plainpicture/fStop/Ralf Hiemisch
Strong track record – and new ideas Munich Re equity story
January 2017
Agenda
Equity story
3
Backup
Group
21
Reinsurance
48
ERGO
62
Munich Health
75
Investments
78
Munich Re – January 2017
2
Equity story
Munich Re – Key metrics Key financial data1
€bn 2015
Shareholders’ equity Operating result Net result Debt leverage (%) RoE (%) RoRaC (%)
31.0 4.8 3.1 13.4 10.0 11.5
2014
30.3 4.0 3.2 13.6 11.3 13.2
Key share data1
2013
26.2 4.4 3.3 15.3 12.5 12.1
2015 Earnings per share (€) Dividend per share (€) Book value per share (€) Share price (€) Beta4 P/E P/B
Geographic breakdown – Premiums2 2015
€bn 26.3 (52%)
2.5 (5%)
Asia-Pacific
Total
4.7 (9%)
€50.4bn
Market capitalisation (€bn) Dividend yield (%)
Europe
Other
Avg. daily trading volume (’000)
18.7 8.25 188.4 184.6 0.6 9.9 1.0 30.8 4.5 813
2014
2013
18.3 7.75 178.2 165.8 0.8 9.1 0.9 28.7 4.7 700
18.5 7.25 146.2 160.2 1.0 8.7 1.1 28.7 4.5 667
Type of share
No-par-value registered shares
Votes
Each share entitles the holder to one vote
Dividend
Paid out once per year in cash
Trading venues
All German stock exchanges plus Xetra
Shares o/s
166,843,961
North America
16.7 (33%)
Compound annual growth rate1: 2005 – 2015
1 End of year. 2 Gross written premiums. 3 Per share. 4 Beta 250 relative to DAX (daily, raw).
Premiums2
Earnings3
Dividend3
Book value3
2.8%
4.8%
10.3%
6.1%
Key company data Sector Country
Insurance Germany
Euro Accounting principles IFRS Currency
Rating Stable AA rating from all agencies since 2006
Securities codes Reuters Bloomberg
MUVGn MUV2
WKN ISIN
843002 DE0008430026 Munich Re – January 2017
3
Equity story
Munich Re covers the full insurance value chain Segmental breakdown – Gross written premium 2015 Reinsurance Property-casualty
€bn
ERGO Life and Health Germany
17.7 (35%)
9.4 (19%)
Reinsurance – Solid profitability P-C: Efficiently running the traditional book while continuously exploring new products/markets, strong reserving position Life: Producing steady results above market average
Reinsurance Life
10.5 (21%)
TOTAL
€50.4bn
ERGO P-C Germany
3.2 (6%)
ERGO –Strengthening the groundwork while paving the way for future set-up L/H Germany: Continuously improving risk/return profile P-C Germany: Attractive business mix International: Profitability in p-c affected by local challenges, promoting capital-light products in life
Munich Health
5.6 (11%)
ERGO International
3.9 (8%)
Munich Health – Consolidation Intensified attention on forward-looking strategies and increased future-oriented initiatives
Realising synergies and economies of scope by combining primary and reinsurance under one roof Munich Re – January 2017
4
Equity story
Global environment becoming increasingly challenging while changing risks provide opportunities
Cumulative uncertainties
Macroeconomic/political risks Low interest rates High capital-market volatility Sovereign debt crisis Exit of EU countries Refugees Military conflicts Changing/evolving risks Digitalisation/Cyber Reputation Epidemics Climate change
GOAL
Dampening volatility
GOAL
Providing solutions Growth
2015
2020
Proactive risk management builds up resilience in an unpredictable and unstable environment – Exploring attractive mid to long-term growth opportunities to overcome soft reinsurance markets Munich Re – January 2017
5
Equity story
Macroeconomic/political risks – Proactively limiting the economic impact Structural risks – Coping with negative government bond yields1 Maturity 2 3 4 5 6 7 8 9 10 15 20 30
Yield ≤ 0% Yield > 0%
Switzerland Japan Germany Netherlands Finland France Austria Sweden Belgium Spain Italy Norway UK US
Event-driven risks – Increasing capital-market volatility, e.g. after Brexit vote
Impact Ongoing decline of reinvestment yield putting pressure on running yield Munich Re strategy Adhere to strict ALM
Strong FX moves
Impact
Equity markets
Volatile investment and FX result
Financial sector Precious metals
Munich Re strategy Diversification
Munich Re investment portfolio Well diversified – Group-wide trigger and limit system
Hedging of macroeconomic risks – affecting both, assets and liabilities
Reasonable credit exposure – with high quality of counterparties
Munich Re well-positioned to prevail through challenging times 1 Source: Bloomberg, UBS. July 2016.
