Munich Re Group Annual Report 2006 (PDF, 1.8

Munich Re Group Annual Report 2006 Management report_Parameters
Parameters
General parameters
Our business environment is marked to an increasing
extent by growing complexity – together with an upward
trend in natural catastrophes. There has also been a disproportionate
rise in man-made losses in relation to economic
activity. The reasons are many and varied, ranging
from technological progress and the advancing geopolitical
interdependencies to climate change and trends in
international liability. In addition, concentrations of values
are mushrooming and regions are becoming more
dependent on each other, giving rise to new risk potentials
and accumulation hazards. These phenomena present
demanding challenges for the insurance industry, but also
opportunities. It is therefore imperative to carry on refining
risk models and to swiftly incorporate new findings.
Fundamental changes are also resulting from unprecedented
demographic trends. People are living longer –
good news, but also an enormous strain on social security
systems. By 2030, every two people in Europe in paid work
will have to finance one person who is not. This means
Europeans can only maintain their standard of living and
high-quality healthcare in the medium term if they make
additional private provision – a great opportunity for insurers.
Many countries are in the process of realigning their
social security systems to these demographic requirements,
and so for the time being insurers will have to cope
with an uncertain legal and political climate. Speed and
flexibility in product design are becoming increasingly
important competitive factors. At the same time, primary
insurers are having to adjust to the growing group of older
people with special needs.
At present, one of the most important issues for private
health insurance in Germany is the debate regarding
the recently adopted health reform legislation. The German
health reform will not solve the problems of the compulsory
health insurance scheme – so private health insurance,
which is demography-resistant and provides guaranteed
benefits, remains the only alternative to statutory
health insurance.
In addition, the insurance industry’s regulatory environment
is being affected by profound changes. The introduction of
Solvency II in Europe and new accounting standards have
implications for insurers’ capital requirements and income
statements. The new circumstances will have considerable
implications for primary insurers’ business models. They
will also influence the demand for reinsurance cover and
trigger changes in its supply. A group like Munich Re,
among the leaders in integrated risk management, can
utilise the changing industry dynamics to its advantage
and exploit the business opportunities they present – in
both reinsurance and primary insurance.
Economic parameters
The general global economic environment for the insurance
industry remained largely favourable in 2006. In spite
of continued strong rises in oil prices until August, the
global economy expanded further, even achieving a
slightly higher growth rate than in the previous year. The
stock markets in Europe and the USA showed respectable
price gains, whereas the upward trend in Japan was somewhat
less pronounced. Yields on the bond markets rose
appreciably in the first half of the year before receding
again until early December, when interest rates reversed
again, rising considerably more steeply in Europe than in
the USA. Overall, the difference between the transatlantic
yields for long-term bonds narrowed over the course of the
year.
Economy
Global economic growth gathered pace slightly in 2006,
sustaining its momentum. China and the USA are still the
most important engines driving the world economy, even
if the trend in the second half of the year saw economic
dynamics shifting from the USA to the eurozone.
In the USA, the world’s largest insurance market,
momentum remained at about the level of the previous
year on average, despite growth slowing considerably
between July and December, for which a slackening of the
housing market was chiefly responsible. The mainstays of
the US economy were private consumption and corporate
investments, with real GDP rising by 3.3% compared with
the previous year.
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