Munich Re Group Annual Report 2006 (PDF, 1.8

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Munich Re Group Annual Report 2006 Special and Financial Risks Result target clearly surpassed New Risk Trading Unit established Financial institutions segment especially successful Responsible for Aviation and space, credit and bonding, enterprise and contingency risks, retrocession, Munich-American RiskPartners, New Re Geneva, Great Lakes UK, Munich American Capital Markets 2006 2005 2004 2003 2002 Gross premiums written €m 1,945 2,031 2,044 2,284 2,485 Combined ratio % 81.1 110.5 78.9 92.9 116.5 Although premium showed a downturn in our major segment, aviation reinsurance, we maintained our overall premium volume by expanding specific growth areas and launching new products. Gross premiums written show a reduction merely because the previous year’s figure benefited from a one-off effect. Claims costs for major losses were considerably lower than in the previous year. All segments contributed to a very satisfactory combined ratio of 81.1%. Some 1.4 (–1.6) percentage points of this were attributable to retrocession cover for the whole reinsurance group – business which is fully accounted for in the Special and Financial Risks Division. In view of the considerable opportunities we see in structuring, trading and placing capital market products, we have set up a Risk Trading Unit, which commenced operations in the second half of 2006. Premium income in aviation and space experienced a decline to €672m. Whilst rates in aviation fell further as a result of additional capacity in the market, premium in space business rose, owing to the greater number of insured satellite launches. There were more losses in aviation in 2006 than in the previous year, but as we have further refined our risk assessment and consistently declined under-rated risks, we still achieved a very good combined ratio. In space reinsurance, we continue to be the greatest risk carrier in the global market. Prices for insuring the launch and operation of satellites softened, but remained at a risk-adequate level. Our result was again very positive. In credit and bonding business, we reinsure default risks that are related to the sale of goods and services worldwide or accepted via bonds. We again recorded a clear profit in credit and bonding reinsurance in 2006, with only a few major losses and a basically unchanged number of small and medium-size (frequency) losses. As major 84 Management report_Reinsurance European clients increased their retentions due to the good results of the previous years, reinsurance premium volume was slightly down in this segment. By contrast, premium in Asia and South America showed growth, so that overall we earned premium income of €545m in credit reinsurance in 2006. The segment of financial institutions, which we also account for under credit business, is one of our defined growth markets. The cover we offer companies in the financial sector here is mainly for operational risks. Our premium income in this segment increased by more than 50%, and the business is very profitable. We further expanded our business in the field of enterprise, contingency and political risks. Premium in traditional cancellation-of-events business rose significantly, and we generated substantial new business thanks to various innovative products (such as guarantees for the disposal of waste electrical and electronic equipment and residual value insurance). With our new Risk Trading Unit, fully integrating our unit Munich American Capital Markets, we have enhanced our scope for activity in the capital markets. Besides employing the unit in our own risk management, we aim to take advantage of further business opportunities arising from the tradeability of risk packages, especially insurance risks, and to support our clients in transferring insurance risks to the capital market. Business with structured finance products also developed well. In addition to trading in weather derivatives ourselves, we broadened the range of structured weather products we offer to our clients. To protect ourselves against very large losses from natural catastrophes, we increasingly make use of capital market products as well as traditional reinsurance solutions. We have acquired additional protection against loss events from hurricanes in the USA by securitising the
Munich Re Group Annual Report 2006 Management report_Reinsurance risk on the capital markets. The transaction, effected by Carillon Ltd., provides us with cover for up to four hurricane seasons. If hurricanes give rise to market losses of US$ 45bn or over in the USA, Munich Re will receive the bond proceeds of up to US$ 84.5m. Shortly before the end of the year, we successfully placed another natural catastrophe bond transferring earthquake risks from subsidiaries of Zurich Financial Services Group to the general capital markets. With this transaction, we supported a key client in specifically developing a capital market solution for the management of its peak risks. Together with the natural catastrophe bond issued by Aiolos Ltd. in the previous year for loss events from windstorms in western Europe, the volume securitised by the Munich Re Group on the capital markets has thus increased to a total of €307m. Our clients in the alternative markets segment are large international corporations that offer us their business either direct or via captives. The business is handled by our subsidiary Munich-American RiskPartners (MARP), which has offices in Munich and London. We focus here on clients that have a high level of risk management, which includes effective loss prevention measures and substantial retentions. We critically analyse our clients’ risk management, working with companies and their brokers to devise customised covers. Our liability business in 2006 was marked by the expansion of special lines, such as directors’ and officers’ liability (D&O), and the development of new policies, such as those for protecting intellectual property rights (patent rights, trademarks, etc.). In our property reinsurance, we succeeded in improving our strong position, especially in global oil and gas business and in mining insurance, whilst still achieving adequate prices, terms and conditions. Here we are among the few providers whose competence in the underwriting of major risks and the settlement of large claims allows them to play a leading role. We also expanded our knowhow and our business in other difficult lines, such as telecommunications. On the other hand, prices and conditions in property business often deteriorated to such an extent last year that we had to decline significantly more business than in previous years. Beyond this, the coverage of our clients’ natural catastrophe and terrorism exposures remains a challenge. The detailed risk information they provide us with, which we analyse in our systems, enables us on the one hand to continue providing substantial cover and on the other to control the accumulation of possible losses from natural catastrophes and terrorism. Altogether, MARP wrote premium of about the same level as in the previous years. Despite a few large losses, we were again able to record a satisfactory combined ratio. Liaising closely with our Group units in Munich, our London subsidiary Great Lakes UK underwrites both large single risks and portfolios of business with small sums insured. The large single risks mostly involve global aviation, space and industrial business, whereas the business with small sums insured mainly comprises personal lines portfolios, which Great Lakes UK writes either as a co-insurer or together with underwriting agencies. Our subsidiary’s premium volume increased to £66m, and its result for the year totalling £52m was exceptionally high owing to one-off tax income of £25m. New Reinsurance Company * 2006 Prev. year Gross premiums written Sfr m 1,007 868 – Life and health Sfr m 455 375 – Property-casualty Sfr m 552 493 Net earned premiums Sfr m 974 827 – Life and health Sfr m 443 379 – Property-casualty Sfr m 531 448 Loss ratio property-casualty % 82.2 123.6 Expense ratio property-casualty % 14.6 20.1 Combined ratio property-casualty % 96.8 143.7 Result for the year Sfr m 299.4 18.9 Investments Sfr m 4,066 3,542 * Financial statements in accordance with national accounting law. Development was also very positive at our Swiss subsidiary New Re, which in traditional reinsurance focuses on non-proportional covers and writes a considerable amount of natural catastrophe business. New Re grew its premium volume by 16% to Sfr 1,007m and substantially increased its profit to Sfr 299.4m. Growth and earnings were driven both by property-casualty business, with a premium volume of Sfr 552m (+12%) and a combined ratio of 96.8%, and by life reinsurance. The life and health segment posted a rise of 21.3% to Sfr 455m. New Re benefited not only from its professional underwriting and good market conditions but also from the absence of major losses in 2006. 85
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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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Munich Re Group Annual Report 2006 (PDF, 1.8

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