Munich Re – January 2017
6
Equity story
Strong balance sheet mitigates the impact of low interest rates and competitive p-c reinsurance markets Low interest rates
Ongoing disposal gains – Munich Re (Group)
Attrition of running yield – Munich Re (Group) 3.6
3.5 3.2
3.1
3.0
Result impact1 approx.
–€0.7bn %
2012
2013
2014
2015
H1 2016
Increasing normalised combined ratio P-C reinsurance 100.3 98.8
94.0
98.7
94.1
2012
2013
2014
2015
1.2
1.1
1.0
0.8 0.5
2012
2013
2014
2015
H1 2016
Ongoing reserve releases
Result impact1 approx.
–€0.7bn %
Compensating for attrition without aggressive harvesting
H1 2016
Mitigating margin decline without weakening reserve strength
7.2 5.8
5.6
5.3 4.4
2012
2013
2014
2015
H1 2016
Strong balance sheet continues to translate into sustainable earnings 1 Impact on IFRS net result from 2012 until H1 2016.
Munich Re – January 2017
7
Equity story
Under-promise/over-deliver – Strong balance sheet continues to support sound earnings Delivering on promised net result Guidance
2.4
€bn Outlook 2016
Actual
3.2
3.0
3.3
3.0
3.2
2.5
2.4
3.1
2.5–3.0
0.7 2010
2011
Return on investment
Gross premiums written
Significantly above
~3%
€47–49bn
€2.3bn
2.0
1
Net result
Combined ratio 2012
2013
2014
2015
Reinsurance Munich Health
~95% ~99%
ERGO Germany ERGO International
~98% ~99%
Munich Re’s balance sheet Sound capitalisation according to all metrics
High level of unrealised investment gains2
Rock-solid reserving position
€36.4bn
Low goodwill in relation to shareholders’ equity3
9%
Munich Re once again delivering strong results, despite persistent challenges of declining reinsurance margins and low interest rates 1 Assuming normal nat cat claims based on 8.5% budget, net result would have exceeded guidance.
2 As at 30.9.2016.
3 As at 31.12.2015.
Munich Re – January 2017
8
Equity story
Sound capital position according to all metrics facilitates financial flexibility, including high shareholder distribution Attractive shareholder participation1 Sound capitalisation according to all metrics
€bn 2.7
2.4
Share buy-back
175%
Medium
2.3 1.6
1.5 1.1
Low
High
Quality of capital
140% Suboptimal
220%
Internal model
Above target
Dividend
Medium
AA
A
AAA
Rating agencies
Low
2010
2011
2012
2013
2014
11.2%
7.8%
5.4%
6.0%
9.6%
2015
High
HGB flexibility
Cash yield2
7.7%
Munich Re continues to provide high cash returns to shareholders – Further increase of dividend per share to €8.25 in 2016 1 Cash-flow view.
2 Total payout (dividend and buy-back) divided by average market capitalisation.
Munich Re – January 2017
9
Equity story
Return on equity 16 14 12 10 8
%
Risk/return profile1
Value generation
Convincing track record in value generation
Total shareholder return (p.a.) 18
12
Peer 4
6
6
4
3
2
0
0
–3
2005
2007
2009
2011
11-year average ROE: ~11.0% – Clearly exceeds average cost of capital: ~8%
Peer 3
15
9
Average cost of capital
2013
2015
%
Peer 5
Peer 2 Index
Peer 6 Peer 1 Volatility of total shareholder return (p.a.)
