The Munich Re Group. Balance sheet press conference Nikolaus von Bomhard Jörg Schneider

Transcription

1 Jörg Schneider Agenda Munich Re 125 years 3 Introduction 7 Jörg Schneider Financial reporting Munich Re Group in total 10 Reinsurance segment 19 Primary insurance segment 25 Summary 30 Strategy 32 Outlook 46 Backup 51 1

2 Agenda Munich Re 125 Years 3 Introduction 7 Jörg Schneider Financial reporting Munich Re Group in total 10 Reinsurance segment 19 Primary insurance segment 25 Summary 30 Strategy 32 Outlook 46 Backup 51 Munich Re 125 years Succeeding with initiative and innovation 1880 Foundation in a time of upheaval Industrialisation: Growing risks New approaches 19 April: Carl Thieme founds Munich Re First treaty with Thuringia, 32 others in the first year of business 1905 On the eve of the San Francisco earthquake Munich Re is already the world's largest reinsurer Severe earthquake on 18 April 1906 "Thieme is money" Munich Re pays quickly Until this day, the loss at 11 million gold marks is the highest burden (in relative terms) the Company has had to bear from a single catastrophe 2

3 Munich Re 125 years Succeeding with initiative and innovation 1930 Great Depression and more Capital strength Munich Re is in ever greater demand It acquires shareholdings in domestic and foreign insurance companies... it is also highly sought after because of its expertise (e.g. in the area of substandard life risks and large-scale technical installations) 1955 Home market: The world! Third rebuilding of foreign business Objective: Independence from individual markets Munich Re 125 years Succeeding with initiative and innovation 1980 Awareness of natural hazards grows, others are not (yet) perceived 1974: Establishment of Geo Risks Research. Release of first "World Map of Natural Hazards" Dawning of the computer age Revolution of knowledge Tentative beginning of discussion on social security Reaping the rewards of 125 years of future : Best result in Company history "Preferred partner in risk": Worldwide proximity to selected clients, reliability Know-how, capital strength, initiative, independence 3

4 Agenda Munich Re 125 years 3 Introduction 7 Jörg Schneider Financial reporting Munich Re Group in total 10 Reinsurance 19 Primary insurance 25 Summary 30 Strategy 32 Outlook 46 Backup 51 Introduction Promised and delivered How we achieved it: : Net profit of 1,833m 1 2 Reinsurance Net profit of 1,661m in Primary insurance Net profit of 261m in ERGO net profit of 202m in 3 Derisking Reduced concentration risks 4

5 Introduction in detail Achievements Strict focus on risk-adequate pricing ERGO restructuring and strict profitability-oriented product policy Work in progress American Re Concentration in HVB/Allianz Uniform control Reduction of major financial stakes US casualty project and closer alignment of American Re Victoria Leben capital situation clarified Agenda Munich Re 125 years 3 Introduction 7 Jörg Schneider Financial reporting Munich Re Group in total 10 Reinsurance segment 19 Primary insurance segment 25 Summary 30 Strategy 32 Outlook 46 BACKUP 51 5

6 Executive summary Strict profit orientation pays off Profit of 1,833m, result before amortisation of goodwill approximately 3bn Gross premium income down by 5.8% Combined ratios: Very good in reinsurance at 98.9%, despite burden of 4.5 percentage points for NatCat losses; excellent in primary insurance at 93.0% Exceptional impacts successfully absorbed: Natural catastrophes losses, writedowns on real estate, US reserves strengthening and special writedowns at HVB Investment result increased to 8.0bn Reduction of concentration risks consistently pursued Shareholders' equity strengthened by 1.3bn to 20.2bn Munich Re Group in total Income statement Good result Gross premiums written Net earned premiums 38,071 36,534 40,431 37,617 in % Consolidation of premium income Strong investment result Investment result Total income Total expenses* 8,041 45,691 42,743 7,131 45,959 43, Result before amortisation of goodwill increased by 50% Result before amortisation of goodwill* Amortisation of goodwill Operating result before taxes on income* 2, ,604 1, , Group result within our adjusted target corridor Taxes on income* 712 1, Minority interests in earnings Group result 1, Earnings per share in * Adjusted after reallocation of "other tax" from "tax" to "other expenses". 6

