Munich Re Group Changing gear

Transcription

1 Changing gear Dresdner Kleinwort 10th German Investment Seminar New York Jörg Schneider Member of the Board of Management 16 January 2008

2 Successful business model Serving one growing and converging global insurance market Illustrative Treaty & facultative reinsurance solutions Large individual risks solutions Specialty commercial solutions Personal specialty solutions Standard retail solutions Risk capacity Distribution power Risk know-how 2 Successful business model A strong global insurer Munich Re Group Premium breakdown by segment (consolidated) in bn Reinsurance P-C Reinsurance L&H 38.2 Primary insurance P-C Primary insurance L&H Reinsurance 2003 Diversification as key success factor Leading expertise in non-life and life reinsurance worldwide for 127 years Full range of products: from traditional reinsurance to alternative risk financing Best reinsurer overall by cedant vote Primary insurance 2006 Germany-based with growing importance in selected European markets Multi-brand single back office approach European market leader in health and legal expenses Focused on personal lines business 1 Flaspöhler-Survey Europe

3 Successful business model Building a track record Consolidated result in m 1,887 CAGR ~25% 2,751 3,536 3,500 3, target Clear focus on insurance risks High confidence level to achieve or slightly exceed net profit target for 2007 All segments produce strong value added Cycle and capital management to ensure future profitability 1 Adjusted due to first-time application of IAS 19 (rev. 2004). 4 Successful business model ERGO adds value to Munich Re shareholders Consolidated result ERGO Group in m ERGO Peer 1 Peer 2 Peer 3 Peer Best RoE in peer group Adjusted due to first-time application of IAS 19 (rev. 2004), one-off effect HVB 301m. 2 One-off effect SEStEG: 202m. 3 Allianz, AXA, Generali, Zurich, according to IFRS Group reporting Group benefit Revenue synergies Leverage global presence of Munich Re to enter specific growth markets Expense synergies Efficiency improvements within integrated business model, e.g. joint asset management Reduced capital requirements Substantial diversification benefits Detach from traditional reinsurance cycle Realise profitability clearly above cost of capital 5

4 Sustainable profitability Focus on underwriting Net equity exposure in % of shareholders' capital Sept 2007 Reduction of equity concentration risks Stake in % 2002 Allianz 21.2 HVB 25.7 Commerzbank 10.5 BHW 9.2 Limited credit risk Total investments as per : 179.5bn; thereof 6% corporates and 4% structured bonds Subprime exposure 0.2% of total investments >96% fixed-interest investments rated A or better Refined business model with clear focus on underwriting, as evidenced in credit crisis 1 As at end of period. Definition: Net equity exposure (after hedges, net of tax and policyholder participation) divided by shareholders' capital (incl. off-balance-sheet reserves, excl. goodwill) <3 <5 <3-6 Sustainable profitability Cost of capital substantially reduced Investment risks Lowered equity gearing Beta factor reduced to below Reduced concentration risks Low credit risk Asset-liability management State-of-the-art ALM Strong risk management Insurance risks Active cycle management High diversification Group reserves strengthened year beta 2-year beta Derisking reflected in significant reduction of cost of capital Source: Bloomberg raw beta to D.J. EuroStoxx 50, total return, daily basis. Status 31 December

5 Ambitious targets EPS growth >10% p.a. until 2010 EPS in Changing Gear programme e 2 EPS CAGR >10% Ambitious growth targets Best in class Capital efficiency > e 1 Adjusted due to first-time application of IAS 19 (rev. 2004). 2 Based on assumed IFRS earnings (excl. minority interests) of ~ 3bn and million shares (weighted average). 2 Munich Re target 2010 Most profitable among top 5 global reinsurers Market leadership in international health with integrated approach Expand into primary insurance growth markets/segments Strategic risk management maximising reward for volatility 8 Ambitious targets Realisation of untapped profit pools in reinsurance Reinsurance property-casualty Profits Illustrative Changing Gear > 250m growth initiatives impact Current reinsurance portfolio Profitable growth Product development Insurance out of reinsurance Combined ratio target 97% over-the-cycle Reinsurance life Gross premiums written in bn CAGR 11.5% Key considerations Focus on mortality risk Geographically well diversified Target 15% VANB-growth 9