20
25
30
35
40
45
Annualised TSR: ~10.6% – Outperforming major peers and insurance index
Balanced business portfolio paves the way for sustainable profitability 1 Annualised total shareholder return defined as price performance plus dividend yield over the period from 1.1.2005 until 31.12.2016; 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”).
Munich Re – January 2017
10
Equity story
New
Munich Re is well positioned to manage the current market environment and drive industry innovation ILLUSTRATIVE
Solutions for emerging risks
Emerging markets
Markets
Risk Solutions
New products/ risk-related services1
Risk Solutions Continuous growth in expertise-driven specialty and niche business
Tailor-made solutions
Established
Underinsurance in developed markets2
Established
Innovation Active development of business opportunities, tapping new profit pools
Incremental innovations3
Traditional p-c reinsurance
Products
Traditional p-c reinsurance Munich Re in excellent position to successfully manage the soft cycle
TOTAL4
€13bn
TOTAL4
€5bn
TOTAL4,5
~€500m
New
Efficiently running the traditional book while continuously exploring new products/markets 1 e.g. Cyber insurance, performance guarantees for renewable energies. 2 e.g. Liability risks of oil platforms. 3 e.g. Satellite life-time insurance. 4 Gross premium written as at 31.12.2015. 5 Munich Re (Group); indirect effects on traditional business not included.
Munich Re – January 2017
11
Equity story
Traditional p-c reinsurance – Portfolio profitability protected by disciplined underwriting and consistent cycle management Profitable core business Preferential client access
~50% private placements1 ~2/3 direct client business
Leading risk know-how
~30% tailor-made solutions1 Comprehensive service offering
Superior diversification
As regards perils, forms of cover, regions, short/long-tail
%
Renewals – Nominal price changes TOTAL2
€13bn
2.4 1.0 0.2 –0.1 –0.9
Stringent cycle management
Strong u/w discipline and conservatism in reserving Deliberate portfolio shifts to less commoditised business
–1.6 –2.4 2010
2011
2012
2013
2014
2015
2016
Traditional portfolio relatively resilient to pressure on rates – Diversification provides flexibility in managing the portfolio 1 Related to premium volume in 2016. . 2 Gross premium written as at 31.12.2015.
Munich Re – January 2017
12
Equity story
Emerging markets – Underinsurance provides business opportunities Young and growing population1
bn
Insurance penetration still low2 Insurance penetration (%)
6
%
Insured share of nat cat losses3 North America
43 38
Australia 4
28
Europe South America
2
10 8
Asia 2015 Asia/Oceania Europe
2030 Africa North America
2050 Latin America
Demographic changes – Rise of affluent middle class and significant population growth …
Africa 0
%
5
Gross national income per capita
… drive economic growth – Higher wealth and better education further increases insurance spending/penetration
Emerging markets often highly exposed to nat cat risks – Higher risk awareness reduces underinsurance
Future growth driven by demographic/economic changes – Munich Re is tapping the potential with know-how, client proximity and a strong capital position 1 Source: United Nations, Department of Economic and Social Affairs, Population Division (2015). 3 Source: Munich Re, Geo Risks Research, NatCatSERVICE. 1980–2014.
2 Source: Munich Re, Economic Research. Non-life, 2014.
Munich Re – January 2017
13
Equity story
Risk Solutions – Highly valuable business segment with strong top and bottom-line contribution Gross earned premiums1
€bn Combined ratio1
Share in % of total p-c book
3.4
3.4
€5bn 3.8
4.0
94.1 89.6
4.2
€bn
Share in % of total p-c book
TOTAL
90.8
2.9
21
% Underwriting result1 42
90.3
32
88.6
26
25 0.7
87.9 24
22
23
24
25
0.5
28
2009 2010 2011 2012 2013 2014 2015
83.8
0.3
0.5
0.5
0.3 0.2
2009 2010 2011 2012 2013 2014 2015
2009 2010 2011 2012 2013 2014 2015
Business largely detached from reinsurance cycle 1 Management view, not comparable with IFRS reporting.
