Presentation - Renewals 2004 - Munich Re

Munich Re Group
Renewals 2004
19 February 2004

Agenda
Overview
Reinsurance group
Business units / Lines of business
Outlook

Overview

Munich Re’s renewals
Highlights
Overview
Reinsurance group Business units / Lines of business Outlook
– Renewal season successful: all profitability targets met
– Rate increases averaging nearly 5%
– Further improvement in terms and conditions driven by risk
limitations and exclusions
– Overall growth flat
Risk profile clearly improved;
conditions for a continued strong operating performance set
4

Market sentiment
Overview
Reinsurance group Business units / Lines of business Outlook
– Ongoing high degree of
discipline, also among small
market players = focus on
underwriting profit, not growth
– Hard market still holding but
ambivalent signals; game is
played on a high plateau
– Capacity generally adequate,
but not excessive
– Widely differing market
conditions (regional, line of
business, proportional vs.
non-proportional)
300
250
200
150
100
50
0
CBS-Lloyds Index (1986=100)
91 93 95 97 99 01 03
Source: CBS Private Capital, December 2003
Marine
5
Non-marine
Aviation

Munich Re’s renewals strategy
Overview
Reinsurance group Business units / Lines of business Outlook
Munich Re is committed to strong profitability
(RoE targets instead of growth or market share targets)
Inadequately priced business eliminated
Focus on a sustainable improvement of our portfolio
and the enhancement of terms and conditions
Minimal topline decline offset by
significantly improved portfolio quality
6

Munich Re’s renewals
Pricing
Overview
Reinsurance group Business units / Lines of business Outlook
– Munich Re met profitability targets in all lines of business and regions
– Consolidation of property rates at a technically adequate level
– Casualty rates show further increase
– Aviation business with price reductions but still risk-adequate
Improved Munich Re portfolio through consistent
and selective underwriting
7

Munich Re’s renewals
Terms and conditions
Overview
Reinsurance group Business units / Lines of business Outlook
– Consistent application of restrictive terrorism clauses
– Further implementation of event limits
– Exclusion and limitation of epidemics in high risk areas
– Reduced exposure in contingent business interruption covers
– Named risk exclusion clause for large property risks
– Introduction of ACOD clause* (“one man, one event”) in workers’
compensation
– Reductions of exposures in unlimited liability covers
Risk profile of our portfolio was further improved:
positive impact will be sustainable
*Accumulation of occupational disease clause
8

Reinsurance group

January renewals 2004 (Premiums written)
Overview
in %
100
80
60
40
20
0
Reinsurance group
Business units / Lines of business Outlook
Total
portfolio Facultative Total treaty Multi -year
Total
renewable
Later
renewals
January
renewals
100 21 79 1 78 17 61
10

Portfolio up for renewal
Overview
Reinsurance group
Business units / Lines of business Outlook
– Total portfolio in 2003 consisted of 21% facultative business and 79%
treaty business
– 78% of our total treaty business renewable during 2004
– 17% of total portfolio has later renewal dates (mainly Asia and the US)
– Overall, 61% of our total portfolio is renewable in January
– Portfolio mix unchanged
11

Changes in premium
Overview
in %
100
80
60
40
20
0
Reinsurance group
Business units / Lines of business Outlook
Total 2003
renewable Cancelled Renewed
Increase on
Total 2004 est.
renewable New business outcome
100 21
79 9 10 98
This represents 11.4%
of renewed.
Thereof
4.9% rate increase
6.5% share increase
All numbers on 2004 renewals contain estimates
12

Risk adequate pricing
Overview
Proportional
business
XS-treaty/
facultative
business
Reinsurance group
Business units / Lines of business Outlook
Strict application of risk-adequate pricing
– Only clients that implement strict risk-related original rates policy and
procure reinsurance for pure capacity reasons get proportional cover
– Application of sophisticated prospective pricing tools
– Permanent monitoring of original rates introduced by segment/by
market to have most up-to-date information available for adequate
underwriting decision (avoid retrospective view)
– Additional underwriting audits to verify the underwriting of our cedants
– Introduction of clauses to guarantee rate increase/rate stability of the
covered portfolio
– Application of state-of-the-art pricing tools
– Good knowledge of price adequacy
– Worldwide monitoring of price developments
13

