Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (ETR:MUV2)

Earnings Call: Q4 2013

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Mar 20, 2014

Strong balance sheet and strong returns is what you can read on the slide behind me. Now, those of you who know us or have known us a little longer find this a maybe unusual wording, but we do believe we are justified in using these terms. Welcome to the balance sheet press conference here in Munich for the fiscal year 2013, and also welcome our viewers watching us live on the web. As you're used to, it will be transmitted in full and will be available on the website later on in the German and English interpretation. As you saw, we also published the annual financial statements for 2013 this morning, and together with the key figures and the renewal results as of January 1st, which we had already communicated on February 4th of this year. Today, it is as always on a more in-depth explanation and a dialogue with you. As you're used to, you can see to the far right, Mr. Schneider, our CFO, to my left, Nikolaus von Bomhard, our CEO, and to your left, Torsten Oletzky, the CEO of ERGO, and to the far left, Torsten Jeworrek, the CEO of Munich Re. With that, we start and I hand over to Nikolaus von Bomhard. Well, thank you very much, Mr. Lorenz, and thank you and welcome here to this hall and as you're watching from the web. The third best result in the company history, therefore, we duly consider this to be a strong result, as you can see on the slide. This is, of course, borne out above all by the fact that we already had, of course, slightly better results but these results were achieved in a low interest rate environment and therefore stand good in any comparison. What we feel is important, promise less and then by all means fulfill that, which we achieved duly. You may recall only 2011 with a major earthquake in New Zealand and Japan that strayed from that path. Otherwise, we do tend to deliver as we promise. Equally important for us is that our shareholders participate in this result. The dividend policy takes pride of place with Munich Re. There's a nice coincidence because you may know that the German federal government is trying to have a balanced budget for the first time since 1969. We have never cut our dividend ever since 1969. I do not hope that we will see a reversal of the trend like with the German federal government. We will just continue as we did so far. Nonetheless, I believe this is quite an interesting coincidence. Looking at the share buyback program, we had an ad hoc notification sent out this morning, and we have already acquired close on to EUR 800 million in shares, so that by the AGM at the end of April, we will have reached EUR 1 billion in volume in the buyback program. Of course, on the background of very strong results and strong expectations going forward. As Mr. Schneider will later outline, with a very solid capital platform, we felt the time has come to already announce the next share buyback program as of today. One last note on this from my side, on this slide that you can see here, you see this on the bottom row, is that I would also like to point out that this good result has been generated by all three business divisions. Of course, there's always volatility in the results, and it doesn't hold true that all three of them come in on a par. Of course, here in the combined ratio, there are coincidences that sometimes spring a surprise on us. But this year, there's no reason to complain for any of the divisions. Of course, it might be somewhat tricky to unravel the results because there are a number of one-time effects included here. But as Mr. Schneider will in his summary outline, the result nonetheless is a very strong one, clearly above EUR 3 billion, and that's why we have picked the heading as you had found it here, strong results and a strong balance sheet that Mr. Lorenz had already pointed out. I believe I have said so before at some of our press conferences. We do not have any residual loads that we're carrying with us. No, we go unburdened into every year. We don't have any backlog of problems to be solved, which of course makes it easier for us here sitting in front of you because we can be quite relaxed going forward. I believe that is also why we find it is possible to achieve the targets that we have outlined and promised. Next slide, and I only have three slides with me here at this junction. This is an equally important slide because you can see that we have seen fundamental changes due to crisis on the capital markets. I refer to the interest rates, but also to a surge in volatility and abundance of political uncertainty. In 2003 and 2004, we started to build up our economic internal control mechanism. We have created conditions which allowed us later on to cope and master the challenges of the crisis, which I may say now with hindsight allowed us to deal with these crisis scenarios rather well, especially when you look at interest rates. That means that the relative weight from the insurance business increased continuously. That's what you can see on the left side of the graph. You can see the relative share in operating results with the exception of 2011, the year of the major natural catastrophes that I earlier mentioned. Apart from that, though, you can see we were consistently above 50% with a trend to improving earning contributions. Because we do not answer ourselves to be a company that plays with the capital market. Our value proposition to the shareholders is we are competent insurance and reinsurance experts, and that's why we want to have this strong share of earning contributions from underwriting. So we almost try to shield ourselves from the ups