Munich Re – January 2017
14
Equity story
Innovation – Major innovation trends impact the industry, creating opportunities and challenges for (re)insurers Major innovation trends – Impact on industry Digitalisation and new technologies
Improved data availability and sophisticated analysis methods
Changing customer expectations and behaviour1
New exposures and risks (e.g. cyber) Bundled products Corporate partnering Cost reduction
Improved risk selection/pricing Competitive advantage for data owners
Efficient customer acquisition and improved retention
Reduced risks/loss frequency Risk of disruption/ disintermediation
Danger of antiselection
New capabilities required to compete with current set-up
Munich Re – Active development of business opportunities
Innovation-related business already sizeable
Risk carrier for established and new (digital) companies Provider of integrated risk services
TOTAL2
~€500m
Automation support for cedants Tailored solutions and white-label products
Munich Re fosters innovation throughout the global organisation – Tapping new profit pools by expanding market boundaries with innovative products and services 1 Consumer and commercials. 2 Gross premium written as at 31.12.2015. Munich Re (Group); indirect effects on traditional business not included.
Munich Re – January 2017
9
Equity story
Reinsurance – Portfolio mix on the move Property-casualty – GWP1 Risk Solutions
CAGR
18.0
+15%
5.0
16.6 1.9
Traditional book
%
14.7
2008
–2%
13.0
Life – GWP1
% CAGR
Strategic initiatives
Traditional business model
2015
5.3
+57%
5.1
+2%
2008
10.5 4.7
5.8 2015
As a leading Tier-1 reinsurer, successfully managing cyclical and structural market changes
Strong existing book complemented with well-established initiatives and innovative capacity
Active cycle and portfolio management in traditional business …
Traditional mortality risk remains core …
… while continuously expanding attractive growth areas, e.g. Risk Solutions, as well as tailor-made and innovative products
… while strategic initiatives have become a substantial part of the portfolio, mainly driven by organic growth in Asia and financially motivated reinsurance business
Traditional business remains an important earnings generator, while investment in new products/solutions safeguards future profitability 1 Gross premiums written.
Munich Re – January 2017
16
Equity story
Reinsurance Life – Core business supplemented by well-established initiatives Higher
Risk-return profile
Traditional business model
ILLUSTRATIVE
FinMoRe
Asia
Morbidity
Return
Longevity
Asset protection
Portfolio dominated by mortality risk – focus on improving riskassessment process for insurer and reinsurer Growing exposure to morbidity risk – need to secure alignment of interest of policyholders, insurers and reinsurers Confidence that US old-issue-age mortality and Australian disability are fixed
Initiative portfolio Mortality
1 FinMoRe
2 Asia
3 Longevity
4 Asset protection
Lower
Compared to competitors
Higher
Risk
Overweight
Underweight
Neutral
Unique Lower
Mortality risk dominates, while contribution from initiatives is increasing Munich Re – January 2017
17
Equity story
ERGO – Strategy Programme strengthens sustainable competitiveness ERGO Strategy Programme – Ambition Strengthen role of leading primary insurer with strong domestic market
Fit … Establish leaner and more effective structures
Digital …
Successful!
Lay the foundations for transforming the business model
Convince all stakeholders
€m
ERGO: Increasing IFRS net profit
Offer convincing solutions in all customer segments
~450
~500+
130 Investments impacting net profit by ~€1bn until 2020
Annual cost savings from 2020 ~€540m/~€280m (gross/net)
2016
2017
2020
…
2021
ERGO's profitability will cover its cost of capital from 2020 and create incremental added value thereafter Munich Re – January 2017
18
Equity story
Munich Health – Business measures show first signs of stabilisation Organisation
Markets/clients
Innovation/digitalisation
Enhanced organisational structures implemented
Growth initiatives for South-East Asia and Middle East
Digital health target picture
Improvements in underwriting and client management
Repositioning in the US
Development and implementation of innovative and digital health solutions
Enhanced customer experience across Munich Health
Embedding of business analytics into processes, decisions and value proposition
Further specified strategic focus Intensified Group-wide business synergies
Strengthened value proposition for reinsurance clients
Agenda 2016 – Intensified attention on forward-looking strategies and increased future-oriented initiatives Munich Re – January 2017
19
Equity story
Strong track record – and new ideas Strong 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 Munich Re – January 2017
20
Backup
Munich Re – January 2017
21
Backup: Group – Key financials
Key financials – Our aim is sustained profitable growth Munich Re Gross written premiums Operating result Taxes on income Consolidated result Thereof attributable to minority interests Investments Return on equity Equity Off-balance-sheet reserves1 Net technical provisions Staff at 31 December Our shares Earnings per share Dividend per share Amount distributed Share price at 31 December Market capitalisation at 31 December2 No. of shares at year-end (ex own shares) 1 Including amounts attributable to minority interests and policyholders.
