Delivering strong capital returns Munich Re equity story

Transcription

1 plainpicture/fstop/ralf Hiemisch Delivering strong capital returns Munich Re equity story April 205

2 Agenda Equity story 3 Backup Group 9 Reinsurance 43 ERGO 60 Munich Health 76 Investments 80 2

3 Equity story Combination of primary and reinsurance under one roof realising synergies and economies of scope Segmental breakdown Gross written premiums 204 Reinsurance Property-casualty 6.7 (34%) Reinsurance Life 0.0 (2%) Total 48.9bn bn ERGO Life/Health Germany 9.8 (20%) ERGO Property-casualty Germany 3. (6%) ERGO International 3.8 (8%) Munich Health 5.3 (%) Reinsurance Solid profitability P-C: Expansion of know-howintensive business, active portfolio and cycle management, strong reserving position Life: Producing steady results above market average ERGO Delivering on plan L/H Germany: Continuously improving risk/return profile P-C Germany: Attractive business mix generating solid earnings International: Turnaround successfully completed in p-c, growth in life Munich Health Consolidation Focus on excellence, execution and expansion to strengthen profitability and participate in growth of selected health markets 3

4 Equity story Munich Re remains an under-promise/over-deliver investment case Actual net result vs. guidance bn Actual Guidance Outlook 205 Munich Re (Group) Segment result Combined ratio GROSS PREMIUMS WRITTEN 47 49bn Reinsurance 2bn ~98% RETURN ON INVESTMENT at least 3% ERGO ~ 500m Germany: ~93% International: ~97% NET RESULT 2.5 3bn Munich Health 50 00m ~99% High level of diversification and disciplined bottom-line focus facilitating reliable earnings generation Assuming normal nat cat claims based on 8.5% budget, net result would have exceeded guidance. 4

5 Equity story Delivering strong capital returns Attractive shareholder participation bn Dividend per share Cash yield 2.2% 7.8% 5.4% 6.0% 9.6% 8.% Share buy-back Dividend CAGR: 7% Excellent economic solvency ratio Substantial rating capital buffer Solid German statutory accounts Internal model Rating agencies HGB 3 flexibility Strong balance sheet mitigates pressure from low interest rates and declining reinsurance margins High distribution in spite of temporary earnings pressure Cash-flow view. 2 Total payout (dividend and buy-back) divided by average market capitalisation. 3 German statutory accounting standards. 5

6 Equity story Convincing track record in value generation Return on equity % Risk/return profile % Average cost of capital Total shareholder return (p.a.) Peer 2 Peer 3 Peer Index Peer 6 Peer year average ROE: ~.% Clearly exceeds cost of capital: ~8% 0 Peer Volatility of total shareholder return (p.a.) Annualised TSR: ~2.8% Outperforming major peers and insurance index Balanced business portfolio paves the way for sustainable profitability Annualised total shareholder return defined as price performance plus dividend yield over the period from until ; 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, ZIG, Stoxx Europe 600 Insurance ( index ). 6

7 Equity story Low interest rates impacting investment result Return on investment % Total investments bn Investment result bn 4.5 Valuation reserves Disposal gains Resilient RoI given ongoing decline of interest rates which significantly pushes up valuation reserves leading to disposal gains due to usual portfolio turnover mitigated by increasing amount of unrealised gains 7

8 Equity story Investing in low-interest-rate environment Running and reinvestment yield Running yield Reinvestment yield % Reinvestment yield (%) Composition of reinvestment yield 204 Bank bonds Structured products Pfandbriefe/ covered bonds Corporate bonds Government bonds Yield curve German sovereigns 0 Average 5 maturity (years) 0 5 Long duration has been stabilising investment returns in recent years At current interest-rate levels, expected annual attrition of running yield ~20bps in 205 Solid reinvestment yields without taking high risks In addition to long duration, ongoing geographic diversification and cautious expansion of credit exposure mitigating attrition of running yield Well-balanced portfolio provides resilience against adverse capital market scenarios No hunt for yield Bubble size reflects reinvestment volume. Yield curve as at

9 Equity story Resilient earnings in a softening reinsurance market Constantly positive net run-off results in property-casualty reinsurance support high earnings contribution from underwriting at Group level 2 5.8% 5.3% 72% 83% 8% 4.4% 49% ~4% 2.8% 3.7% % Actual losses consistently below actuarial expectations at least 4% reserve releases also expected going forward Sound technical results (including technical interest) mitigate declining contribution from investment income Profitability in property-casualty reinsurance supported by strong reserving position In % of net earned premiums, adjusted for commission effects. 2 Contribution of technical result as a percentage of operating result. 9

10 Equity story Reinsurance Leveraging on leading market position Property-casualty GWP bn Life Technical result m Risk Solutions Traditional p-c reinsurance Adjusted Continued growth in attractive specialty business (Risk Solutions) mitigates competitive pressure and decline of traditional book rigorous cycle management Expansion of tailor-made solutions and innovative concepts for new and emerging risks Thorough review of critical portfolios results in earnings volatility while majority of the business performs in line with expectations or better Confirmed technical result target of ~ 400m p.a. Actively shaping our business model Seizing opportunities for profitable growth, taking advantage of underinsured markets/risks and demographic challenges Gross premiums written. 0

11 Equity story Traditional p-c reinsurance Shift towards proportional casualty increases resilience Traditional p-c portfolio 204 % Active portfolio shifts Aviation (2) Agro 7 (8) Marine 5 (5) Credit 5 (5) TOTAL 3bn Casualty motor 26 (24) Casualty non-motor 9 (6) Proportional 70 (68) TOTAL 3bn Facultative 0 (0) XL 20 (22) Share increases Profitable casualty lines (motor and non-motor) Less volatile proportional book (with rates broadly flat to slightly increasing) Share reductions Deliberate cancellations and reductions in property Property nat cat XL share further reduced to 0% Property nonnat cat XL 27 (28) Property nat cat XL 0 (2) Traditional portfolio continues to be well diversified Disciplined underwriting and active portfolio management secure technical profitability Traditional reinsurance incl. tailor-made solutions premium. Allocation based on management view, not comparable with IFRS reporting. Gross premiums written 204 (203), FY view.

