Munich Re Group Annual Report 2006 (PDF, 1.8

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.
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