CREATING VALUE IN A VOLATILE ENVIRONMENT

Transcription

1 CREATING VALUE IN A VOLATILE ENVIRONMENT Commerzbank German Investment t Seminar 202 New York, January 202 Jörg Schneider

2 Overview Munich Re: A leading global (re)insurer with strong presence in German primary insurance Premium breakdown by segment and region bn Reinsurance Property-casualty 2.5 (33%) ( 9.%) 2 Primary insurance Property-casualty 4.4 (2%) ( 2.5%) bn Latin America. (3%) Africa, Near and Middle East 0.7 (2%) Asia and Germany Total Primary Australasia Total 0.9 (29%) Q 3 20 insurance 3.8 (0%) Q 3 20 Reinsurance 37.2bn Life: 4.5 (2%) 37.2bn Life: 7. (9%) ( 4.5%) ( 22.%) Primary insurance Munich Health Health Germany: North America Other Europe 4.44 (2%) ( 9.0%) 4.3 (2%) ( 42%) 4.2%).0 (30%) 9.7 (26%) Reinsurance Leading expertise worldwide for 3 years Full range of products: traditional reinsurance, specialty commercial/personal solutions, alternative risk transfer Diversification A key success factor Primary insurance Germany-based with presence in attractive ti growth markets in Eastern Europe and Asia Offers P-C, life and German health insurance Multi-channel sales strategy Munich Health A leading specialised risk carrier in selected international health insurance markets Flexible combination of business models and products across healthcare-sector value chain Consolidated figures. 2 Q 3 20 compared to Q

3 Overview 20 was as a year of extremes with historically high nat cat claims and severe capital market disruption 0-year German Bund yield Credit spreads, 2 EuroStoxx 50 3 bps +45 bps 7% Natural catastrophes 3 economic losses of US$380bn, thereof US$05bn insured Severe weather, tornados USA, May / April Earthquake, tsunami Japan, March Wildfires Canada, 4-22 May Cyclone Yasi Australia, 2-7 February Floods USA, April May Floods Thailand, Aug.-Nov. Hurricane Irene USA, Caribbean 22 Aug. 2 Sep. Floods, flash floods Australia, Dec. 200 Jan. 20 Landslides, flash floods Brazil, 2/6 January Earthquakes New Zealand, 22 Feb. / 3 June Natural catastrophes Major loss events Geophysical events Hydrological events Climatological events Meteorological events Change between and IBOXX EURO Corporate vs. BofAML German Government 7-0 years 3 Source: Geo Risks Research, NatCatSERVICE. 3

4 Overview leaving their mark on Munich Re's results, but long-term shareholder return remains sound Achievements in 20 Risk-/return profile Reliable risk management Proven successful well prepared for Solvency II % 0 Total shareholder return (p.a.) Peer 3 2 Prudent investment management Diversification paying off 5 Peer 2 0 Peer 4 3 Robust capital base Preserving dividend capacity -5 Peer 6 Peer 5 4 Sound underlying financial performance Integrated business model facilitating earnings resilience Peer Volatility of total shareholder return (p.a.) Despite major financial burden in 20, Munich Re continues to successfully navigate through challenging environment Annualised total shareholder return defined as price performance plus dividend yield over the period ; based on Datastream total return indices in local currency; volatility calculation with 250 trading days per year. Peers: Allianz, Axa, Generali, Hannover Re, Swiss Re, Zurich Financial Services. 4

5 Risk management Munich Re's enterprise risk management (ERM) safeguards investors' interests and clients' protection Components of Munich Re's ERM System consisting of triggers, limits and measures in conjunction with responsible management action Risk strategy Clear limits define the framework for operational action ERM cycle Risk management culture as solid base Comprehensive overview with special focus on main issues Based on right balance between flexibility and stability Objectives Protect t and generate sustainable shareholder value Ensure the highest degree of confidence in meeting policyholders' and cedants' claims Protect Munich Re's reputation Business embedding Risk steering Pricing/underwriting Liability-driven investment strategy Performance measurement Management compensation Risk management is a key part of our corporate management already in line with new regulatory regime Solvency II 5