7 Munich Re Group in total Gross premiums written Within our expectations Gross premiums written Change Adjusted change* Reinsurers' share Primary insurers' share 38, % 3.8% 54% 46% 40, % 7.0% 56% 44% Decrease in premiums due to strength of Euro strict underwriting policy [CAGR (Compound Annual Growth Rate) 2000 : 4.1%] Gross premiums written in bn in % Change Adjusted change* * Excluding currency fluctuations and acquisitions/divestments. Reinsurers' share Primary insurers' share Munich Re Group in total Development of exchange rates US$ weakened premiums and shareholders' equity increase Dec 02 1,00 Mar 03 Jun 03 Sep 03 Dec 03 Mar 04 Jun 04 Sep 04 Dec 04 Change in exchange rate compared with last year 0,95 0,90 US$ 1 = = US$ 1.19 For income statement: Q4 from Q4 8.2% 0,85 0,80 0,75 US$ 1 = = US$ 1.26 US$ 1 = = US$ 1.30 US$ 1 = = US$ , Q1 4 from Q % For balance sheet: from % Income statement (average exchange rates) Balance sheet (period-end exchange rates) 7

8 Munich Re Group in total Analysis of premium development Consolidation due to currency and underwriting policy Gross premiums written 40,431 Foreign-exchange effects 656 ( 1.6%) Divestment/Investment 168 ( 0.4%) Organic change Gross premiums written 1,536 ( 3.8%) 38,071 ( 5.8%) Breakdown by segment Reinsurance Property-casualty 13,988 (36.7%) ( 17.3%) Primary insurance Property-casualty 5,178 (13.6%) ( +2.0%) Reinsurance Life and health 6,583 (17.3%) ( %) Primary insurance Life and health 12,322 (32.4%) ( 1.7%) Munich Re Group in total Return on investment : Target reached IFRS Economic view Return 7,498 1,021 1,564 8,041 2,874 10, % 0.6 % 0.9 % 4.2% 4.5% 6.1% * Regular income Other income/ expenses Noncurrent income** Investment result Change in total reserves*** Total income * Return on average investment market values in % (investments as at 31 December including all own properties). ** Non-current income includes gains/losses on the disposal of investments, writedowns and write-ups on investments. *** Off-balance-sheet reserves as at 31 December including all reserves on own properties. 8

9 Munich Re Group in total Shareholders' equity Benefited from good result 18, , ,196 Shareholders' equity Paid dividends Change in Change Consolidated Changes in unrealised resulting from result exchange gains/losses* valuation at rates equity Other changes Shareholders' equity * On other securities. Munich Re Group in total Segment results Positive in primary insurance and reinsurance Reinsurance Primary insurance Asset management Consolidation 1, ,632 1, Despite losses from hurricanes: Strong earnings in reinsurance Primary insurance back to positive Group result 1,

10 Agenda Munich Re 125 years 3 Introduction 7 Jörg Schneider Financial reporting Munich Re Group in total 10 Reinsurance segment 19 Primary insurance segment 25 Summary 30 Strategy 32 Outlook 46 BACKUP 51 Reinsurance segment Income statement Strict bottom-line orientation Gross premiums written Net earned premiums Investment result Total income Total expenses* Result before amortisation of goodwill* Amortisation of goodwill Operating result before taxes on income* 22,397 21,475 3,597 25,547 23,166 2, ,281 24,795 22,651 3,584 26,747 24,036 2, ,606 in % Consolidation of premium income due to profit orientation and currency effects Reduced taxes due to high storm losses and taxfree gains on disposal of investments Excellent results Taxes on income* Minority interests in earnings 5 10 Group result 1,661 1, * After reallocation of "other tax" from "tax" to "other expenses". 10