and downs, from the oscillations of the capital market. The core business remains insurance. I think that's quite tangible, and Mr. Oletzky will address this later, especially when you look at the German life insurance market, both when you look at the product and/or the portfolio of contracts. On the right-hand side, I think an equally interesting question here, why do we look at these reserving positions and why do we always stress them? Well, because in the property and damage business, we have well over EUR 50 billion here exposed. The question whether that's right or wrong, of course, when you look at these percentage figures, does make a difference. What you can see here is, of course, harking back to a time when we had a bit of an issue with reserves. That was in the years 2003, 2004, maybe even 2005. We have now changed the way we build reserves, the way we form these reserves, and since then, continuously have conservatively moved forward. Now we have achieved a level where we would say, also in view of the auditors, we are only moving sideways. Namely, we're sticking to the 4% line. You can see here, combined ratio in the property casualty segment with well over EUR 50 billion, where over the last few years, we have always stuck within that range of around 4% and will in future always retain moving around the 4%, because this is important as it shores up our earnings. Allow me to stress that when you look at ERGO, this might be a slightly more volatile image here, but of course, if you take a look at net premiums, but also the earnings and proceeds, then you can see that the figures of ERGO do correspond pretty close to those of reinsurance. It will look slightly different, it's true. The figure would be somewhere in the region of 2% and ERGO in its damage settlements is always here in the region of EUR 550 million, but nonetheless, they are almost identical ratings and figures. All in all, we do not want to make a bet. We do not think we know what the next day brings you in the capital markets. We believe that the intelligence in the market here is better than intelligence we can offer. So that for our shareholders, that means if you invested with Munich Re, you're investing in a reinsurance company with all warts and all, but we do not try to be the smarter capital investor. No. The capital investment replicates our investments no more. In a very low degree, we participate with our investments and positions, but we do not bet on inflation. We do not bet on interest rate developments. We do not bet on currency fluctuations. All of these are, I would say, very controlled within our investment portfolio. Then, this is also my responsibility at the moment, which is set to change as of May 1st this year. I'm still responsible for Munich Health, which of course, at the moment is not represented here on this platform. So just a brief review of last year and what you can expect from the health side. You see, we had a tricky year 2012, but a very healthy year 2013. Most, I would say, do not reflect what this division is capable of doing. On one side, it was too good last year, and in 2012, of course, the result were too bad. We were cautious with the balance sheet in 2012, as we did not know what our primary insurance activities would bring, especially in the U.S. To date, we know it because as you know, we sold our primary insurance business in the U.S., but at the time were uncertain whether our rehabilitation plans would pan out as well as they did. That is why we had these two digit million EUR figures here in earnings that we had not planned in and scheduled. That is why the result for the preceding year is, I would say, a tick too good. Nonetheless, looking at the challenges of primary insurance business in the U.S. is an issue that we have addressed and solved. It does not mean that we will not face other challenges in the primary insurance business, like in any other business field. But that, for me, is standard operations. Nobody can expect that in a major business unit, everything will run smoothly because, of course, also with Munich Re, things do sometimes hit a bump or a dent. But as of May 1st this year, Mrs. Höpke will take over the health division, and I think we have settled some of the key questions over the last 12 months. But she definitely can, in many ways, leave a handwriting on Munich Health as we go forward. The reset button has been pressed, I would say, well over a year ago. So that all in all, we can be satisfied with that business division because, of course, it helps us to diversify our competencies. It takes up very little risk capital by comparison and is in a market that to all intents and purposes, is growing. So far from my side, I will come back to the figures for the current year. With that, I hand over to Mr. Schneider. Thank you very much, Mr. von Bomhard. Ladies and gentlemen, the high profit of the previous year has also been supported by non-recurring or one-off effects. But if you disregard them, or if we smooth them out, then we still have achieved our EUR 3 billion objective very well. Just to give you an idea, the investment result was lower than expected, EUR 160 million, EUR 170 million. The combined ratio in reinsurance was clearly better. This was certainly supported by the releases of the provisions, various provisions, about EUR 300 million primary insurance. We were affected by a host and the dimensions of natural catastrophes, EUR 100 million, EUR 120 million worse than expected. In life insurance because of the burden from the invalidity business and the mortality in the U.S., we fall short of our objective by about EUR 170 million. Apart from that, business was good. If you take all this together, then we