12 Equity story Risk Solutions Sound results provide additional stability to total p-c book Gross earned premiums bn Combined ratio % Underwriting result bn Share of Risk Solutions in % of total p-c book Share of Risk Solutions in % of total p-c book Drivers in 204 Successful expansion through acquisition of Australian MGA Calliden Strong bottom-line driven by low major losses and reserve releases highest result contribution from US Special entities Continuous investments to reap further organic growth potential Increasingly valuable business segment with strong premium growth and bottom-line contribution Management view, not comparable with IFRS reporting. 2

13 Return Lower Higher Equity story Reinsurance Life Strategic focus and areas of attention Risk-return profile of selected sub-portfolios relative to core business ILLUSTRATIVE Australian disability US LTC Higher Traditional morbidity Longevity REPAIR Asia Compared to competitors Canada mortality Traditional mortality US new business US back-book Risk Overweight Neutral GROW FinMoRe Asset protection Lower Underweight Unique Initiatives portfolio FinMoRe 2 Asia Business performing well Pleasing contribution to VNB strong demand prevails underpins business potential 3 Longevity Book developed carefully in line with risk appetite 4 Asset protection Opportunities Traditional mortality risk will remain our core business both in terms of new business value and bottom line FinMoRe and Asia: high strategic relevance and strong contributions to bottom line complemented by asset protection and a prudent expansion into longevity risk Underperforming business approached with rigorous portfolio management High weight on core mortality business, complemented by initiatives portfolio 3

14 Equity story ERGO Management measures bearing fruit International Combined ratio Back to normal Turnaround successfully completed Combined ratio better than initial target of ~98% % P-C Germany Combined ratio % Sound profitability Based on favourable business mix Combined ratio target: ~93% Life Germany New business % Target portfolio (incl. new life product) Traditional portfolio Continuously improving risk/ return profile Expansion of new life product Interest-rate hedging Duration management Restrictive bonus policy e Low interest rates reign ERGO on the move, addressing the challenges 4

15 Equity story Munich Health Focus on stabilising business E XCELLENCE E XECUTION E XPANSION Strengthen core capabilities Improve effectiveness Seize growth opportunities Continuously improve processes in underwriting, client management and product development Stronger business-unit-level focus Turnaround of underperforming business Seize opportunities of digitalisation Expansion in Middle East Set up expertise and best practice Enhance new focus areas, e.g. data analytics Further recalibrate local strategies to market conditions and client needs Explore digitalisation developments and their application to health Implement new ventures Tap emerging markets Continuous approach Current focus Stronger focus in future Private health insurance growing worldwide above GDP Munich Health paving the way for sustainable growth 5

16 Equity story Looking ahead World of opportunities Short-term priorities Managing downside Preserving profitability Business expansion ERGO traditional German Life Mid-term outlook ERGO P-C Germany ERGO Health Germany Reinsurance Life Traditional P-C reinsurance Munich Health ERGO International Risk Solutions Remain disciplined with strict bottomline focus Maintain focus on technical excellence and underwriting rigour Foster strong capital base and financial flexibility Continue to increase dividend with longterm earnings growth Temporary earnings pressure outweighed by mid- and long-term growth perspectives Innovative power key to success 6

17 Equity story Delivering strong capital returns Good track record Successfully dealing with challenging economic conditions We remain a strong partner for clients and reliable for shareholders, delivering on our promises Business strategy Focus on insurance risks safeguarding sustainable value creation Complementary business profiles limiting correlation to capital market development Rigorous risk management Based on a high level of diversification, actively managing the low-yield environment and strictly budgeting all our insurance risks Strong capital position Continuously built up over years Continuing the long-term track record of attractive capital repatriation while keeping the flexibility to seize opportunities for profitable growth 7

18 Backup 8

19 Backup: Group Key financials Key financials Our aim is sustained profitable growth Munich Re, Gross written premiums bn Operating result m 4,028 4,398 5,349,80 3,978 Taxes on income m Consolidated result m 3,7 3,333 3, ,430 Thereof attributable to minority interests m Investments bn Return on equity % Equity bn Off-balance-sheet reserves 3 bn Net technical provisions bn Staff at 3 December 43,36 44,665 45,437 47,206 46,95 Our shares Earnings per share Dividend per share Amount distributed m,298,254,255,0,0 Share price at 3 December Market capitalisation at 3 December 4 bn No. of shares at year-end (ex own shares) m Previous years figures adjusted owing to IAS 8; see Changes in accounting policies and other adjustments. 2 In 202, our segment reporting was modified and no longer has a consolidation column. The figures for the previous year have been adjusted accordingly. Comparability with the years 2009 and 200 is thus limited. 3 Including amounts attributable to minority interests and policyholders. 4 This includes own shares earmarked for retirement. 9

