Munich Re Group Annual Report 2006 (PDF, 1.8

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Munich Re Group Annual Report 2006 political conditions in Southeast Asia and expect additional growth impulses for the region, in particular against the background of closer cooperation between the ASEAN nations and China. In India, we envisage reinsurance demand reaching about €4bn in ceded premiums in the medium term. Owing to local restrictions, however, the reinsurance volume is currently limited to around €1bn, of which only about a third is accessible to foreign providers. Losses from the monsoon season had less impact on reinsurance treaties than in the previous year. Besides this, the market environment was dominated by the forthcoming end to binding state tariffs in a large portion of the business, and the threat of falling original rates as a result of this deregulation. Under these circumstances, our premium has remained at a low level of €20m (23m) for the time being. In the medium term, we expect considerable growth and an opening of the reinsurance market. We continue to seek the removal of the present restrictions on freedom of establishment, our objective still being to set up a property-casualty branch in India. Our subsidiary in Africa, Munich Reinsurance Company of Africa, remains the leader in its main market of South Africa and in the other 44 African countries south of the Sahara. Premium income here reduced by a total of 2.6% to R 2,508m (2,574m), mainly because of increased retentions and our disciplined underwriting policy. All in all, our result for the year declined by 12.7% to R 241.9m. North America American Re becomes Munich Re America Canadian units again successful Responsible for 80 Munich Reinsurance Company of Africa Management report_Reinsurance 2006 Prev. year Gross premiums written Rm 2,508 2,574 – Life and health Rm 702 656 – Property-casualty Rm 1,806 1,918 Net earned premiums Rm 1,193 1,217 – Life and health Rm 690 652 – Property-casualty Rm 503 565 Loss ratio property-casualty % 51.4 77.0 Expense ratio property-casualty % 33.9 8.4 Combined ratio property-casualty % 85.2 85.4 Result for the year Rm 241.9 277.1 Investments Rm 2,845 2,715 In the Middle East and North Africa, we benefited from high economic growth in individual countries and from our intensified acquisition efforts. We were able to expand our participations, particularly in a whole range of major projects in the energy sector and infrastructure. Premium income climbed by 7% to €90m (84m). Despite the harder competition, business performance was in line with our expectations. In Israel, there was a further decline in the original prices of indemnity insurance, especially industrial fire insurance, so that we reduced our involvement. In liability business, on the other hand, we were able to retain our shares of business to a pleasing extent, despite the keener competition. Altogether, premiums fell by 5% to €101m (106m). Munich Reinsurance America, Munich Reinsurance Canada Non-Life Group 2006 2005 2004 2003 2002 Gross premiums written €m 2,539 2,672 3,178 3,987 4,968 Combined ratio % 96.9 134.0 119.3 99.1 168.1 Gross premiums written by the North America division decreased by 5.0% to €2.5bn (2.7bn) in 2006. This was mainly due to our continued adherence to a strictly profitoriented underwriting policy but also to higher net retentions by clients in the USA. The combined ratio improved from 134.0% to 96.9%. In 2005, it had been heavily affected by the reserve strengthening and the hurricane losses at Munich Re America. Since we had made general provision for IBNR losses at Group level, Munich Re America’s reserve strengthening
Munich Re Group Annual Report 2006 Management report_Reinsurance of around €465m for asbestos-related claims in 2006 (after corporate retrocessions) did not affect the Group underwriting result. In addition to this, there were contrasting changes in the claims reserves, with increases in the liability lines of business and reductions in property reinsurance. Munich Reinsurance Canada Non-Life Group again exceeded its targets. The treaty renewal season was successful, despite an increasingly difficult market environment. Munich Re America 2006 Prev. year * Gross premiums written US$ m 3,759 3,760 – Life and health US$ m 732 617 – Property-casualty US$ m 3,027 3,143 Net earned premiums US$ m 2,532 1,258 – Life and health US$ m 713 60 – Property-casualty US$ m 1,819 1,198 Loss ratio property-casualty % 125.6 192.1 Expense ratio property-casualty % 21.5 20.4 Combined ratio property-casualty % 147.1 212.5 Result for the year US$ m –1,034.8 –1,526.1 Investments US$ m 15,118 14,544 * Adjusted owing to first-time application of IAS 19 (rev. 2004). As a logical step in the integration of American Re into the Munich Re Group, American Re-Insurance Company changed its name in September 2006 to Munich Reinsurance America, Inc. and the name of the holding company, American Re Corporation, to Munich Re America Corporation. This change has been greeted warmly by clients and employees alike. It is yet another demonstration of Munich Re’s strong commitment to the US market. Gross premiums written in 2006 were essentially equal to 2005. During the course of the year, catastrophe model recalibration, together with rating-agency capital requirements, created a demand for capacity that in many cases exceeded supply. This resulted in substantial rate increases for property risks in hurricane-prone areas of the USA. Munich Re America developed and implemented a strategy to optimise the return on its highly valued catastrophe capacity and, in doing so, actively diversified its portfolio. Munich Re America’s positive underwriting results for the underwriting year 2006 reflect its adherence to disciplined underwriting and careful business development as well as lower-than-expected natural catastrophe losses. Importantly, the development of the most recent underwriting years (2003–2005) continues to be very positive. These favourable underwriting-year results were significantly masked by adverse loss development from old underwriting years. In addition, Munich Re America wrote off a large portion (US$ 993m) of its deferred tax asset relating to tax net operating losses, thus taking a more conservative position with respect to this intangible asset. These are the two primary factors responsible for the 2006 calendar-year loss of US$ 1,034.8m. As a result of the company’s internal reserve analysis, loss reserves for asbestos-related claims were strengthened by approximately US$ 600m (465m) after consideration of corporate retrocessions, because reported claims activity for this liability complex accelerated again. In consequence, the reserves held for this at Group level were released, so that the measures had no impact on the Munich Re Group’s underwriting result. Otherwise, there were reserve changes at Munich Re America between lines of business and accident years which, overall, more or less cancelled each other out: – Owing to a higher level of reported activity than anticipated, the loss reserves for workers’ compensation business were strengthened by US$ 275m (discounted) for years 2001 and prior. The actuarial indications for claims in the lines of general liability, auto liability, professional liability and property remained relatively stable for the years prior to 2001. – The more recent accident years experienced favourable loss emergence across virtually all lines of business. We therefore reduced our estimate of ultimate losses for property business and other short-tail lines of business, and released reserves of US$ 250m, whereas we did not lower our reserves for the longer-tail liability lines. The reserve action taken in 2006 underscores management’s determination to maintain its prudent reserve strategy introduced in 2005. 81
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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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Consolidated financial statements a
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Quarterly figures Balance sheet 31.
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© 2007 Münchener Rückversicherun
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