can say that before tax, we had EUR 150 million, which we are below our objective. Now, we also have to take into account any exchange rate effects. The result, if I take all this into account, I'd have a result of about EUR 1.3 billion. This exceeding our original expectations. At the end of the day, I can say that we are very satisfied and happy with this result. Now, this refers to growth as well. Surely, we had some inroads, so to speak, or downturns because of the euro situation. On chart seven, you see foreign exchange effects of minus EUR 1.7 billion in relation to our sales, which showed a decline of 1.7%. Currency effects or FX effects also had an impact. I can say that the growth, which under the given circumstances was a gratifying, a pleasing one. Now looking at the U.S. dollar, minus 5% in comparison with the euro. Well, it doesn't really sound bad. Pound sterling plus 3%. But there are other currencies, important currencies with stronger development in the marketplace. The Australian dollar, the Japanese yen, 20% lower exchange rates. Of course, they had a major impact. I also want to mention the Australian dollar, less than 10%, or a decline of 10%. So I could say we suffered from the strong euro. Now, this exchange rate burden had an impact on our shareholder equity. The shareholder equity was reduced by EUR 1.2 billion. Of those, EUR 0.7 billion to FX effects. EUR 2.6 billion negative effects, so to speak, from the decline of unrealized profits and losses. Now, this is due to the fact that interest rates have grown considerably, which resulted in a decline of our fixed interest-bearing securities gross. That is, before participation of policyholders and tax. We still have valuation reserves of about 7% of the market value of our investment of EUR 15 billion. I should say that this is a very sound, a very solid value. In the fourth quarter, our shareholders' equity has risen by EUR 370 million. This brings me back to what Mr. von Bomhard said, i.e., what you show as net worth or the shareholders' equity. This is actually a result of many individual items. When assessing, appraising the individual items, we are, like Mr. von Bomhard said, we are on the cautious side or the careful side. You see, this also characterizes the strength of our situation, which is recognized by the rating agencies. Now our capital also goes beyond the requirements of a double A or a triple A rating. In economical terms too, our capitalization is very strong. When looking at our assets, when looking at our obligations, we can assess them at market values. Now, no matter whether you use the IFRS approach or not. Here we say that our capitalization has been strengthened. It is one and a half more than what we want to maintain according to our internal standards, and this goes beyond the requirements which have to be fulfilled with a view to the supervisory authorities. We can say that we've got a rate of 260%. In addition, we have a very low indebtedness, 15% outside capital in relation to the sum of outside capital and equity capital. Outside capital in this case, or borrowed capital, means our subordinated liabilities and hardly any investments. Our investment result, or rather our asset, that is our asset managers and the liability managers. What you can see here is the composition of our investments and assets by the end of the year. No major changes can be seen. Maybe the increase of miscellaneous is significant. This relates to our commitment to investing in renewable energies and other infrastructures, EUR 1.5 billion. From EUR 218 billion, while this is not really a major contribution, we are ready to increase this proportion, but we need reliable framework or general conditions, and we also need realistic capital requirements. Capital requirements, we have got discussions about Solvency II. At present, people talk about 49%, which is unrealistically high, at least when thinking about commitments or involvements which, say, have an understandable or careful risk exposure. But we also have to take into account reliability on a political level. We need a wide consensus, particularly if individual entities are taken into account. For instance, power line areas, et cetera. Here we need political support. Apart from that, our commitment in German, British, Australian, and American government bonds. Here we stepped up our efforts, so to speak. Sorry, we lowered our efforts. This means the geographical spread of our investments has been improved and we have corporate bonds here. We increased our commitment. Talking about shares, now 4.5%. This means we are in a very well-balanced position. Investment result. Here I can say we had a decline of 9% to a return of 3.4%. We had divestment profits because of the change from fixed interest-bearing bonds to others. This chart also shows you movements when it comes to investments. Here we're talking about the profits and losses on account of divestments or investments. The reason is that we use derivatives to use our investment portfolio and adjust it to respective obligations. If obligations move in one direction and even hedged investments in this direction, then the derivatives will move in the other direction, in this case, negative. The movement of the derivatives will also be shown in the profit and loss account, the income statement, and any hedged items are not shown in this statement. The result is ups and downs of this order of magnitude. Actually, they are unspectacular, and they are balanced out in the economical result, in the economical calculations. Reinvestment will lead to a moderate decline of our return. Now you can see it on chart 11. On the left side, you see the reinvestment yield, and on the left, the running