6 Ambitious targets Primary insurance ERGO Ambitious targets Strengthen sales organisation Realign strategy in life Increase share of international business Optimise capital structure PREMIUMS 2012 > 23bn NET PROFIT 2012 > 900m to sustain excellent profitability RoE in % ~16 ~15 ~ e 2010e 2012e Adjusted due to one-off effects in net profit 10 Capital management Focus on efficient capitalisation CHANGING GEAR Derisking initiative started Change to flexible dividend policy Introduction of RoRaCtarget (15%) First buyback programme 1bn 1 At least 1bn dividend per year plus share buy-back programme of more than 5bn. Returning more than 8bn to shareholders until Ongoing capital management to ensure high profitability Subordinated bond issue 1.5bn. First part ( 2bn) of current buy-back programme almost executed 11

7 Summary Value-adding integrated business model All business segments on high profitability level Very strong balance sheet Continued derisking and diversification leading to lower cost of capital Cycle management and disciplined underwriting support sustainable profitability Capital management as continuous driver of investment case 12 13

8 Munich Re Group and our shares Munich Re Group Gross premiums written bn Result before amortisation of goodwill m 5,498 4, ,369 1, Taxes on income m 1,648 1, , Consolidated result m 3,536 2, , Thereof attributable to minority interests m Investments bn Return on equity % Equity bn Off-balance-sheet reserves 2 bn Net technical provisions bn Staff at 31 December 37,210 37,953 40,962 41,431 41,396 Our shares Earnings per share Dividend per share Amount distributed Share price at 31 December Market capitalisation at 31 December No. of shares at year-end (ex own shares) m bn 1 Adjusted owing to first-time application of IAS 19 (rev. 2004). 2 Including amounts attributable to minority interests and policyholders. 3 Previous years figures adjusted owing to change in measurement basis. 4 Taking into account the capital increase in November m No. of shares at year-end 2007 (ex own shares): m Reinsurance segment Reinsurance 1 Gross premiums written Investments Net technical provisions Reserve ratio property-casualty Large and very large losses (net) Thereof natural catastrophe losses Combined ratio property-casualty Thereof natural catastrophe losses bn bn bn % m m % %-pts ,293 2, , ,054 Gross premiums written 2006 by region GPW reinsurance p-c 2006 by line of business in % in % Rest of World 8% Asia/Australasia 9% North America 34% Germany 14% UK 19% Rest of Europe 16% Other classes of business 12% Engineering 9% Fire 26% , Liability 16% Accident 5% Motor 20% Marine, Aviation, Space 12% 1 Before elimination of intra-group transactions across segments. 15