2 This includes own shares earmarked for retirement.
2015
2014
2013
2012
2011
€bn €m €m €m €m €bn % €bn €bn €bn
50.4 4,819 –476 3,122 15 215.1 10.0 31.0 16.0 198.5 43,554
48.8 4,028 312 3,171 18 218.9 11.3 30.3 17.4 198.4 43,316
51.1 4,398 –108 3,333 29 202.2 12.5 26.2 8.7 187.7 44,665
52.0 5,349 –878 3,204 16 213.8 12.5 27.4 11.0 186.1 45,437
49.5 1,180 552 712 10 201.7 3.3 23.3 5.7 181.2 47,206
€ € €m € €bn m
18.73 8.25 1,335 184.55 30.8 166.8
18.31 7.75 1,298 165.75 28.7 172.9
18.45 7.25 1,254 160.15 28.7 179.3
17.94 7.00 1,255 136.00 24.4 179.3
3.94 6.25 1,110 94.78 17.0 177.6
Munich Re – January 2017
22
Backup: Group – Key financials
Sound capital position according to all metrics Solvency II
% 277
242
2013
1
2014
302
2013
2015
7.7
2014
2015
Strong shareholders’ equity despite capital repatriation
8%
9.1
9.8
2014
2015
AA
13.6
13.4% A
Tier 3
2%
2013
€bn
Strengthened equalisation provision largely protects HGB earnings
€40.7bn
1 According to internal model.
2013
15.3
TOTAL
High-quality eligible own funds
German GAAP/ Rating
31.0
26.2
Tier 2
90%
€bn 30.3
Solvency II ratio well above target capitalisation Tier 1
IFRS
2014
2015
Debt leverage2 among the lowest in the insurance industry
2 Strategic debt (senior, subordinated and other debt) divided by total capital (strategic debt + equity).
3 S&P capital.
AAA Rating agencies
Substantial capital buffer3 supports AA rating Munich Re – January 2017
23
Backup: Group – Key financials
IFRS capital position €m
Equity Equity 31.12.2015 Consolidated result
30,966 2,095
Change Q3
684
Changes Dividend Unrealised gains/losses Exchange rates Share buy-backs Other Equity 30.9.2016
–1,329 2,315 –565 –711 –416 32,355
– 304 –177 –318 –149 343
Unrealised gains/losses
Exchange rates
Fixed-interest securities 9M: +€2,353m Q3: +€84m
FX effect mainly driven by US$
Capitalisation
€bn
0.3
0.4
0.4
0.4
0.4
4.4
4.4
4.3
4.3
4.2
13.6
13.4
12.8
12.6
12.4
30.3
31.0
31.8
32.0
32.4
2014
2015
Q1 2016
Q2 2016
Q3 2016
Debt leverage1 (%)
Non-fixed-interest securities Q3: +€222m 9M: –€31m
Senior and other debt2 Subordinated debt Equity
1 Strategic debt (senior, subordinated and other debt) divided by total capital (strategic debt + equity).
2 Other debt includes Munich Re bank borrowings and other strategic debt.
Munich Re – January 2017
24
Backup: Group – German GAAP (HGB)
Distributable earnings of parent company – Main drivers HGB result financing capital repatriation
2.9
2.6
–1.3
€bn 0.2
HGB result – Main drivers 2015 vs. 2014 1.3
3.3
€bn
–0.9 0.2
2.6
Taxes
HGB result 2015
2.0 –1.0
Distributable earnings 31.12.2014
Dividend
Share buy-back
HGB result 2015
Average 2009–2015 –1.2
–0.7
1.9
Others 1
Distributable earnings 31.12.2015
HGB result 2014
Underwriting result
Underwriting result Benign large losses Higher reserve releases Reduced allocation to equalisation provision
Investment result
Investment result Higher regular income (mainly dividends) Write-down of ERGO: –€1.1bn
Underwriting result protected by strong reserves, replenishment largely completed – Distributable earnings sensitive to adverse capital market development 1 Changes in restrictions on distribution.