yield. Here, 3.6% to 3.4%, which means it is a decrease of 0.2%, and we expect the same for 2014. This takes into account of the fact that we can achieve only 2%-2.5% in this case. On the right side, we are surely above our yield of low-risk government bonds. Here the Germans are shown. You see we've got corporate bonds, buy them structured products, mortgage bonds, and also government bonds of other countries. But we do not take on, assume any risks which we cannot bear or which are unacceptable. In addition, we are also not willing to change our policy towards taking on or increasing our risk exposure. So sometimes the yields are on a relatively low level. This is the outcome of our policies. This brings me to a summary of this financial part. We've got a very strong net income, and this was driven by a sound underwriting performance. Our investment portfolio, 3.6%, good. Now, development of losses or claims. Here, again, positive development. We were able to release any provisions for losses, and this is the result of a balanced financial policy and also a sound basis for success in the future. Capital position, capitalization. Over the years, we've been building up this capital position, and it is also the foundation or the basis for our earnings. In a market situation which becomes increasingly difficult, particularly in the reinsurance field, we see chances and challenges. We look at 2014 and enter 2014 with a sound and solid financial strength. This means I can now hand it over to Mr. Oletzky, who is going to talk about primary insurance. Good morning also from my side. It's my pleasure to present you the financial figures for the primary insurance unit in Munich Re. For the German insurance industry, this was yet another highly challenging year because the low interest rate phase is, despite the slight increase towards the end of the year, is in no way about to leave us or part company, which of course is everything but a good news for the insurance market on the life side. As the colleagues already said, we had considerable natural catastrophes with floods, hailstorms, and the likes. Looking at the conditions for 2013, we nonetheless think the result was very gratifying. The annual surplus increased from EUR 240 million to EUR 433 million, which really is a very good figure. I would nonetheless give you a bit of a context around that net result and first look at the partial result for the life and health insurance business. First of all, these are IFRS figures. Those of you who look closely at insurance company balance sheets, you will note that we report them according to HGB, German Commercial Code, and we have to form an additional interest rate reserve, which we do by taking extraordinary capital earnings. With that, we build up this interest rate additional reserve. The problem of accounting this doesn't exist in IFRS. So if you continue to have the extraordinary capital reserves in IFRS, you see the income side, but you don't see the cost side. That's why the IFRS results of the life insurance companies are always, shall we say, slightly distorted. So it would be wrong, given the current political debate of the life insurance industry as a whole, to say that they are all showing great IFRS results. What's the problem? Hey, but the result of the IFRS figures of the German insurance figures is, of course, shall we say, slightly distorted. There's another company specific effect that is borne out by life insurances, and that's a tax rebate. In the last few years, we simply paid too much taxes as we found out after our tax audit, so that our tax ratio now has, well, seen us receive money for 2013 from the IRS and our tax ratio therefore dropped considerably. However, this is offset by effect due to the slightly higher interest rates towards the end of the year 2013. Because you may know that we have used derivatives to hedge ourselves against low interest rates. We're using so-called swaptions, and of course, swaptions lose value if interest rates go up. Obviously, the moment that interests go down, the value of the hedging transaction is also slightly lower, and this instantly is borne out in the IFRS accounting. We've got two effects that bring our results up. That's a tax effect, and it sets an R effect and one offsetting effect, which is the effect coming from our swaptions derivatives. On the P&C side, property and casualty, as you can see on page 14, the P&C combined ratio, and you can nicely see here that over the entire business, the combined ratio went down from 98.7% to 97.2%. That's the Munich Re perspective on primary insurance. These are down to consolidation effects because, of course, the reinsurance which we buy from Munich Re here is, of course, added back into. You will see this above all in the German figures, where despite the Nat cats, the natural catastrophes, we had a combined ratio of 96.3% in the ERGO figures. It's slightly different because, of course, last year we had a few major catastrophes in industrial insurance and in the MR calculation, the combined ratio of last year from Munich Re perspective is slightly higher. The 96.3%, which we are reporting for 2013 is in any case an excellent figure, but I will come back to that in a few minutes when I look at the German property casualty combined ratio. The internal combined ratio also improved slightly from 99.8% to 98.7%. Another very gratifying development that allows us to achieve these solid results. Moving on from the IFRS perspective and looking at the economic perspective on the earnings and results. Of course, a perspective that with Solvency II will gain in prevalence and importance. You can see equally healthy, encouraging figures. The MCEV, the market consistent embedded