Munich Re Group plans growth in markets with sustainable earnings potential

Reduction of share holdings will release capital for investment in core activities; Parent company proposes to double overall dividend amount and make it easier for shareholders to exercise their voting rights

MUNICH, May 30, 2000—The Munich Re Group expects its gross premium income for the current business year 2000 to grow by more than €1bn to €28.5bn. Chairman of the Board of Management, Dr. Hans-Jürgen Schinzler, anticipates a consolidated profit for the year of €1.2bn, or a good 10% more than in 1999.

The Group aims to increase its profit after tax by at least 10% in the coming years as well. It plans to strengthen its position as leading reinsurer (global market share: 10%) and to be number one or at least number two in all the important markets with sustainable earnings potential. In the Group’s primary insurance operations, ERGO is already number two in Germany and—through DKV and D.A.S.—number one in the European health and legal protection insurance markets. The aim is to expand ERGO into one of the most important groups in European personal lines business, also by means of acquisitions. The recently formed MEAG has the objective of becoming one of the best providers of asset management.

In 1999 the Munich Re Group was affected by above average losses in reinsurance, above all from natural catastrophes, which could only be partly compensated for by the further positive development of its primary insurance business. The result before tax, amortization of goodwill and minority interests in earnings fell to €1.82bn (previous year: €2.28bn). At the parent company’s AGM on 19th July, a dividend of €0.95 (previous year: 0.92bn) will be proposed; as a consequence of the stock split in January 1999, this means that the shareholders can look forward to a doubling of the overall amount distributed. In addition, the shareholders are to be asked to grant the company the authorization to buy back shares up to an amount of 10% of the share capital. A further item on the agenda proposes amending the company’s bylaws to make it easier for registered shareholders to exercise their voting rights, e.g. enabling them to giving proxies via the Internet or by fax.

Group Strategy Again Proves Its Worth

In the financial statements for 1999—prepared for the first time on the basis of IAS—consolidated premium income rose by a total of 7.5% to €27.4bn. The Group’s profit for the year amounted to over €1.1bn, despite an exceptional accumulation of natural catastrophes in areas with high insurance density, which in reinsurance made 1999 the worst year in Munich Re’s history. Thanks to the halving of tax expenses—because of a one-off factor—the consolidated profit for the year remained almost unaffected (previous year: €1.2bn). The adverse effect of the reinsurance result was also mitigated by the fact that the primary insurers in the Group continued to develop positively. Schinzler: “The difficult reinsurance year 1999 is further proof that our strategy of writing primary insurance as well as reinsurance is the right one. In future we expect additional impulses from our new subsidiary, MEAG, which is intended to further optimize our companies’ investment returns and also to expand business with private and institutional investors.”

Reinsurance

Double digit growth in health, life and personal accident business

The reinsurers in the Group, whose growth (of 8.6% to €15.4bn) was somewhat higher than that of the primary insurers, partly owing to changes in exchange rates, recorded an increase in premium income in all classes of business except engineering. This increase was most pronounced in health business (+ 62.8% to €578m) with strong growth in Asia, Latin America, and the Middle East. Munich Re enhanced its presence in the densely populated countries of China and India in particular, in some cases through long-term-oriented partnerships with local insurers. The second-highest rate of growth was achieved in life business, the largest area of operations in reinsurance, with an increase of 19.1% to nearly €3.2bn. In Germany, life business benefited not only from the special situation resulting from the tax discussion in 1999 but also from greater demand for reinsurance of annuity portfolios. In addition, especially abroad, the Group was able to support clients with complex and very specialized reinsurance solutions – in connection with mergers, for example, or for the coverage of private long-term care insurance. Life and health business recorded a total increase in premium income of 24.3% to €3.7bn.

In property-casualty business the premium of Munich Re’s reinsurers was up 4.4% to €11.6bn. The largest classes of business were fire with premium income of €2.9bn (+ 3.8%), motor with €2.6bn (+ 3.5%) and liability with €1.6bn (+ 8.1%). Personal accident registered a double-digit growth rate (+ 14% to €1.1bn), which was mainly due to a special factor abroad. The numerous natural catastrophes in the year under review were only medium-sized events but, in contrast to many previous years, affected countries where insurance density was greater. Such events, including the Sydney hailstorm, the earthquakes in Turkey, Taiwan, and Greece, and windstorms in North America, Japan, and northern and central Europe, cost the reinsurers in the Group more than €1.1bn (previous year: €400m). This meant that Munich Re had to pay more for natural catastrophe losses in 1999 than in any other year in its history. The combined ratio in non-life reinsurance business rose to 118.9% (previous year: 105.7%); the portion of this attributable to natural catastrophes—10.7 percentage points—was more than three times higher than the nineties’ average.

Objective in reinsurance is the consolidation and expansion of the Group’s market leadership

Schinzler sees the prospects for the Munich Re Group’s reinsurance business as positive: “From an inadequate price level, caused by excessive competition, there is a gradual upturn evident in many markets. The difficult reinsurance year 1999 really brought home to many providers around the world again the size of the risk and loss potential. We will draw advantage from this.”

Munich Re, risk carrier and service partner for 5,000 insurance companies in around 150 countries, aims to be number one or at least number two in all important markets. It already holds such positions in many markets throughout the world—in Italy, for example, or Scandinavia, the Netherlands, Canada, and Japan, as well as in its home market Germany.