Munich Re – January 2017
25
Backup: Group – German GAAP (HGB)
Solid German GAAP (HGB) earnings Reconciliation of IFRS (Group) to HGB result (MR AG)
€bn
Equalisation provision
€bn
Maximum requirement
3.1
IFRS result
0.3
Difference between IFRS results of subsidiaries and their dividend payments to MR AG
–0.4
Other accounting differences
9.1 –0.4
Change of equalisation provision net of taxes
ILLUSTRATIVE
9.8
7.7 2.6
6.6
HGB result
2012
2013
2014
2015
2016e
2017e
2012–2015: Strengthening of reserve – ~85% of max. requirement now achieved 2016e: No significant replenishment 2017e: Relief due to drop-out of extreme outliers
Underwriting result protected by strong reserves, replenishment largely completed – Distributable earnings sensitive to adverse capital market development Munich Re – January 2017
26
Backup: Group – Economic key financials
Strong Solvency II capital generation supports financial flexibility SII capital generation 2015 (including change in SCR)
€bn
EOF/SCR change
5.3
normalised
2.6
–
–
2.6
Economic earnings
Change in capital requirements
Other1
SII capital generation
0.3
–0.3
5.3
3.0 –2.3 0.3
Capital repatriation
SII capital generation (net)
SII capital generation exceeds capital repatriation 1 Changes in other own funds items (–€0.1bn) and changes in consolidation group included in capital measures (–€0.2bn).
Munich Re – January 2017
27
Backup: Group – Economic key financials
Change in eligible own funds Change in SII eligible own funds
€bn
EOF 31.12.2014
38.2
Opening adjustments
–0.3
Retrospective adjustments of own funds not qualifying as changes of reporting period
EOF 01.01.2015
38.0
Opening balance for determination of overall change in reporting period
Economic earnings
5.3
Economic performance of the period resulting in OF change
Capital measures
–2.5
Dividend: €1.3bn Share buy-back: €1.0bn and other1
Change in other own funds items
–0.1
Development of non-available own funds items and own funds for FCIIF and IORP2
EOF 31.12.2015
40.7
Closing balance subject to SII Day-1 reporting
1 Changes in consolidation group. 2 Own funds for other financial sectors (financial, credit institutions and investment firms and institutions for occupational retirement provision).
Munich Re – January 2017
28
Backup: Group – Economic key financials
Profit and loss attribution provides consistent reporting of economic performance across business units RI Life
ERGO RI Life and health P-C Germany
ERGO P-C Germany
ERGO Intl.
