Presentation

plainpicture/fStop/Ralf Hiemisch
Delivering strong capital returns
Morgan Stanley 11th Annual European Financials Conference 2015
London, 25 March 2015
European Financials Conference 2015
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Munich Re remains an under-promise/
over-deliver investment case
Delivering on promised net result
3.2
Actual
2.4
2.0
Guidance
3.0
3.3
€bn
Earnings outlook 2015
3.0 3.2
Strong balance sheet
2.5
2.4
2.5–3.0
Direct and indirect impact
of low interest rates
0.7
2010
Sensitivities
20111
2012
2013
Economic solvency ratio2
%
Shareholders’ equity
€bn
138
As at 31/12/14
30.3
155
Interest rates +100bps
Interest rates –100bps
2014
26.8
117
Strong balance sheet mitigates earnings pressure from low interest rates and
declining reinsurance margins
1
2
Assuming normal nat cat claims based on 8.5% budget, net result would have exceeded guidance.
Solvency II capital based on VaR 99.5%, Munich Re internal risk model based on 175% of Solvency II capital.
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Strong track record in value generation
Return on equity
%
Average cost of capital
Risk/return profile1
%
Total shareholder return (p.a.)
20
15.3
14.1
12.5
11.8
Peer 3
15
12.5 12.5
11.3
10.4
Peer 2
10
7.0
Peer 4
Index
5
Peer 5
Peer 6
0
3.3
Peer 1
–5
20
2005
2008
2011
10-year average ROE: ~11.1% –
Clearly exceeds cost of capital: ~8%
2014
25
30
35
40
45
Volatility of total shareholder return (p.a.)
Annualised TSR: ~12.0% –
Outperforming major peers and insurance index
Balanced business portfolio paves the way for sustainable profitability
1
Annualised total shareholder return defined as price performance plus dividend yield over the period from 1/1/2005 until 28/2/2015;
based on Datastream total return indices in local currency; volatility calculation with 250 trading days per year.
European Financials Conference 2015
Peers: Allianz, Axa, Generali, Hannover Re, Swiss Re, ZIG, Stoxx 600 Insurance (“index”).
3
Well positioned to
successfully master industry challenges
Ongoing decline in interest rates is …
… weighing on the investment result
running yield
5
10-year German Bund yield in %
4
4.0%
reinvestment yield
3.6%
3.5%
3.2%
~3.0%
2012
2013
2014
2015e
3
2
1
0
2010
2011
2012
2013
2014
… also leading to imbalance of supply and demand
2011
... and putting pressure on underwriting margins1
2.4%
1.0%
Traditional Alternative
reinsurance capital
capacity
0.2%
Retentions Reinsurance
demand
2011
2012
2013
–2.4%
2014
–1.3%
2015
Prudent investment strategy and underwriting discipline are the order of the day
1
Year-to-date price change of renewals. 2015 only includes January renewals.
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Strong economic solvency – the basis
of our sound capitalisation…
Munich Re actions1
ESR1 – sensitivity
Munich Re solvency ratio (ESR)
%
%
>120%
Excellent capitalisation
MRCM
Solvency II
Solvency I ratio
 Capital repatriation
 Increased risk-taking
 Holding excess capital to
meet external constraints
80%–100%
Adequate capitalisation
Actual
solvency ratio
120%
210%
100%
175%
80%
140%
<80%
Below target capitalisation
 Risk transfer
 Scaling down of activities
 Raising of (hybrid) capital
1
2
3
138
Interest rate
+100bps
100%–120%
Comfortable capitalisation
 Tolerate and monitor
 (Partial) suspension of
capital repatriation
Ratio as at
31/12/14
Interest rate
–100bps
117
Spread
+100bps
119
Equity
markets +30%
Equity
markets –30%
100%
MCR3
2008 2009 2010 2011 2012 2013 2014
Based on Munich Re capital model (MRCM): 175% of VaR 99.5%.
Based on 200-year event.
MCR = minimum capital requirement, typically between 25% and 45%; for groups, called "Group SCR floor".
155
145
131
138
FX –10%
Atlantic
Hurricane2
130
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… driving high shareholder payout
€bn Dividend per share
Attractive shareholder participation1
Cash yield2 11.2%
7.8%
5.4%
6.0%
Share
buy-back 2.4
9.6%
2.7
1.5
Dividend
2010
2011
1.1
2012
Excellent economic solvency ratio
Internal
model
6.8%
8.0%
2.3
7.75
19.7
1.6
2013
CAGR: 7%
€
4.50
2014
2015
2006–2015
Substantial rating capital buffer
Rating
agencies
2006 ... 2010 2011 2012 2013 2014
Solid German statutory accounts
HGB3
flexibility
Temporarily lower earnings are not jeopardising our capital return story
1
3
Cash-flow view. 2 Total payout (dividend and buy-back) divided by average market capitalisation.