9 Reinsurance groups ranked by net reinsurance premiums written Rank Company Country Net reinsurance premiums written in US$ m Munich Re Germany 25,433 2 Swiss Re 1 Switzerland 23,841 3 Berkshire Hathaway Re U.S. 11,576 4 Hannover Re Germany 9,354 5 Lloyd s 2 U.K. 8,445 6 SCOR 3 France 4,885 7 Reinsurance Group of America Inc. U.S. 4,343 8 Everest Re Bermuda 3,876 9 Partner Re Bermuda 3, Transatlantic Holdings Inc. U.S. 3, XL Re Bermuda 2, Tokio Marine & Nichido Fire Insurance Co. Ltd. Japan 2, Korean Re Korea 2, Odyssey Re U.S. 2, Converium Switzerland 1, Scottish Re Group Ltd. Bermuda 1, ACE Tempest Re Bermuda 1, Sompo Japan Insurance Ltd. Japan 1, Mitsui Sumitomo Insurance Co. Ltd. Japan 1, Caisse Central de Réassurance France 1,509 Total Top ,841 1 On June 9, 2006, Swiss Re completed the acquisition of 100% of the outstanding common shares of GE Insurance Solutions Corp. (GEIS). Figures presented under Swiss Re are based on published year-end 2006 financial statements, and as such do not reflect GEIS premium for the full year. The loss and expense ratios presented include nontraditional business. Excluding nontraditional, loss and expense ratios for 2006 would be 64.1% and 26.3%, respectively. 2 Premiums and combined ratio relate to reinsurance business only. Data are based on the published pro forma Lloyd s accounts, which represent an aggregation of all syndicates participating at Lloyd s. As such, some premium included for Lloyd s may also be included by other groups in this list that consolidate their Lloyd s operations. 3 During 2006, SCOR acquired the Revios group. Data presented for 2006 are based on a pro forma consolidation of SCOR and Revios. Source: Standard & Poor's Global Reinsurance Highlights, 2007 Edition. Combined ratio in % N.M N.A N.M N.A. N.A Reinsurance property-casualty Renewals January 2008 Key p-c reinsurance market trends Munich Re approach Overall reinsurance prices, terms and conditions mostly at risk-adequate levels Some pressure, e.g. on facultative reinsurance Capacity providers remain disciplined; supported by external pressure No common market cycle pattern Cycles with lower amplitudes compared to history Differential behaviour between individual regions and lines of business Expertise-based specialised business characterised by lower pressure than traditional reinsurance Litmus test for cycle management ahead Excellent technical underwriting skills are core basis for successful cycle management by: Detaching from softening in original markets Strict monitoring of portfolio profitability throughout entire renewal process Giving up unprofitable business Playing out diversification as competitive advantage Strong global presence allows selected underwriting Continuing to support trends towards differentiated prices, terms and conditions Expansion into less cycle-dependent niche business, also by selective M&A Risk-adequate pricing remains key 17

10 Reinsurance life Strong profitability underscored by MCEV Distribution of life reinsurance GPW in % Key considerations Consolidation leading to higher pricing power Room for expansion in USA and other markets Germany UK USA Canada Other Total 2006: 6,356m Benefit from demographic developments Continue profitable organic growth by taking advantage of changes in accounting (IFRS) and regulatory requirements (Solvency II) Well-balanced portfolio with predominant mortality risk Operating EEV earnings 2006: 8.9% 18 Primary insurance segment Primary insurance Gross premiums written bn Investments bn Net technical provisions Reserve ratio property-casualty Combined ratio property-casualty 1 Before elimination of intra-group transactions across segments. 2 Adjusted owing to first-time application of IAS 19 (rev. 2004). bn % % Gross premiums written 2006 by region ERGO New business 2006 by distribution channels in % in % Rest of Europe 10% Belgium 3% Spain 3% Italy 4% Rest of World 2% Germany 78% Tied agents 55% 99.9 Direct 10% Broker 15% Banks 20% 19

11 ERGO property-casualty Attractive business mix ERGO 2006 Gross premiums written Other 6.9% Legal expenses 14.3% Liability 14.5% Fire 17.0% Personal accident market Market share in % Allianz ERGO AMB Generali R+V Motor 22.3% Personal accident 25.0% Public insurers Axa 35.7 Other 1 Includes pure risk policies as well as policies with premium refunds; ERGO's (Allianz's) share of pure risk policies: 90.3% (36.1%). Sources: Annual reports 2006, GDV year-end statistics (status 08/2007). German market 2006 Gross premiums written Other 12.2% Legal expenses 5.4% Liability 13.9% Fire 21.6% Key considerations personal accident Demands active sales process Portfolio with high degree of stability Low capital requirements Motor 36.1% Personal accident 10.8% 20 ERGO property-casualty Excellent combined ratios Net combined ratio ERGO vs. market (German GAAP) in % Claims ratio Expense ratio in % > ERGO Market IFRS combined ratios property-casualty ERGO Incl. legal expenses. 2 Mainly due to German flood losses and acquisitions in Italy and Eastern Europe. >66 >25 Market Trade-off: Higher expense ratios than market due to different business and sales channel mix More than compensated for by lower claims ratios Transfer expertise built up in domestic portfolio to foreign operations: Combined ratio abroad 96.3% (98.1%) 21