11 Reinsurance segment Analysis of premium development Consolidation due to currency and underwriting policy Gross premiums written 24,795 Foreign-exchange effects 690 ( 2.8%) Organic change 1,708 ( 6.9%) Breakdown by segment Gross premiums written 22,397 ( 9.7%) Property-casualty 14,857 (66.4%) ( 17.1%) Life 6,119 (27.3%) ( +12.1%) Health 1,421 (6.3%) ( +0.4%) Reinsurance segment American Re US GAAP key figures in US$m Gross premiums written Net earned premiums Investment result Total income Total expenses Operating result before taxes on income Taxes on income Group result Statutory surplus as at ,206 1, ,608 2, ,386 4,611 1, ,411 1, ,344 in % Results significantly impacted by reserve strengthening of US$ 482m (: US$ 368m) including US$ 180m (: US$ 0m) for prior-year asbestos liabilities High catastrophe losses of US$ 202.1m (: US$ 50.7m) in % Combined ratio Risk based capital ratio in %-pts

12 Reinsurance segment NatCat year Just seven events tripled NatCat combined ratio NatCat impact on combined ratio in %-pts of combined ratio 10.7 : Most expensive NatCat year for insurers in history 10-year average 3.0%-pts NatCat loss events Hurricane Charley 66 Hurricane Frances 97 Hurricane Ivan 221 Hurricane Jeanne 64 Typhoons Songda/Tokage Tsunami Asia Reinsurance segment Combined ratio non-life Good considering storm series and reserve strengthening in % Loss ratio Expense ratio Combined ratio thereof NatCat Combined ratio ex. NatCat Combined ratio influenced by: Exceptional NatCat series in Q3 and Q4 Strengthening of US loss reserves Improved pricing Combined ratio Performance from 1995 to in % Sustainably enhanced conditions 130 in % Q Q Q Q

13 Agenda Munich Re 125 years 3 Introduction 7 Jörg Schneider Financial reporting Munich Re Group in total 10 Reinsurance segment 19 Primary insurance segment 25 Summary 30 Strategy 32 Outlook 46 Backup 51 Primary insurance segment Income statement Clear return to profitability Gross premiums written Net earned premiums 17,526 15,059 17,640 14,966 in % Stable premium income Improved investment result Investment result Total income Total expenses* 4,587 21,091 20,476 4,209 20,688 20, Result before amortisation of goodwill nearly tripled Result before amortisation of goodwill* Amortisation of goodwill Operating result before taxes on income* Taxes on income* Minority interests in earnings Group result 261 1,091 * Adjusted after reallocation of "other tax" from "tax" to "other expenses". 13

14 Primary insurance segment Analysis of premium development Consolidation following some strong years Gross premiums written 17,640 Foreign-exchange effects 4 (0.0%) Divestment/Investment 168 ( 0.9%) Organic change Gross premiums written 50 (+0.3%) 17,526 ( 0.6%) Breakdown by segment Life 7,787 (44.4%) ( 2.8%) Property-casualty* 5,202 (29.7%) ( +2.4%) Health 4,537 (25.9%) ( 0.2%) * Inclusive legal protection. Primary insurance segment Primary life New business development in Germany Single and regular premiums 10% 2, Single Regular Annualised premium equivalent* 23% +6% 2,008 Split of regular premiums 872 Sum of premiums** in bn +24% % ,007 1, Other Riester Unit L. Annuity Endow. New business declined due to lower single premiums Development of regular premiums shows encouraging improvements (e.g. unit-linked) Sum of premiums is more adequate for assessing new business * Regular + 10% of single premiums. ** Expected sum of premiums over the life of contract. 14

15 Primary insurance segment Combined ratio property-casualty Exceptionally low level in % 2002 Lower combined ratio due to: Loss ratio* Improved pricing Expense ratio* Combined ratio in property-casualty* * Inclusive legal protection. Combined ratio Development from 1998 to Significantly enhanced conditions Excellent portfolio mix in % 105 in % Q Q Q Q Agenda Munich Re 125 years 3 Introduction 7 Jörg Schneider Financial reporting Munich Re Group in total 10 Reinsurance segment 19 Primary insurance segment 25 Summary 30 Strategy 32 Outlook 46 Backup 51 15

