MUNICH REINSURANCE COMPANY

Transcription

1 MUNICH REINSURANCE COMPANY Munich Reinsurance Company A+ Amer Modern Surpl Lines Ins Co A+ American Alternative Ins Corp A+ American Family Home Ins Co A+ American Modern Home Ins Co A+ American Modern Ins Co FL A+ American Modern Lloyds Ins A+ American Modern Prop & Cas Ins A+ American Modern Select Ins Co A+ American Southern Home Ins A+ Amercan Western Home Ins Co A+ Great Lakes Reinsurance (UK) A+ Munich American Reassurance Co A+ Munich Reinsurance America Inc A+ Munich Reinsurance Co Canada A+ New Reinsurance Company Ltd. A+ Princeton Excess & Surp Lines A+ Temple Insurance Company A+ Rating Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed January 20, Page 1 of 10

2 Operating Company Composite Associated With: Munich Reinsurance Company MUNICH REINSURANCE COMPANY Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München Koeniginstrasse 107, D Munich, Germany Web: Tel.: Fax: AMB#: AIIN#: AA Associated Ultimate Parent#: Publicly Traded Corporation: Munich Reinsurance Company XETRA: MUV2 MTF: MUVGN RATING RATIONALE Rating Rationale: The ratings of Munich Reinsurance Company (Muenchener Rueckversicherungs-Gesellschaft Aktiengesellschaft) (Munich Re) reflect its excellent risk-adjusted capitalisation, strong competitive market position, resilient operating performance and robust risk management framework. Munich Re is a leading carrier in the global reinsurance market, and through its key subsidiary, ERGO Versicherungsgruppe AG (ERGO), is a dominant insurer in the German primary insurance market. Munich Re s risk-adjusted capitalisation has remained at an excellent level in recent years despite substantial dividend payments and share buy-backs. Volatility in the company s available capital, generated through capital gains and losses on its considerable fixed-interest investment portfolio, is offset by its robust internal capital generation, along with the cushion of risk-adjusted capitalisation that it maintains above that required for its current ratings. In 2014, unrealised investment gains drove a significant increase in available capital. Supporting the company s balance sheet strength is a conservative investment strategy and comprehensive retrocession programme. Munich Re has a record of strong operating profitability and reported a net profit in excess of EUR 3 billion in each of the three years leading to Robust earnings are anticipated again in 2015, which thus far have benefitted from a moderate incidence of major losses. Munich Re s net result is typically driven by its property and casualty reinsurance division. Life reinsurance, primary insurance and international health operations individually provided the group with a less significant, though more stable contribution to net earnings. Recent years profits have benefitted from significant reserve releases, owing to the group s prudent reserving strategy. Challenges for the group are the low interest rate environment (impacting, in particular, its domestic primary life business) and increasingly soft market conditions within the property reinsurance sector. Without the reversal of these two factors, and with a more normal exposure to natural catastrophe losses, there is expected to be negative pressure on the group s overall earnings over the medium term. If Munich Re is able to maintain strong capitalisation and robust earnings over the coming two-to-three years through challenging market conditions, there will be positive pressure on its ratings. A significant reduction in the company s level of risk-adjusted capitalisation, likely through exposure to one or multiple natural catastrophe events that exceed modelled expectations, could result in a rating downgrade. Deterioration of profitability over a prolonged period of time would additionally place negative pressure on the company s ratings. RATING UNIT MEMBERS Munich Reinsurance Company (AMB# ): BEST S FSR AMB# COMPANY Munich Reinsurance Company A Amer Modern Surpl Lines Ins Co A American Alternative Ins Corp A American Family Home Ins Co A American Modern Home Ins Co A American Modern Ins Co FL A American Modern Lloyds Ins A American Modern Prop & Cas Ins A American Modern Select Ins Co A American Southern Home Ins A American Western Home Ins Co A Great Lakes Reinsurance (UK) A Munich American Reassurance Co A Munich Reinsurance America Inc A Munich Reinsurance Co Canada A New Reinsurance Company Ltd. A Princeton Excess & Surp Lines A Temple Insurance Company A+ BUSINESS PROFILE Munich Re is one of the world s leading players in the insurance and reinsurance sector and participates in a wide range of market segments across the globe. In 2014, the group s gross written premiums (GWP) were split between its reinsurance (55%), primary insurance (34%) and