Business units /
Lines of business

Split of renewed business by
business units / lines of business
Overview
Business units in %
Reinsurance group Business units / Lines of business
Outlook
37 Europe 1, Europe 2 / Latin America
18 North America
4 Asia, Australasia, Africa
33 Global Clients
8 Special and Financial Risks
Lines of business in %
33 Property
51 Casualty
7 Marine
5 Credit
4 Aviation/Space
15

Business units – Europe
Overview
Reinsurance group Business units / Lines of business
Outlook
– Slight rate increases in Germany; fine-tuning of terms and
conditions was achieved
– Slight premium reduction due to selective underwriting in a mature
market
– Constant price level in the UK; non-renewal of one large motor
quota share due to changed ownership
– Increased competition and adequate market capacity
16

Business units – North America
Overview
Reinsurance group Business units / Lines of business
Outlook
– Our pricing was at the very top of the US market
– Increased net retentions by clients, in order to reduce their reinsurance
costs, was a big issue
– Slight decrease of property business
– Further growth in specific US casualty lines with further increasing rates
– Withdrawal from larger industrial business as a result of rate reductions
in the market
17

Business units – Asia, Australasia, Africa
Overview
Reinsurance group Business units / Lines of business
Outlook
– Prices remained at a risk-adequate level
– Further reduction of exposures through
• typhoon limits in Greater China and earthquake limits in Israel;
• exclusion or limitation of epidemics in Hong Kong and China.
– 54% of the treaties were renewed on 1 January
Upcoming important renewal date for these regions is 1 April
(e.g. Japan, Korea)
18

Business units – Global Clients
Overview
Reinsurance group Business units / Lines of business
Outlook
– Premium reduction mainly due to planned reduction in RSA quota
share (approx –€600m)
– Increased rates for casualty business
– Property: cutback of reinsurance for Lloyds
– Treaties renewed at tighter terms and conditions
– No shortage of capacity but disciplined competition
19

Business units – Special and Financial Risks
Overview
Reinsurance group Business units / Lines of business
Outlook
– Focus on alternative markets business, aviation/space and credit
– Alternative markets:
• Consolidation of property rates
• Strong increase in casualty
– Rates in credit stable and at very attractive levels
– Strong reduction of energy business due to insufficient rates
– Aviation rates are weakening but are at a risk-adequate level
– Higher rates and more satellite launches will increase the premiums
in space
20

Lines of business – Property
Overview
Overview
Pricing
Reinsurance group Business units / Lines of business
Outlook
– Rates consolidating at technically adequate level
– The favourable loss experience over the last two years is causing
pressure with cedants trying for lower rates
– Property nat. cat. rates are starting to decrease. However, owing to
underwriting discipline in the markets, pricing remains responsible
21

Lines of business – Property
Overview
Overview
Reinsurance group Business units / Lines of business
Outlook
Terms and conditions
– Reduction of exposure in contingent business interruption
– Nuclear causes exclusion
– Continuation of our terrorism insurance concept
– Further introduction of event or cession limits in nat. cat.
Capacity
– Sufficient capacity available
22

Lines of business – Property
January renewals (premiums written)
Overview
in %
100
80
60
40
20
0
Reinsurance group Business units / Lines of business
Outlook
Total
portfolio Facultative Total treaty Multi -year
Total
renewable
Later
renewals
January
renewals
100 28 72 1 71 14 57
23

Lines of business – Property
Changes in premium
Overview
in %
100
80
60
40
20
0
Reinsurance group Business units / Lines of business
Outlook
Total 2003
renewable Cancelled Renewed
Increase on
renewable New business
Total 2004 est.
outcome
100 22 78 5
12
95
This represents 6.4%
of renewed.
Thereof
2.6% rate increase
3.8% share increase
All numbers on 2004 renewals contain estimates
24

