Investors` Day on Life Reinsurance

Transcription

Munich Re Group
Investors' Day
on Life Reinsurance
7 October 2008
Agenda
9.00
Life reinsurance – Essential segment
Torsten Jeworrek
for sustainable Group profits
Ensuring sustainable profitability
and growth
Wolfgang Strassl
2
13
Q&A
10.15 Break
10.30
15 min.
Excellence in core business:
North American best practice
Mary Forrest – Michael DeKoning
28
Growth opportunities in Asia:
Positioned for leadership
Rudolf Lenhard – Daniel Cossette
39
Superior value-based
management
Hermann Pohlchristoph – Erwin Schnauder
51
Conclusion
Wolfgang Strassl
63
12.30 Informal get-together
2
Life reinsurance – Essential segment for sustainable Group profits
Investors' Day on life reinsurance
Third event to present Munich Re strategy in business segments
Munich Re Group
p
Gross premiums written 2007, before consolidation
Today
Primary insurance
€16.5bn2
9
9
Total €38.8bn3
1
2
3
P-C reinsurance
€14.2bn
After consolidation: €37.3bn3
Incl. €0.3bn health reinsurance not allocated to international health.
Excl. internation health.
Consolidation: €1.5bn.
Munich Re
e Group – Investors'' Day on Life Reinsu
urance – 7 Octoberr 2008
Life reinsurance
€6.0bn
International Health
€2.1bn1
3
Life reinsurance
Core segment for sustainable Group profits
Key takeaways
Munich Re successfully combines life and non-life reinsurance
to increase value for shareholders
Life reinsurance is a consistently profitable and low volatile
core element that contributes to Munich Re Group's target:
Most profitable among the top 5 reinsurers
Life reinsurance target
by 2011 confirmed
15% VANB average growth
p.a. to >€440m
Steer life reinsurance
Mid-term
operations in line with
expectation by 2015
VANB >€600m
Group profitability target
At least 15% RoRaC
Munich Re
Munich Re is second-largest player in global life reinsurance
4
Estimated market volume development
Life reinsurance market with solid growth prospects
Global reinsurance market1
€bn
CAGR 5.6%
50
50
193
160
CAGR 5.8%
260
37
37
30
30
210
156
130
2006
2010e
2015e
2006
2010e
Regional split
Life
P-C
2006
2015 ∆ €bn CAGR
Europe
11
16
5
~5%
5%
North America
14
21
7
~4%
Asia, Australasia
1
2015e
4
11
7
~9%
Latin America
0.5
1
0.5
~11%
Af i
Africa,
Near/Middle
N /Middl E
Eastt
05
0.5
1
05
0.5
~11%
11%
Total
30
50
20
5.8%
Updated in 06/2008.
Munich Re
€b
€bn
Thereof life reinsurance
5
Gross premiums written. Source: Munich Re Economic Research.
Life reinsurance
Munich Re life reinsurance – Essential pillar with increased importance
Gross premiums written life reinsurance
Munich Re segmental split reinsurance2
€bn
%
CAGR 5.1%
30.4
100
100
19.4
70
80
CAGR 9.1%
4.8
2.7
61
6.1
60
6.0
1998
2001
Munich Re
2004
2007
Global market
1
9.1%
9
1% life reinsurance CAGR,
CAGR
mainly based on organic growth
1
2
30
20
Source: Munich Re economic research. 2007: Estimate.
Share in reinsurance gross premiums written.
1998
P-C
Life
2007
Life reinsurance share
increased by 50%
Munich Re
27.1
25 0
25.0
6
Split of Munich Re consolidated result in reinsurance
Strong and sustainable contribution by life and health business
Segmental split in reinsurance1
%
100
100
100
100
74
79
78
21
22
2006
2007
Life reinsurance
contribution to overall
reinsurance result
sustainably
exceeds 20%
70
26
2004
2005
2
P-C
L&H
1 Before
2 P-C
consolidation. Health business includes only medical reinsurance; little impact.
negatively influenced by high NatCat claims (Katrina, Rita, Wilma).
Munich Re
30
7
Life reinsurance supplements cycle management
Stable development of life result due to low correlation with P
P-C
C reinsurance
Life low volatile business compared to P-C …
… evolves from unique characteristics
Relative change in result1
%
Long-term business
600
400
High independencies of risks within
homogeneous portfolios
P-C
2
L&H
200
0
Excellent data availability and
statistics increase statistical certainty
-200
-400
-600
1999 2000 2001 2002 2003 2004 2005 2006 2007
1 Based
2
P-C
C reinsurance only in
Correlation to P
very limited number of event
scenarios
on result before impairment losses of goodwill, finance costs and taxes on income.
Health business includes only medical reinsurance; little impact.
Munich Re
Profits locked in by business in force
persist on average in excess of
10 years
800
8
Risk capital requirements
Diversification effects significantly reduce capital requirements
Economic risk capital (ERC) in reinsurance segment1
%
100
12
21
88
Sum of
standalone
ERC
Increased diversification mainly
driven by mortality, morbidity
and longevity risks
Those are largely
uncorrelated to market
and P-C risk
79
Excl. life
Incl. life
Diversification effect
Diversified ERC
Increased importance due to
acknowledgement of diversification
effects also in external models
models, e
e.g.
g QIS4
model (Solvency II) and rating models
Inclusion of life reinsurance almost doubles diversification effect
1 Before
diversification with primary insurance.