international health (11%) businesses. A similar split is anticipated over the medium term. Amongst others, the group s insurance brands include Munich Re, ERGO, Munich Health, American Modern, Hartford Steam Boiler and Great Lakes. The Munich Re group has an excellent competitive position within the global reinsurance market and is the largest reinsurer in the world. Furthermore, reinsurance operations are well diversified, with the group writing an extensive range of products globally. Primary business is somewhat more concentrated on a geographical basis. However, it also shares a strong level of diversification between business lines and has an excellent competitive market position in its domestic German market. Although Munich Health is a materially smaller operation, it has a strong global position and benefits from its association with the Munich Re brand. The group s Munich Health division accounts for all health business written outside of Germany, be it on a direct or assumed basis. Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed January 20, Page 2 of 10

3 Although Munich Re centralises its business in Germany, it operates through a large number of branches, subsidiaries and affiliated companies across the world. In 2014, the group reported GWP of EUR 48.8 billion, which was a reduction of approximately 4% from the previous year. GWP revenue is expected to increase marginally in 2015, driven primarily by foreign exchange movements, which have offset softening conditions within certain reinsurance market segments, decreasing demand for reinsurance from large insurance groups due to their increasingly sophisticated capital management, and decreased demand for some primary insurance products as a result of weak economic conditions throughout Europe. For the first nine months of 2015, Munich Re reported GWP of EUR 38.0 billion, which represented a 3% increase compared to the same period in The group s revenue is expected to be broadly stable in 2016, although given the nature of its global operations, will continue to be impacted by movements in major currencies. However, Munich Re s defensible business position, strong diversification and good underwriting discipline offset current concerns relating to weak competitive market conditions. Reinsurance Operations Through the Munich Re brand, the group offers a broad range of reinsurance products on a global basis. In 2014, the group s Reinsurance division wrote EUR 26.8 billion of GWP, making it the largest global reinsurer by this metric. Reinsurance business accounted for 55% of the group s GWP in 2014 and was split between life (38%) and property/casualty risks (62%). Property/Casualty Reinsurance Property/casualty (P/C) reinsurance remains Munich Re s principal business segment representing approximately one-third of its overall GWP. The P/C reinsurance book is well diversified with most of the business being generated in Europe, followed by the Americas and Asia/Pacific. Its business mix is comprised of casualty, property, marine, credit/surety and aviation risks. The U.S. P/C market has experienced significant declines in reinsurance P/C rates in recent years, to a level where there is now significant pressure on the industry s operating performance. U.S. markets have seen a large increase in alternative capital competing with the capacity provided by traditional reinsurers, and reinsurance prices are not anticipated to increase in the near term. In Europe, premium rates remain soft despite the fact the region has been witnessing a number of major losses, such as the floods and hailstorms, over recent years. In response to emerging demand patterns and new trends in management, accounting and regulation, Munich Re is developing new products that will address exposures against cyclicality, supply chain, reputation, political risks, emission trading, residual value, weather, pandemic events, and business interruption caused by something other than direct physical loss. Munich Re is committed to active cycle management, which includes maximizing value-added strategies. To compensate for the market softening and long-term margin decreases in the global P/C market, Munich Re has been expanding in the agricultural insurance segment where it believes that a long-term positive outlook exists due to rising global demand for agricultural products. Munich Re occupies a leading competitive position in agricultural classes due to its exclusive ownership of essential geological, climate and agricultural expertise, data, and technical consulting services. To detach itself from the traditional P/C reinsurance market cycle, the group has expanded its U.S. specialty offering over the past decade. Munich Re acquired specialty insurance group Midland, based in Cincinnati, Ohio (U.S.), in