Annual Report 1997/1998 - Munich Re

Munich Re Report of the Board of Management
Our investment policy has paid off
In the selection of our investments we have always attached
importance to quality, which we define in terms of security,
profitability and liquidity. The enormous significance of these
criteria for the international capital markets became evident when –
triggered by the uncertainties in Asia, followed more recently by those
in Russia – a massive flight to quality began. This had a positive effect
on the American and European bond markets, where we had already
placed a large part of our portfolio.
During the past business year the worldwide trend towards lower
interest rates continued. We took advantage of structural changes in
the development of interest rates to make switches in our fixed-interest
securities. In the case of securities used to cover our long-term
obligations from underwriting business, we refined our asset liability
management further.
In the last few years we have proceeded on the assumption that the
capital markets will respond positively to the introduction of the euro
and have gradually modified our investment strategy accordingly. Thus
for share investment in Europe we have replaced our country-based
allocation with a sector and stock approach. We can now justifiably
speak of a European share portfolio.
The European bond market will become the second largest in the
world and, for institutional investors especially, will offer many
more investment opportunities and instruments than hitherto. The
convergence of yields on the European bond markets is largely
concluded. As in the USA, the quality of the individual issuers,
expressed in the differences in yield, will play a bigger role in future.
Our international orientation, and the experience we can draw on in
the USA in particular, will help us to recognize emerging trends in
good time and to respond to them appropriately.
Owing to the large proportion of foreign business in our reinsurance
portfolio, our investments are internationally diversified. In the
business year 1997/98 their volume increased especially in the USA,
Canada and the UK; these markets now account for 14% of our
investments. Given the large investment requirements of our German
life insurers, however, the major portion of our Group’s funds continues
to be placed in Germany.
In 1997/98 we continued to adhere to our principle of matching our
liabilities in foreign currencies with investments in the same or
related currencies in order to minimize currency risks. Our investments
in the various markets reflected this. Given the fact that many Asian
currencies were pegged to the US dollar in one way or another, we had
long matched our liabilities in these currencies with investments on the
US capital market, which also offers significantly better investment
opportunities. We were therefore only affected by the crisis in Asia to
a relatively small extent.
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