6 Risk management Munich Re well positioned to manage changes and capture opportunities arising from new Solvency II regime Main implications of Solvency II Convergence of enterprise Impact on product design Market discipline i risk management standards and pricing strengthened by increased in the industry transparency requirements Impact on Munich Re Harmonisation between internal steering and regulatory requirements Some convergence with financial reporting Approval of internal model Additional reinsurance business potential Capitalising on already existing enterprise risk management framework Impact on insurance industry Enhanced comparability between insurance companies Shift towards less capital-intense products Changes in asset allocation Increased interaction with supervisors Increased focus on risk and capital management 6

7 2 Investment Management Strong risk management focus also reflected in the management of our investment portfolio Investment topics Currency Sovereign risk Interest rates Inflation Considering a variety of capital market scenarios Risk management impulses Investment strategy Duration management: Keeping the asset-liability mismatch tight Diversification of government bond portfolio Slight shift to high-quality corporate bonds Interest hedging in primary life Expansion of inflation-linked bonds and inflation swaps Investments in renewable energies Good track record within tight risk framework Broad diversification remains paramount to be prepared for all kinds of capital market scenarios 7

8 2 Investment Management High level of portfolio diversification while delivering solid returns Investment portfolio Return on investment / running yield 5 Miscellaneous 2 Land and buildings % Running yield RoI 2.0% (9.7%) 2.6% (2.9%) 6 Shares, equity funds and participating interests 3 3.3% (4.0%) TOTAL 205bn Loans 26.7% (25.7%) Fixedinterest securities 55.4% (57.7%) Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q Q2 Q /20 SUBPRIME CRISIS CREDIT CRISIS GLOBAL RECESSION SOVEREIGN CRISIS Low exposure to structured credit Seizing opportunities in corporate bonds Duration lengthening Write-downs compensated by disposal gains Fair values as at Deposits retained on assumed reinsurance, investments for unit-linked life, deposits with banks, investment funds (bond, property), held for trading derivatives with non-fixed-interest underlying and tangible assets in renewable energies. 3 Net of hedges: 2.0% (4.4%). 4 As at Net DV0: Sensitivity to parallel upward shift of yield curve by one basis point reflecting portfolio size. 5 Annualised. 8

9 3 Robust capital base Sound capital position reflected in low CDS spread Book value per share CDS spread BV/share (plus dividend/share buy-back) BV/share CAGR: 8.3% itraxx Senior Financials itraxx Europe Munich Re 300 CAGR: 5.2% 2005 Q Capital quality bn Senior and other debt Subordinated debt Group equity Debt leverage 2 (%) % 9.2% 9.0% 9.0% Q Other debt includes bank borrowings of Munich Re and other strategic debt. 2 Strategic debt (senior, subordinated and other debt) divided by total capital (= sum of strategic debt + shareholders' equity). 9

10 3 Robust capital base Munich Re able to withstand another extreme economic stress like this year s without breaching critical limits Munich Re actions Munich Re solvency ratio Regulatory actions 2 >40% MRCM Solvency II 2 35% 00% Excellent capitalisation Below target capitalisation Solvency ratio adjusted Holding excess capital to for capital repatriation Obligation to submit a meet external constraints recovery plan Capital repatriation and/or increased risk-taking Insurer to take measures to achieve compliance 40% 245% 00% 40% with the SCR Comfortable capitalisation Actual solvency ratio 80% 00% <35% 00% 75% Adequate capitalisation Insufficient capitalisation Obligation to submit a Tolerate and monitor 80% 40% (Partial) suspension of short-term finance capital repatriation scheme 00% Regulator may restrict or <80% prohibit free disposal of Below target capitalisation 35% assets Risk transfer Ultimate t supervisory Scaling down of activities intervention Raising of (hybrid) capital Based on Munich Re capital model (MRCM): 75% of VaR 99.5%. 2 Based on Solvency II calibration: VaR 99.5%., 3 as at