Through its wholly owned subsidiaries that form the American Modern Insurance Group (AMIG), Midland s operations focus on such specialty insurance niche segments as coverage for manufactured housing and motor homes. In 2009, Munich Re acquired Hartford Steam Boiler (HSB) from American International Group, providing it a strong foothold in the specialty boiler and machinery market in the U.S. In 2013, the group purchased RenRe Energy Advisors Ltd. (REAL), a weather-related energy risk management unit of Renaissance Re Holdings Ltd. (Bermuda). Establishing a lead position in niche segments of the U.S. primary insurance market has been a significant aspect of Munich Re s diversification strategy. The acquisitions provide the group a unique opportunity to enter the U.S. specialty P/C market. They also provide significant synergy potential through leverage of Munich Re s product development capabilities and each company s ability to cross-sell. Although primary business, the results of both AMIG s and HSB s operations are included in the group s reinsurance segment results. Life Reinsurance Life reinsurance is Munich Re s second-largest business segment, representing 21% of the group s overall GWP in Munich Re s portfolio consists primarily of mortality business and living benefits. The company s exposure to longevity is relatively small and stems mainly from a book of business underwritten in the U.K. While the life reinsurance business is geographically well diversified, its largest market is Canada, where the group is the market leader, followed by the U.S., the U.K., Asia, Australia and Germany. Munich Re leverages its global and regional risk management and mortality research expertise to learn from experience across its operations. For example, a regional mortality research unit has been created to utilise experience across its North American life business. The group has also been expanding its presence in Asia with various local offices and a central hub in Singapore to provide comprehensive and tailor-made services for clients in the various Asian markets. Primary Operations Principally through the ERGO brand, the group offers a wide range of primary insurance products internationally. Although the focus of ERGO has traditionally been within Germany and other European markets, the group is looking to extend its reach to Asian markets that have a high growth potential, such as India and China. In 2014, Munich Re s primary insurance activities represented 34% of its overall GWP, and were split between German life/health operations (20% of total GWP), German P/C operations (6%) and international operations (8%). Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed January 20, Page 3 of 10

4 The group s primary operations are concentrated under its fully owned intermediate holding company, ERGO Versicherungsgruppe AG (ERGO). ERGO, which targets mainly retail clients, has an excellent position in Germany s primary life, health and P/C markets where it is one of the major insurance groups. Through ERGO s wholly owned subsidiary, DKV Deutsche Krankenversicherung AG, Munich Re is a leading European health insurer and the second-largest health insurer in the German market. ERGO s subsidiary, D.A.S. Allgemeine Rechtsschutz-Versicherungs-AG and its network of operating companies, is Europe s largest legal expense insurer. Munich Re s primary insurance segment is highly dependent on the German market, but the group continues to diversify in markets where it believes it can take strategic advantage of economic opportunities. Munich Health Munich Health comprises health reinsurance, primary insurance and third party administration services outside of Germany. In 2014, it represented 11% of the group s total GWP. Total GWP reduced by 18% during the year, principally due to the sale of the U.S.-based Windsor Health Group, but also because of movements in foreign currency exchange rates. In the Middle East, Munich Health is experiencing noticeable growth in reinsurance and expanded its primary insurance footprint together with its partner Daman in Abu Dhabi (20% shareholding). In 2012, new primary insurance operations in Saudi Arabia (15% shareholding) and Qatar (51% shareholding) went live. Munich Health has significant reinsurance treaties with both entities and supports the build-up of the operations with its technical experience. In India, Apollo Munich Health Insurance (AMHI), a 26% joint venture, is a success story within a fast-growing environment with significant business potential. In terms of incremental GWP, AMHI stands at the number three position amongst the private sector insurance companies. RISK MANAGEMENT Munich Re operates with a centralised risk management framework, which is the responsibility of a person with the