Munich Re
100
9
Impact of Solvency II
Munich Re in optimal position to cover new business opportunities
Munich Re's solvency consulting unit
Increased capital requirements
Long-term products
Consideration of guarantees and options
Consulting
Act as sparring partner
Hi
Higher
h risk
i k capital
it l requirements
i
t ffor aggressive
i
asset allocation
Available financial resources may rise, but with
increased volatility
Interactive Solvency II seminars
Interaction
Quantitative modelling of overall risk situation
and increased transparency
Product adaptations due to risk capital intensity
Investigate impact of current
developments with clients
Modelling
Illustrate quantitative impacts of
reinsurance to clients
Stochastic modelling approach for
biometric risks
Risk capital calculation: Standard
model vs. Munich Re capital model
Final standard risk model not yet decided
But: Insurers expect
p
g
general advice on
Solvency II from reinsurers right now
Client view: Munich Re offers best
Solvency II information in market1
Munich Re well positioned to meet clients needs and generate new business
1
Source: 2008 Flaspöhler Reports Europe Non-Life and Life.
Munich Re
Possible impact of Solvency II on life insurance
10
Financial strength and client perception
Munich Re best positioned to benefit under current market developments
Munich Re's commitment
Excellent
E cellent risk management – Providing
Pro iding
maximum capacity with superior security
Focus on client and underwriting excellence
Q
Quality
lit reinsurer
i
– Besides
B id capacity
it and
d
security providing service, expertise and
innovative solutions
Munich Re's position and competitive edge confirmed by independent institutions
S&P1
"Risk-based capital adequacy as measured by
S&P’s model showed a redundancy at the AAA
l
level
l att year-end
d 2007"
"We consider Munich Re's strong balance sheet to
be a competitive advantage"
Flaspöhler survey 20082
"Best reinsurer overall non-life and life"
"Preferred reinsurer" in
5 outt off 7 professional
f
i
l ffactors
t
7 out of 8 operating attributes
18 out of 21 lines of business
Unique combination of capacity, security, quality and brand
1
2
Rating report on Munich Re, published on 8 September 2008.
2008 Flaspöhler Reports Europe Non-Life and Life.
Munich Re
Recent market developments
Significant capital market stress red
reduces
ces
capital base in financial services industry
Insurance industry faces restricted refinancing
options in capital market
Increased uncertainty likely to result in lower
tolerance to risk and weak security
Rising demand for highly rated reinsurance
capacity
11
Outlook
Expansion of life reinsurance is in line with Changing Gear programme
Leverage strong market position in core segment and growth in adjacent segments
Asset
protection
Biometric
risks
Distribution
power
Risk
know-how
Traditional
reinsurance
Leverage the
core business
Risk
capacity
Financially motivated life reinsurance
Life reinsurance market provides
room for further profitable growth
Strong market position in traditional
life reinsurance core business
Munich Re life reinsurance business
model enables further expansion
Low-volatile profitability
supplements non-life business
Global Life Strategy facilitates expansion of life reinsurance
Munich Re
Forward integration on
value chain
12
Life reinsurance – Essential segment for
sustainable Group profits
Torsten Jeworrek
and growth
Wolfgang Strassl
M
Mary
Forrest
F
t – Michael
Mi h l D
DeKoning
K i
Superior value-based management
Conclusion
Wolfgang Strassl
Munich Re
Agenda
13
Ensuring sustainable profitability and growth
Competitive position
Munich Re – One of the two leading global life reinsurers
Principles
Global market share1
%
23
Swiss Re
11
7
SCOR
GenRe
5
Transamerica
5
Scottish Re
Focus on underwriting profits instead of
relying on capital market gains
4
2
XL Re
Other
Strict profit orientation
8
Hannover Re
Prudent actuarial assumptions
1
13
Top 2 players dominate the global
life reinsurance market
1
2
Source: Munich Re Economic Research. Based on net earned premiums 2007.
Source: 2008 Flaspöhler Reports Europe Non-Life and Life.
Client view
Superior risk capabilities confirmed by
independent Flaspöhler client survey:
Best overall life reinsurer2
Munich Re
RGA
Partner Re
Focus on organic growth
21
Munich Re
14
Premium growth and profitability
Solid success story founded on organic growth
Gross premiums written
EV earnings (as % of EV beginning of year)
€bn
%
6.4
MCEV
TEV
6.0
16.6
16.2
54
5.4
14 4
14.4
13.5
13.3
11.8
11.3
CAGR basic book ~5%
9.0
4.5
4.8
5.2
5.3
5.4
2003
2004
2005
2006
2007
2003
8.9
2004
2005
2006
Operating EV earnings
Business with planned recaptures 1
Basic book of business
9.8
2007
Total EV earnings
EV = Embedded value
TEV = Traditional embedded value
MCEV = Market-consistent embedded value
Basic book of business with stable growth and consistent profitability
1
Planned recaptures of three large-volume accounts in Canada and Germany. All other treaties allocated to basic book of business.
to Munich Re's current MCEV methodology. Based on 2004 published CFO Forum EEV principles.