11 4 Underlying performance Integrated business model Limited impact of economic cycle on core non-life and health business Countervailing effects in life Lower Sensitivity to negative changes in macroeconomic environment Higher Non- life Life and health Property (esp. fire) Relatively low impact on premium and claims Nat cat business hardly correlated with GDP Robust technical profits Health Countervailing developments dependent on product design Trend to claims frequency increase mitigated through stronger risk management Impact business dependent on duration and severity of recession Casualty (esp. D&O, PI 2, workers comp.) Potential increase of loss frequency Credit Might face increased claims due to higher default rates Closer monitoring required for lines with higher vulnerability Life Reduced new business, especially products with investment component Higher lapse rates, more suicide and disability claims Potentially more client demand for capital relief (life reinsurance) Uncertain economic prospects providing challenges and opportunities Munich Re well-set to perform in any market environment D&O = Directors & Officers, 2 PI = Professional Indemnity.

12 4 Underlying performance Integrated business model Non-life reinsurance Actively managing the cycle while expanding in strategic growth areas Renewals 20 First evidence of improved prospects Leveraging expertise in specialty business % m 0,596,678 8,98 540,595, % Change in premium: +4.3% 2.0 Thereof price movement: +.0% Thereof change in exposure for our share: +3.3% Traditional p-c reinsurance Munich Re Risk Solutions (mainly specialty primary insurance) bn Increasing demand in capital relief deals Total renewable Cancelled Renewed Increase on renewable New business Estimated outcome Strict t cycle and portfolio management also reflected in 0/0/2 renewals Since 2009, significant growth of capital relief deals in life and health and also in property-casualty in recent quarters Munich Re capitalising on financial strength th and know-how in structuring t complex deals Net earned premium. Management view, not comparable with IFRS reporting. Munich Re Risk Solutions includes specialised primary insurance solutions out of reinsurance. Figures for acquired companies only included since consolidation: Midland as from April 2008, Roanoke as from May 2008, and HSB as from April

13 4 Underlying performance Integrated business model Life reinsurance Stabilising component with growing importance within reinsurance segment Global market leader (market share) Life smoothing volatile P-C earnings Munich Re Swiss Re RGA Hannover Re Berkshire SCOR Transamerica 3% 2% 0% 7% 5% 8% 27% Technical result P-C Life Q-3 20 Strategic focus on biometric risk Increasing share within reins. segment Business lines Mortality Living i benefits Fully productive Large- age volume deals % of GWP Asset protection Longevity % Experimental stage 2000 Q-3 20 P-C Life Global life and health market share. Estimates based on 200 net earned premiums as reported in company reports. Source: Munich Re Economic Research. 3

14 4 Underlying performance Integrated business model Primary insurance with very strong focus on economically sound Germany P-C Germany Strong performance Combined ratio 00% 95% 90% 85% Market ERGO Life Difficult market conditions Burdening factors Management action "Lower for longer" yields Industry highly competitive not fully committed to economic steering Hedging mitigating impact of low yields Development of new product generation Improving cost efficiency % 25 2 Personal accident ERGO Motor Fire Liability Legal protection Market 7 Other Health Germany Stable earnings contributor Capturing growth prospects in supplementary health insurance Changing political climate providing challenges and opportunities Attractive business mix 2 generating strong and stable earnings Portfolio with high degree of stability and low capital requirements Shift from comprehensive to supplementary products Combined ratio (local GAAP, excluding travel insurance). Sources: Annual reports 200, GDV year-end statistics. 2 Split of gross written premiums ERGO vs. German market as at