title of group chief risk officer (Group CRO). The company deploys a mix of centralised (80 dedicated staff) and decentralised risk management functions, tools and processes. For its decentralised risk management activities, the Group CRO draws on a qualified staff of 300 spread throughout the group s Reinsurance, Primary Insurance and Asset Management divisions. Munich Re s risk management programme aims to protect the reputation of the group, ensure the highest degree of confidence in meeting policyholders claims, and enable Munich Re to protect and generate shareholder value. The Group CRO is a permanent member of the Group Risk Committee and the Group Investment Committee. The Group CRO also has a defined formal relationship with certain specialised risk management functions (such as corporate underwriting, Munich Health and Munich ERGO Asset Management GmbH [MEAG]) as well as with local risk management functions of subsidiaries, including a dotted-line reporting relationship. He is also represented on the ERGO Risk Management Committee. The chief risk officers of Munich Re America, ERGO and the Munich Re Asset Management Group work closely with the Group CRO. The group s risk management programme makes extensive use of Munich Re s capital model by testing various scenarios. The model has also been certified for regulatory use under Solvency II without conditions. It is stressed for capital events, recessions, climate change, and interest rate changes among other things. A major challenge for the group resides in the ability of its primary life operations (predominantly in Germany) to manage the continuing low interest rate environment with a portfolio of business where the level of guarantees is declining, though it remains substantially higher than current investment yields. The model also stresses capital for very active hurricane seasons and the effects of multiple catastrophic events. A.M. Best considers the Munich Re s risk management programme to be very strong. OPERATING PERFORMANCE Operating Results: Munich Re has reported good operating results in each of the last three years (2014, 2013 and 2012), and is expected to generate similarly sound results again in In 2014, the group posted a profit after tax of EUR 3.2 billion, which was broadly in line with expectations. This compared to a profit after tax of EUR 3.3 billion in 2013 and of EUR 3.2 billion in For the first nine months of 2015, Munich Re reported profit before tax of EUR 2.4 billion, which was similar to that of the prior year. Munich Re s reinsurance portfolio has material exposure to natural catastrophe perils, and a degree of volatility is expected in the company s overall results over the longer term. This volatility was witnessed in 2011, when Munich Re s P/C reinsurance segment was exposed to a number of major natural catastrophe losses and its overall profit after tax was limited to only EUR 0.7 billion. In comparison to the prior year, the group s return on equity (ROE) was down by 120 basis points to 11.3% in However, this was above its five-year average ROE of 10.0%. Munich Re s overall results are expected to remain at a good level in 2015, based on third-quarter results and mild global catastrophe losses during the final quarter of the year. Munich Re underwrites diligently in both primary insurance and reinsurance segments; however, reinsurance renewal rates have declined, sharply at times, in many markets in recent years. Although a low prevalence of major catastrophe losses in 2015 is likely to support the group s strong underwriting results, a lingering soft market is expected to impact underwriting profitability and add negative pressure to the group s combined ratio over the coming years. The operations of life reinsurance and Munich Health have developed a good track record of profitability and growth, and both segments generated a solid operating performance in 2014 and Underwriting Results: In years without large catastrophe losses, Munich Re s underwriting profits are typically driven by its P/C reinsurance Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed January 20, Page 4 of 10