Munich Re
6.1
6.5
15
2 According
Markets
Leading position in most regions
Distribution of gross premiums written
Market share
Excellent geographic diversification
Significant market shares, but …
%
%
21
Global market
53
Canada
50
Germanyy
UK
28
UK
USA
14
Asia
Canada
Rest of Europe
10
Other
USA
TOTAL 2007
€6.0bn
9
… room for further expansion
in some markets
Munich Re
Germany
16
Munich Re market split
North America with significant contribution
Contribution to VANB by region
Continental Europe, Asia1
19%
UK, Australia, Africa
20%
USA
27%
TOTAL 2007
€277m
1
Incl. rest of world.
Munich Re
Canada
34%
17
Risk portfolio
Emphasis on mortality and morbidity risks
Products
Ordinary
life1
Group
life1
Living
benefits2
Annuity
Mortality
Biometric
risks
Biometric risk
portfolio3
72%
Focus on mortality
and morbidity
Morbidity
24%
Longevity
4%
Lapse
risk
life and group life include all types of mortality covers such as term life and permanent life.
benefits business comprises critical illness, disability income and long term care.
3 Share of net premium 2007.
2 Living
Longevity
under
d review
i
Selective
S
l ti approach
h
to lapse and
investment risk
Investment
risks
1 Ordinary
Munich Re risk appetite
Full cover
Selective cover
Munich Re
Inherent
risks
18
Sustainable profitability
Prudent risk management pays off
Consistently positive experience variances and operating assumption changes
€m
MCEV
Application of prudent actuarial
assumptions in pricing
88
69
66
Adequate
assumptions for valuation
11
2003
2004
2005
2006
Continuous
optimisation of in-force business
2007
Solid risk management and underwriting
1 According
to Munich Re's current MCEV methodology. Based on 2004 published CFO Forum EEV principles.
Munich Re
124
TEV
Focus on risks
we understand
1
19
Strategic ambition
Extension of profitable growth
Strategic ambition
Quantum growth in EV earnings by doubling our VANB until 2011
€m
CAGR >8%
CAGR 15%
>600
>440
228
2006
2011
2015
In accordance with
Munich Re Group RoRaC-target of 15%
Munich Re
VANB development
20
Global Life Strategy
Achieve ambition through key strategies and enabling initiative
Strategic ambition
Our key strategies
Enabling
initiative
1
2
3
plus
Continuously
improve core
business
Grow nontraditional
business
Expand
business
model
Evaluate nonorganic growth
opportunities
Total
contribution
Put in place
superior
financial model
Additional VANB by 2011
€120m
€40m
€25m
€35m
€220m
> €440m
VANB 2011
Additional VANB by 2015
€
€95m
€
€65m
€
€5m
€
€10m
€
€175m
>€600m
VANB 2015
Munich Re
€228m
VANB 2006
21
Strategy 1: Continuously improve core business
Best in class capabilities in biometric analysis and underwriting
Best-in-class
Excellence in biometric analysis
Share best-in-class actuarial
and biometric know-how
Continuous improvements in price differentiation
Illustrative
Price
High
Continuous enhancement of
risk segmentation and modelling
Underwriting
g expertise
Cutting edge clinical expertise in
medical underwriting
Low level of
segmentation
High level of segmentation
Low
Low
High
Risk
State-of-the-art underwriting
manual and analysis tools
Avoid adverse selection
Efficient control systems
y
for
internal and client reviews
C
Competitive
titi pricing
i i ffor good
d risks
i k
Munich Re
Leverage large market-specific data base
22
Strategy 2: Grow non-traditional business
Asset protection for variable annuity business
Demand for financial solutions
Munich Re's approach to asset protection
I t
Internal
l steering
t
i
off "asset
"
t protection"
t ti "
Variable annuities and unitlinked policies growth
Product
d
development
l
t
Increased risk awareness in
respect of options and
guarantees
Advice in
developing
manageable
products
Raise demand for protection
off life
lif insurer's
i
' liabilities
li biliti
Naturally extending to variety
of ALM issues, where holistic
cover is sought for overall
balance sheet
Risk
t
transfer
f
Transfer of
investment/
insurance
risks
Active risk
management/
g
hedging
Risk
controlling
t lli
Platform for
effective
management
Value proposition for client
Munich Re approach
Close cooperation with cedant at early stage
Combined insurance and financial markets expertise to structure
and price risks resulting from these products
Sound platform for management of inherent complexity resulting
f
from
hybrid
h b id iinsurance and
d fi
financial
i l risks
i k
Munich Re
Shift in lines and policy
23
Strategy 3: Expand business model
Munich Re contributes to underwriting and processing
Provide underwriting and processing services
Benefits for Munich Re
Extend consulting service range
Become indispensable partner for
clients
Improved underwriting quality and
efficiency
ff
Life insurance
value chain
Product
development
Distribution
Underwriting
Processing/
Admin
Claims
handling
Risk
taking
Support alternative channels
Benefits for Munich Re
Cooperate with banks or brokers as direct
distribution channel for insurance products
Create reinsurance opportunities in
mature and emerging markets
Close involvement in product development
Substitute fully integrated primary
insurer in parts of value chain
Risk-taking support through reinsurance
Munich Re
Processing and admin tools combined with
Munich Re's underwriting expertise
24
Outlook
VANB growth ambition achievable
Munich Re VANB development
€m
CAGR >8%
CAGR 15%
>600
348
277
286
2007
actual
2008
forecast
228
2006
actual
2009
plan
2010
plan
2011
target
...
