Quarterly Report 1/2009 - Munich Re Group

Letter to shareholders
On the other hand, in both renewal rounds, we were able to take advantage
of some very interesting opportunities to profitably expand our portfolio. In
the renewals at 1 July 2009, which primarily involve clients in the USA, Latin
America and Australia, substantial demand for natural hazard covers will
come up against a reduced supply of capacity. We therefore expect an accelerated
hardening of the market.
We are already experiencing a pronounced demand for reinsurance as a capital
substitute in the life and health reinsurance segment, where we have been
able to conclude some large new treaties. This business will mainly be
reflected in the accounts as from the second quarter and as a whole leads to
an appreciably higher premium forecast for the current year.
The primary insurance result was still significantly affected by crisis-related
burdens in the first quarter. The value of the derivatives we had used to hedge
against the reinvestment risk in the event of strongly falling interest rates
showed a decline owing to rising interest rates at the end of the quarter.
Together with our consistent approach in valuing goodwill, this had a major
impact on our net result.
ERGO has been less badly hit by the effects of the crisis than some competitors
and much less badly than in the last crisis. We are therefore satisfied
overall with the development of our primary insurance business, which is so
important for the Group. In recent years, ERGO has invested a great deal in
risk management, value-based management, and cost efficiency. However,
we will only be able to harvest the fruits of these efforts over time.
The current challenges must be seen in relation to important positive aspects
in the medium term, particularly in life and health. The public’s need for care
and provision is steadily rising and increasingly has to be financed privately.
This is especially true in the regions covered by ERGO’s strategy. Confidence
in products outside the insurance industry for saving and retirement provision
has been shaken by the financial crisis. We expect that traditional life and
annuity insurance with guarantees worthy of the name will become considerably
more attractive again in the foreseeable future, particularly in comparison
with bank products.
ERGO is making pleasing progress in international business. A patient
approach is crucial here – we are implementing our strategy with a proper
sense of proportion. It is not always helpful to be present among the first foreign
insurers in important potential markets. Sometimes it is advantageous
not to enter a new market until the “second wave”, when market forces and
consumers can be better assessed.
A good example of this approach is our joint venture with the Indian HDFC
Group in property-casualty insurance, which is proceeding well and according
to plan. Last year, we also signed an agreement in India for the establishment
of a life insurance joint venture. In the light of the financial crisis, however, our
partner – the HERO Group – wishes to shelve these plans and concentrate on
its core business. We respect this decision, but our belief in the opportunities
this significant market offer us is undiminished. We will therefore be pursuing
our plans in life insurance there further, not unnerved by the delay. After very
careful preparation, we also intend to present an ERGO joint-venture partner
in China to you soon.
Munich Re Group Quarterly Report 1/2009
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