20 Backup: Group Key financials IFRS capital position Equity m Equity ,88 Change Q4 Consolidated result 3,7 729 Changes Dividend,254 0 Unrealised gains/losses 2, Exchange rates, Share buy-backs, Other Equity ,304,045 Capitalisation % 9.0% 8.3% 7.5% 5.3% UNREALISED GAINS/LOSSES Fixed-interest securities Q 4: + 2,5m Q4: + 628m Non-fixed-interest securities Q 4: + 50m Q4: + 62m EXCHANGE RATES Positive FX contribution mainly driven by US$ Senior and other debt Subordinated debt Equity Debt leverage 2 (%) bn Other debt includes bank borrowings of Munich Re and other strategic debt. 2 Strategic debt (senior, subordinated and other debt) divided by total capital (strategic debt + equity). 20

21 Backup: Group Key financials Distributable earnings of parent company Safeguarding capital repatriation HGB earnings financing capital repatriation bn Reconciliation IFRS to HGB result in 204 bn Distributable earnings Dividend Share buyback HGB result 204 Others Distributable earnings IFRS result Difference between IFRS results of subsidiaries and their dividend payments to Munich Re AG Other accounting differences HGB result before equalisation reserves Tax reducing effect 2 of equalisation reserves Change of equalisation reserves HGB result 204 Average Average Solid cash at Group level HGB earnings financing capital repatriation Changes in restrictions on distribution. 2 Assuming a tax rate of 33% for Munich Re AG. 2

22 Backup: Group Key financials Distributable earnings of parent company Main drivers of HGB result Dividends from subsidiaries Equalisation reserve Max. requirement bn ILLUSTRATIVE Munich Re AG HGB earnings Majority of Group earnings, including investment disposal gains, reserve releases (partly absorbed by the equalisation reserve) HGB result before equalisation reserve e 206e 207e Strengthening Transition period Relief Strengthening of equalisation reserve adversely affects HGB results ~75% of maximum requirement achieved Lower replenishments, hardly impacting HGB results anymore Relief due to drop-out of extreme outliers HGB result Distributable earnings protected by strong reserves Capital structure less dependent on dividends 22

23 Backup: Group Rating Insurance financial strength ratings providing for strong competitive position A.M. Best Fitch Moody's Standard & Poor's A++ Berkshire 2 Berkshire/Gen Re AAA Aaa AAA A+ Allianz Everest Re Hannover Re Partner Re neg Renaissance Re Swiss Re Zurich AA+ AA AA Berkshire/Gen Re Allianz Allianz 2 Axa Berkshire 2 Everest Re Hannover Re 3 Lloyd s Partner Re neg Aa Aa2 Aa3 Berkshire/Gen Re Allianz Germany Berkshire 2 Allianz SE Axa Swiss Re Zurich AA+ AA AA Berkshire/Gen Re Allianz Berkshire 2 Hannover Re Renaissance Re Swiss Re Zurich pos A A AIG Generali Lloyd s pos SCOR Transatlantic Re XL Re neg A+ SCOR pos Swiss Re 3 pos Renaissance Re XL Re A AIG A Generali A A2 A3 Everest Re Partner Re Renaissance Re SCOR Transatlantic XL Re A+ Axa pos AIG Everest Re Lloyd s Partner Re neg SCOR pos Transatlantic Re XL Re A A AIG 2 B++ BBB+ Baa Generali BBB+ Generali neg Outlook or watch negative pos Outlook or watch positive As at 30 January Issuer rating of holding. 3 Based on public information. 23

24 Backup: Group Outstanding bonds Munich Re Group bonds Subordinated bonds Nominal volume Coupon rate p. a. Emission/ Issue Maturity First possible redemption date 900m Until %, thereafter variable May m Until %, thereafter variable May 2022,000m Until %, thereafter variable May 202,349m Until %, thereafter variable 2007 undated 2 June m Until %, thereafter variable June 208 Maturity pattern of Munich Re Group bonds m Maturity in years,480,374 Currency pattern of Munich Re Group bonds USD 8 % EUR ,000 TOTAL 4.6bn undated GBP 2 Bonds with a nominal value below 00m not considered. All specified bonds issued by Münchener Rückversicherungsgesellschaft AG, Munich. In addition, Munich Re has placed some natural catastrophe bonds. As at 3 December

25 Backup: Group Risk management Munich Re s enterprise risk management (ERM) safeguards investors interests and clients protection Clear limits defining framework for operational actions Risk identification, early warning Comprehensive overview with special focus on main issues Risk modelling Right balance between flexibility and stability Risk steering System of triggers, limits and measures in conjunction with responsible management actions Objectives Protect and generate sustainable shareholder value Ensure high degree of confidence in meeting claims Protect Munich Re s reputation Implementation Risk steering Pricing/underwriting Liability-driven investment strategy Performance measurement and management compensation Well-structured business and investment portfolio meeting all defined risk criteria Risk management is a key part of our corporate management 25

26 Backup: Group Risk management Group economic risk capital (ERC) Breakdown by risk category Economic risk capital Breakdown by risk category bn Risk category Group RI ERGO MH Div Prop.-casualty Life and health Market Credit Operational risk Simple sum Diversification Total ERC Development of Group ERC ERC Propertycasualty risk Life and health risk Market risk Credit risk Operational risk Diversification ERC bn Methodology Diversification benefits Risk management Probability ERC = 75% VaR 99.5% VaR 99.5% Loss Between different risk categories Between business segments, esp. ERGO and reinsurance Limiting losses from individual risks or accumulation exposure and liquidity risk that could endanger survival capability Credit (re)insurance included. 2 Default and migration risk. 26