2015
expectation
VANB growth ambition: Well on track
According to Munich Re's current MCEV methodology. Based on 2004 published CFO Forum EEV principles.
Munich Re
444
399
25
Following presentations will provide more detail
Strategic ambition
Enabling initiative
1
2
3
plus
Continuously
i
improve
core
business
Grow nont diti
traditional
l
business
Expand
business
b
i
model
Evaluate nonorganic
i growth
th
opportunities
Put in place
superior financial
model
Presentations detail initiatives in exemplary markets and introduce steering methodology
Growth opportunities
pp
in Asia:
Superior
p
value-based
management
Munich Re
Key strategies
26
Key takeaways
Ambition: Significantly extend profitability growth achieving >€440m VANB in 2011.
Expected VANB 2015: >€600m
Clear strategy to strengthen the core and expand business model
Leverage our
excellence in
y
biometric analysis
and underwriting
Grow our
proportion in nont diti
traditional
lb
business
i
Extend our
positioning on the
lif risk
life
i k value
l chain
h i
Opportunistically
evaluate nong
g
growth
organic
opportunities
Munich Re
Strong track record in life reinsurance is based
upon superior risk management and excellent underwriting
27
Life reinsurance – essential segment for
Torsten Jeworrek
and growth
Wolfgang Strassl
M
Mary
F
Forrestt – Michael
Mi h l DeKoning
D K i
Conclusion
Wolfgang Strassl
Munich Re
Agenda
28
Excellence in core business: North American best practice
North America
The largest and most developed markets
Global life reinsurance market
Munich Re portfolio
Distribution of life gross premiums written
VANB by region
%
%
Canada
7%
UK, Australia,
Africa
20%
Canada
34%
UK
USA
50%
10%
Continental
Europe, Asia1
19%
Germany
6%
Source: Munich Re Economic Research
1
USA
27%
Incl. rest of world.
Growth opportunity in price competitive and sophisticated market place
Munich Re
Other
27%
29
North American business philosophy
Business model
Client model
Operations model
Large case capacity with
unsurpassed financial strength
Client focus
Availability and ability to utilise
data better than competitors
Profit-maximising
Profit
maximising and
risk-management mindset
Superior knowledge of
customer
Employ industry leaders in all
key roles
Nimble and opportunistic approach to the market
Allocate resources and capital
to opportunities with greatest
profit potential
Retrench from markets where
risk-reward balance is not
appropriate
Strive to anticipate client needs
Superior local capital
management
Regulatory development
knowledge
Deal structuring skills
Munich Re
Translate core principles into entrepreneurial approach
30
Munich Re Canada: Market share and premium development
Munich Re has become the unrivalled market leader in Canada
Munich Re Canada market share
55
44
47
48
2000
2001
2002
2003
63
63
61
2004
2005
2006
2,453
2,371
Decline in
premium and
market share
driven by
scheduled
termination of one
short-term nontraditional
business treaty
53
2007
Munich Re Canada premium development
CAN$ m
2,330
1,664
763
1,073
906
1 295
1,295
1,306
,
1,156
645
Non-traditional
733
Traditional
140
134
19
1,947
772
933
931
1,035
1,147
1,215
1,302
744
2000
2001
2002
2003
2004
2005
2006
2007
Munich Re
% of gross premiums
premi ms written
ritten
31
New business
Munich Re No.
No 5 with upside potential
2007 US recurring new business assumed
M k share
Market
h
RGA
161
23.6%
Transamerica
144
21.1%
Swiss Re
126
18.6%
Generali USA
73
10.8%
Munich Re
60
8.8%
Canada Life
26
3.8%
SCOR
24
3 6%
3.6%
Scottish Re
22
3.3%
General Re
14
2.1%
Wilton Re
7
1.1%
Optimum Re
7
1.0%
Hannover Re
6
0.8%
Ace-Tempest
5
0.7%
XL Re
4
0.6%
%
683
100.0%
Total
High potential for future development
Source: Munich Re reinsurance survey conducted on behalf of the Society of Actuaries.