16 Summary Convincing performance in Shareholders' equity up by 1.3bn to 20.2bn Profit takes precedence over growth Strict focus on business quality, thus decrease in premiums accepted as side effect Combined ratios: Reinsurance 98.9%, primary insurance 93.0% Investment result again strong at 8,041m Outstanding result in reinsurance of 1,661m Primary insurance clearly back in the profit zone with 261m 1.8bn profit: Target reached within our adjusted target corridor Agenda Munich Re 125 years 3 Introduction 7 Jörg Schneider Financial reporting Munich Re Group in total 10 Reinsurance segment 19 Primary insurance segment 25 Summary 30 Strategy 32 Outlook 46 Backup 51 16

17 Strategy Turning risk into value Active risk diversification Sustainable success Excellent steering and control Focus on risk as our business Strategy: Active risk diversification Success by risk diversification Active risk diversification Measuring diversification Transforming diversification into tangible benefits Munich Re Group capital model Robust determination of diversification and concentration effects using multidisciplinary state-of-the-art tools Capital fungibility Optimising intragroup risk mitigation instruments (e.g. retrocession) with effective Group oversight to limit contagion risks Further derisking, significantly improving our quality and mobility of capital Dynamic portfolio management Active capital management balancing regulatory, rating agency and economic needs Active shift of capital in reinsurance depending on the cycle(s) Comprehensive accumulation control Optimising portfolio riskadjusted returns through "best of breed" ALM 17

18 Strategy: Active risk diversification Optimising portfolio risk-adjusted returns through "best of breed" ALM Deep understanding of the liabilities Their links to economic indicators Munich Re Group Asset/liability management The key linkages Interest rates Inflation (retail, healthcare, wages, etc) Deep understanding of investment universe Ability to replicate insurance liability profiles Liability-driven investment respecting the characteristics of insurance liabilities (timing and level uncertainty) Economic growth Skill mix P&C actuaries L&H actuaries Underwriting/ claims Credit cycles Skill mix Financial analysts Financial engineers Portfolio management Strategy: Focus on risk as our business Institutional form of how the risk is attracted increasingly of less importance risks Not insured risks Insurable Non-insurable risks Reinsurance Primary insurance Worldwide Risks Life Health Insurable Casualty emerging risks Credit and surety Individuals, groups, companies Property Marine Aviation Munich Re Group strategy with clear focus on risk 18

19 Strategy: Focus on risk as our business Insurance growth keeps outperforming growth in the overall economy Nominal GDP growth p.a. until 2014* in selected regions Americas US: Most advanced P&C market, high share of casualty business, private care Latin America: Catching-up 8 9 % 5.5 6% 4.5 5% Europe Demographic shift and social security reforms, integrating economy 4% 6 8% 12% Emerging Asia Rapid economic and insurance market growth 11 12% 11% 7 10% Non-life insurance continued to grow faster than the economy in the last three decades Trend even stronger for life insurance USA Canada Latin America Western Europe Eastern Europe Russia China India Other Non-life insurance penetration until in % * Consensus; sum of real GDP and inflation. Global non-life premiums/nominal GDP Trend line Strategy: Focus on risk as our business Example: ERGO Health Well positioned Growing importance of supplementary insurance Co-operation with state health insurers for supplementary insurance (>100,000 policies sold) Co-operation covers more than 20% of total state health insurance market Extended sales channels Long-term sales co-operation with Gerling Group, Zürich Group Germany and Deutsche Bank Initiatives International activities China: Participation of 19% in the first commercial health insurance company (90,000 sales agents nationwide) Spain: Innovative combination of health insurance and healthcare services in the region of Denia Management of benefits and health services with preventive services and medical care Profit for the year Investment result