27 Backup: Group Risk management Summary of economic capital disclosure Position as at 3 December 204 bn Capital with Solvency II calibration Additional 75% buffer Available financial resources (AFR) Economic risk capital Economic capital buffer Capital buffer under Solvency II calibration Economic capital buffer after share buy-back and dividends Capital buffer after share buy-back and dividends 2 under Solvency II calibration Solvency II capital based on VaR 99.5%, Munich Re internal risk model based on 75% of Solvency II capital. 2 After announced dividend payout of ~.3bn for 204 to be paid in April 205 and outstanding share buy-backs of ~ 0.3bn. 27

28 Backup: Group Risk management Property-casualty risks: Natural catastrophe exposure Munich Re (Group) Nat cat exposure (net of retrocession) bn ERC property-casualty bn AggVaR (return period 200 years) (pre-tax) Atlantic Hurricane 3 Storm Europe Earthquake Los Angeles Basic losses Major losses Diversification 4.6 Total 0.0 Main drivers for ERC increase Atlantic Hurricane Storm Europe Earthquake Los Angeles Top nat cat exposures Weaker euro Premium reduction spent for retrocession Munich Re benefits from strong diversification between natural catastrophe risks Exposures relate to the full year, e.g. 205 relates to the period from..205 to Natural catastrophes, man made (including terror and casualty accumulation) and major single losses. 28

29 Backup: Group Risk management Composition of available financial resources (AFR) and economic earnings AFR development in 204 AFR Capital management and other Economic earnings AFR Dividend.3 Share buy-back.4 Other +0. Economic effects.4 Equity 0.8 Positive FX effects Credit 0.2 Currency.4 Interest rate.0 Technical result and new business 2 Other 3 ~0 Economic earnings 3.2 bn and gains in equities partly compensated for by decreased interest rates.8 P-C Good technical result Life reinsurance Pleasing VNB: 0.5bn Tax relief from prior years largely offset by model enhancements Sound economic earnings supported by good technical result Hybrid capital replacement and other. 2 Includes unwinding of market value margin, p-c result, life VNB, experience variances, assumption changes. 3 Investment return on AFR, MCEV model changes and tax effects. 29

30 Backup: Group Risk management Strong increase in AFR in recent years despite capital repatriation AFR development bn Economic earnings Confidence 2 ~30 ~99 ~0 ~50 ~90 ~0 ~40 ~50 bn Munich Re market capitalisation bn AFR AFR restatements Capital Economic mgmt. and earnings other AFR Market cap Capital management 3 Share price variation Market cap Strong economic performance in difficult environment Economic earnings not matched by share-price performance Dividends, share buy-back, hybrid capital replacement and other. 2 Probability of achieving at least corresponding economic earnings. 3 Dividends, share buy-back. 30

31 Backup: Group Risk management Strong capitalisation allowing for attractive capital repatriation Munich Re actions >20% Excellent capitalisation Capital repatriation Increased risk-taking Holding excess capital to meet external constraints 00% 20% Comfortable capitalisation 80% 00% Adequate capitalisation Tolerate and monitor (Partial) suspension of capital repatriation <80% Below target capitalisation Munich Re solvency ratio (ESR) MRCM 20% 00% 80% Solvency I ratio Actual solvency ratio Risk transfer Scaling down of activities Raising of (hybrid) capital Solvency II 20% 75% 40% 00% MCR 3 Based on Munich Re capital model (MRCM): 75% of VaR 99.5%. 2 Based on 200-year event. 3 MCR = minimum capital requirement, typically between 25% and 45%; for groups, called "Group SCR floor". ESR Sensitivity Ratio as at Interest rate +00bps Interest rate 00bps Spread +00bps Equity markets +30% Equity markets 30% FX 0% Atlantic Hurricane 2 % %

32 Backup: Group Solvency II Munich Re well positioned for the introduction of Solvency II Impact on insurance industry New standards in risk-based supervision Uniform regulatory framework enhances comparability Risk management already effective and integrated in decision-making process Changing capital requirements Depending on company size, level of diversification and product specifics Capitalisation remains very strong No major changes expected in capital allocation and distribution Market dynamics Driver for consolidation, increasing reinsurance demand and product innovation Market-leader position in structuring complex tailor-made solutions launch of new life products in 203 Ready for regulatory requirements while providing clients with capital management solutions 32

33 Backup: Group Reserves Actual versus expected comparison Loss monitoring yields consistent picture across years Reinsurance group Comparison of incremental expected losses with actual reported losses m By exposure year By line of business 0,000 Actual reported loss 0,000 Actual reported loss, & prior Expected reported loss ,000 0,000,000 Fire Marine Risks other property Engineering Credit Motor General liability Personal accident Expected reported 00 Aviation loss 00,000 0,000 Legend: Green Actuals below expectation Solid line Actuals equal expectation Red Actuals above expectation Dotted line Actuals are 50% above/below expectations Actual losses consistently below actuarial expectations Very strong reserve position Reinsurance group losses as at Q4 204, not including parts of Risk Solutions, special liabilities and major losses (i.e. events of over 0m or US$ 5m for Munich Re's share). 33

