of premature or regular termination of employment. 7 Entitled to vested benefits under the Company Pension Act in the event of regular termination of employment. 8 Left the Board as at 31 December 2018; has received a pension since 1 January 2019. 9 Defined contribution plan within the meaning of IAS 19: Employee Benefits, so no present value shown. 10 Munich Reinsurance Company: see footnote 9; ERGO Group AG: no Defined Contribution Plan within the meaning of IAS 19, so present value shown.
The annual remuneration of members of the Supervisory Board increased as of 1 January 2019 from €90,000 to €100,000. The Chairman of the Supervisory Board will receive annual remuneration of €220,000 in future, and the Deputy Chairman will receive €150,000. Members of the Audit Committee each receive an additional €55,000 for their work on the Committee, and each member of the Standing Committee receives an additional €15,000. Each member of the Personnel Committee and the Remuneration Committee receives an additional €30,000. For members of the Supervisory Board serving on both committees, the compensation for serving on the Personnel Committee also covers their membership on the Remuneration Committee. The chairs of these committees continue to each receive double the amounts stated for members. As was previously the case, no remuneration is paid for serving on the Nomination Committee or the Conference Committee. The attendance fee, which is paid to Supervisory Board members once only per day of meetings – even if several are attended on any given day – remains at €1,000 per meeting. The remuneration of members of the Supervisory Board will continue to exclude variable remuneration components and pension benefits.
In particular, economic earnings comprise the contribution to profits from our new business, and changes in the value of in-force business against the previous year’s assessment. The development of eligible own funds is also considered because of the effect of changed capital market parameters on the assets and liabilities sides of the solvency balance sheet.
2 Expenses for claims and benefits not taken into account in the calculation of the combined ratio are set out on page 122 in the Notes to the consolidated financial statements.
The currency translation result was –€39m (–294m). In the previous year, the appreciation of the euro against the US dollar had had a particularly negative impact.
Premium income at Hartford Steam Boiler Group (HSB Group) amounted to €950m (968m). Here, we are expanding our product range of Internet of Things (IoT) insurance solutions, and through the acquisition of Relayr have considerably enhanced our know-how. American Modern posted premium income of €1,032m (1,131m).
The technical result generated by the ERGO Life and Health Germany segment was significantly higher than in the previous year. The increase resulted in part from Life Germany owing to a one-off effect from changed assumptions about profit appropriation. The investment result fell year on year, chiefly owing to lower gains on disposals. A one-off effect from changes in the tax valuation of registered bonds had a positive effect. Overall, both the operating result and the consolidated result improved significantly.
Key figures 2018 Prev. year Change €m €m % Total premium income1 1,093 1,057 3.4 Gross premiums written 1,066 1,025 4.0
Overall in the year under review, cash – which encompasses cash with banks, cheques and cash in hand – rose by €1,565m (including currency effects) to €5,150m. There were items pledged as security and other restrictions on title amounting to €12m (45m).
Solvency capital requirement – Internal model Munich Re has a comprehensive internal model that determines the capital needed to ensure that the Group is able to meet its commitments even after extreme loss events. We use the model to calculate the capital required under Solvency II (the solvency capital requirement, or SCR). The SCR is the amount of eligible own funds that Munich Re needs to have available, with a given risk tolerance, to cover unexpected losses in the following year. It corresponds to the value at risk of the economic profit and loss distribution over a one-year time horizon with a confidence level of 99.5%, and thus equates to the economic loss for Munich Re that, given unchanged exposures, will be exceeded each year with a statistical probability of 0.5%. Our internal model is based on specially modelled distributions for the risk categories 1 Capital requirements for other financial sectors, e.g. institutions for occupational retirement provisions.
For the Property-casualty Germany segment, we envisage gross premiums written of around €3.5bn. The combined ratio should be around 93%, provided major losses remain within normal bounds.
The combined ratio, which reflects the relation of claims and costs to net earned premiums, came to 95.3% (113.7%), mainly owing to the above effects.