15 4 Underlying performance Integrated business model Turnaround programmes in international business starting to bear fruit Gross premiums written 200 by region Poland On track Turkey 2% Poland 5% Belgium 5% Spain 4% Italy 3% TOTAL 200 Rest of World 6% Germany 72% Recovery from nat cat losses 200 Higher premium rates and cost reduction Among top 3 in the Polish market ranking 5% 7.5bn Turkey Still challenging P-C International Combined ratio 20% 0% 00% 90% 80% International Austria 3% Total ERGO P-C Q-3 20 Rate increases and new tariff in motor Improvement of claims management Higher operational efficiency i South Korea Still challenging Motor market difficult: Strong political intervention (no permission for price increase) Expansion of profitable non-motor business Check all options Portugal Units sold Combined ratio (IFRS). 5

16 4 Underlying performance Integrated business model Munich Health After consolidation, prepared for further growth Health risk service provider Examples Munich Health business models Reinsurance Traditional Reinsurance Non-traditional Integrated reinsurance Financial protection Risk-taking Service Sales Administration Risk management Medical mgmt Network mgmt Health supply Portfolio management allowing participation p in future market growth Disposal of unprofitable Italian unit Reorientation of US business in line with new political landscape (including acquisition of Windsor Health) Efficiency improvement in European primary insurance entities Further expansion in the Middle East Primary insurance Integrated delivery system Market-specific Munich Health well-prepared to profitably grow the business participating in attractive market prospects Global health markets will continue to grow in excess of GDP Munich Health to participate with focus on organic business expansion 6

17 Outlook Solvency II providing additional business opportunities her pital relief High Risk cap ower Lo Dedicated Munich Re risk appetite Limited it Munich Re risk appetite Bubble size indicates business potential based on QIS5 2 Mortality Disability Longevity LPT covers Asset protection Lapse Quota share ILLUSTRATIVE Nat cat protection Service-oriented Risk-transfer-oriented Life business Largest potential for products covering market risk Underwriting risks less important and generally written in connection with services Non-life business Largest potential for nat cat, retrospective covers and quota share treaties depending on client risk profile Standard formula favours proportional treaties but careful selection will be required LPT = Loss Portfolio Transfer 2 Solvency II EU quantitative impact study No. 5 7

18 Key takeaways Munich Re Crisis-proven and aligned to sustainable value generation Key takeaways Good track record of dealing with challenging economic conditions We remain a strong partner for clients and reliable for shareholders in times of crisis Highly diversified business model Focus on insurance risks Limited correlation to economic cycles and capital markets Rigorous approach to risk management Clear limits it for market and credit risk Ensuring high level of investment diversification Able to cope with all kinds of scenarios Well prepared for Solvency II development Internal model and management intervention much more granular than supervisory scheme Growth prospects Financial strength the basis for further growth additional business potential from Solvency II 8

19 Appendix Financial calendar FINANCIAL CALENDAR 2 February 202 Preliminary key figures 20 and renewals 3 March 202 Balance sheet press conference for 20 financial statements 4 March 202 Analysts' conference, London 26 April 202 Annual General Meeting, Munich 8 May 202 Interim report as at 3 March 202 9

20 Appendix For information, please contact INVESTOR RELATIONS TEAM Christian Becker-Hussong Ralf Kleinschroth Thorsten Dzuba Head of Investor & Rating Agency Relations Tel.: +49 (89) Tel.: +49 (89) Tel.: +49 (89) Christine Franziszi Tel.: +49 (89) Britta Hamberger Tel.: +49 (89) Andreas Silberhorn Tel.: +49 (89) Dr. Alexander Becker Head of External Communication ERGO Tel.: +49 (2) Andreas Hoffmann Tel.: +49 (2) Ingrid Grunwald Tel.: +49 (89) Münchener Rückversicherungs-Gesellschaft Investor & Rating Agency Relations Königinstraße München, Germany Fax: +49 (89) Internet: 20

21 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. 2