Munich Re Group Annual Report 2006 (PDF, 1.8

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Munich Re Group Annual Report 2006 Economic parameters Macroeconomic parameters are likely to be slightly less positive in the further course of the year, which has implications for insurance demand and for expected returns on investments. Economy The comparatively robust growth of the global economy should continue in 2007, albeit at a slightly reduced pace. The US economy is expected to slow down moderately in comparison with last year, also because of a difficult housing-market environment. Moreover, given the tense political situation in the Middle East, a further significant decrease in oil prices is unlikely. For the USA, we expect inflation to be lower than last year. The anticipated economic slowdown in the main industrial nations is also likely to curb growth in Japan in 2007. Nevertheless, the rate of increase in prices should be moderately positive again, following the slightly positive inflation rate registered in 2006 after years of deflation. Although growth in the eurozone has been increasingly reliant on domestic demand recently, it will not be immune to the effects of a dampened global export climate. Germany’s foreign trade will be affected, too, while private consumption will be burdened (albeit to a small extent) by the higher value-added tax. These factors lead us to expect a cooling of the economy in 2007. We estimate that growth in the United Kingdom will also lose momentum. The anticipated gradual slowing of the global economy is likely to be reflected in economic development in the emerging countries as well. Growth rates should decelerate somewhat in most regions, including Latin America, and central and eastern Europe. The Asian export markets will probably be affected by the economic slowdown in the US and the slightly reduced economic growth forecast for China. Capital markets The environment for the most important international stock markets is likely to become more difficult as a consequence of the anticipated cooling of the economy in the USA and the eurozone. Despite interest-rate increases by a number of central banks, there will probably be only lim- 120 Management report_Prospects ited scope for significantly higher long-term yields on the bond markets. Insurance industry If the dynamics of the world economy gradually slow down as expected in 2007, growth in the global insurance industry is likely to be subdued. The demand for insurance cover in the emerging markets should remain comparatively high, however. The German economy will probably also provide only weak impulses for property-casualty insurance in 2007, a situation that is bound to be aggravated by the current stage of the insurance cycle. The concept of private provision is likely to come more strongly to the fore in the medium to long term, not only in Germany but also in many other industrial nations, given that demographic trends are increasingly pushing state social security systems to their limits. Private health insurance should benefit from this environment, yet the political risks remain, as is illustrated by the discussion about healthcare reform in Germany. We feel that only by strengthening, not weakening, private provision and expanding its funding basis can Germany’s structural problems be solved in the long term. In the renewals of reinsurance treaties at the turn of the year 2006/2007, price trends varied between classes of business and regions. Overall, rates fell slightly, but they still offer a good level of profitability. We anticipate that the market will tend to become more difficult. In an environment of increasing competition, it is especially in the interests of end-clients, primary insurers and reinsurers alike to make sure that prices, terms and conditions remain riskadequate. Risks The economic prospects are subject to uncertainties such as geopolitical threats – particularly in the Middle East and the Gulf region – and the risk of major new terrorist attacks. Other major risks are the global economic imbalances, especially the substantial deficit in the US budget and current account, which could weaken the US dollar and cause interest rates there to rise, impacting the economic situation in Europe as well. In addition, there is a high level of uncertainty regarding the further development of energy prices.
Munich Re Group Annual Report 2006 Management report_Prospects The insurance industry must cope not only with macroeconomic uncertainties but also with political risks, including state influence on private health insurance and other disadvantageous measures in the field of social, economic and tax policy. Political influences have grown steadily in recent years and these are complicating business management prognoses. There are regulatory risks, too, as supervisory regulations are undergoing revision worldwide and requirements for reporting, capitalisation and even fundamental assessment of individual types of business are changing. Markets continue to be subject to the risk that unexpectedly intense competition – whether from new or established providers – may have a negative influence on price levels. Keeping a clear focus on profitability before growth and on the efficiency of management systems will remain critical for success. Development of the Munich Re Group Reinsurance Reinsurance offers considerable promise for the future, and we project that it will grow worldwide in the next decade. The development of property-casualty business is likely to be surpassed by the dynamic growth of life and health reinsurance. We predict the highest percentage growth rates will come from the emerging markets of Asia and Latin America. Given their higher starting level, Europe and North America should attain significantly greater absolute growth, albeit with lower percentage increases. Thanks to our global presence and special initiatives to expand our business in rapidly growing regions, the Munich Re Group is excellently positioned to take advantage of market opportunities in all areas of the world and in all fields of business. In life reinsurance, premium income will experience a moderate decline in 2007, due to the scheduled reduction of a reinsurance treaty with a large premium volume. To consistently exploit new opportunities in the emerging markets, we have appreciably expanded our units specialised in the private-provision market, most recently by setting up a new life reinsurance subsidiary in Moscow. Fundamental growth impulses for our future new business should also come from other developments, e.g. the restructuring of the European solvency regime (Solvency II), the continuing privatisation trend in old-age and disability provision, and the dynamic expansion of the life insurance markets in Asia and eastern Europe. At present, a host of opportunities for growth in various business models are opening up worldwide in the health segment. By integrating primary insurance and reinsurance as well as extensive services, we cover more than the insurance industry’s typical value chain. Throughout the whole treatment process – from searching for the right specialist, through diagnosis and therapy, to rehabilitation – we provide services whose benefits go far beyond insurance itself. We will further intensify the close cooperation between Munich Re and DKV in selected foreign markets. In past years, we have laid the foundations in propertycasualty reinsurance for the sustained profitability of our business by consistently adhering to risk-adequate prices, terms and conditions, even in phases with a fortuitously low incidence of major losses. Only in this way can we cope with potential peak burdens which can occur at any time. That is why the renewals at 1 January 2007 (which involved approximately two-thirds of our property-casualty business) were satisfactory overall, despite the low natural catastrophes burden in 2006. The development of reinsurance prices, terms and conditions varied considerably, depending on the class of business and region concerned. We did not observe a globally uniform reinsurance cycle. The trend away from proportional business towards non-proportional forms of cover continued. Following the substantial price increases for natural catastrophe risks in the US market in the previous year, we were able to maintain and in some cases even significantly increase their prices. The renewals of large multinational property and liability treaties proved very satisfactory, with prices, terms and conditions remaining stable, and we again recorded growth in attractive agricultural business. By contrast, there were further price reductions in European industrial business, parts of aviation business, and German and French motor liability business. We systematically refrained from writing business that did not meet our stringent requirements, and we also terminated unprofitable proportional treaties in the highly competitive 121
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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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Notable events in 2006 / Letter to
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Quarterly figures Balance sheet 31.
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© 2007 Münchener Rückversicherun
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