value above all. That's the value of life and health, which in the economic calculation looks a bit different from IFRS accounting. There you can see we have a clear uptake from EUR 2.7 billion to EUR 5.9 billion in 2013. The economic result account is also very positive. Only aspect on the downside is development on revenues, where you see in 2013, some of these revenues, these incomes have been dropping above all in the life insurance market. That is, of course, going counter market developments so that with a one-time premiums, we sort of say took very much a restrained stance in 2013. We saw about EUR 200 million in one time premiums, which we nonetheless considered to be, well, economically sensible because, of course that with a short Times short, lead times in this interest rate environment is one that is either subsidized by the shareholders or subsidized by the longstanding policyholders, both of which we don't deem to be a good possibility. Then we had an effect from a sale in 2012. Namely, our Korean business was sold off. We already reported on that last year, so that when you look at the years 2012 versus 2013, an effect of EUR 105 million. ERGO, although on a much smaller scale, ERGO also suffered from foreign currency effect, which cost us EUR 42 million in premiums. The remaining changes, about EUR 200 million, is purely organic. But this already brings me to our premiums written. On this next slide, on slide 15, you can see the distribution of where premiums were written here according to the life and the property casualty business and then national and international. You can see in Germany, that the German business continues to be tricky, rocky almost. This is also borne out by the income figures, above all by the one-time income in Germany, but also with the recurrent income is still a hard road to go. On the international side, we also see here declining income, mainly down to Austria. Because in Austria the situation is much akin to what's happening in Germany. Austria is, of course, our biggest international life insurance market, while in Poland, from the bank insurance business, we had gratifying growth in our third big life insurance market in Belgium. Brings me to the combined ratio. If I move on here to the international business, you can see we had a one-time effect from the sale of Korea, EUR 105 million, and we, of course, had foreign currency effect, which in the property casualty business had a major bearing. Discounting these two effects, you can see that the organic growth in the international business is encouraging. I think this is all the more remarkable because the focus over the last two years had been on improving the earnings, which often is at the expense of income or revenue. But thank God, in international business, this was not the case. For Germany, you will find that our premiums went up in 2013, which is borne out more clearly in the ERGO figures because, of course, we assumed some of the business from Munich Re, especially in the U.K., which is borne out in the ERGO figures. But of course, this is then corrected by the ERGO figures because this is an internal translation. Which brings me to the earnings from property casualty. As I said, combined ratio 96.3%. The major natural catastrophes, above all the flood in early summer 2013 and the hailstorms had a major effect. But of course, also the later storms had adjustment effect of 3.3 percentage points, meaning the damage from natural catastrophes is 3.3% higher than from the long-term plan and from our budget. If we had assumed a natural catastrophe year without, shall we say, any major natural catastrophes, just with average burdens here, our normalized combined ratio would have been 93%, and then we would have been fully in our target corridor. Nonetheless, the combined ratio of 96.3% and looking at the other nationwide active insurance companies, this is nonetheless an excellent combined ratio for 2013. Looking at regionally active insurance companies, you will see major differences in the combined ratio because, of course, a regional insurance company, for example, in Brandenburg, was much more affected by the natural catastrophes than those, for example, that are based in North Rhine-Westphalia in the west of Germany. By looking at some of the units, we are trying to give you a bit more background to developments. Here again, showing clearly the nat cat adjustment effects. You can see that on the motor side, our combined ratio increased. 4% of that increase are down to the worsening from natural catastrophes. Here we were 0.3 below the long-term average in 2012. While this year, in 2013, we were 3.6% up on the long-term average. However, you can also see that the increase here is above 4%. This continues to be a very competitive market in the motor insurance, and we still have some homework to do. On the homeowners insurance side, it looks at first sight as if nothing had happened. Here, 130.1% is an absolutely unacceptable combined ratio. As you can see, this even went up in 2013 to 131%. Nonetheless, the result here differs widely. In 2012, we achieved this combined ratio where we were 7.5% below the average combined ratio on the nat cat side. Last year, we were 20% above the long-term average. The qualitative improvement in the homeowner insurance portfolio was enormous. We did a lot on this side. Sometimes even things that were confronted with a lot of criticism by our price increases. If you take a closer look at the premiums, you nonetheless can see we are on a good way. Household content insurance is something that, of course, is quite the opposite from the homeowners insurance. You can see in 2013, we were able to even improve on the strong showing