12 ERGO German life One of the leading players Ranking by market share in 2006 Gross premiums written 1 1 Allianz 2 AMB Generali 3 ERGO 4 Talanx 5 Zurich 6 AXA 7 R+V 8 Debeka 9 Württembergische 10 Nürnberger. German market in m 12,756 8,655 5,980 4,768 4,150 4,037 3,641 2,766 2,410 1,945 78,258 in % GOAL Return to growth path NEW BUSINESS Share of innovative and investment-type products 30% by 2010 GERMAN LIFE BUSINESS Increase German IFRS net profit 75% by 2012 NEW BUSINESS MARGIN VANB/PVNBP 3.0% by 2010 TREASURY APPROACH Increase profitability and safeguard shareholders against risk from business in force Return to growth path as one of major challenges 1 German GAAP. 22 ERGO Health Strong market position Market shares in Germany 2006: Comprehensive in % 1. Debeka ERGO 14.2 GWP: 3,321m 3. Allianz AXA Signal Iduna 6.8 Other 32 comp Market volume 23.4bn Keys to success Strong brand DKV Market leader in European health market DKV again elected best health insurance company by German brokers Broad product portfolio Comprehensive insurance coverage of all types Wide spectrum of health services Supplemented by care components Unique selling proposition "Think healthcare!" Multi-channel distribution Market shares in Germany 2006: Supplementary in % 1. ERGO 21.6 GWP: 974m 2. Allianz 3. Signal Iduna 4. Debeka 5. CONSAL Other 32 comp. Market volume bn Growth factors in marketing Cooperation with statutory health insurers Cooperation with Zurich, Gerling, HVB, Deutsche Bank Advertising for specific target groups, direct marketing including call centre (KarstadtQuelle Versicherungen) Creation and utilisation of new cross- and up-selling potentials Tapping of new marketing channels (e.g. affinity channels) 23

13 International health Leveraging our combined health experience Our set-up Combining the world's No. 1 health reinsurer and Europe's No. 1 health insurer (DKV) Health as core business segment within Munich Re Group Health risk expertise in over 40 countries More than 2,300 healthcare professionals in 25 locations around the globe Global health market Market volume in bn CAGR: ~6.0% 2,300 3,150 4,150 Source: OECD Health Statistics, Compustat, Bloomberg 5, Our strengths Flexible combination of business models and products as unique selling proposition Outstanding knowledge and experience in health insurance and reinsurance gained over two decades of global presence Strong market presence in insurance and/or reinsurance as solid platform for further growth Main growth drivers Demographic development Medical improvements Lifestyle changes Economic situation The only specialised health risk carrier with global scope 24 Active use of capital markets Munich Re s Risk Trading approach Managing our own risks Optimise portfolio Use of additional capacity Risk warehousing Improve our risk/return profile and save costs Retain risks Be active player in primary and secondary market Risk-based, investment and arbitrage income Managing our clients risks Consulting, structuring, project management and placement support Risk fronting / transformation and (interim) capacity provider Fee and risk-based income Restructuring and reselling Extension of buy and hold strategy Combine and restructure risks Sell at favourable terms and conditions Fee and arbitrage income 25