Top 5
control 85%
of market
Large gap
between
Munich Re and
next competitor
Munich Re
US$ bn
b
32
Market development and market share
Stable market share due to underwriting discipline
Peak of US competitive cycle
62%
Munich Re market
share
59%
62%
60%
56%
52%
47%
42%
40%
6%
6%
1997
1998
9%
1999
12%
2000
11%
2001
7%
2002
10%
2003
13%
12%
11%
2004
2005
2006
37%
High cession rates in
peak primarily
related
l t d to
t irrational
i ti
l
pricing by reinsurers
9%
Munich Re market
share remains within
10% range
2007
Munich Re with stable position over years –
In a market that has seen rising and falling stars
Munich Re
51%
Cession rate
33
Changed market conditions and scope of business
Significant improvements support Munich Re to benefit from market changes
Scottish Re
Swiss Re
RoE
Cession rates
ING even paid for US
life re business transfer
due to underpricing
Improved pricing for
traditional life business
in the US
Market profitability
increased from mid
single to double digit
Declined due
to more
rational pricing
Munich Re well prepared for future challenges
Re-priced
p
every
y treaty
y in 2005/06
Enhanced management information systems and mortality analysis capabilities
Restructured sales and pricing functions resulting in greater pricing discipline and risk management
Profit margin improved by 50% since 2000
Munich Re
High competition in pricing results in market action and changed market conditions
34
Large case programme
Ability to provide large capacity differentiates Munich Re from competitors
Superpool programme: Innovation example for North America
Purpose
Detail
Maximise benefits of Munich Re's increased
per life capacity
Control access to larger retention for
retention management purposes
Capacity
Tiered based on volume ceded
Unencumbered by retrocession constraints
Programme well on track in Canada and US
Large case programme supports growth and profit ambitions
Munich Re
Clients get access to increasing levels
of Munich Re's US$50m capacity per life
Create sustainable competitive advantage for
selected clients
35
Best practice North America
Leveraging strengths across North America
Early example – Life underwriting
Introduction of one
uniform improved
underwriting manual
Usage of one
uniform improved
underwriting system
More opportunities to be looked at in next 6–9 months
Administration and claims processes and tools
Operational and financial information systems
Human resources
Implemented a North
American underwriting
best practices leader
Munich Re
Moved to a
US$50m per life
retention
36
Scope of business
Leveraging best practices in all lines of business
Not a "one-trick pony"
Long term care (LTC)
incl. LifePlans
Critical illness
Individual disability income
Group life and Group LTC
Individual life is core, but leading positions in all lines of business
Diversification
of VANB
Options for
future growth
Enhanced solution-orientation
through cross-line offerings
Munich Re
Individual
life
37
Key takeaways
Extremely strong franchise in Canada
Canada,
with significant potential for profitable growth in the US
Growth will only come with strict adherence
g and underwriting
g
to disciplined pricing
Our goal: to be nimble, entrepreneurial and
business-minded with unparalleled customer focus
Munich Re
We will leverage resources and best practices across North America
38
Torsten Jeworrek
and growth
Wolfgang Strassl
M
Mary
Forrest
F
t – Michael
Mi h l D
DeKoning
K i
Conclusion
Wolfgang Strassl
Munich Re
Agenda
39
Growth opportunities in Asia: Positioned for leadership
Life reinsurance markets in Asia
Strong growth prospects in Asian markets
Status quo – China and Korea dominate
Relative attractiveness of Asian markets
N
New
ceded
d d premiums
i
2008 US$ m
SEA
India
Japan
Greater
China
Growth
rates
Greater China
SEA
South
Korea
South Korea
Japan
Total US$454m
Reinsurance volume
SEA = South-East Asia
Source: NMG Life and Health Reinsurance Programme 2008
SEA = South-East Asia
Drivers for future growth
By far largest
population
l ti with
ith strong
t
economic growth
Significant growth
i underlying
in
d l i
insurance market
High demand for
reinsurers'
i
' service,
i
capital and expertise
EXPECTED TOTAL NEW CESSION MARKET GROWTH
10–15% p.a.
Increasing
g weight
g
of Takaful model
gekürzt
Munich Re
I di
India
40
Future growth prospects
Munich Re initiatives support above-market
above market growth expectation
Ambitious growth expectations
Gross premiums written, €m
CAGR 19%
256
223
180
MID-TERM GROWTH
EXPECTATION
>15% p.a.
p
2006
2007
2008e
2009e
2010e
Clear focus on profitability
Additional growth from health and
non-traditional business expected
Munich Re
151
144
41
Munich Re in Asia
Strong presence basis for significant share in future growth
Local presence in every important market
Strong and increasing market share
% of estimated total new reinsurance premiums in 2008
Multinational reinsurer (70%)
●
●
● Tokyo
● Shanghai
●
●Hong Taipei
Kong
●
Mumbai
12%
Swiss Re
8%
Gen Re
Hannover
Re
Scor
● Singapore
■
14%
Munich Re
Transamerica
Kuala Lumpur
19%
RGA
Seoul
7%
3%
2%
Other
5%
D
Domestic
i reinsurer
i
(30%)
15%
Korea Re
China Re
Other
7%
8%
Source: NMG Life and Health Reinsurance Programme - 2008
Regional head office in Singapore
established
t bli h d iin 2007 – Multiple
M lti l llocations
ti
provide
id
flexibility and advanced marketability
Asia excludes Australia, New Zealand, Middle East and Pakistan.
