Munich Re Group grows in all fields of business

Result for first half-year on course; “2000/2001 renewal season must produce marked increases in premiums”

MUNICH, September 21, 2000—These advances characterize the development of the Munich Re Group in the business year 2000 to date. In its interim report, the Board of Management states that, as things stand at present, the target of improving the Group result by 10% will be achieved and it will be possible to pay a dividend of at least the same level as last year. For the treaty renewals 2000/2001, Munich Re expects an increase in the prices for cover and services in reinsurance.

“For the business year 2000 as a whole, we currently expect premium growth of 9%. We are proceeding on the assumption that we will meet our target of improving the Group result by 10%,” writes Chairman of the Board of Management Dr. Hans-Jürgen Schinzler in the letter to shareholders.

In the first half-year 2000, the Group’s gross premiums showed a total rise of 15% compared with the same period last year, reaching €15.2bn. The result situation also improved overall, although the reinsurers’ claims costs continued to be high, despite considerably less impact from natural catastrophe losses than in the exceptional year 1999.

“In the period under review, Group investments rose to €156.1bn (compared with €150.9bn at 31.12.1999), the underwriting provisions to €127.6bn (€123.5bn) and shareholders’ equity to €19.8bn (€18.5bn),” said Head of Accounting, Dr. Elke König, in the presentation of the half-year figures.

Reinsurance: claims costs lower, but still high

Reinsurance recorded an increase of 18% in premium income, contributing €8.7bn to the Group’s strong premium growth. The highest increases were reported in life and health and in motor reinsurance; they were attributable both to new business and to the expansion of existing accounts. A substantial portion of the premium growth was ascribable to changes in exchange rates, as the reinsurers in the Group write around half their business in countries outside the euro zone; a small portion resulted from the assumption of Alte Leipziger Re’s portfolio. At 110.5%, the combined ratio in non-life reinsurance was lower than in the previous year (118.9%), but was still clearly too high; after elimination of claims costs for natural catastrophe losses, the combined ratio was almost unchanged at 108.1% (108.2%). The result* before amortization of goodwill amounted to €370m in life/health reinsurance and €525m in property-casualty reinsurance; the corresponding results for the full business year 1999 totaled €669m and €539m respectively.

For the year 2000 as a whole, Munich Re expects its reinsurance business to show premium growth of over 10% and a considerable year-on-year improvement in the result.

Renewal season: Munich Re sees premiums rising

Addressing the press, Board member Clement Booth described the current position on the reinsurance market as follows: “We have responded to the unsatisfactory situation in reinsurance business—which reached a nadir in 1999—with a range of activities aimed at restoring prices and conditions to a risk-commensurate level. In Europe reinsurers were at a disadvantage in that the December storms came too late to have a significant effect on renewal negotiations for the year 2000. But in the meantime, the signs are mounting that reinsurers will insist on substantial price increases. Munich Re, at any rate, will make every effort in this direction. The 2000/2001 renewal season must produce marked increases in premiums.”

Primary insurance: advances in non-German business and e-business

The Munich Re Group has also made significant progress in its primary insurance activities in the business year to date. In line with its objectives, ERGO has expanded the percentage of non-German business in its portfolio: among other things, it has acquired majority stakes in leading insurers in Poland and the three Baltic states, as well as in two Milan-based insurers, Bayerische Assicurazioni and Bayerische Vita, with its successful product and marketing structure in the dynamic Italian life insurance market. As a result of these acquisitions, ERGO’s premium income from outside Germany will almost double to over €2bn. All primary insurers in the Munich Re Group together wrote premium income of €7.2bn (+ 8%) in the first half-year 2000. The highest growth rate was achieved by property-casualty insurance, with over 10%; nearly half of this was attributable to Alte Leipziger Europa, consolidated in Munich Re’s figures for the first time. In the second half-year Munich Re will complete the acquisition of Mercur Assistance, whose increasingly sought-after services will further augment the range offered by the Munich Re Group.

Besides this, the ERGO Insurance Group has entered into a strategic partnership with Deutsche Telekom. In a joint venture, an open marketplace will be set up on the Internet through which ERGO will offer its insurance products and the financial services of MEAG MUNICH ERGO AssetManagement GmbH. In addition, the two partners will use their respective expertise to develop a broad spectrum of services and online applications on the Internet.

In the first half-year 2000 the primary insurers’ result before amortization of goodwill totalled €454m (full business year 1999: €948m). The life and health insurers contributed €250m to this, and the property-casualty insurers €204m; the corresponding results for the full business year 1999 were €432m and €516m respectively.

Asset management: investment profit of €5bn

Munich Re’s investments, most of which are managed by MEAG, rose from €150.9bn to €156.1bn, even though in the period under review the reinsurers had to make large claims payments for last December’s storms. The investment result totalled €5.0bn (full business year 1999: €9.5bn), with just under €1bn coming from gains on the disposal of investments, especially those realized by the life and health insurers. With a view to the growing market for private pension provision, MEAG has expanded its range of products with additional funds in the securities and property sector.

Outlook: result for 2000 on course

For the business year 2000 as a whole, the Group expects premium income to total around €30bn, or 9% more than last year. This will be helped by more favorable exchange rates, the appreciable upward trend in reinsurance prices since April, and the recent acquisitions. The result will naturally depend on claims experience and capital market developments between now and the end of the year. In primary insurance, Munich Re anticipates a fall in the loss ratio in both health and property-casualty business. As far as the investment result is concerned, the Group expects an improvement of around €900m on last year.

It is currently foreseeable that the result before amortization of goodwill will improve appreciably and resume the positive trend set by the good business year 1998. Consequently, earnings per share for the year 2000 should rise to over €7 (1999: €6.45, of which €1.70 derived from the reduction in the German corporation tax rate last year). This estimate does not take into account one-off income of about €300m in the second half-year resulting from the revaluation of deferred tax liabilities to reflect a further reduction in the corporation tax rate. Barring exceptional loss events or deleterious stock market developments, the Board of Management expects to be able to pay shareholders a dividend of at least the same level as last year (€0.95 per share).

The complete interim report can be found on Munich Re’s website at www.munichre.com.

Key figures for the first half-year 2000 are appended.

Munich Re Group 1st half-year 2000

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

Munich Reinsurance Company