Quarterly Report 1/2009 - Munich Re Group

Interim management report Business experience
1 Including owner-occupied property.
20 Munich Re Group Quarterly Report 1/2009
At the end of the quarter, fixed-interest securities and loans totalled €154bn or
approximately 87% of our total investment portfolio at carrying amounts, an
increase of 1.3 percentage points compared with the beginning of the year,
and 13 percentage points more than at 31 December 2007.
We have placed the majority of this portfolio (47%) in government bonds or
similarly secure instruments for which public institutions are liable; approximately
56% relates to German and US issuers. Additionally, around 26% of
our investments are in securities and debt instruments with top-quality collateralisation,
mainly German pfandbriefs with good rating structures.
In the first quarter, we again exercised restraint in the assumption of credit
risks. We carried out selective restructuring within our portfolio of creditexposed
fixed-interest securities, taking advantage of the considerable widening
of risk spreads on corporate bonds to prudently improve our positions. As
at the reporting date, these accounted for approximately 9% of our portfolio of
fixed-interest investments. By contrast, we systematically trimmed back our
portfolio of asset- and mortgage-backed securities to €5.2bn (6.1bn). Around
70% of our portfolio of asset- and mortgage-backed securities were issued by
state-supported agencies.
At the reporting date, approximately 11% of our portfolio of fixed-interest
securities and loans, which includes short-term items, was invested with
banks. A small portion of our bank exposure, around 2%, is comprised of dormant
holdings, participation certificates and other quasi-equity instruments.
Another 8% is in subordinated bonds with limited maturities.
As protection against the risks of future inflation and the associated rise in
interest rates, we hold bonds worth approximately €7.2bn (6.5bn) for which
the interest and redemption amounts are linked to inflation (inflation-indexed
bonds). These account for 4.7% of our portfolio of fixed-interest securities and
loans at market value.
In the first three months up to the reporting date, we recorded a countervailing
trend overall in risk-free interest rates. Whilst a steepening of the interestrate
curve was apparent in Germany, risk-free interest rates in the USA rose
continuously. Divergent effects both within and between individual asset
classes were also apparent in risk spreads on fixed-interest securities. Overall,
however, the developments in the area of fixed-interest securities were largely
self-compensating. Net unrealised gains on our fixed-interest securities in the
“available for sale” category thus declined only marginally by €54m to €1.4bn
(see table on page 19) in the period under review.
Valuation reserves not recognised in the balance sheet
Valuation Fair value Carrying Valuation Fair value Carrying
reserves amount reserves amount
€m 31.3.2009 31.3.2009 31.3.2009 31.12.2008 31.12.2008 31.12.2008
Land and buildings¹ 1,449 7,590 6,141 1,506 7,551 6,045
Associates 210 1,001 791 168 1,117 949
Loans 444 43,127 42,683 626 41,052 40,426
Other securities 1 132 131 1 144 143
Total 2,104 51,850 49,746 2,301 49,864 47,563