Primary Insurance

Increasing premium income and profit

The primary insurers in the Group—the ERGO companies plus Karlsruher Versicherungsgruppe and Europäische Reiseversicherung—are the number two in the German market. Their premium totaled €13.5bn (+ 6.5%), or 49% of Group premium income, with 10% coming from non-German business, in which they achieved premium growth of 19.6%.

€9.8bn (+ 7.2%) or 73% of premium in the primary insurance group now derives from life and health insurance. These figures include the premium income of the three life insurers totaling €6.2bn (+ 9.8%)—making them number two in the German life insurance market—and the two health insurers with €3.6bn (+ 3.1%). ERGO’s health insurers, which have further strengthened their position in Germany and Europe, serve a total of 4.8 million clients in their home market and abroad. As the leading company, DKV is pushing ahead with the development of private health insurance in Scandinavia and promoting the start-up of such business in China.

Growth, counter to the market trend

In 1999 the property-casualty insurers in the Munich Re Group again succeeded in growing, counter to the market trend in Germany (- 0.4%): their premium income rose by 4.7% to €3.7bn, of which €0.7bn (previous year: €0.5bn) came from outside Germany. These figures include €0.7bn from legal protection insurance, in which D.A.S. and its subsidiaries are number one in German and Europe.

ERGO: step-by-step expansion in Europe

ERGO—which includes VICTORIA and Hamburg-Mannheimer as well as the above-mentioned companies DKV and D.A.S.—has 15 million insurance clients and earns around 90% of its premium income from German personal lines business. ERGO is expanding step by step in Europe. Thus in 1999 it acquired Compensa Life and a stake in Compensa P&C in Poland, and ELVIA Life and a health insurer in the Netherlands. ERGO is represented in 17 European markets besides Germany; its foreign subsidiaries contributed premium income of €1.2bn (previous year: €1.0 bn). In the first half-year 2000 Munich Re acquired a majority interest in Alte Leipziger Europa, which has majority share holdings in several insurers in the growth markets of central and eastern Europe.

Asset Management

Munich Re Group with €150bn in investments The Group’s investments increased to €150.9bn (+ 10.9%) in 1999. The basic portfolio structure has not changed; it continues to reflect the requirements of the underwriting business as regards a broad mix and spread.

The profit on investments rose by €1bn in 1999 to €9.5bn (+ 12.5%). Regular income increased to €8.5bn (previous year: €7.4bn), while capital gains remained practically unchanged at €1.7bn. Write downs on investments amounted to a mere €176 m (previous year: €199 m) and mainly involved real estate.

MEAG to become one of the best asset managers

Sustainable optimization of earnings continues to be the guiding principle of the Munich Re Group’s investment strategy. This was the reason behind Munich Re and ERGO setting up MEAG Munich ERGO AssetManagement GmbH as a joint subsidiary in 1999. Its brief is to become one of the best providers in the promising field of asset management, with a dual objective: on the one hand, the pooling of activities is to increase earnings by reducing costs through synergies and enhanced professionalism. On the other hand, MEAG intends to exploit potential in the area of third-party business, such as the investment of maturity benefits from life insurance policies. The 17,500 field-service staff in the ERGO Insurance Group can already offer their clients a choice of nine retail mutual funds; a further six are in the pipeline. MEAG also seeks to win institutional investors, such as the Munich Re Group’s treaty partners in reinsurance business.

Munich Re and Allianz: reduction of share holdings to further strengthen core activities

The planned reduction of the reciprocal stakes of Munich Re and Allianz to around 20% has begun. Since this move was announced on 4th May, both companies have lowered these holdings to just under 25%. The issue of a Munich Re bond exchangeable into Allianz shares, which was announced on 8th May and has been several times oversubscribed, has paved the way for the reduction proper. It is also planned that Munich Re will sell its minority holdings in Bayerische Versicherungsbank and Frankfurter Versicherung to Allianz in the coming year. The funds that will flow to Munich Re from these transactions will be invested in the further expansion of its core activities in reinsurance, primary insurance, and asset management.

Data on the Munich Re Group

Munich Re Group 1999

Key figures (IAS)
		1999 €	Previous year €	Change in %
Gross premiums written	bn	27.4	25.5	7.5
Result before tax	m	1,701	2,171	-21.6
Tax	m	383	791	-51.6
Minority interests in earnings	m	185	180	2.8
Profit for the year	m	1,133	1,200	-5.6
Investments	bn	150.9	136.1	10.9
Shareholders’ equity	bn	18.5	16.2	14.2
Net underwriting provisions	bn	123.5	110.8	11.4
Staff as at 31.12		33,245	32,280	3.0

Our registered shares
		1999 €	Previous year €	Change in %
Earnings per share		6.45	7.11*	-9.3
Dividend per share		0.95	0.92*	3.3
Amount distributed	m	168	81	106.4
Share price at 31.12		251.80	206.31*	22.0
Munich Re’s market capitalization at 31.12	bn	44.5	36.1	23.4
*Taking into account the stock split in January 1999

A. M. Best, Standard & Poor’s and Moody’s have each awarded Munich Re its top rating.

Munich Reinsurance Company