Life 2018 Prev. year Change % Gross premiums written €m 5,754 7,719 –25.5 Underwriting result before claims equalisation provision and similar provisions €m 447 –111 –
Health 2018 Prev. year Change % Gross premiums written €m 1,260 3,079 –59.1 Combined ratio % 97.0 99.5 Underwriting result before claims equalisation provision and similar provisions €m 32 14 135.2
Investment result €m 2018 Prev. year Regular income 1,659 3,152 Write-ups and write-downs 37 –70 Realised gains/losses on the disposal of investments 980 170 Other income/expenses –194 –175 disposal of investments could not fully compensate for the fall in regular income.
Statement on Corporate Governance for the 2018 financial year pursuant to Section 289f and Section 315d of the German Commercial Code (HGB)
Ceded share –2,284 –1,528 –757 –49.5 2. Income from technical interest (31) 4,747 6,376 –1,629 –25.5 3. Expenses for claims and benefits (32) Gross –36,366 –43,194 6,829 15.8 Ceded share 1,250 1,549 –299 –19.3 4. Operating expenses (33) Gross –13,105 –12,498 –607 –4.9
Other changes –1 4 I. Items where income and expenses recognised directly in equity are reallocated into the consolidated income statement –1,738 –1,494 Remeasurements of defined benefit plans 78 –36 Other changes 0 0 II. Items where income and expenses recognised directly in equity are not reallocated to the consolidated income statement 78 –36 Income and expense recognised directly in equity (I + II) –1,659 –1,530 Total recognised income and expense 616 –1,138 Thereof: Attributable to Munich Reinsurance Company equity holders 658 –1,146 Attributable to non-controlling interests –42 9
Unrealised gains and losses on investments 0 0 0 0 366 0 0 0 –6 360 Change resulting from equity method measurement 0 0 –41 0 4 0 16 0 0 –20 Change resulting from cash flow hedges 0 0 0 0 0 0 –1 0 0 –1 Remeasurements of defined benefit plans 0 0 –37 0 0 0 0 0 1 –36
Consolidated cash flow statement for the 2018 financial year €m 2018 Prev. year Consolidated result 2,275 392
In the 2018 financial year, the following amended IFRSs had to be applied for the first time, after having been adopted into European law.
Investments held by subsidiaries already required to use IFRS 9 under local regulations also accounted for a negligible share of overall investments from a Group perspective.
The IASB has also published amendments to the following standards that – except for the Amendment to IAS 28 and the IFRIC Interpretation 23 – have not yet been adopted into European law: − Amendments to IAS 28 (rev. 10/2017), Long-term Interests in Associates and Joint Ventures − Annual Improvements to IFRS Standards 2015–2017 Cycle (12/2017): Amendments to IAS 12, Income taxes; IAS 23, Borrowing costs; IFRS 3, Business combinations; and IFRS 11, Accounting for Acquisitions of Interests in Joint Operations − Amendments to IAS 19 (rev. 2/2018), Plan Amendment, Curtailment or Settlement − Amendments to IFRS 3 (rev. 10/2018), Definition of Business − Amendments to IAS 1 and IAS 8 (rev. 10/2018), Definition of Material − IFRIC 23 (6/2017), Uncertainty over Income Tax Treatments
A list of all our shareholdings can be found in the section “List of shareholdings as at 31 December 2018 in accordance with Section 313(2) of the German Commercial Code (HGB)”.
Size of structured entities For investment funds, including investments in infrastructure, forestry, private equity and other investments, and investment funds for policyholders under unit-linked life insurance, the carrying amount gives an indication of the size of the structured entity. For debt securities and the securitisation of underwriting risks, the emission volume (nominal value) is used as an indicator for measuring the size of the structured entity. The size of the funds refers to both the issued volume of the securitisation vehicles set up by Munich Re and that of those securitisation vehicles in which Munich Re has invested.
In the case of Level 1, valuation is based on unadjusted quoted prices in active markets for identical financial assets which Munich Re can refer to at the balance sheet date. If a quoted price in an active market is available, this should always be used. The financial instruments we have allocated to this level mainly comprise equities, equity funds, exchange-traded derivatives, and exchangetraded subordinated liabilities.
