Annual Report 1997/1998 - Munich Re

Munich Re Report of the Board of Management
Munich Re Group
Funds in DM bn
as at 30th June
99
105
113
142
1994 1995 1996 1997 1998
Shareholders’ funds
200
Claims equalization provisions
Other underwriting provisions
Our financial strength
Size and security have become decisive competitive factors in
the reinsurance markets in recent years. In view of the growing
risk potentials, insurers attach great importance to their reinsurers’
financial strength.
Outstanding financial strength of the parent company
The financial resources of the Munich Reinsurance Company were
again substantially strengthened in the year under review. The
exercise of the warrants issued in 1994 added nearly DM 500m to
our shareholders’ funds. We have also made another scheduled
improvement in our financial base by allocating DM 150m out of
our profit for the business year 1997/98 to our revenue reserves. The
company’s total shareholders’ funds now amount to DM 4.2bn.
The high degree of security Munich Re offers its clients also derives
from its valuation reserves, i.e. the reserves resulting from the
difference between the book values and current market values of its
investments. These valuation reserves increased considerably in the
year under review, owing to the favourable development of the stock
markets (cf. page 52).
In the current business year, the rights issue of July/August 1998 has
raised a total of around DM 2.1bn for the company. We will use this
broader capital base to take advantage of opportunities to enhance
growth and earnings.
The 1997/98 allocation of DM 1.2bn to our claims equalization
provision and similar provisions also impressively underlines the
parent company’s financial strength. These provisions, which serve to
mitigate future fluctuations in annual results, now total DM 5.8bn.
The underwriting provisions required for our reinsurance business
were again calculated using the same prudent methods as in previous
years. Our claims provisions, where no discounting is applied, were
further increased by means of special allocations. In this way we have,
as in previous years, made allowance for possible long-tail claims in
liability insurance. Our total underwriting provisions now equal 323%
(320%) of net premiums.
Further improvement in the capitalization of reinsurance subsidiaries
Not only the financial strength of the parent company is outstanding.
American Re can also boast very strong capital resources of US$ 2.6bn
after the merger with MARC and our US Branch.
40