Munich Re Group Annual Report 2006 (PDF, 1.8

Munich Re Group Annual Report 2006 Management report_Prospects
Prospects
Adherence to “profit before growth” strategy
Result target of 15% on risk-adjusted capital
There is a growing tendency among some capital market
players to pursue legal action against companies in connection
with statements they have published on future
development, a trend that involves considerable loss
potential for the companies concerned and for their other
shareholders. This practice inevitably affects transparency,
as many companies tend to be reluctant about the information
they give on future business performance and disclose
only what is required by law.
For this reason, we wish to emphasise the following:
predictions about the forthcoming development of our
Group are based primarily on planning figures, forecasts
and expectations. Consequently, the following assessment
of the Munich Re Group’s development merely reflects our
assumptions and views. It follows that we cannot accept
any responsibility or liability in the event that they are not
realised in part or in full.
For information on the risks emanating from our business,
please consult page 124 ff.
Overview
In the coming years, we will adhere to our principle of
“profit before growth” in primary insurance and reinsurance.
In other words, we will strive for growth in profits,
not in premium income. This means that we will continue
to make every effort to optimise our business portfolio and
improve the efficiency of our processes. Furthermore, we
intend to and will expand our business, but not at the
expense of sustained profitability.
In reinsurance, we will continue to systematically
pursue our policy of risk-adequate prices, terms and
conditions. We aim for profitable growth in both renewal
business and new business. There is no alternative to
profitable underwriting and active risk diversification: it
is the only way to create long-term added value for our
shareholders and clients alike.
Primary insurance, especially life and health business,
is going through a period of great change. The public’s
need for cover in the area of healthcare and personal provision
is rising and increasingly needs to be funded privately,
as state social security systems in the vast majority of
European countries are being scaled back. This opens up
major opportunities in the medium and long term for our
life, health and personal accident insurers. Despite the increase
in insurance tax in Germany, we expect slight growth
in property-casualty insurance, partly because the significant
decline in premium volume in motor insurance will
not continue as hitherto. In other countries, growth will
remain satisfactory.
Our commercial success in 2006 and the gratifying
trend of the past three years are proof that we are on the
right track with our strictly profit-based corporate policy.
Given the very good performance of our business, bolstered
by a low major claims burden from natural catastrophes
and favourable developments in the capital markets,
we clearly surpassed our target by achieving a profit
for the year of over €3.5bn (2.8bn) and a return on riskadjusted
capital (RORAC) of 20.3%. For 2007, we are adhering
to our objective of a 15% RORAC independent of the
market cycles. Although we will not finalise and publish
the risk-adjusted capital applicable for 2007 until we have
comprehensively assessed and published our risk position
in May 2007, the resultant consolidated profit should lie
between €2.8bn and €3.2bn. This would be equivalent to a
return on equity (ROE) ranging between nearly 11% and
12%. Details of our corporate steering systems and in
particular of our RORAC target figure are provided on
page 52.
We remain committed to active capital management
and a shareholder-friendly dividend policy. We therefore
resolved on 7 November 2006 to buy back and retire
Munich Re shares with a volume of up to €1bn. The buyback
was successfully concluded in February 2007. In addition,
the Board of Management and Supervisory Board will
propose at the Annual General Meeting that the dividend
per share again be increased, by €1.40 to €4.50, thus
enabling our shareholders to participate in Munich Re’s
outstanding result.
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