Market dominated by top 3 global life
reinsurers;
i
d
domestic
ti reinsurers
i
fface more
intensified competition
Munich Re
Beijing
42
Business, relationship and operational management quality index
Leading perception in business quality and operational management
Market penetration
Operational management quality index (diff. from avg.)
1.0
100
0.9
80
0.8
60
07
0.7
40
Munich Re
0.5
0
0.4
-20
20
0.3
-40
0.2
-60
0.1
-80
0
-100
550
600
650
700
Munich Re
20
750
Business quality index – All respondents
Favourable terms of trade based on
superior business quality index
-100 -80
-60
-40
-20
0
20
40
60
80
100
Relationship management quality index (diff. from avg.) –
All respondents
Superior retention supported by
high level of customer satisfaction
Munich Re
0.6
43
Key growth initiatives
Participate in Asian growth ensured by selected initiatives
Munich Re
Re's
s key growth initiatives
Financially motivated
reinsurance
Process consulting
Takaful
Infrastructure processes and data management system improved continuously
Infrastructure,
Significant demand for consulting service across Asia
Munich Re
Product development
44
Product development
Client needs
Munich Re benefits
Example: Living benefits
Leveraging exclusive partners
Fast-growing segment
LifePlans – LTC expertise
Underwriting, claims, actuarial and product
design expertise needed
Best Doctors – Exclusive joint venture
agreement across Asia
Mostly long term care (LTC), disability
income and critical illness (second
generation)
ti )
Leveraging global network
Expertise in Germany – Direct and
reinsurance level
Expertise from advanced Anglo-Saxon
markets
Munich Re
Remains key business strategy
45
Financially motivated reinsurance
Large potential for future growth
Environmental factors
New business growth is capital intensive
New solvency regime
Subprime and credit crisis
High volatility in equity market
Unfavourable environment to raise equity or debt
capital
Key success factors
Munich Re's position
Ability to structure and leverage local
g
knowledge
Structuring expertise in Germany and
g p
regional
g
head office
Singapore
Availability of capital and collateral
Strong local knowledge with offices in all key
markets
Financial strength
Availability of collateral
Excellent balance sheet as leading global
reinsurer
Strict focus on genuine risk transfer transactions
Munich Re
Joint venture partners with limited capital
46
Process consulting
Allfinanz brings international best practice to Asia
Combining the strength of two leading companies in their respective area of expertise
SOFTWARE
UNDERWRITING
UNDERWRITING
SOLUTIONS
RULES
We expect Asia to follow trend of UK and Australia
More compelling proposal for distribution and customers
Clear advantages: Superior data management, lower costs, UW consistency and improved profitability
Allfinanz will be significant contributor to Munich Re's long-term success in Asia
Munich Re
AUTOMATED
47
Munich Re Retakaful
Participating in significant Takaful growth
14
80
12
70
10
60
50
8
40
6
30
4
20
Life insurance penetration
Saudi Arabia
Kuwa
ait
Qata
ar
Oma
an
UAE
Pakista
an
Indonesia
Thailand
d
0
Malaysia
0
K
UK
10
World
2
GDP per capita (US$)
Strong growth potential in countries with low life
insurance penetration, high GDP per capita and
large and young Muslim populations
Increasing acceptance of Takaful, Islamic Banking and
"Bancatakaful"
Munich Re´s International Retakaful Hub
Composite Retakaful license by Central Bank of
Malaysia in 2007
First foreign Retakaful operator in Malaysia
Highest rated Retakaful operator worldwide under
Wakala model
International Shari´a Advisor Board to ensure
worldwide compliance
Munich Re´s unique value proposition
Genuine Retakaful model, high rating and full service
capabilities
Already placed treaties in Malaysia, Indonesia,
Pakistan and Middle East
Trend towards conversion from conventional
reinsurance to Retakaful
Expect higher reinsurance penetration rate under
Takaful model
Munich Re aims to be the dominant player in the worldwide Retakaful market
Munich Re
Islamic markets with low insurance penetration
48
Need for service, capacity and capital
Munich Re competitive advantages
Motivation
Munich Re
position
Capacity
Capital management
Access to reinsurers´
know-how
Risk transfer
Improve balance sheet or
finance growth
Intellectual capital
capabilities due to
unique positioning as
direct insurance and
reinsurance player in all
lines of business
Good understanding of
risk: Research and
experience studies
Structuring expertise in
Munich and Singapore
g internal retentions
High
Strong rating: S&P AA-
Easy access to collateral
Large and solid balance
sheet
Strong local knowledge
and presence
Exclusive partners –
Allfinanz and LifePlans
Munich Re
Consulting service
49
Key takeaways
Significant competitive advantage and high barrier to entry
due to strong local presence and intellectual capital
Growth will come together with strict underwriting discipline geared to profitability
Combination of strong capital management expertise and capacity provides
incommensurable reliability in volatile environment
Munich Re
Aggressive service strategy to ensure solid growth
50
Torsten Jeworrek
and growth
Wolfgang Strassl
M
Mary
Forrest
F
t – Michael
Mi h l D
DeKoning
K i
Conclusion
Wolfgang Strassl
Munich Re
Agenda
51
Gross premiums written
Steady growth of base business despite more difficult market environment
Top-line development
Drivers
IFRS gross premiums written
Decrease from 2005 onwards result of planned
recaptures of three large-volume accounts in
Canada and Germany
€bn
5.4
6.1
65
6.5
64
6.4
6.0
Portfolio excluding those treaties shows steady
growth …
CAGR basic book ~5%
4.5
2003
4.8
2004
5.2
2005
5.3
2006
5.4
2007
… partially offset by trend of treaties being
transformed from coinsurance to pure risk
premium reinsurance
Recent impacts: strengthening of euro and
slight reduction of cession rates in North
America and Europe
Business with planned recaptures
Basic book of business
Steady capitalisation on profitable growth opportunities
along with strict adherence to profitability targets
Munich Re
Life
52
Underwriting result
IFRS underwriting result reveals contribution of operations to overall success
Life and health
Transition from IFRS underwriting result to reported IFRS consolidated result 2007
1. Underwriting result
2. Consolidated result
€m
€m
827
705
–189
–251
725
460
–1,958
460
Net earned
premiums
1 Investment
2 Investment
Income from Expenses for
technical
claims and
interests 1
benefits
Operating
expenses
Underwriting
result
30
Health
430
Life
Underwriting
result
Other
investment
result 2
Other
result
Income
taxes
Consolidated
result
result from assets backing technical provisions.