German statutory accounting standards.
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Investment management in
low-interest-rate environment
Composition of reinvestment yield 20141
Reinvestment yield (%)
4
3
Running and reinvestment yield
2011
Corporate
bonds
4.0
Bank bonds
Structured
products
Pfandbriefe/
covered bonds
2
1
Government
bonds
3.6 3.5
2012
3.2
%
2013
2014
3.0
2.2 2.3 2.4
0
Yield curve German sovereigns
–1
0
Average
maturity (years)
5
10
15
 Solid reinvestment yields without taking high risks
 In addition to long duration, ongoing geographic
diversification and cautious expansion of credit
exposure mitigating attrition of running yield
Running yield
Reinvestment yield
 Long duration has been stabilising investment
returns in recent years
 At current interest-rate levels, expected annual
attrition of running yield by at least ~20bps in 2015
Well-balanced portfolio provides resilience against adverse capital market scenarios
1
Bubble size reflects reinvestment volume. Yield curve as at 31/12/2014.
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Reinsurance – Leveraging on leading market position
Segmental breakdown – GWP
Life
10.0 (38%)
P-C – Diversified business portfolio1
€bn
Property-casualty
16.7 (62%)
Risk
Solutions
%
Tailor-made
solutions
25 (24)
18 (18)
TOTAL
TOTAL
€26.8bn
€16.7bn
Other traditional
business
57 (58)
Risk Solutions – GWP2
2.9
3.4
3.4
3.8
4.0
€bn
Combined ratio2
4.2
89.6 90.8
%
94.1
42
24
22
23
24
25
2009 2010 2011 2012 2013 2014
32
88.6
87.9
21
€bn
Underwriting result2
83.8
2009 2010 2011 2012 2013 2014
0.3
0.3
26
0.5
0.7
0.5
0.2
2009 2010 2011 2012 2013 2014
Risk solutions – increasingly valuable business segment with strong premium
growth and bottom-line contribution
1
2
GWP = Gross premiums written property-casualty reinsurance for 2014 (2013).
Management view, not comparable with IFRS reporting.
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Property-casualty traditional reinsurance – active
cycle management in challenging markets
High
Traditional p-c portfolio – Outlook 20151
ILLUSTRATIVE
Property
nat cat XL
 Presence in all markets, with
offices in 36 countries2
 Portfolio of risks originating in
Aviation
Pricing pressure
more than 160 countries
Marine
 ~50% of business3 with
Casualty
without motor
placements
 ~30% of business3 with
Credit
complex tailor-made solutions
Motor
Austria
 Well-balanced, highly
Low
Property
without
nat cat XL
differential terms/private
diversified reinsurance
Low
Economic profitability
High
portfolio
Profitability of traditional portfolio is still meeting hurdle rate and comfortably
exceeding cost of capital
1
2
3
Bubble size reflecting gross premiums written as at 31/12/2014 (grey) – Outlook 2015 (blue). Traditional reinsurance only.
Subsidiaries and branches; including Munich Health’s reinsurance activities in the health market as at 31 December 2014.
In January 2015 renewals.
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Life reinsurance - Strategic focus and
areas of attention
Higher
Risk-return profile of selected sub-portfolios
relative to core business
Initiatives
portfolio
ILLUSTRATIVE
FinMoRe
Canada
mortality
GROW
Asset
protection
Return
Asia
Traditional
morbidity
US new
business
Longevity
REPAIR
Lower
Traditional
mortality
Australian
disability
US
LTC
Higher
Compared to competitors
FinMoRe
Business performing well
– strong demand prevails
Asia
Pleasing contribution to VNB
underpins business potential
Longevity
Book developed carefully
in line with risk appetite
Asset protection
Opportunities
€m
Life – Technical result
US
back-book
Risk
354
Lower
Overweight
Underweight
Neutral
Unique
Adjusted
420
359
280
79
2010
2011
2012
2013
2014
Well positioned in established markets and dynamic growth segments
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Primary insurance – well-balanced business portfolio
supports earnings contribution
Segmental breakdown – GWP1
Life/Health
Germany
9,812 (59%)
€m
Property-casualty
Germany
3,115 (18%)
P-C International – GWP
2,288
2,198
2,184
549
451
484
626
649
652
Legal
293
225
232
Turkey
820
873
816
2012
2013
2014
Other
TOTAL
16,736
International
3,809 (23%)
P-C Germany – Combined ratio
%
€m
Poland
P-C International – Combined ratio
%
107.8
98.0
95.5
104.5
96.7
95.3
99.8
98.7
97.3
2012
2013
2014
89.8
2010
2011
2012
2013
2014
2010
2011
ERGO running profitable p-c business in Germany and abroad
1
GWP = Gross premiums written property-casualty reinsurance for 2014.