20 Strategy: Focus on risk as our business Example: ERGO property-casualty and legal protection Leveraging the strong position Property-casualty Skilled and selective underwriting and rigid portfolio controlling lead to outstanding technical results Excellent combined ratios for many years Favourable portfolio mix: large portion of personal accident and below average portion of motor business Legal protection Benefit from leading market position: Example legal protection Market leader in Germany and Europe Strong rise in premiums (GWP 844m / +7.3%) and profit in 49% of premiums from international business (GWP 413m / +15.2%) Increase of premium rates in Germany due to new "Court Fees Act" D.A.S. market leader in nine European countries Combined ratios in % * * Adjusted for Victoria Re 93.3% Propertycasualty Legal protection -200 Profit for the year Strategy: Focus on risk as our business Example: Engineering risks Success story in reinsurance Basis of business Excellent engineering knowledge (in Munich; proximity to clients in offices abroad) focused on: Risk assessment Design of primary insurance concepts Effective loss control Business approach High-quality service proposition to clients: Leverage for obtaining substantial treaty participations High facultative capacity as leading reinsurer for exceptional and major risks Profitable results in engineering insurance. Reputation as world leader in engineering often "door-opener" for participations in other attractive lines of business Munich Re Group leading engineering reinsurer with global opinion leadership Combining engineering know-how with high-quality underwriting expertise Gross premiums written 1,443 1,393 1,281 1,500 1, Combined ratio in %

21 Strategy: Focus on risk as our business Example: Marine risks Enhancing the business model beyond traditional reinsurance via Watkins Syndicate (Lloyd's market) Marine Munich Re Group Munich Re Group leading marine reinsurer Attract reinsurance market Steering of business activity via Munich Re's Corporate Underwriting Knowledge transfer into the organisation Attract primary market Lloyd's Watkins part of Munich Re Group since 1997 (via Munich Re Munich) Internal retrocession (via Lloyd's Watkins) Successful investment: Expansion of Watkins primary business in the London market from 63m gross premiums written in 1997 to 208m in. Gross premiums written Combined ratio Net profit in m in % in m Strategy: Excellent steering and control Key initiatives to further enhance steering and control Initiatives Integrity of data : ERGO's new structure Strict performance monitoring and execution Excellent steering and control Clear targets 2005: Uniform control Roll-out of RSM* in the reinsurance group Clear incentives Clear structure and responsibilities Best-in-class underwriting *RSM: Renewal Steering & Monitoring 21

22 Strategy: Excellent steering and control Example: German primary life Finding the right balance between maximising franchise value and protecting equity capital Protecting equity capital Close the duration gap (invest longer) as interest rates fall Dynamic hedging strategies Dynamic bonus policies Aim Marketconsistent pricing Optimising product mix Invest short to meet policyholder expectations as interest rates rise Maximising franchise value Strategy: Excellent steering and control Example: ERGO Life Measures taken to return to profitability Reduction of explicit and implicit guarantees Introduction of a new range of unitlinked and hybrid annuity products Strengthening of terminal bonus Strengthening of cost margins (on average % of the premium) Reduced equity exposure to 10.1% Profit for the year Initiatives Proactive implementation of new mortality tables Adjustment of reserves in and of prices since Increase of premium level on average +5% Steering of strong distribution network Enhance sales of new products (e.g. Rürup) to compensate decline in endowments Investment result ,392 3,167 Initiatives lower growth but improve sustainable profitability 22

23 Strategy: Excellent steering and control American Re Corporation Actions taken More coordination and alignment with Munich Re Reduction in limits across all strategic business units Tighter underwriting guidelines Uniform underwriting risk appetite across the company in the strategic business units Exited certain classes of business: Casualty and professional liability business written as part of the Global Risk Management portfolio (GWP US$ 136m in ) Public non-profit business written in London Non-standard personal auto business Individual risk exposure from pharmaceutical manufacturing Finite risk reinsurance (US$ 126m premiums in ) Success of actions taken since 2002 increasingly visible in recent underwriting results Agenda Munich Re 125 years 3 Introduction 7 Jörg Schneider Financial reporting Munich Re Group in total 10 Reinsurance segment 19 Primary insurance segment 25 Summary 30 Strategy 32 Outlook 46 Backup 51 23