Lines of business – Casualty
Overview
Overview
Pricing
Reinsurance group Business units / Lines of business
Outlook
– Overall price improvement particularly in industrial risk and special
lines D&O, E&O.
– Motor:
• Proportional business stable on high level
• in XL substantial rate increases
– Increase of XL reinsurance rates, but slowed down
– Benefit of proportional reinsurance through favourable situation in
primary segment
25

Lines of business – Casualty
Overview
Overview
Reinsurance group Business units / Lines of business
Outlook
Terms and conditions
– Improved and achieved
Capacity
• Clearer definition of the scope of cover
• Tighter exclusions
• Reduction of exposures, e.g. in unlimited covers
• Abolishment of severe inflation clause
• Introduction of ACOD clause*
• Old Bermuda capacity entering the market, but not aggressively
• Industrial liability – no visible overcapacity in the renewal
*Accumulation of occupational disease clause
26

Lines of business – Casualty
January renewals (premiums written)
Overview
in %
100
80
60
40
20
0
Reinsurance group Business units / Lines of business
Outlook
Total
portfolio Facultative Total treaty Multi -year
Total
renewable
Later
renewals
January
renewals
100 20 80 1 79 13 66
27

Lines of business – Casualty
Changes in premium
Overview
in %
100
80
60
40
20
0
Reinsurance group Business units / Lines of business
Outlook
Total 2003
renewable Cancelled Renewed
Increase on
renewable New business
Total 2004 est.
outcome
100 20
80
11 10
101
This represents 13.8%
of renewed.
Thereof
8.3% rate increase
5.5% share increase
All numbers on 2004 renewals contain estimates
28

Lines of business – Marine
Overview
Overview
Reinsurance group Business units / Lines of business
Outlook
Pricing
– Rate level generally risk-adequate
– Still rate improvements in most classes (direct business)
Terms and conditions
– Leading role in implementation of new RACE*, including biochemical
exclusion
– Introduction of occupational disease clause (one man one event) in
marine liability
– Reduced exposure due to further increase in retentions
Capacity
– Increasing capacity noticeable (=more competition)
– Tight surveillance of the market is necessary
*Radioactive contamination exclusion
29

Lines of business – Marine
January renewals (premiums written)
Overview
in %
100
80
60
40
20
0
Reinsurance group Business units / Lines of business
Outlook
Total
portfolio Facultative Total treaty Multi -year
Total
renewable
Later
renewals
January
renewals
100 6 94 0 94 11 83
30

Lines of business – Marine
Changes in premium
Overview
in %
100
80
60
40
20
0
Reinsurance group Business units / Lines of business
Outlook
Total 2003
renewable Cancelled Renewed
Increase on
renewable New business
Total 2004 est.
outcome
100 12
88
6
5
99
This represents 6.8%
of renewed.
Thereof
3.5% rate increase
3.3% share increase
All numbers on 2004 renewals contain estimates
31

Lines of business – Credit
Overview
Overview
Pricing
Reinsurance group Business units / Lines of business
Outlook
– Increased rates, portfolio at a risk-adequate level
Terms and conditions
– Favourable terms and conditions could be maintained and defended
Capacity
– Towards the end of the renewals more capacity in the market
32

Lines of business – Credit
January renewals (premiums written)
Overview
in %
100
80
60
40
20
0
Reinsurance group Business units / Lines of business
Outlook
Total
portfolio Facultative Total treaty Multi -year
Total
renewable
Later
renewals
January
renewals
100 6 94 0 94 18 76
33

Lines of business – Credit
Changes in premium
Overview
in %
100
80
60
40
20
0
Reinsurance group Business units / Lines of business
Outlook
Total 2003
renewable Cancelled Renewed
Increase on
renewable New business
100 20
80
4
7
91
This represents 5% of
renewed.
Thereof
4.5% rate increase
0.5% share increase
All numbers on 2004 renewals contain estimates
Total 2004 est.
outcome
34

Lines of business – Aviation/Space
Overview
Overview
Aviation
Reinsurance group Business units / Lines of business
Outlook
– Rate reductions throughout underwriting year 2003
– Rate level still adequate
– Further rate reductions to be expected unless higher claims
frequency occurs
– Price reductions for portfolios with unchanged exposures
Space (no specific renewal date)
– Increased number of satellite launches planned in 2004
– Slight premium increase due to higher rates
35