Carrying amount at 31 Dec. financial year 373 433 44 30 317 272 Accumulated amortisation and impairment losses at 31 Dec. financial year –926 –870 –418 –383 –1,026 –972 Gross carrying amount at 31 Dec. financial year 1,299 1,304 462 413 1,343 1,244
The fair value of investment property at the balance sheet date amounted to €10,620m (7,865m). The portfolio managed by the Group is measured by valuers within the Group, and the portfolio managed by third parties is valued by external valuers. Property is allocated to Level 3 of the fair value hierarchy; see Assets – B Investments – Determining fair values. Determining the sustainability of cash inflows and outflows, taking into account the market conditions at the property location, is material for measurement. The fair value is determined individually per item by discounting the future cash flow as at the measurement date. Depending on the type of property and its individual opportunity/risk profile, discount rates of 0.7% to 3.9% are used for residential buildings and 0.9% to 5.5% for office buildings and commercial property.
The most important additions include an office building in Washington D.C. and commercial property in Munich.
Derivatives Pricing method Parameters Pricing model Equity and index risks OTC stock options Theoretical price Listing of underlying shares Black-Scholes (European) Effective volatilities Cox, Ross and Rubinstein Money-market interest rate (American) Dividend yield Monte Carlo simulation Equity forwards Theoretical price Listing of underlying shares Present-value method Money-market interest rate Dividend yield Interest-rate risks Interest-rate swaps Theoretical price CSA/swap curve Present-value method Swaptions/interest-rate Theoretical price At-the-money volatility matrix and skew Bachelier/ guarantee OIS/swap curve Normal Black Interest-rate currency swaps Theoretical price Swap curve Present-value method Currency spot rates Money-market interest-rate curve Inflation swaps Theoretical price Zero-coupon inflation swap rates Present-value method OIS curve Bond forwards (forward transactions) Theoretical price Listing of underlying Present-value method Swap curve Currency risks Currency options Theoretical price Volatility skew Garman-Kohlhagen Currency spot rates (European) Money-market interest-rate curve Currency forwards Theoretical price Currency spot rates Present-value method Currency forward rates/ticks Money-market rates Other transactions Insurance derivatives Theoretical price Fair values of cat bonds Present-value method (excluding variable annuities) Historical event data Interest-rate curve Insurance derivatives Theoretical price Biometric rates and lapse rates Present-value method (variable annuities) Volatilities Interest-rate curve Currency spot rates Catastrophe swaps Theoretical price Fair values of cat bonds Present-value method Interest-rate curve Credit default swaps Theoretical price Credit spreads Present-value method Recovery rates ISDA CDS Standard Model Interest-rate curve Total return swaps on Theoretical price Listing of underlying index Index ratio calculation commodities Commodity options Theoretical price Listing of underlying Black-Scholes (European) Effective volatilities Cox, Ross and Rubinstein Money-market interest rate (American)
Gross carrying amount at 31 Dec. previous year 3,494 1,000 31 4,525 Accumulated amortisation and impairment losses at 31 Dec. previous year –1,214 –760 –24 –1,998 Carrying amount at 31 Dec. previous year 2,280 241 7 2,527 Currency translation differences 6 –1 0 5 Additions
The expenditures recognised in the carrying amount for assets in the course of construction totalled €5m (4m) for property and €14m (22m) for plant and equipment. Commitments to acquire property total €10m (3m) and commitments to acquire plant and equipment €6m (12m).
Development of gross unearned premiums €m 31.12.2018 Prev. year Status at 31 Dec. previous year 8,857 8,984 Currency translation effects 96 –535 Changes in consolidated group/Other –208 –16 Gross premiums written 49,064 49,115 Earned premiums –48,019 –48,691 Status at 31 Dec. financial year 9,790 8,857
The claims expenses for the financial year show payments made for the financial year and expenses for posting the claims reserve in that year. The provisions set up for claims from previous years are regularly updated using best estimates based on exposure and claims information and past claims experience. The respective change is shown under “claims expenses for previous years”. The gross provision for outstanding claims of the disposal group amounting to –€301m (–30m) is recognised under “Changes in consolidated group/Other”.
