Munich Re Group Annual Report 2006 (PDF, 1.8

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Munich Re Group Annual Report 2006 Investment result by type of investment Third-party investments MEAG offers retail and segregated funds for private and institutional investors. It largely uses the distribution channels of the ERGO Insurance Group companies for marketing retail funds in private-client business, where MEAG’s investment funds are offered as a supplement to conventional insurance products. When newly investing in MEAG investment funds, private investors continue to place great emphasis on security. Client demand remains strong especially for bond funds, where MEAG essentially pursues a conservative investment strategy. With its offerings for institutional investors, MEAG mainly meets the needs of insurance companies and pension funds. A significant role in institutional business is also being played by consultancy for asset management, which MEAG has established as an independent service. In September 2006, MEAG successfully tendered for mandates for the statutory protection fund being developed since October 2006 by Protektor, the German life insurers’ protection facility. MEAG was awarded the contract for the entire administration, including risk management and accounting, as well as a partial mandate of over €100m for the portfolio management of securities. These funds already bolstered the assets managed for institutional clients in 2006. In order to further extend its institutional real estate business, MEAG offers its property expertise in segregated real estate funds focusing on investments in office properties in Germany and the rest of Europe, and in large-scale European retail property. Last year, MEAG acquired mandates with a volume of over €250m in this segregated fund business. 96 Management report_Asset management 2006 Prev. year Change €m €m in % Real estate 360 103 249.5 Investments in affiliated companies 66 140 –52.9 Investments in associates 44 1,131 –96.1 Mortgage loans and other loans 1,163 1,165 –0.2 Other securities 7,069 8,026 –11.9 Deposits retained on assumed reinsurance and ceded business, and other investments 553 575 –3.8 Investments for the benefit of life insurance policyholders who bear the investment risk 100 170 –41.2 Expenses for the management of investments and other expenses 479 492 –2.6 Total 8,876 10,818 –18.0 Favourable capital markets determined the positive development of business with private and institutional investors. Assets managed in business with external investors thus increased in the investment year 2006 as a whole. As at 31 December 2006, MEAG had assets under management of €8.5bn (7.2bn) for institutional investors outside the Munich Re Group, recording growth of €1.3bn in external institutional business in the year under review. Assets managed in private-client business totalled €2.7bn (3.3bn). After ERGO Trust GmbH was integrated into MEAG MUNICH ERGO AssetManagement GmbH in the first quarter of 2006, the private-client business managed by ERGO Trust was returned to ERGO, which explains the decrease in the figure for assets managed for private clients.
Munich Re Group Annual Report 2006 Management report_Financial situation Financial situation Analysis of our capital structure The capital structure of the Munich Re Group is essentially governed by its activity as a primary insurer and a reinsurer. Investments on the assets side of the balance sheet serve mainly to cover technical provisions (74.3% of the balance sheet total). Equity (12.2% of the balance sheet total) and bonds classified as strategic debt (1.8% of the balance sheet total) are the most important sources of funds. Capital structure as at 31.12.2006 (prev. year * ) Technical provisions 74.3% (74.1%) * Adjusted owing to first-time application of IAS 19 (rev. 2004). Reinsurance business accounts for approximately 39% of technical provisions and primary insurance business for about 61%. Further information on these provisions may be found in the notes to the financial statements on page 181. In contrast to liabilities under loans and securities issued, we cannot foresee with certainty how high our liabilities from underwriting business will be and when they will arise. This is especially true of reinsurance. The payout pattern of the technical provisions varies considerably from one segment to another and from one line of business to another. In property insurance, for instance, a major portion of the provisions is generally paid out after one year, whereas in life insurance substantial amounts are still due decades after the contracts were concluded. The currency distribution of our provisions reflects the global orientation of our Group. Besides the euro, our main currencies are the US dollar and pound sterling. We ensure that our business is sufficiently capitalised at all times by monitoring the situation continuously and taking suitable measures, which are dealt with in the section on capital management. To optimise our capital position and reduce capital costs, we have not only employed internal forms of financing in previous years but have also used strategic debt, primarily in the form of subordinated and/or exchange- Other liabilities 11.7% (12.6%) Equity 12.2% (11.2%) Bonds and subordinated liabilities 1.8% (2.1%) able bonds. A detailed analysis of the structure of this funding is provided in the section on strategic debt. Debt was reduced in 2006 by €1,218m, mainly due to redemption of the ERGO International AG bonds exchangeable into E.ON AG und Sanofi-Aventis S.A. shares. We also reduced amounts due to banks. At the same time, equity rose as a result of our good performance, increasing its share of the total capital. Available capital exceeds the levels required for supervisory, rating and internal risk model purposes. We have no intention of using this “surplus balance sheet capacity” to buy growth either organically or through acquisitions at uneconomical terms. As part of our active capital management, we therefore took the decision to buy back shares up to a value of €1bn by the next Annual General Meeting on 26 April 2007. The share buy-back was successfully concluded in February 2007. Since we are an international (re)insurance group, some of our financial resources are subject to restraints on disposal. For example, the supervisory authorities in some countries require foreign reinsurers to establish premium and reserve deposits with primary insurers. As at the balance sheet date, investments totalling €6.7bn were subject to restraints on disposal. In addition, there were contingent 97
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Munich Re Group Annual Report 2006
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The Munich Re Group Our operations
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Munich Re Group in 2006 Tireless an
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Quarterly figures Balance sheet 31.
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© 2007 Münchener Rückversicherun
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Munich Re Group Annual Report 2006 (PDF, 1.8

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