Munich Re Group Annual Report 2006 (PDF, 1.8

Munich Re Group Annual Report 2006
Since the market conditions are attractive, this transaction
will allow us to influence our investment result with capital
gains of more than €500m, of which only a small portion
was realised in the past financial year. We are constantly
on the look-out for interesting property investments, the
size and liquidity of the market being important criteria.
Besides this, the international diversification of our portfolio
is a key element of our real estate strategy. The new
investments focus on commercial properties in prime locations
of major European cities, including project developments
that round off our portfolio. Together with local partners
we are also active in the Asian and American real
estate markets.
Fixed-interest securities and loans
Investments in fixed-interest securities and loans dominate
our investment portfolio, jointly accounting for €127.5bn
(125.4bn) or 72.1% of our total assets. We increased our
investments in loan items such as registered bonds and
borrower’s note loans – valued at amortised cost – by
€4.7bn, mostly at our primary life insurers.
Our portfolio of fixed-interest investments has an
excellent rating structure. As at 31 December 2006, approximately
97.6% of our fixed-interest securities were
investment grade and 93.5% were rated “A” or better.
Bearing in mind the interests of their policyholders, the
primary insurance companies in the Munich Re Group concentrate
on achieving a competitive net return. In order to
earn sufficient regular income for this, they have invested
in fixed-interest securities with longer terms to maturity
and correspondingly higher coupon rates. The duration –
i.e. the average capital commitment – of our bond portfolios
was 6.7 years in the Munich Re Group at the balance
sheet date.
In the first half of 2006, the valuation reserves of our
fixed-interest securities accounted for at fair value sank
due to increasing interest rates. Owing to declines in yields
on long-term securities after a mid-year peak, we recorded
increases in the valuation reserves of our fixed-interest
securities and loans again in the second half of the year. On
31 December 2006, the German bond markets closed with
a yield of 3.95% for ten-year government bonds, 65 basis
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Management report_Asset management
points above the level at the beginning of the year and
19 basis points below the year high. The yield on ten-year
US government bonds climbed by 31 basis points to 4.7%
in the course of 2006, with a year high of a good 5.2%.
Net unrealised gains on our non-fixed-interest securities
available for sale totalled €0.8bn (3.7bn) at the end
of the financial year.
Equities and shareholdings
The Munich Re Group reduced its equity portfolio slightly
in the year under review, taking advantage of the favourable
stock market situation to sell off several share packages.
Furthermore, we continued our strategy of diversifying
our equity investments more strongly and further
reducing historically evolved shareholdings in the German
banking and insurance sector. Our stake in Allianz, which
amounted to just under 5% at the start of the year, was
again reduced in the year under review, allowing us to
realise a gain on disposal of €330m. The bulk of our equity
portfolio comprises shares in European companies. The
relevant index for this market, the EURO STOXX 50,
climbed 15.1% in the course of the year to 4,120 points.
The representative US stock market index, the S&P 500,
also moved up 13.6%, closing the year at 1,418, whilst the
Japanese Nikkei was up 6.9% and closed at 17,226.
Following a mid-year correction, the markets recovered
between July and December, registering gains
once more. The good performance of the stock market
caused the balance sheet reserves of our equity portfolio
to grow in the course of 2006. At the end of the year, net
unrealised gains on non-fixed-interest securities available
for sale totalled €8.5bn (7.3bn), thus exceeding the volume
of the previous year by 16.0%.
On the balance sheet date, our equity-backing ratio, i.e.
the proportion of investments in equities, equity funds and
shareholdings on total investments at market values, was
14.6%, only slightly above last year’s level of 14.0%. After
taking account of hedging transactions and equity derivatives,
it amounted to 14.1% at the end of the year.