Of the provision for premium refunds based on national regulations, €78m (77m) is apportionable to propertycasualty insurance. The provision for deferred premium refunds is established solely for life and health insurance.
Payments –76 –67 Payments from plan settlements –4 2 Capital transfer to plan assets –71 –90 Transfer of assets 0 5 Transfer to other receivables 64 –36 Actuarial gains/losses recognised in equity –114 –14 Other –2 –4 Balance at 31 Dec. financial year 2,992 2,982
The provisions for restructuring mainly concern €295m (333m) for the “ERGO Strategy Programme” and €132m (170m) for the comprehensive restructuring of the sales organisations of the ERGO Group. ERGO also posted further restructuring provisions of €16m (39m) for the “Continuous improvement of the competitive position” project plus €7m (30m) for the discontinuation of new business and the winding up of the sales organisation in Belgium. The provision for multi-year variable remuneration
Multi-year variable compensation 109 35 –27 –3 –3 111 Early retirement benefits/semi-retirement 84 104 –76 –2 –1 109
The change in the provision for future policy benefits (net) contains –€733m (414m) in unrealised gains/losses from unit-linked life insurance. Expenses for claims and benefits include expenses for policyholders’ bonuses. Of these expenses, €1,194m (1,009m) is for the allocation to the provision for premium refunds on the basis of national regulations, +€111m (–319m) for the change in the provision for deferred premium refunds recognised in the income statement, and €47m (107m) for direct crediting. The other technical result for life primary insurance mainly includes interest on policyholders’ accumulated credit.
Reinsurance Primary insurance Total €m 31.12.2018 Prev. year 31.12.2018 Prev. year 31.12.2018 Prev. year
Breakdown of number of staff 31.12.2018 Prev. year 47 Auditor’s fees For services rendered to the parent and consolidated subsidiaries by the Group auditor (KPMG Bayerische Treuhandgesellschaft AG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Munich, and its affiliated companies within the meaning of Section 271(2) of the German Commercial Code – HGB), the following fees have been recognised as an expense in the financial year: 45 Remuneration report
Incentive Incentive Incentive Incentive Plan 2015 Plan 2016 Plan 2017 Plan 2018
IK Einkauf Objektverwaltungsgesellschaft mbH, Düsseldorf 100.0000 IK Einkaufsmärkte Deutschland Verwaltungsgesellschaft mbH, Düsseldorf 100.0000 IK FE Fonds Management GmbH, Düsseldorf 100.0000 IK Komp GmbH, Düsseldorf 100.0000 IK Objekt Bensheim GmbH, Düsseldorf 100.0000 IK Objekt Frankfurt Theodor-Heuss-Allee GmbH i. L., Düsseldorf 100.0000 IK Pflegezentrum Uelzen Verwaltungs-GmbH, Düsseldorf 100.0000 IK Property Eins Verwaltungsgesellschaft mbH, Hamburg 100.0000 IK Property Treuhand GmbH, Düsseldorf 100.0000 IK US Portfolio Invest DREI Verwaltungs-GmbH i. L., Düsseldorf 100.0000 IK US Portfolio Invest Verwaltungs-GmbH i. L., Düsseldorf 100.0000 IK US Portfolio Invest ZWEI Verwaltungs-GmbH i. L., Düsseldorf 100.0000 ITERGO Service GmbH, Düsseldorf 100.0000 Jogszerviz Kft, Budapest 100.0000 Junos Verwaltungs GmbH, Munich 100.0000 K & P Objekt Hamburg Hamburger Straße GmbH, Düsseldorf 100.0000 K & P Objekt Hamburg Hamburger Straße Immobilienfonds GmbH & Co. KG, Düsseldorf4 36.6889 K & P Objekt München