Munich Re Group Annual Report 2006 (PDF, 1.8

Munich Re Group Annual Report 2006 Management report_Primary insurance
In health, premium income grew by 4.3% to €5.1bn (4.9bn) –
the strongest growth of all. This increase was due to the
further expansion of new supplementary health insurance
business in Germany, where we recorded a rise of 15.6% to
over four million clients, and to the very satisfactory growth
rate of 15.1% in other countries, above all Belgium and
Spain. In German comprehensive health insurance, the
political debate about health reform continued to cause
uncertainty among clients, curbing the growth that would
normally be present in this segment.
The investment result in life and health totalled €4.1bn
(5.1bn), a decline of 18.5% due not only to the conversion
of HVB shares and the sale of Karlsruher in the previous
year, but also to interest-rate trends. The rise in interest
rates in the first six months, which was partially reversed
between July and December, triggered a loss of about
€283m in the value of our long-term hedges against changing
interest rates. We account for these hedges at fair value
and recognised the fall in value as an impairment loss.
The purpose of these derivative financial instruments is to
cover the interest rates guaranteed to our life insurance
customers, enabling us to meet our commitments, even
if interest rates remain very low for a long period of time,
without having to forgo the opportunities presented by
rising interest rates. The value of these derivatives fell by
€330m to €105m towards the middle of the year as a result
Gross premiums in the property-casualty segment in €bn
2006
2005
2004
2003
2002
of rising interest rates, but rose again to €153m in the second
half of the year. In the previous year, the investment
result had been positively affected by particularly high
gains from the disposal of shares in the financial sector.
As expected, expenses for claims and benefits were
also affected by the investment result, which is particularly
significant in this respect in life and health business. These
expenses were up as a result of payouts in life insurance
and rising prices in healthcare, but this increase was offset
by lower net allocations to the provisions for future policy
benefits and the provision for premium refunds. Expenses
therefore experienced an overall decrease of 7.0%.
Costs also developed very favourably. Despite high
expenses for new IT systems in health, the administrative
expense ratio remained constant at a favourable 3.4%. In
life, the administrative expense ratio was reduced from
4.5% to 4.4%, reflecting our firm cost discipline, which we
intend to maintain.
Property-casualty
In property-casualty we again achieved a very good consolidated
result of €726m (585m).
Premium income totalled €5.1bn (5.3bn). Adjusted for
the changes in the consolidated group, premium grew by
2.8% to €5.1bn (4.9bn).
5.1
5.3
5.2
5.1
4.8
89