34 Backup: Group Reserves Positive run-off result without weakening resilience against future volatility Ultimate losses (adjusted to exchange rates as at ) m Accident year (AY) Date Total , ,334 2, ,505 3,085, ,696 3,074 0,975 2, ,649 2,648 0,855 2,386 3, ,255 2,607 0,652 2,296 3,639 3, ,46 2,72 0,379 2,22 3,60 3,84 3, ,394,99 0,285 2,75 3,328 2,736 3,873 7, ,29,786 0,9,86 3,204 2,634 3,754 7,78 4, ,246,70 0,56,599 3,024 2,637 3,845 7,400 4,348 4, ,88,644 0,039,524 2,769 2,332 3,856 7,067 4,42 4,670 4,39 Ultimate reduction Prior-year releases of.2bn driven by reinsurance portfolio Favourable actual vs. expected comparison facilitates ultimate reductions for prior years Reserve position remains strong AY 204: Prudent initial assessment AY 203: Increase as immediate reaction to a few signs of adverse development (agriculture, some motor segments) to maintain level of prudency CY 204 runoff change CY 204 runoff change (%) , Ultimate reduction Reinsurance 2,78m ERGO 35m Basic and major losses. 2 Thereof,44m basic losses (including planned unwinding of discount in workers' compensation of 48m) and 34m major losses. 34

35 Backup: Group Risk trading Our ILS market platform complements our core business with alternative capacity and earnings potential Strategic scope of our ILS market activity Munich Re's view on ILS market benefits Multi-year price stability Diversification of capacity channels Collateralised capacity Complement of product range as regards earnings potential Profitable investment opportunities in insurance risks which fits Munich Re s portfolio Munich Re's ILS related competencies Dedicated ILS team covering the whole ILS value chain from analytics to structuring and placement Deployment of our actuarial and geoscientific expertise to offer ILS structuring and advisory services we act as neutral advisors Ability for opportunistic allocation of reinsurance capacity to ILS investments Integrated ILS approach Management of our own risks 2 Management of our clients risks 3 Propriety ILS investment portfolio Portfolio optimisation and balance sheet protection (e.g. selling of peak risk overhangs) Management of P&L-volatility through cat bonds (cycle management) Diversification of capacity Complement to traditional reinsurance ILS consulting and project management Structuring and placement support Risk fronting and transformation Growing investor in the ILS primary and secondary market "Buy and hold"-strategy Opportunistic allocation of reinsurance capacity to profitable ILS investment opportunities 35

36 Backup: Group Risk trading Outstanding cat bonds For clients For Munich Re s book Transaction Closing Maturity Volume Perils covered Lion I Re 04/204 04/207 90m Windstorm Europe VenTerra Re Ltd. 0/204 0/207 US$ 250m Tropical Cyclones Australia & Earthquake USA Bosphorus Re Ltd. 04/203 05/206 US$ 400m Earthquake Turkey Tar Heel Re Ltd. 04/203 05/206 US$ 500m Named storms (Tropical Cyclones) Lakeside Re III Ltd. 2/202 0/206 US$ 270m Earthquake North America Queen Street X Re Ltd. 03/205 06/208 US$ 00m Hurricane US & Cyclone Australia Queen Street IX Re Ltd. 02/204 06/207 US$ 00m Hurricane US & Cyclone Australia Queen City Re Ltd. 2/203 2/206 US$ 75m US named storms Queen Street VIII Re Ltd. 06/203 06/206 US$ 75m Hurricane US & Cyclone Australia Generation of fee income Active investor in the primary and secondary market Improvement of own risk/return profile and cost efficiency Utilisation of unexhausted risk budgets Offering one-stop shopping to clients as sponsors Queen Street VII Re Ltd. 0/202 03/206 US$ 75m Hurricane US & Windstorm Europe Munich Re's Risk Trading Unit is a recognised player in the ILS market 36

37 Backup: Group Risk trading Munich Re's maximum in-force nat cat protection Munich Re's maximum in-force nat cat protection as at July 205,200, Cat bonds Risk swaps Sidecars Indemnity retro 205 protection (total) m US windstorm northeast US windstorm southeast US earthquake EU windstorm EU other perils Japan earthquake Australia cyclone Slight reduction of retro limit reflecting increased AFR Broadening of territorial scope for indemnity retro protection to worldwide Establishment of strategic partnership with investors via sidecars Eden Re I + II Reduced spending for retro due to strong Munich Re capital base As at January 205. Protection before reinstatement premiums. Earthquake Europe, including Turkey. 37

38 Backup: Group Corporate responsibility Five action fields in one group-wide corporate responsibility programme Enabling framework Core activities Enabling framework Strategy and governance 2 Corporate responsibility in business 3 Environmental management system (EMS) 4 Corporate citizenship (CC) 5 Reporting and communication Corporate responsibility strategy Corporate responsibility governance Compliance to UN Global Compact Integration of corporate responsibility issues into (re-)insurance business (PSI 2 ) asset management (PRI 3 ) Global CO 2 neutrality Global EMS policy and management Donations Corporate volunteering Foundations Impact assessment Annual update of corporate responsibility portal Global corporate responsibility reporting Position in major SRI ratings UNGC = United Nations Global Compact (adopted by Munich Re in 2007). 2 PSI = UN Principles for Sustainable Insurance (signed by Munich Re in 202). 3 PRI = UN Principles for Responsible Investment (signed by Munich Re in 2006). 38

39 Backup: Group Corporate responsibility Broad external recognition for Munich Re s corporate responsibility performance Permanently listed since 200 Permanently listed since 200 The STOXX Global ESG Leaders Index represents leading companies from an ESG point of view Munich Re has been included in the Bronze Class 205 of the best and most sustainable companies by Robeco SAM Munich Re has constantly achieved high rating results (AAA) in the MSCI ESG rating Ranked st place in insurance, industry leader (as of January 205) Rated "Prime" in Corporate Responsibility Rating 204; Munich Re counts to the best-in-class insurers Munich Re is represented in the ESI Excellence Europe and ESI Excellence Global, which are based on ratings results from Vigeo 39