5 operations, which in 2014 and 2013 accounted for between two-thirds and three-quarters of the group s overall operating results. However, in years where the group is exposed to large catastrophe losses, such as 2011, reinsurance P/C operations can act as an encumbrance to the group s underwriting profitability. In years such as this, Munich Re s excellently diversified operations, and profits from its uncorrelated life, health and primary businesses, support underwriting results and assist in reducing volatility. The combined ratio for Munich Re s P/C reinsurance operations was stable and below 93% in both 2014 and 2013, despite softening market conditions and major floods and hailstorms in Europe. This compares to a combined ratio of 114% in 2011, when the group incurred large losses from a number of natural catastrophes. Munich Re s combined ratio is expected to remain at a good level in 2015, in spite of further market softening, and should benefit from a benign year for catastrophe losses. Although Munich Re s P/C reinsurance operations are well diversified and not overly concentrated in property sectors where negative premium pricing pressures are considerable, there is expected to be an increase in the company s combined ratio over the medium term. Reserve releases have supported profitability in P/C and specialty lines in recent years, and these are expected to continue for the coming year. Munich Re s life reinsurance business has reported a solid return in recent years. However, the group s technical results have been behind expectations due to a number of one-off issues. After P/C reinsurance, life reinsurance operations are generally the second-largest contributor to the group s underwriting results (based on the group s reporting structure). However, in contrast to P/C reinsurance operations, life reinsurance is not significantly exposed to volatility. Losses from Australian disability business negatively impacted life reinsurance results during 2013 and longer-term policies remain exposed to some uncertainty. Cash flow from mature business is strong and more than adequate to support current levels of new business growth. On an embedded value basis, new business profitability appears good, although reduced marginally in 2014 compared to the prior year. The market consistent embedded value (MCEV) of life reinsurance business increased by 11.6% in 2014 despite the negative impact of declining interest rates. Compared to reinsurance operations, Munich Re s health and primary business makes up a much less significant proportion of its underwriting results, with ERGO s P/C and L/H business in Germany typically driving operating profits for these segments. Investment Results: Over the long term, Munich Re aims for stability in the carrying value of its investment holdings while achieving a reasonable rate of return commensurate with its investment risk to complement its underwriting activities. The group has demonstrated a favourable track record in that regard. Munich Re has been successful in reducing its exposure to more volatile investment classes, in particular equity holdings, while containing any additional material investment losses. Historically, the group has maintained a balanced investment portfolio aimed at optimising returns. As of year-end 2014, the portfolio composition was dominated by fixed-income securities, which represented 61% of the group s investment holdings followed by loans (25%), equities (5%), real estate (3%), cash and cash equivalents (3%) and other (3%). The prolonged low interest rate environment has added negative pressure to the group s investment returns, and over the past three years, the group has witnessed a moderate decline in its investment yields. Investments are managed centrally by MEAG, the company s asset management arm, and are based on management guidelines for maximum credit exposure, liquidity requirements and asset mix. MEAG also provides asset management services to private and institutional clients. BALANCE SHEET STRENGTH Capitalization: Munich Re s risk-adjusted capitalisation was excellent throughout 2014 and is expected to remain at a similarly strong level for the foreseeable future. The group has repurchased nearly EUR 9 billion worth of its own stock over the past decade and maintains a relatively low level of leverage. This demonstrates the group s ability to generate capital efficiently. A.M. Best considers Munich Re to have a good level of financial flexibility. Although Munich Re carries substantial asset risk, its capital requirements (according to Best s Capital Adequacy Ratio [BCAR]) are driven by its underwriting exposures. Over recent years, the group s capital requirements have been broadly flat and have been adequately covered by its substantial capital base, which stood at approximately EUR 30 billion at year-end Munich Re s adjusted available capital (according to A.M. Best) includes credit from the equity features of hybrid debt, the embedded value of it life business, life bonus reserves and off-balance sheet assets values. Furthermore, Munch Re s risk-adjusted capitalisation benefits from a comprehensive reinsurance programme. Loss Reserves: Munich Re has a conservative reserving strategy based on its disciplined underwriting policy. The group builds appropriate provisions on top of pure actuarial indications to allow for conservatism. Non-life provisions for outstanding claims (primary and