result of reinsurance L&H less investment result from assets backing technical provisions.
Munich Re
7,024
–5,433
53
Underwriting result
Value orientation at Munich Re is already reflected in improved IFRS result
Life
Result contribution of life reinsurance …
… and its drivers
IFRS underwriting result separated for life
Steady increase in IFRS results – but slight
volatility unavoidable
430
~€300m
normalised
l
level
l
329
Expectation
Slight, but
steadyy
increase from
current
normalised
level
215
140
2004
2005
2006
Margins flowing through from historical
superior business selection
Exceptionally good mortality and morbidity
experience in 2007
Development in line with portfolio growth and
value orientation
2007
Munich Re's course for profitable growth visible in IFRS figures –
Strong performance to continue in the future
Munich Re
€m
54
Market-consistent embedded value (MCEV)
The challenge is to adequately value and steer long
long-term
term business
Long-term life reinsurance business …
Pattern of shareholder cash-flows
… but what is the shareholder value at present?
Present value of future after tax regulatory profits
Present value of future profits
available to shareholder
Time value of financial options and guarantees
-
Adjustments for risks of cash flows
+
Capital
C
it l required
i d ffor/allocated
/ ll
t d
to the portfolio at time of valuation
Cost of non
non-hedgeable
hedgeable risks
Cost of double taxation and cost of asset
management related to assets backing
required capital
MCEV
Required capital
Free surplus
Munich Re
Illustrative
55
MCEV movement analysis
MCEV discloses the drivers of value creation in life reinsurance
Munich Re MCEV earnings 20071
€m
336
277
148
10
-159
6,662
88
Operating MCEV earnings
Total MCEV earnings
Opening
MCEV
VANB
Experience
variances &
assumption
changes
Value generation
through management
action
Expected
return
Risk-free
rate of
return
Closing
Economic
variances
Other nonoperating
variances
Changes due to external factors
Focus of internal steering approach
1
Capital and
currency
movements
According to Munich Re's current MCEV methodology. Based on 2004 published CFO Forum EEV principles.
MCEV
Munich Re
5,962
56
Munich Re's life reinsurance business
Timing of the emergence of distributable earnings
Distributable earnings (undiscounted)
€bn, 5-year steps, as at 2007
2.4
20
2.0
1.9
1.4
1.2
0.9
2008
–
2012
2013
–
2017
2018
–
2022
2023
–
2027
2028
–
2032
2033
–
2037
2038
–
2042
0.8
2043
–
2047
0.7
2048
–
2052
0.5
2053
–
2057
0.4
2058
–
2062
0.3
0
3
2063
–
2067
02
0.2
2068
–
2072
0.1
0.1
0.0
2073
–
2077
2078
–
2082
2083
–
2087
PRESENT VALUE EQUALS EMBEDDED VALUE EXCLUDING FREE SURPLUS
€5.8bn
Munich Re
1.6
57
Benefits
Strong theoretical foundation through
market consistency
Market value of liabilities fully compatible with finance theory
Standardised rules ensure high degree of
transparency and consistency
Compliance with MCEV Principles and Guidance as published in
June 2008 by CFO Forum (representing 20 of the largest
European life (re)insurers)
In conformity with IASB, European
regulators and the CRO Forum
Using rationale for determining cost of capital comparable to
CFO Forum
Allowing for optimal integration of economic
risk capital
Adopting Munich Re economic risk capital model enables
steering of life business on overall RoRaC targets
Overall methodology
gy p
perfectly
y suits our
steering and pricing philosophy
Powerful alignment
g
of p
pricing,
g valuation and controlling
g of
business
Munich Re
MCEV perfectly combines external requirements with internal steering
58
Risk capital in MCEV
Definition of required capital in ANW1
Allowance for non-hedgeable risks
Maximum of
Cost of non-hedgeable risks
I
II
III
Cost of
non-hedgeable
risk
Present value of annual charge
discounted at risk-free interest rate
Minimum target level of capital demand by third
parties
Requirements from internal risk model
Allocation of required capital
fully reflects all requirements from regulators,
rating agencies and internal risk models
1
Annual charge
Economic risk capital for nonhedgeable risk
X
Non-hedgeable risk rate
Minimum level of solvency capital requirements
Approach to calculating cost of non-hedgeable
risk entirely in line with
Munich Re's risk capital model
Munich Re
Risk capital requirements clearly reflected in MCEV in two ways
59
Asset net worth.