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Munich Health – Health insurance providing portfolio
diversification, focus on stabilising business
Segmental breakdown – GWP1
Reinsurance
4,059 (76%)
€m
Primary insurance
1,283 (24%)
 … including health reinsurance and primary
insurance (except for ERGO DKV Germany)
 Global presence and leveraging the health
know-how of over 3,000 health experts
TOTAL
5,342
Regional breakdown
Asia and
Australasia
2
Munich Health…
%
Combined ratio
North
America
55
100.2
%
98.3
Africa,
Near and
Middle East
7
Europe
36
2012
2013
Private health insurance growing worldwide above GDP – Munich Health
paving the way for sustainable growth
1
GWP = Gross premiums written property-casualty reinsurance for 2014.
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Outlook 2015
Munich Re (Group)
GROSS PREMIUMS WRITTEN1
€47–49bn
RETURN ON INVESTMENT
at least 3%
NET RESULT
€2.5–3bn
Focus on bottom-line growth
prevails
Solid return given ongoing low
interest-rate environment
RoRaC target of 15% after tax
over the cycle to stand
Reinsurance
ERGO
Munich Health
COMBINED RATIO
COMBINED RATIO
COMBINED RATIO
~98%
NET RESULT
at least €2bn
1
Germany: ~93%
International: ~97%
NET RESULT
~€500m
By segment: Reinsurance €26–27bn, ERGO €16–16.5bn, Munich Health slightly above €5bn.
~99%
NET RESULT
€50–100m
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Munich Re well positioned
for the introduction of Solvency II
Impact on insurance industry
New
standards in
risk-based
supervision
Enhancing comparability
Risk management already effective
and integrated in decision-making
process

Changing
capital
requirements
Depending on company size,
level of diversification and
product specifics
Capitalisation remains very strong –
No major changes expected

Market
dynamics
Driver for consolidation,
reinsurance demand and
product innovation
Market-leader position in structuring
complex, tailor-made solutions

Ready for regulatory requirements while providing clients with capital
management solutions
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Looking ahead – World of opportunities for innovative
business solutions
Creating solutions for new and emerging risks
Rising demand for innovative business solutions
Technology
 Cyber risks
 Energy risks
 Supply chain risks
 Non-damage business interruption
Environment
 Climate change
 Weather events
 Water crisis
Munich Re well positioned
Dedicated specialised business units
 Special Enterprise Risk
 Financial & Enterprise Risk
 HSB Strategic products
 Munich Re Weather & Commodity Risk Holding
Innovation initiatives across all business units
Society
 Contentious
diseases
 Rising cost of
medical treatment
 Reputational risks
Politics
 Regulatory changes
 Global governance
failure
 Political and social
instability/conflicts
Continuous product innovation – Examples
 Solutions for broad range of cyber risks
 Space – launch + life cover for satellites
 Reputational risk cover
 Project cost insurance for construction risks
Tapping new profit pools by expanding existing market boundaries
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For information, please contact
INVESTOR RELATIONS TEAM
Christian Becker-Hussong
Thorsten Dzuba
Christine Franziszi
Head of Investor & Rating Agency Relations
Tel.: +49 (89) 3891-3910
E-mail: [email protected]
Tel.: +49 (89) 3891-8030
E-mail: [email protected]
Tel.: +49 (89) 3891-3875
E-mail: [email protected]
Britta Hamberger
Ralf Kleinschroth
Andreas Silberhorn
Tel.: +49 (89) 3891-3504
E-mail: [email protected]
Tel.: +49 (89) 3891-4559
E-mail: [email protected]
Tel.: +49 (89) 3891-3366
E-mail: [email protected]
Angelika Rings
Andreas Hoffmann
Ingrid Grunwald
Tel.: +49 (211) 4937-7483
E-mail: [email protected]
Tel.: +49 (211) 4937-1573
E-mail: [email protected]
Tel.: +49 (89) 3891-3517
E-mail: [email protected]
Münchener Rückversicherungs-Gesellschaft | Investor & Rating Agency Relations | Königinstraße 107 | 80802 München, Germany
Fax: +49 (89) 3891-9888 | E-mail: [email protected] | Internet: www.munichre.com
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Disclaimer
This presentation contains forward-looking statements that are based on current assumptions and forecasts
of the management of Munich Re. Known and unknown risks, uncertainties and other factors could lead to
material differences between the forward-looking statements given here and the actual development, in
particular the results, financial situation and performance of our Company. The Company assumes no
liability to update these forward-looking statements or to conform them to future events or developments.
Figures up to 2010 are shown on a partly consolidated basis.
"Partly consolidated" means before elimination of intra-Group transactions across segments.
ERGO new segmentation: 2009–2010 before elimination of business with Munich Re, 2011–2014
consolidated, after elimination of all intra-Group business, 2013–2014 new segmentation, earnings include
share of holding costs.
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