reinsurance) amount to approximately four-fifths of the total outstanding claims reserves. A majority of the non-life reinsurance provisions for outstanding claims are related to Munich Re (Germany) and Munich Re America Group. Munich Re s external auditor, KPMG, reviews the reserve position of each subsidiary in the U.S. In addition, as part of its annual audit, KPMG reviews the reserves of Munich Re. In 2013, there was an increase in gross and net reserves in the life reinsurance and non-life primary segment due to adverse development in the Australian life reinsurance portfolio and the increase in claims in Germany (floods and hailstorms), respectively. Liquidity: Munich Re s investment strategy is founded on a holistic approach of asset/liability management, in which the structure of its liabilities plays a key role. In the reinsurance segment at year-end 2014, the modified duration of the investment portfolio was around 5.6 years, whereas the modified duration of liabilities is approximately 4.6 years. Fixed-interest securities, loans and cash equivalents made up 89% of the group s total investment portfolio at its 2014 year-end. Munich Re has systematically reduced its equity portfolio via disposals over the past few years and has cautiously expanded its portfolio of highly rated, credit-exposed, fixed-interest securities such as asset-backed securities, mortgage-backed Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed January 20, Page 5 of 10

6 securities and corporate bonds. There could be a measured increase in equities and alternative investments in the future in order to improve returns. Munich Re monitors its cash-flow requirements on a decentralised basis with the exception of large losses, in particular for catastrophe events, and other potential liquidity requirements, where detailed scenario planning ensures that the group remains able to make any necessary payments. Summarized Accounts as of December 31, 2014 Data reflected within all tables of this report has been compiled from the consolidated financial statements of this company (Source: Company Financial Statement). An independent audit of the company s affairs through December 31, 2014, was conducted by KPMG Bayerische Treuhandgesellschaft AG Wirtschaftsprüfungsgesellschaft. US $ per Local Currency Unit = 1 Euro (EUR) STATEMENT OF INCOME EUR(000) USD(000) Net claims paid 14,119,000 17,163,056 Net increase/(decrease) in claims provision 396, ,378 Net claims incurred 14,515,000 17,644,434 Management expenses 1,974,000 2,399,594 Acquisition expenses 5,438,000 6,610,433 Net operating expenses 7,412,000 9,010,027 Total underwriting expenses 21,927,000 26,654,461 Balance on general technical account 782, ,599 EUR(000) USD(000) Life technical account: Direct premiums 15,154,000 18,421,202 Reinsurance premiums assumed 10,040,000 12,204,624 Gross premiums written 25,194,000 30,625,826 Reinsurance ceded 602, ,791 Net premiums written 24,592,000 29,894,035 Increase/(decrease) in gross unearned premiums -99, ,344 Increase/(decrease) in reinsurers share unearned premiums -16,000-19,450 Net premiums earned 24,675,000 29,994,930 Net investment income 4,883,000 5,935,775 Realised capital gains/(losses) 972,000 1,181,563 Unrealised capital gains/(losses) -90, ,404 Total revenue 30,440,000 37,002,864 Net claims paid 20,984,000 25,508,150 Net increase/(decrease) in claims provision 517, ,465 Net claims incurred 21,501,000 26,136,616 Net increase/(decrease) in long term business provision 3,504,000 4,259,462 Net increase/(decrease) in other technical provisions 173, ,299 General technical account: Direct premiums 6,924,000 8,416,814 Management expenses 763, ,503 Reinsurance premiums assumed 16,730,000 20,336,988 Acquisition expenses 3,776,000 4,590,106 Gross premiums written 23,654,000 28,753,802 Net operating expenses 4,539,000 5,517,608 Reinsurance ceded 1,021,000 1,241,128 Total expenses 29,717,000 36,123,985 Net premiums written 22,633,000 27,512,675 Increase/(decrease) in gross unearned premiums -40,000-48,624 Balance on long term technical account 723, ,879 Reinsurers share unearned premiums 36,000 43,762 Net premiums earned 22,709,000 27,605,060 Total underwriting income 22,709,000 27,605,060 Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed January 20, Page 6 of 10

