Quarterly Report 1/2009 - Munich Re Group

Interim management report Business experience
Our regular investment income reached nearly the same level as in the previous
year, primarily on account of higher interest payments from a considerably
larger portfolio of fixed-interest securities and loans compared with the
previous year. The systematic reallocation of investments from equities to
interest carriers and the associated expansion in our fixed-interest portfolio
largely offset effects such as the much-reduced dividend payments and
income from associates.
In the first three months of the financial year, the net balance of write-ups and
write-downs on our investments was –€542m (–508m). This slight decline is
partly due to the fact that, compared with the previous year, we had to make
relatively high write-downs of €100m (20m) on our fixed-interest securities
and loans in the period under review. A counterbalancing effect resulted from
the much lower economic equity-backing ratio we have achieved over time
through measures such as disposals and the increased use of further hedging
instruments.
Between January and March 2009 we made total write-downs of €267m
(1,332m) on our non-fixed interest securities categorised as “available for
sale”, which related almost exclusively to our equity portfolios. At €413m
(1,131m), derivatives accounted for almost all of our total write-ups of €418m
(1,159m), of which derivatives with non-fixed-interest underlying business
made up €299m (1,071m). All in all, the net balance of write-ups and writedowns
on our derivatives was –€129m (887m).
Furthermore, the revaluation of the Munich Re Group’s total portfolio of fixedinterest
securities categorised as “available for sale” in the period under
review resulted in write-downs totalling approximately €98m (21m) as well
as changes in equity 1 . We made write-downs in the mid double-digit million
range on our asset- and mortgage-backed securities, with mortgage-backed
securities and collateralised debt obligations being particularly affected.
Given the risk of non-payment on participation certificates, dormant holdings
and similar banking-sector equity instruments, we made write-downs in the
mid double-digit million range on such instruments between January and
March.
Despite the high volume of write-downs in comparison with the previous year,
we cannot rule out further write-downs if the current difficult economic situation
persists. We envisage particular risks of further impairments among the
tier 1 and upper tier 2 instruments in our bank exposure, and among our participation
certificates, some of which we have already written down. Our total
exposure to such securities as at the reporting date is €436m at market values.
1 Please see page 101 of the Munich Re Group Annual Report for more information on impairment
tests for fixed-interest securities categorised as “available for sale”.
Munich Re Group Quarterly Report 1/2009
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