Derived VBM targets
VANB ≥ Target VANB
Absolute VANB target to ensure desired level of
new business generation in terms of size and
profitability
2
VANB at "target RoRaC spread" ≥ 0
Relative target ensuring a minimum return relative
to inherent business risk consistent with the
RoRaC steering principle of Munich Re
3
VANB at "target IRR spread" ≥ 0
Relative target ensuring a minimum return relative
to the full capital invested to meet overall
expectations on return on equity
4
Operating experience variances +
operating assumption changes ≥ 0
Absolute target based on movement analysis
ensuring adequate actuarial assessment and risk
management
1
New
business
targets
In-force
business
target
All management incentive schemes are strictly based on these VBM targets
Munich Re
Internal steering at Munich Re aims for maximum value creation
60
Connection between MCEV and IFRS
Convergence between MCEV earnings
earnings, IFRS result and cash flows
Life
Development of MCEV earnings vs. IFRS result
Shareholder cash flows
Illustrative
After tax IFRS result
After tax IFRS result
MCEV earnings
MCEV earnings
Compensated for in subsequent returns
IFRS result
1
2
3
4
5
6
7
8
9
10
11
Σ
Profits distributed evenly (as a
percentage of IAS benefit reserves) over
the lifetime of the business
First-year
Fi t
profit
fit usually
ll close
l
tto zero
MCEV earnings
Value creation shown at time of policy
p
y
issue
Expected return based on roll-forward of
MCEV
MCEV most appropriately reflects the value of life business
Munich Re
Shareholder cash flow
Shareholder cash flow
High investment in the first year mainly
due to acquisition costs
61
Key takeaways
We continuously advance our steering methodology to ensure profitability
Applying MCEV for internal steering with RoRaC target
ensures consistency with overall Group targets
Development and prognoses of IFRS result and VANB
prove Munich Re's ability to generate profitable business
Munich Re
MCEV reflects adequate actuarial approach to risk management
62
Torsten Jeworrek
and growth
Wolfgang Strassl
M
Mary
Forrest
F
t – Michael
Mi h l D
DeKoning
K i
Conclusion
Wolfgang Strassl
Munich Re
Agenda
63
Conclusion of the day
Life reinsurance is an attractive market
market,
Munich Re has successfully established a global leadership position
Profitability is key – dependent on market situation we adjust market shares in
different countries
We are persistent in our approach –
therefore we invest today into the growth markets of the future
Superior steering is basis of our success – therefore we are at the forefront in
developing state-of-the-art industry standards
Munich Re
W have
We
h
a clear
l
strategy for
f future
f
development
d
l
– Life
Lif reinsurance
i
iis not always
l
sexy,
but will create value for clients and shareholders
64
Appendix
Financial calendar
Contacts
Munich Re
Disclaimer
65
Appendix
7 November 2008
Interim report as at 30 September 2008
3 March 2009
Balance sheet press conference for 2008 financial statements (preliminary figures)
Analysts' conference, Munich
22 April 2009
Annual General Meeting
23 April 2009
Dividend payment
6 May 2009
Interim report as at 31 March 2009
4 August 2009
Interim report as at 30 June 2009; Half
Half-year
year press conference
5 November 2009
Interim report as at 30 September 2009
Munich Re
Financial calendar
66
Appendix
Sascha Bibert
Ralf Kleinschroth
Head of Investor & Rating Agency Relations
Tel.: +49 (89) 38 91-39 10
E-mail: [email protected]
Tel.: +49 (89) 38 91-45 59
Dr. Thomas Dittmar
Christine Franziszi
Tel.: +49 (89) 38 91-64 27
Tel.: +49 (89) 38 91-38 75
Andreas Silberhorn
Martin Unterstrasser
Tel.: +49 (89) 38 91-33 66
Tel.: +49 (89) 38 91-52 15
Münchener Rückversicherungs-Gesellschaft
Königinstrasse 107, 80802 München, Germany
Fax: +49 (89) 38 91-98 88
@
Internet: www.munichre.com
Munich Re
For information please contact
67
Appendix
Disclaimer
This presentation contains forward-looking statements that are based on current assumptions
and forecasts of the management of Munich Re. Known and unknown risks, uncertainties and
other factors could lead to material differences between the forward-looking statements given
p
, in p
particular the results,, financial situation and performance
p
here and the actual development,
statements or to conform them to future events or developments.
Munich Re
of our Company. The Company assumes no liability to update these forward-looking
68

Investors` Day on Life Reinsurance

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