40 Backup: Group Corporate responsibility Munich Re s international cooperation A strong commitment towards corporate responsibility Examples UNEP FI (since 999) Munich Re has signed the climate declaration of the UNEP FI and is active member of the UNEP FI Climate Change Working Group. Principles for Responsible Investment (PRI) (since 2006) Munich Re has actively developed and signed the UN Principles for Responsible Investment (PRI) as first German company in April UN Global Compact (since 2007) Munich Re is member of the UN Global Compact since August The ten principles of Global Compact are a guidance for action in our business and set the basis for our Corporate Responsibility activities. Principles for Sustainable Insurance (PSI) (since 202) Involvement since 2007, first holding the chair in the UNEP FI PSI Team, now active as member of the PSI Board, as well as founding signatory since June 202. Aim: to anchor ESG criteria into core business along the value chain. 40

41 Backup: Group Key financials Financial results 204 Munich Re (Group) Q (Q4 204) NET RESULT 3,7m ( 729m) Pleasing result with several countervailing items tax refund, benign major losses, goodwill impairment, Australian disability SHAREHOLDERS' EQUITY 30.3bn (+3.6% vs ) Strong capital position increased dividend and continuation of share buy-back of bn until AGM 206 INVESTMENT RESULT RoI of 3.6% (3.4%) Solid return given low interest rates Economic ALM results in losses on derivatives while usual portfolio turnover leads to disposal gains Reinsurance ERGO Munich Health NET RESULT 2,893m ( 962m) NET RESULT 69m ( 247m) NET RESULT 09m ( 4m) 2, P-C LIFE P-C GERMANY REINSURANCE Combined ratio 92.7% (9.2%) Major-loss ratio 7.2% (6.%) Technical result of 280m below annual guidance sound underlying performance Combined ratio 95.3% (97.%) L/H GERMANY Decent net result INTERNATIONAL Combined ratio 97.3% (96.8%) Combined ratio 99.4% (99.%) PRIMARY INSURANCE Combined ratio 95.5% (03.0%) Unless otherwise indicated, all ERGO figures shown in this presentation refer to the business field ERGO according to the segment reporting of Munich Re (Group). 4

42 Backup: Group Financial highlights 204 Financial results 204 Net result m , Q Q Total 3,7 3,333 Reinsurance 2,893 2,775 Q Q2 Q3 Q4 Q Q2 Q3 Q ERGO Munich Health Technical result m Investment result m Other 2 m 3,645 3, ,245 8,002,670, , FY 203 FY 204 Q3 204 Q4 204 FY 203 FY 204 Q3 204 Q4 204 FY 203 FY 204 Q3 204 Q4 204 Segments do not add up to total amount; difference relates to the segment "asset management". 2 Other non-operating result, goodwill impairments, net finance costs, taxes. 42

43 Backup: Group Financial highlights 204 Reconciliation of operating to net result Reconciliation of operating to net result m Q 4 Q4 Operating result 4, Other non-operating result 496 Goodwill impairments 445 Net finance costs Taxes Net result 3,7 729 Other non-operating result m Tax rates % Q 4 Q4 Foreign exchange Restructuring charges Other Q 4 Q4 Group Reinsurance ERGO Munich Health Incl. 5m for the Baltic. 43

44 Backup: Reinsurance Munich Re The leading global reinsurer Rank Company Country Net reinsurance premiums written 203 (US$ m) Munich Re Germany 36,758 2 Swiss Re Switzerland 30,478 3 Hannover Re Germany 7,0 4 Berkshire Hathaway Re USA 4,368 5 SCOR SE France 2,57 6 Lloyd s UK,329 7 Reinsurance Group of America USA 8,254 8 China Re China 7,96 9 Partner Re Bermuda 5,397 0 Everest Re Bermuda 5,005 MS&AD Holdings Japan 3,656 2 Korean Re Korea 3,575 3 Transatlantic Holdings Inc. USA 3,248 4 NKSJ Holdings Japan 3,037 5 Mapfre Re Spain 2,958 6 Tokio Marine Japan 2,758 7 General Ins. Corp. of India India 2,2 8 Allied World Bermuda 2,2 9 Axis Bermuda 2,5 20 Maiden Re Bermuda 2,096 Total top 40 20,874 Source: Standard & Poor's Global Reinsurance Highlights, 204 Edition, page

45 Backup: Reinsurance Overview Reinsurance Gross written premiums bn Investments bn Net technical provisions bn Large losses (net) m,62,689,799 5,048 2,228 Thereof natural catastrophe losses m ,284 4,538,564 Combined ratio % Combined ratio Basic losses Premium split by region Africa, Middle East 3 Latin America 5 Asia and Australasia 7 TOTAL 26.8bn % North America 45 Europe 30 Previous years figures adjusted owing to IAS 8; see Changes in accounting policies and other adjustments. In 202, our segment reporting was modified and no longer has a consolidation column. The figures for the previous year have been adjusted accordingly. Comparability with the years 2009 and 200 is thus limited. 45

46 Backup: Reinsurance Property-casualty Reinsurance Property-casualty Key figures Net result m 2,372 2, Q Q2 Q3 Q4 Q Q2 Q3 Q Q 4 Q Technical result m Investment result m Other m 2,468 2,392,766, Q Q Q Q Q Q Other non-operating result, goodwill impairments, net finance costs, taxes. 46