24 Outlook Cycle outlook: 1 April 2005 renewals with generally stable rates Price increases in loss-affected lines expected Korea Property: Stable renewal on prices and terms and conditions; demand for capacity remains high Casualty: Only minor changes compared to expected; prices in some specialty lines (e.g. D&O) remain at too low levels Marine: Biggest claims burden in the past year, e.g. major car carrier losses; need for further improvement of terms and conditions; strain on capacity expected Japan Property: Major claims (five storms in ) show need for continued increases to include climate change in pricing. Man-made industrial losses further support market discipline Casualty: Stable market expected, need for further improvements in the case of US exposure Marine: Favourable results in ; prices, terms and conditions expected to remain stable Overall largely stable reinsurance market, but increasing challenges: Global reinsurance capacity increasing Most players disciplined Munich Re Group committed to risk-adequate pricing: Best guarantee that we can continue to be our clients' preferred and reliable partner Outlook Munich Re Group heads for new business opportunities Where we come from German financial conglomerate /2005: Transition phase with focus on Developing the strategy for growth, starting with "Spearhead projects" Setting the basis for future success: Addressing weaknesses and areas of underperformance Where are we heading to Focus on managing risk as a core competence 24

25 Outlook "Spearhead projects" initiated to develop a growth strategy for Munich Re Group Global healthcare strategy integrating primary insurance and reinsurance Longevity: Develop coordinated strategy for primary insurance and reinsurance ERGO: Review foreign and domestic business strategy with respect to Improvement of portfolio and profitability Identification of key geographical markets Risk diversification aspects Exploit business opportunities out of the synergies of different special lines businesses (including bonding, enterprise risk, project finance) Strategy for alternative risk transfer to capital markets Outlook Group financial targets 2005 Next step on the path to sustainable profitability Reinsurance Non-life Combined ratio 97% Life European embedded value operating earnings 8 10% Primary insurance Property-casualty 1 Combined ratio 95% Life and health European embedded value operating earnings 8 10% Asset management Group assets Return on investment 2 4.5% Munich Re Group: RoE : 12% 1 Inclusive legal protection. 2 IFRS investment result based on average IAS book values. 3 Profit for the year/average total shareholders equity, both incl. minorities 25

26 Agenda Munich Re 125 years 3 Introduction 7 Jörg Schneider Financial reporting Munich Re Group in total 10 Reinsurance segment 19 Primary insurance segment 25 Summary 30 Strategy 32 Outlook 46 Backup 51 BACKUP: Primary insurance segment ERGO Income statement Group total in % Gross premiums written 15,569 15, Net earned premiums 13,736 13, Investment result 4,283 4, Total income 18,686 18, Total expenses 18,158 18, Result before amortisation of goodwill >1,000.0 Amortisation of goodwill Operating result before taxes on income Taxes on income Minority interests in earnings Group result 202 1,431 26

27 BACKUP: Primary insurance segment ERGO Income statement Life in % Gross premiums written 6,767 6, Net earned premiums 5,954 6, Investment result 3,167 3, Total income 9,755 9, Total expenses 9,654 9, Result before amortisation of goodwill Amortisation of goodwill Operating result before taxes on income Taxes on income Minority interests in earnings Group result BACKUP: Primary insurance segment ERGO Income statement Health in % Gross premiums written 4,537 4, Net earned premiums 4,291 4, Investment result Total income 5,219 5, Total expenses 5,089 5, Result before amortisation of goodwill Amortisation of goodwill Operating result before taxes on income Taxes on income Minority interests in earnings Group result

28 BACKUP: Primary insurance segment ERGO Income statement Property-casualty in % Gross premiums written 3,445 3, Net earned premiums 2,676 2, Investment result Total income 3,038 2, Total expenses 2,598 2, Result before amortisation of goodwill Amortisation of goodwill Operating result before taxes on income Taxes on income Minority interests in earnings Group result Combined ratio in % BACKUP: Primary insurance segment ERGO Life New business development in Germany Single and regular premiums Split of regular premiums 1,950 1,179 12% 1,722 25% 888 Single Regular % Other Riester Unit L. Annuity Endow. Annualised premium equivalent* % Sum of premiums** in bn +22% * Regular + 10% of single premiums. ** Expected sum of premiums over the life of contract. 28

29 Appendix Disclaimer This report contains forward-looking statements that are based on current assumptions and forecasts of the management of Munich Re. Known and unknown risks, uncertainties and other factors could lead to material differences between the forwardlooking statements given here and the actual development, in particular the results, financial situation and performance of our company. The company assumes no liability to update these forward-looking statements or to conform them to future events or developments. 29