Hufelandstraße GmbH i. L., Düsseldorf 100.0000 KQV Solarpark Franken 1 GmbH & Co. KG, Düsseldorf 100.0000 Larus Vermögensverwaltungsgesellschaft mbH, Munich 100.0000 Legal Net GmbH, Munich 100.0000 Leggle B.V., Amsterdam 100.0000 m:editerran Power S.a.s. di welivit Solar Italia S.r.l., Bolzano 100.0000 Marbury Agency Inc., Amelia, Ohio 100.0000 MAYFAIR Financing GmbH, Munich 100.0000 MAYFAIR Holding GmbH i. L., Düsseldorf 100.0000 MEAG Center House S.A., Brussels 100.0000 MEAG EM Rent Nachhaltigkeit (A+I Tranche), Munich4 63.5771 MEAG FlexConcept – EuroGrowth, Luxembourg4 100.0000 MEAG GlobalRent (A+I Tranche), Munich4 99.4703 MEAG Hong Kong Limited, Hong Kong 100.0000 MEAG Luxembourg S.à r.l., Luxembourg 100.0000 MEAG MultiSmart (A+I), Munich4 38.8576 MEAG Pension Rent, Munich4 100.0000 MEAG Pension Safe, Munich4 100.0000 MEAG Real Estate Erste Beteiligungsgesellschaft mbH i.L., Munich 100.0000 MEAG RealReturn Inhaber-Anteile A, Munich4 46.2665 MEAG Vermögensanlage Komfort, Munich4 35.9083 MEAG Vermögensanlage Return (A+I Tranche), Munich4 53.3549 Mediastream Consulting GmbH, Grünwald 100.0000 Mediastream Dritte Film GmbH i. L., Grünwald 100.0000 Mediastream Film GmbH, Grünwald 100.0000 Mediastream Zweite Film GmbH, Grünwald 100.0000 MedNet Bahrain W.L.L., Manama 100.0000 MedNet Egypt LLC, Cairo 100.0000
Victoria Vierter Bauabschnitt Management GmbH, Düsseldorf 100.0000 Viwis GmbH, Munich 100.0000 VV-Consulting Gesellschaft für Risikoanalyse, Vorsorgeberatung und Versicherungsvermittlung GmbH, Vienna 100.0000 VV-Consulting Többesügynöki Kft, Budapest 100.0000 welivit New Energy GmbH, Düsseldorf 100.0000 welivit Solar España GmbH, Düsseldorf 100.0000 welivit Solar Italia s.r.l., Bolzano 100.0000 Windpark Langengrassau Infrastruktur GbR, Bremen11 83.3300 WNE Solarfonds Süddeutschland 2 GmbH & Co. KG, Düsseldorf 100.0000 Wohnungsgesellschaft Brela mbH, Hamburg 100.0000 WP Kladrum/ Dargelütz GbR, Bremen11 55.0000 Zacobu 110011 S.L., Valencia 100.0000 Zacuba 6006 S.L., Valencia 100.0000 Zacubacon 150015 S.L., Valencia 100.0000 Zafacesbe 120012 S.L., Valencia 100.0000 Zapacubi 8008 S.L., Valencia 100.0000 Zarzucolumbu 100010 S.L., Valencia 100.0000 Zetaza 4004 S.L., Valencia 100.0000 Zicobucar 140014 S.L., Valencia 100.0000 Zucaelo 130013 S.L., Valencia 100.0000 Zucampobi 3003 S.L., Valencia 100.0000 Zucarrobiso 2002 S.L., Valencia 100.0000 Zucobaco 7007 S.L., Valencia 100.0000 Zulazor 3003 S.L., Valencia 100.0000 Zumbicobi 5005 S.L., Valencia 100.0000 Zumcasba 1001 S.L., Valencia 100.0000 Zuncabu 4004 S.L., Valencia 100.0000 Zuncolubo 9009 S.L., Valencia 100.0000
Our observations The valuation method used for the provision for future policy benefits, the provision for outstanding claims in life and health, and deferred acquisition costs in life and health is appropriate. The valuation assumptions used were derived appropriately. The explanatory notes and disclosures in the Notes to the consolidated financial statements are complete and appropriate.
Further information pursuant to Article 10 of the EU Audit Regulation We were selected as Group auditor by the Supervisory Board on 14 March 2018. We were engaged by the Chair of the Audit Committee of the Supervisory Board on 3 August 2018. We have been the Group auditor of Münchener Rückversicherungs-Gesellschaft Aktien gesellschaft in München, Munich, for more than 25 consecutive years.