47 Backup: Reinsurance Property-casualty Reinsurance Property-casualty Combined ratio Combined ratio % Basic losses Nat cat losses Man-made losses Expense ratio Q Combined ratio % Major losses 204 % Total Nat cat Man-made Q Avg. annual expectation ~2.0 ~8.5 ~ Q Q2 Q3 Q4 Q Q2 Q3 Q Reserve releases basic losses bn %-points 204 ~. 6.9 Q4 204 ~ Balance of releases (mainly fire, motor, liability and marine) and increases (agriculture and personal accident) Adjusted for commission effects: Q ~ 0.9bn/5.3%-pts; Q4 204: ~ 0.4bn/9.%-pts. 47

48 Backup: Reinsurance Property-casualty Competitive landscape in reinsurance Cyclical challenges Low interest rates + Low inflation + Benign claims experience Abundant excess capital in primary and reinsurance for quite some years now Higher retentions, also driven by global players centralising their buying programmes Availability of alternative capital 22 Direct impact Most notable in US nat cat XL business Short tail predictable capital deployment External models are available know-how without infrastructure Indirect impact Largely driven by scarcity of investment opportunities in the low-interestrate environment Accelerator for price competition among some traditional reinsurers Fight for market share Softening terms and conditions US$ bn Spill-over effects as less diversified players expand business to other areas and perils Renewals revealed continuing margin compressions due to abundant supply, especially in the nat cat area Source: AonBenfield. 48

49 Backup: Reinsurance Property-casualty January renewals Regional focus on Europe Total property-casualty book Remaining business 26 Business up for January renewals 2 % Regional allocation of renewable portfolio % 57 January renewals Europe Worldwide Rest-of-the-year renewals North America Asia/Pacific/ Africa TOTAL 7bn Latin America Nat cat shares of renewable portfolio % Nat cat Other perils January 89 April 4 59 Business up for July renewals 2 Business up for April renewals 5 July Total Gross premiums written. Economic view not fully comparable with IFRS figures. 2 Including Risk Solutions business (% of January renewal). 49

50 Backup: Reinsurance Property-casualty Consistent cycle management leads to top-line reduction Portfolio profitability remains sound January renewals 205 % m 9,445,246 8, ,552 Change in premium 9.5% Thereof price movement ~.3% Thereof change in exposure for our share 8.2% Total renewable from January Cancelled Renewed Decrease in renewable New business Estimated outcome Ongoing strict bottom-line orientation to maintain portfolio quality in a competitive market environment Price movement is calculated on a wing-to-wing basis (including cancelled and new business) and risk-adjusted (including claims inflation/loss trend and portfolio mix effects). 50

51 Backup: Reinsurance Property-casualty Renewal results Year-to-date price change % Nominal Adjusted for interest-rate changes January renewals. 5

52 Backup: Reinsurance Life Reinsurance life Well-diversified global portfolio 5% 40% Canada 60% United Kingdom 50% 0% 40% 50% 5% Continental Europe 45% Asia 40% ILLUSTRATIVE 60% USA 85% Mortality Morbidity Longevity Latin America 0% 90% South Africa 0% 90% 80% Australia 20% Geographical weight on North America High concentration on mortality risk Size of bubbles indicative of present value of future claims. 52

53 Backup: Reinsurance Life Reinsurance life Key figures Net result m Q Q2 Q3 Q4 Q Q2 Q3 Q Q 4 Q Technical result m Investment result m Other m Q Q Q Q Q Q Other non-operating result, goodwill impairments, net finance costs, taxes. 53

54 Reinsurance Life Strategic pillars Financially Motivated Reinsurance remains a key strategic pillar Financially Motivated Reinsurance m Gross premiums written % of total 3,638,998 4,536 4,09 3, Technical result and fee income 35 7 Fee income Technical result % of total VNB % of total Portfolio development Development of result contribution is a clear indicator of the overall success Premium development and VNB display that number and size of transactions vary Geographically well-diversified portfolio Largest contribution to 204 VNB from North America Expectations going forward Demand for solutions will remain high Solvency II will impact the product design Number, size and type of transactions are difficult to predict and will vary on an annual basis 54

55 Reinsurance Life Strategic pillars 2 Asia Sustained growth across all major markets Reinsurance Life Asia m Gross premiums written Technical result and fee income VNB % of total, Fee income Technical result % of total % of total Portfolio development Sustained growth path Premium reduction from planned termination of solvency relief deals Customised market and client strategies Growth supported by our state-of-the-art automated underwriting solution (MRAS ) Expectations going forward Traditional reinsurance mainly driven by CI 2 products Demand for solvency relief and financing solutions remains high Increase in competition and pressure on prices Overall growth path is expected to flatten Underwriting discipline remains high Munich Re Automation Solutions Ltd. 2 Critical illness. 55

56 Reinsurance Life Strategic pillars 3 Longevity Prudent development of portfolio Longevity m Gross premiums written % of total Liabilities by deals 2,788, Portfolio composition Portfolio comprises longevity swaps in the UK market 2 transactions concluded per annum No significant VNB expectation Steep increase in 204 reflects participation in the large AVIVA scheme Strategic proposition Uncertainty around future mortality trend requires prudent approach in pricing and valuation Longevity considered to be primarily a risk management tool to balance mortality portfolio and to stabilise earnings Expectations going forward Evolutionary development of portfolio within clearly defined risk tolerance Carefully investigate expansion into other markets High market potential but also significant pressure on prices 56