7 EUR(000) USD(000) Combined technical account: Direct premiums 22,078,000 26,838,017 Reinsurance premiums assumed 26,770,000 32,541,612 Gross premiums written 48,848,000 59,379,629 Reinsurance ceded 1,623,000 1,972,919 Net premiums written 47,225,000 57,406,710 Increase/(decrease) in gross unearned premiums -139, ,968 Increase/(decrease) in reinsurers share unearned premiums 20,000 24,312 Net premiums earned 47,384,000 57,599,990 Net investment income 4,883,000 5,935,775 Realised capital gains/(losses) 972,000 1,181,563 Unrealised capital gains/(losses) -90, ,404 Total revenue 53,149,000 64,607,924 Net claims paid 35,103,000 42,671,207 Net increase/(decrease) in claims provision 268, ,781 Net claims incurred 35,371,000 42,996,988 Net increase/(decrease) in long term business provision 920,000 1,118,352 Net increase/(decrease) in other technical provisions 3,402,000 4,135,471 Management expenses 2,737,000 3,327,097 Acquisition expenses 9,214,000 11,200,538 Net operating expenses 11,951,000 14,527,636 Total underwriting expenses 51,644,000 62,778,446 Balance on combined technical account 1,505,000 1,829,478 Non-technical account: Net investment income 2,206,000 2,681,614 Realised capital gains/(losses) 589, ,988 Unrealised capital gains/(losses) -144, ,046 Other income/(expense) -1,297,000-1,576,633 Profit/(loss) before tax 2,859,000 3,475,400 Taxation -312, ,267 Profit/(loss) after tax 3,171,000 3,854,668 Dividend to shareholders 1,254,000 1,524,362 Transfer to reserves 1,886,000 2,292,622 Minority interests 18,000 21,881 Retained profit/(loss) for the financial year 13,000 15,803 Retained profit/(loss) brought forward 16,145,000 19,625,862 Retained profit/(loss) carried forward 16,158,000 19,641,665 MOVEMENT IN CAPITAL & SURPLUS EUR(000) USD(000) Capital & surplus brought forward 26,188,000 31,834,133 Change in share capital -9,000-10,940 Change in non-distributable reserves -383, ,575 Change in other reserves -1,000,000-1,215,600 Currency exchange gains 1,431,000 1,739,524 Profit or loss for the year 3,171,000 3,854,668 Capital gains or (losses) 2,653,000 3,224,987 Dividend to shareholders -1,257,000-1,528,009 Other changes -490, ,644 Total change in capital & surplus 4,116,000 5,003,410 Capital & surplus carried forward 30,304,000 36,837,542 ASSETS EUR(000) % of total USD(000) Cash & deposits with credit institutions 6,425, ,810,230 Bonds & other fixed interest securities 131,603, ,976,607 Shares & other variable interest instruments 10,319, ,543,776 Assets held to cover linked liabilities 7,592, ,228,835 Liquid assets 155,939, ,559,448 Policy loans 519, ,896 Mortgages & loans 54,031, ,680,084 Real estate 3,732, ,536,619 Real estate for own use 2,424, ,946,614 Inter-company investments 1,559, ,895,120 Other investments 5,770, ,014,012 Total investments 223,974, ,262,794 Reins. sh. of tech. reserves - unearned premiums 258, ,625 Reinsurers share of technical reserves - claims 3,721, ,523,248 Reinsurers share of technical reserves - life 1,346, ,636,198 Reinsurers share of technical reserves - other 3, ,647 Total reinsurers share of technical reserves 5,328, ,476,717 Deposits with ceding companies 8,750, ,636,500 Insurance/reinsurance debtors 5,755, ,995,778 Other debtors 6,695, ,138,442 Total debtors 12,450, ,134,220 Fixed assets 282, ,799 Prepayments & accrued income 17,077, ,758,801 Other assets 2,055, ,498,058 Goodwill 3,063, ,723,383 Total assets 272,979, ,833,272 Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed January 20, Page 7 of 10

8 LIABILITIES EUR(000) % of total USD(000) Capital 572, ,323 Paid-up capital 572, ,323 Non-distributable reserves 13,303, ,171,127 Retained earnings 13,005, ,808,878 Current year net income 3,153, ,832,787 Capital & surplus 30,033, ,508,115 Minority interests 271, ,428 Gross provision for unearned premiums 7,779, ,456,152 Gross provision for outstanding claims 58,747, ,412,853 Gross provision for outstanding claims - life 10,377, ,614,281 Gross provision for long term business - life 100,460, ,119,176 Gross provision for linked liabilities - life 7,837, ,526,657 Gross provision for other technical reserves 18,492, ,478,875 Total gross technical reserves 203,692, ,607,995 Long term borrowings 282, ,799 Other borrowings 4,856, ,902,954 External borrowings 5,138, ,245,753 Deposits received from reinsurers 2,673, ,249,299 Insurance/reinsurance creditors 8,548, ,390,949 Total creditors 8,548, ,390,949 Accruals & deferred income 9,776, ,883,706 Other liabilities 12,848, ,618,029 Total liabilities & surplus 272,979, ,833,272 REINSURANCE Munich Re s diversified portfolio and geo-scientific expertise minimizes reliance on external retrocession. Nevertheless, the group prudently purchases external protection to manage exposures and volatility wherever economically feasible, keeping in mind not to over hedge digestible short-term volatility. Retrocession programmes come in the form of indemnity retrocession, industry loss warrants, derivatives, risk swaps and catastrophe bonds. Swaps are utilized to hedge and optimise the company s natural catastrophe portfolio. Munich Re frequently also sponsors natural catastrophe bonds in order to manage its exposures in peak peril zones. Munich Re s Queen Street Catastrophe Bond series is well established in the capital market. The outstanding