Munich Health
Munich Re (Group)
1.5
1.7
–0.3
0.1
0.0
0.0
3.0
Expected return existing business
0.2
0.2
0.2
0.0
0.1
0.0
0.7
New business value
0.9
0.2
0.3
0.3
0.0
0.0
1.7
Operating variances existing business
0.2
1.3
–0.7
–0.2
0.0
0.0
0.6
Other operating variances
0.1
0.0
0.0
0.0
0.0
0.0
0.0
Economic effects
0.3
0.7
0.8
0.0
0.1
0.0
2.0
Other non-operating earnings
0.1
–0.1
0.5
–0.1
–0.1
0.0
0.3
Total economic earnings
1.8
2.3
1.1
0.1
0.1
0.0
5.3
Munich Re (Group) 2015 €bn Operating economic earnings
Capital measures
–2.5
Changes in other own funds items
–0.1 2.7
Change in SII EOF
Positive economic earnings contribution from all business units – But with differing underlying drivers Munich Re – January 2017
29
Backup: Group – Risk management
Proactive risk management builds up resilience in an unpredictable and unstable environment Current environment Political risks
Risk management measures stabilise SII ratio Diversified investment portfolio
High volatility
Group-wide trigger system for ALM risks
Dampening of volatility
Hedging strategy Limits for sovereigns
Economic risks
Insurance risks
High quality of counterparties Forward-looking scenario analysis
Limits and budgets Management of accumulations Strict underwriting guidelines Retrocession for peak nat cat scenarios
No major movement in SCR reflects unchanged risk profile of Munich Re (Group) Munich Re – January 2017
30
Backup: Group – Risk management
Breakdown of Solvency Capital Requirement (SCR) by risk category according to Munich Re internal model
1
Solvency capital requirement – Breakdown by risk category and segment Risk category
Group 2 2015 2014
Delta
RI 2015
ERGO 2015
€bn MH 2015
P-C: Increase driven by reinsurance – FX and growth in special risks
Prop.-Casualty
5.7
6.3
0.6
6.2
0.4
Life/Health
4.8
4.7
–0.1
3.8
1.3
Market
8.8
8.7
–0.1
5.8
4.3
Credit
4.6
4.2
–0.5
2.7
1.6
Operational risk
1.0
1.0
–
0.8
0.4
0.1
Other3
0.2
0.1
–0.1
Simple sum
25.1
25.1
–
19.3
8.0
0.4
Diversification
–9.1
–9.3
–0.1
–7.4
–2.1
Tax
–2.2
–2.3
–0.2
–2.0
–0.7
Total SCR
13.8
13.5
–0.3
9.9
5.2
1 Munich Re uses a full internal model, which was approved by BaFin and core college in 2015. e.g. institutions for occupational retirement provisions.
2 After reconciliation into SII metric.
Remarks
0.3 Credit: De-risking of investment portfolio and full implementation of SII methodology
0.0 Diversification benefit: 37% –0.1 Loss-absorbing capacity of deferred taxes 0.3
3 Capital requirements for other financial sectors,
Munich Re – January 2017
31
Backup: Group – Risk management
Risk-bearing capacity allows high exposure for peak scenarios, but only at adequate price levels Nat cat exposure (net of retrocession) – AggVaR1 4
3
€bn
SCR property-casualty
%
Top 5 exposures 1 2 3 4 5
2014
Major losses
2015
3.6
Basic losses 2
6.3
5.7
Atlantic Hurricane Storm Europe Earthquake Los Angeles Earthquake Japan Cyclone Australia 2
5.7 –3.0
Diversification Total 1
6.3
Appreciation of major currencies (USD, AUD, GBP) against EUR, impact on basic/major losses 1 2 3 4 5
Top nat cat exposures
Exposure increase in special risks (e.g. weather risks) impacts basic losses
High diversification between natural catastrophe risks, both by region and perils, adequately reflected in internal model 1 Munich Re (Group). Return period 200 years, pre-tax.
2 Natural catastrophes, man-made (including terrorism and casualty accumulation) and major single losses.
Munich Re – January 2017
32
Backup: Group – Risk management
Further improvement of Solvency II ratio SII ratio
€bn 277% 2014
302% 1
2015
38.2 40.7
Remarks Fully consolidated approach appropriately covers risk situation of Munich Re (Group) No application of optional transitionals, LTG or other measures in solo entities and at Group level by end of 2015 … … which remains an option for selected life entities subject to assessment of further development of interest rates
13.8 13.5
2014
2015
Eligible own funds
2014
2015
Solvency capital requirement
Capitalisation in the SII regime remains very comfortable 1 Ratio after dividend of ~€1.3bn for 2015 to be paid in April 2016: 292%.
Munich Re – January 2017
33
Backup: Group – Risk management
Further improvement of Solvency II ratio Munich Re actions
SII ratio
%
>220% Above target capitalisation Capital repatriation Increased risk-taking Holding excess capital to meet external constraints 175% – 220% Target capitalisation Optimum level of capitalisation 140% – 175% Below target capitalisation Tolerate (management decision) or If necessary, take management action (e.g. risk transfer, scaling-down of activities; raising of hybrid capital)