57 Reinsurance Life Strategic pillars 4 Financial Solutions / asset protection Efficient solutions in changing market environments Financial Solutions / asset protection IFRS contribution margin m Strategic proposition Legal, regulatory and structuring expertise combined with fully functional hedging platform Increasing contribution to Reinsurance Life value creation Product portfolio Solutions to Basel III needs Solutions to Solvency II needs Resolve accounting asymmetry ALM solutions for smaller players Develop modern savings products Regional focus In-force: So far dominated by Asia/Japan Current opportunities: mainly in Europe Exploration of opportunities in North America Part of non-technical-result, before platform investment expenses of ~ 50m. 57

58 Backup: Reinsurance Life New business profitability on a pure economic and regulatory basis RoRaC spread % IRR spread % Payback period 2 years 20% 20% 20 5% 5% 5 0% 0% 0 5% 5% 5 0% % Satisfactory new business profitability relative to economic risk capital (RoRaC spread) Low interest rates cause disproportionate increase in economic risk capital Equally good new business profitability relative to total investment in new business (IRR spread) Reduced share of FinMoRe business (usually of shorter duration) increases payback period of 204 new business Spread in addition to reference rate (weighted-average swap yield curves), after tax. 2 Number of years it takes to amortise the total investment in new business through future (undiscounted) shareholder cash flows. 58

59 Backup: Reinsurance Life MCEV result 204 Reinsurance Life MCEV Reinsurance Life m MCEV ,382 Opening adjustments 2 Adjusted MCEV ,384 Operating MCEV earnings 322 Economic variances 2 Other non-operating variance 205 Total MCEV earnings 237 MCEV before closing adjustments 9,62 Closing adjustments 847 MCEV ,469 Value of new business Expected return Experience variances Assumption changes Other operating variance Operating MCEV earnings

60 Backup: ERGO Overview ERGO, Gross written premiums bn Investments bn Net technical provisions bn Combined ratio p-c Germany % Combined ratio p-c International % Premium split by region % Distribution channels New business 203 % Rest of World 7 Germany 77 Banks/other 7 Tied agents 58 Turkey 2 Italy 2 Belgium 3 TOTAL 6.7bn Poland 6 Austria 3 Direct 5 Broker 20 Previous years figures adjusted owing to IAS 8; see Changes in accounting policies and other adjustments. 2 In 202, our segment reporting was modified and no longer has a consolidation column. The figures for the previous year have been adjusted accordingly. Comparability with the years 2009 and 200 is thus limited. 60

61 Backup: ERGO Life/Health Germany Key figures ERGO Life/Health Germany Key figures Net result m Q Q2 Q3 Q4 Q Q2 Q3 Q Q 4 Q Technical result m Investment result m Other m 383 3,785 4, Q Q Q Q Q Q Other non-operating result, goodwill impairments, net finance costs, taxes. 6

62 Backup: ERGO Life Germany New business Germany: Total premiums and new business incl. direct business (statutory premiums) Total premiums m Q Q Δ abs. Δ % Gross premiums written 4,005 4, Statutory premiums Total premiums 4,923 5, New business m Q Q New business,25, Regular premiums Single premiums 979, Annual premium equivalent (APE) Δ abs. Δ % Annual premium equivalent (APE = regular premiums +0% single premiums). 2 APE, only third-layer private provision and tied-agent organisations. 62

63 Backup: ERGO Life Germany New business: Shift to less interest-rate sensitive products Target portfolio New business APE Plan 206+ Target portfolio (incl. new life product) % Thereof new life product Traditional portfolio Shift new business to target portfolio Target portfolio Unit-linked insurance (with/without guarantee), term insurance, occupational disability insurance, death benefit, immediate annuities To represent >80% of new business from 206 New life products Share in non-subsidised private pensions : 67% in 204 Extension to corporate pensions since January 205 Traditional portfolio Guarantee in new business down to.25% since January 205 Demand expected to decline in low-interestrate environment e 3 rd layer in German pension system: non-subsidised private pensions 63

64 Backup: ERGO Life Germany Declined reinvestment yield still with low impact on average yield Key figures (German business) 4% Reinvestment yield Average yield Average yield vs. average guarantee Average guarantee 204 ~2.6% ~3.6% ~3.0% 203 ~2.7% ~3.6% ~3.2% 202 ~3.% ~3.8% ~3.2% ILLUSTRATIVE Average yield above average guarantee Long duration of fixed-income portfolio keeps average yield at relatively high level Duration gap below one year Non-interest-bearing additional interest reserve (ZZR) reduces average guarantee Life reform in Germany as a net positive limitation of unjustified policyholder participation in unrealised gains Disciplined lowering of bonus rates: 2.7% vs. market average 3.2% 3% 2% % avg. yield avg. guarantee German GAAP figures for ERGO Leben, Victoria Leben and ERGO Direkt Leben. 64

65 Backup: ERGO Life Germany while measures to support guarantees have financial impact in 204 ZZR reference rate Projection Guarantee level ILLUSTRATIVE % Reference rate Increase Stable Decrease ZZR Low interest rate reserve Local GAAP reserve against low interest rates Expected accumulated ZZR in 205: ~ 2.4bn Partly financed from unrealised gains positive impact on IFRS earnings when realised Effect on IFRS net income in 204: 36m Interest-rate hedging programme Started in 2005 Protection against reinvestment risk via receiver swaptions Continuous buying of additional slices depends on capital market and portfolio development Annual performance costs: ~0bps Current annual additional yield: ~22bps Effect on IFRS net income in 204: 88m Key financials 2 Free RfB Terminal bonus fund Unrealised gains Accumulated ZZR bn.6bn 3.9bn,54m bn.9bn 5.6bn 86m bn 2.0bn 8.bn 45m Based on interest-rate scenarios. 2 German GAAP figures for ERGO Leben, Victoria Leben and ERGO Direkt Leben. 65