14 Growth approach of Munich Re Group Reinsurance International health Primary insurance Organic growth Alternative distribution channels, e.g. Bell & Clements, MSP Underwriting Niches: e.g. Midland Analyse life re portfolios Product development Growth of underlying risk values, peak risks and accumulations Emerging markets Solvency II Investment in selected markets; bridging financial protection, services and provision of care, e.g. Cairnstone, Sterling Life Flexible and parallel use of primary and reinsurance brands and business models Exploit significant growth potential through unique selling proposition International expansion in selected countries with high growth/high margin potential, e.g. HDFC, Daum Direct Selected investments in distribution channels Organic growth in Germany, focus on retail P-C, corporate pension, investment-type life products and supplementary health Selected partnerships (e.g. bancassurance cooperation with UniCredit) M&A activities 26 Selective M&A as consistent execution of strategy Segment Target Country Share in % Price Remarks Re-insurance Bell & Clements Group UK 100% Not disclosed Managing General Agent (MGA) Inter-national Health Primary insurance The Midland Company MSP Underwriting Ltd. Allfinanz Cairnstone Inc. Sterling Life Insurance Company HDFC General Insurance Ltd. Daum Direct Auto Insurance USA UK Ireland USA USA India South Korea 100% 100% of MSP, 47.3% of Lloyd syndicate % From 25% to 100% 100% 26% 65% USD 1.3bn ( 0.9bn) Not disclosed 47.5m Not disclosed USD 352m ( 243m) Not disclosed Not disclosed US specialty insurance Lloyd syndicate focused on international property business Leading provider of software for life insurance companies Industry leader in US employer stop loss insurance Leading provider of health benefits to US senior market Non-life insurance joint venture Second largest direct motor insurer in South Korea 27

15 Acquisition of The Midland Company Acquisition highlights Attractive target Short-tail, low severity personal lines insurance Focus on fast growing US specialty segments Consistent long-term track record of above-market growth and profitability Transaction Assumed value US$ 1.3bn 1 Entirely funded through own funds Strategic rationale Logical step within new US strategy Detach from traditional p-c reinsurance cycle Leverage Munich Re s product development capabilities and Midland s ability to cross-sell Capital management Full commitment to > 8bn repatriation programme EPS accretion 2 in Pre-tax synergies in US$ m E 2009E 2010E 2011E 2012E E 2009E 2010E Cost synergies Revenue synergies 1 Based on US$ 65 per share offer. 2 Calculation based on assumed and stable number of ~208m shares at beginning of year 2008, 2009 and Value of diversification Selected reinsurers' KRW losses Company PXRE Group Montpelier Re IPC Holdings Platinum Re Endurance Aspen AXIS Everest Re RenaissanceRe Lloyd s PartnerRe Hannover Re Arch Capital Munich Re Swiss Re Shareholders' equity 1 in US$ m 763 1,463 1,743 1,273 1,987 1,608 3,167 4,082 2,823 20,709 3,482 3,445 2,503 26,608 17,135 1 As of June 30, Source: Standard & Poor's Global Reinsurance Highlights, 2007 Edition. Estimated KRW net loss in US$ m 856 1,203 1, ,124 1, , ,605 1,672 KRW loss as % of shareholders' equity

16 Appendix Financial calendar Contacts Disclaimer 30 Appendix Financial calendar 30 January 2008 Press release on renewal of reinsurance treaties 19 February 2008 Investors' Day on property-casualty reinsurance, London 25 February 2008 Balance sheet press conference for 2007 financial statements (preliminary figures) Conference call with analysts and investors 12 March 2008 Annual Report April 2008 Annual General Meeting 18 April 2008 Dividend payment 8 May 2008 Interim report as at 31 March 2008 Analysts' conference, Munich 6 August 2008 Interim report as at 30 June October 2008 Investors' Day on life reinsurance, London 7 November 2008 Interim report as at 30 September

17 Appendix For information please contact Sascha Bibert Head of Investor & Rating Agency Relations Tel.: +49 (89) Ralf Kleinschroth Tel.: +49 (89) Münchener Rückversicherungs-Gesellschaft Königinstrasse 107, München, Germany Fax: +49 (89) Internet: Dr. Thomas Dittmar Tel.: +49 (89) Andreas Silberhorn Tel.: +49 (89) Appendix Disclaimer This presentation 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 forward-looking 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. 33