Lines of business – Aviation/Space
January renewals (premiums written)
Overview
in %
100
80
60
40
20
0
Reinsurance group Business units / Lines of business
Outlook
Total
portfolio Facultative Total treaty Multi -year
Total
renewable
Later
renewals
January
renewals
100 49 51 3 48 12 36
36

Lines of business – Aviation/Space
Changes in premium
Overview
in %
100
80
60
40
20
0
Reinsurance group Business units / Lines of business Outlook
Total 2003
renewable Cancelled Renewed
Decrease on
renewable New business
Total 2004 est.
outcome
100 2
98 4 3 97
This represents –4.1%
of renewed.
Thereof
–2.5% rate decrease
–1.6% share decrease
All numbers on 2004 renewals contain estimates
37

Outlook

Renewals outlook:
Reasons for a stable market
Overview
Supply
Reinsurance group Business units / Lines of business Outlook
– Capital position of the industry is adequate but not excessive
– Investment returns do not compensate for poor underwriting results
– Continued rating agencies’ pressure on the industry
– Improved price transparency and cycle monitoring
– Lessons learned among many industry players
Demand
– Continued high demand for reinsurance cover
– Limited appetite among primary insurers for volatile earnings remains
39

Renewals outlook: Conditions for a
continued strong operating performance remain
Overview
Reinsurance group Business units / Lines of business Outlook
– Market remains firm; some lines of business have further upward
potential
– Sufficient capacity available for adequately priced business
– Overall market discipline remains strong
– Munich Re committed to RoE targets
– Further portfolio enhancement through focus on terms and conditions
– Leveraging on our strengths of expertise, quality and security
For 2004 we expect a combined ratio of under 97%
40

Appendix

Financial calendar
Overview Appendix
Reinsurance group Business units / Lines of business Outlook
17 March 2004
Provisional figures for consolidated financial statements 2003
15 April 2004
Annual report 2003; balance sheet press conference
16 April 2004
Analysts’ conference, Munich
26 May 2004
Annual General Meeting, Munich
27 May 2004
Dividend payment
3 June 2004
Interim report as at 31 March 2004
4 August 2004
Interim report as at 30 June 2004; half-year press conference
3 November 2004
Interim report as at 30 September 2004
42

For information please contact
Overview Appendix
Reinsurance group Business units / Lines of business Outlook
Pedro Janeiro Martins Christian Jacobi
Head of Investor Relations Tel.: +49 (0) 89/38 91-23 76
Tel.: +49 (0) 89/38 91-39 10 E-mail: cjacobi@munichre.com
E-mail: pmartins@munichre.com
Ralf Kleinschroth Robert Kinsella
Tel.: +49 (0) 89/38 91-45 59 Tel.: +49 (0) 89/38 91-30 19
E-mail: rkleinschroth@munichre.com E-mail: rkinsella@munichre.com
Ingrid Grunwald
Tel.: +49 (0) 89/38 91-35 17
E-mail: igrunwald@munichre.com
Fax: +49 (0) 89/38 91-98 88
E-mail: InvestorRelations@munichre.com
Internet: www.munichre.com
43

Disclaimer
Overview Appendix
Reinsurance group Business units / Lines of business Outlook
The information given here, in particular the “Outlook” section, refers to
statements relating expressly and implicitly to the future and contains words
such as “expect”, “believe”, “assume”, “targets” and other similar expressions.
Such forward-looking statements are based on current expectations, estimates,
forecasts and prognoses concerning the development of the market as well as
management estimates and assumptions. Such forward-looking statements are
no guarantee that events or results will actually materialise in the future and are
subject to risks, uncertainties, assumptions and other factors that could lead to
actual events or results deviating substantially from those anticipated in these
forward-looking statements. Other factors include in particular catastrophes that
could lead to extraordinary loss burdens as well as considerable price changes
on the capital market, namely share price changes which may have an impact
on the financial situation of the Munich Re Group.
44