Annual Report 1997/1998 - Munich Re

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Munich Re Report of the Board of Management Risks of future development On 1st May 1998 the German law on control and transparency in the corporate sector (KonTraG) came into force. One of the obligations it imposes on listed companies is to report on the risks of future development. For the insurers and reinsurers in the Munich Re Group, the risks of significance in this connection – besides the normal market risks – are in particular the underwriting risks, the risks in the investment sector and the currency risk. The main underwriting risks are the risk of higher claims being incurred owing to chance factors (risk of random fluctuations) and the risk that legal, economic, social or technological parameters or behavioural patterns will change and that such changes cannot be countered in time by adjustments in the prices or conditions for the insurance or reinsurance cover (risk of change). Both the insurers and the reinsurers in the Group have balanced portfolios and large underwriting provisions – the claims equalization provisions alone total almost DM 7bn. For our underwriting business, especially the reinsurance of natural catastrophe risks, there are precise underwriting guidelines. We write reinsurance business only within the framework of annually fixed budgets for precisely defined loss scenarios; adherence to these budgets is constantly monitored. As far as our retrocessions are concerned, we apply high standards to the security of our retrocessionaires. The underwriting risk connected with claims that may arise from the changeover to the year 2000 cannot be reliably quantified at present; we have taken precautionary measures in this respect. Together with our clients we are also actively endeavouring to limit the possible losses from the effects of the millennium problem. In the investment sector we counter interest rate and equity risks with a broad mix of investments, a geographical spread which follows that of our underwriting business, and also in individual cases by the controlled use of derivative financial instruments. As a result of our strict investment guidelines, the credit risk is not significant. We endeavour to avoid currency risks by matching our liabilities in foreign currencies with investments in the same or similar currencies, so that exchange gains and losses largely neutralize each other. Altogether, we cannot perceive any development at present that could have a lasting and significant adverse effect on the assets, liabilities, financial position or results of the Munich Re Group or the Munich Reinsurance Company. Following the strategic measures taken in the last few years, the Munich Re Group is well equipped for the challenges of the future. 57
Munich Re Topical subjects Topical subjects in reinsurance 59
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Annual Report 1997/1998 - Munich Re

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