Munich Re Group Annual Report 2006 (PDF, 1.8

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Munich Re Group Annual Report 2006 General information_Glossary C – D Cash-generating unit The smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets. If the recoverable amount of an asset cannot be determined individually in the impairment test for assets under IAS 36, the recoverable amount of a cash-generating unit to which the relevant asset belongs must be determined. Catastrophe bond Also referred to as “cat bonds” and “act of God bonds”, catastrophe bonds are used to transfer natural catastrophe risks to the capital markets. The buyers of such bonds profit from a comparatively high coupon rate, but assume all or part of the (re)insurer’s risk with regard to a natural catastrophe. If a catastrophe exceeds the predefined parametric trigger, some or all of the capital and interest is used to pay the (re)insurer’s financial loss from the natural catastrophe instead of being repaid/credited to the buyers. Cedant Client of a reinsurance company (see also primary insurers). Chain ladder method Standard (multiplicative) actuarial method used to estimate the reserves needed for future claims expenditure on the assumption that the cumulative loss will rise by the same factor in all accident years. With this method, the overall loss expected is determined exclusively on the basis of historical data on the run-off of losses in the insurer’s portfolio. Claims equalisation provision Provisions required by national regulations to smooth fluctuations in loss experience in future years. In IFRS accounting, they are recognised in equity. Combined ratio Percentage ratio of the sum of net claims expenses plus net operating expenses to net earned premiums. It corresponds to the sum of the loss ratio and the expense ratio. Compliance guidelines Rules for handling inside information. As a general principle, inside information may not be used for a person’s own investment transactions, for transactions conducted by a bank or for recommendations to others. Therefore, as part of the compliance procedure, business transactions are checked to make sure they are not based on inside information. Composite insurer Insurer that writes both life and non-life business. 220 Consolidation Combining the items from the individual financial statements of the companies belonging to the Group into one consolidated financial statement, in which items involving intra-Group transactions are eliminated. Contingent liabilities Possible obligations whose existence will be confirmed by the occurrence or non-occurrence of an uncertain future event and which are therefore not shown as liabilities in the balance sheet. They must, however, be included in the notes to the financial statements (e.g. guarantee obligations). Corporate governance The legal and factual framework for managing and monitoring companies. Corporate governance rules serve to provide transparency and thus strengthen confidence in responsible management and control geared to the creation of value. Customised Portfolio Solutions (CPS) CPS is Munich Re’s centre of competence for retrospective reinsurance cover in non-life classes of business. Frequently also referred to as run-off cover, this protects the cedant against the risk of loss portfolios producing worse run-off results than expected. Debt leverage The percentage ratio of strategic debt to the sum of Group equity and strategic debt. Deferred acquisition costs Costs incurred for the acquisition or the renewal of insurance policies (e.g. commission, cost of processing applications) which are capitalised and amortised over the term of the contracts. Deferred tax assets/liabilities Deferred taxes derive from temporary differences between accounting on the basis of IASs/IFRSs and national tax law. If in the consolidated financial statements asset items are valued lower, or liabilities higher, than in the tax accounts of the Group company concerned, the resulting future tax relief must be recognised as a deferred tax asset. Also included are tax assets deriving from tax loss carry-forwards. If the accounting differences between the consolidated financial statements and tax accounts will lead to future tax burdens, these must be recognised as deferred tax liabilities. Deferred tax assets are reversed if a realisation of the receivable is not probable. Delcredere Delcredere insurance provides suppliers of goods or services with insurance against the risk of default due to insolvency of the customer.
Munich Re Group Annual Report 2006 General information_Glossary D – F Deposits retained on assumed reinsurance and ceded business Deposits retained on assumed reinsurance are receivables which reinsurers have vis-à-vis their cedants for collateral (cash deposits) that has been retained by the cedants as a security to cover future reinsurance claims. The cedants show the retained funds as deposits withheld on ceded business. Derivative financial instrument Financial instrument whose increase or fall in value is based on and determined by the change in the amount of an underlying value (a particular interest rate, security price, exchange rate, price index, etc.). The main derivatives are futures, forwards, swaps and options. Directors’ and officers’ liability insurance Insurance for the personal liability of the directors and officers of companies, i.e. for board members, general managers and internationally comparable executives. Disposal group A group of assets that are jointly sold or otherwise disposed of in a single transaction, along with any directly associated liabilities transferred as part of the transaction. Diversification Business policy tool geared to spreading a company’s activities over different areas so as to avoid particular dependencies. A diversification strategy may have different focal points: the breadth of product range with a view to acquiring new clients, the geographical spread of business, the mixture of risks in investments, or the optimum composition of an insurance portfolio. Active risk diversification is one of the Munich Re Group’s “cardinal virtues”, which shapes its integrated risk management. Duration The average term of an interest-sensitive investment (or portfolio) and a measure of the risk of its sensitivity to changes in interest rates. Earnings per share A ratio calculated by dividing the consolidated result by the average number of shares in circulation. “Diluted earnings per share” includes exercised and still to be exercised subscription rights in the consolidated result for the year and the number of shares. Such subscription rights arise from the issue of bonds with conversion rights and from warrants for the acquisition of shares. Effective interest method Method of determining the amortised cost of financial instruments and the distribution of interest earnings and expenses between individual periods. IAS 39 requires that effective interest must include fees, other transaction costs and any premiums or discounts. Embedded value Concept used in valuing life and health insurance business. Embedded value mainly comprises the present value of earnings from business in force, calculated according to actuarial principles, plus the value of equity, including valuation reserves, and less the cost of holding capital. Equity method Investments in associates have to be valued in the consolidated financial statements using the equity method. The “at equity” value corresponds to the Group’s proportionate share of the shareholders’ equity of the entity concerned. Event limit A limit restricting the maximum indemnity for a certain type of event that typically results in large numbers of individual losses, e.g. earthquake. Exchangeable bond Special form of corporate bond which, besides entitling holders to repayment of the face amount and regular interest, give them the option to convert the bond into shares. The conversion right is for shares in a company which is not the bond issuer. Expense ratio Percentage ratio of operating expenses to earned premiums. Exposure The measurable extent of a risk or portfolio of risks; basis for calculating premiums in reinsurance. Factor-based risk approach Simplified capital model based on applying a series of “factors” (or capital charges) to volumes such as premiums, reserves or asset values. The model provides only a crude proxy for the risk-based capital requirements. 221
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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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Page 238: © 2007 Münchener Rückversicherun
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