catastrophe bonds cover U.S. hurricane, European windstorm and Australian cyclone risks. GEOGRAPHICAL DISTRIBUTION OF PREMIUMS WRITTEN EUR EUR (000) (000) Gross % of total 12/31/2013 Gross South Africa 330, ,000 Total Africa 330, ,000 China 1,251, ,391,000 Japan 473, ,000 Other Asia 841, ,000 Taiwan 240, ,000 Total Asia 2,805, ,043,000 Belgium 958, ,000 Germany 13,822, ,033,000 Other Europe 3,775, ,137,000 Poland 2,388, ,020,000 Spain 1,221, ,243,000 United Kingdom 4,616, ,323,000 Total Europe 26,780, ,716,000 Canada 6,470, ,823,000 United States 8,532, ,309,000 Total North America 15,002, ,132,000 Other Latin America 1,321, ,547,000 Total Latin America 1,321, ,547,000 Australia 1,857, ,602,000 Other World-Wide 753, ,000 Total 48,848, ,060,000 BALANCE SHEET ITEMS EUR EUR EUR EUR EUR (000) (000) (000) (000) (000) Liquid assets 155,939, ,206, ,419, ,742, ,642,000 Total investments 223,974, ,077, ,117, ,152, ,517,000 Total assets 272,979, ,312, ,416, ,580, ,358,000 Total gross technical reserves 203,692, ,044, ,872, ,795, ,558,000 Net technical reserves 198,364, ,739, ,142, ,161, ,068,000 Total liabilities 242,946, ,367, ,219, ,518, ,575,000 Capital & surplus 30,033,000 25,945,000 27,197,000 23,062,000 22,783,000 INCOME STATEMENT ITEMS EUR EUR EUR EUR EUR (000) (000) (000) (000) (000) Gross premiums written 48,848,000 51,060,000 51,969,000 49,452,000 45,541,000 Net premiums written 47,225,000 49,404,000 50,174,000 47,876,000 43,644,000 Balance on technical account(s) 1,505,000 1,983,000 2,840,000-1,171,000 1,036,000 Profit/(loss) before tax 2,859,000 3,441,000 4,082, ,000 3,122,000 Profit/(loss) after tax 3,171,000 3,333,000 3,204, ,000 2,430,000 Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed January 20, Page 8 of 10

9 LIQUIDITY RATIOS (%) Total debtors to total assets Liquid assets to net technical reserves Liquid assets to total liabilities Total investments to total liabilities LEVERAGE RATIOS (%) Net premiums written to capital & surplus Net technical reserves to capital & surplus Gross premiums written to capital & surplus Gross technical reserves to capital & surplus Total debtors to capital & surplus Total liabilities to capital & surplus PROFITABILITY RATIOS (%) Loss ratio Operating expense ratio Combined ratio Net investment income ratio Operating ratio Benefits paid to net premiums written (Life) Expense ratio (Life) Return on net premiums written Return on total assets Return on capital & surplus Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed January 20, Page 9 of 10

10 Why is this Best s Rating Report important to you? A Best s Rating Report from the A.M. Best Company showcases the opinion from the leading provider of insurer ratings of a company s financial strength and ability to meet its obligations to policyholders, as well as its relative credit risk. The A.M. Best Company is the oldest, most experienced rating agency in the world and has been reporting on the financial condition of the insurance companies since A Best s Financial Strength Rating is an independent opinion of an insurer s financial strength and ability to meet its ongoing insurance policy and contract obligations. The Financial Strength Rating opinion addresses the relative ability of an insurer to meet its ongoing insurance policy and contract obligations. The rating is not assigned to specific insurance policies or contracts and does not address any other risk, including, but not limited to, an insurer s claims-payment policies or procedures; the ability of the insurer to dispute or deny claims payment on grounds of misrepresentation or fraud; or any specific liability contractually borne by the policy or contract holder. The rating is not a recommendation to purchase, hold or terminate any insurance policy, contract or any other financial obligation issued by an insurer, nor does it address the suitability of any particular policy or contract for a specific purpose or purchaser. In arriving at a rating decision, A.M. Best relies on third-party audited financial data and/or other information provided to it. While this information is believed to be reliable, A.M. Best does not independently verify the accuracy or reliability of the information. The company information appearing in this pamphlet is an extract from the complete company report prepared by the A.M. Best Company or A.M. Best Europe Rating Services Limited. For the latest Best s Financial Strength Ratings along with their definitions and A.M. Best s Terms of Use, visit the A.M. Best website at You may also obtain AMB Credit Reports by visiting our site or calling our Customer Service department at , ext To expedite your request, please provide the company s identification number (AMB#). Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed January 20, Page 10 of 10