from the household content insurance. Which brings me to the life insurance. You can see life insurance is here above all with ERGO and also with Allianz, very much shaped by the debate about new products that we are bringing to market. In June, we presented it and it hit the high street on July 2013. We have had half a year in which we worked with the new product, and we have only offered it so far in the third layer in the non-subsidized life insurance segment. Now we are readying also the first and the second layer here when you look at, for example, those insurances that are supported by the employer will now come to market this year. The first half year and the third layer have been very gratifying. With the products that we sold here, 60% were made for the new product generation, 40% were still classic annuity insurances, so that every second product sold by the sales team was ready for the new product category. Of course, this is a product classification that for years had been, so to say, stuck in a form of selling the classic product. I, therefore, consider this to be very encouraging. A brief look also across to the health insurance business. Here, we continue to be number 2 in the German market and market leader in the supplementary insurance side. With the German election, with the new federal government and the coalition government, we have a lot more clarity where we are heading. The coalition agreement does not provide any provisions on private health insurance, which may allow us to safely assume that the legislative framework will remain stable so that the entire private insurance company market can do their homework over the next three to four years, because we know there is room for improvement here. Once the debate comes back onto the political agenda for the next election, I think we stand a chance to be in a good starting position. We have an interest here in moving away from the full insurance that is politically wanted, and that is why we want to ramp up the supplementary insurance over the comprehensive insurance, which in the last four years we have managed. But you can see from the figures here that the supplementary insurance in the entire health insurance business increased from, what was it? 2009, 26% to 28.9%. That's almost 3 percentage points here. But you nonetheless can see we are taking incremental steps here, but we will keep up working on this. Which brings me to the international business. Here on the left side, you can see, first of all, the property casualty insurance business, where, as you know, we had to battle rather poor showings a few years ago, but now the international property casualty insurance has really picked up and has become quite encouraging. We've just outlined our 5 key individual markets, Poland, Baltikum, India, Turkey, and Greece, as well as legal protection, which normally is here about EUR 700 million for all the individual markets. So it's also included. You can see that the trend, generally speaking, is very positive. Above all Turkey. Turkey, that for many years had been a bit of a troublesome market for us. Here, Turkey is also coming back to a combined ratio, somewhere in the region of about 100%, which, of course, is very encouraging, because without that improvement in Turkey, it would have been impossible to achieve the combined ratio of 98% that we are targeting for our international business in property and casualty. On the life side, we find above all Austria and Poland saw lower premiums being written. In Poland, it was the bank insurance side. In Austria, where we also have a lot of banking premiums and banking business. It was above all the one time business that dropped, but it is nicely offset by encouraging developments in Belgium, albeit with slightly slower growth rates than in the past. We want to continue stabilizing our European market, while at the same time we don't want to lose out on the growth markets in Asia. In China, we started new business operations in the third quarter, and this is continuously improving and continuously developing, but still at the moment on a relatively low level. So that maybe in 10 years time, we will have premiums written of about EUR 600 million per year. We also plan to start business in India, where in the property and casualty, we are already quite successful with our joint venture partner in India. With Avantha, we also plan to see a similar success story for the Indian life market. Which brings me to the summary of my brief presentation. You can see here in the life insurance business, the focus of debate in 2013 was, and I assume this will stay the case in 2014, is, of course, what are the right answers to the low interest rate environment? How can we counter this? We think that in the management of our portfolio, we've already seen quite a bit of work being done, and we now believe we have a good answer with the new products. On the health side, here we are counting on organic growth and the success of Increase in the supplementary insurance business to become a bit more independent from political decisions. While on the property casualty side, we still have some homework to do to bring our combined ratio closer to the target of 95%. Here we were still 1.3% higher in 2013. Nonetheless, I do think that maybe already in 2014, if we don't have another dramatic natural catastrophe year, we might come closer to that target ratio. As Germany, we are seeing 93% on international 98, so that in a combined ratio for both markets, we might come closer to 95. In organization and sales and distribution channels, we have kicked off restructuring measures which will, with the approval of the German financial authorities, are set to get started here on the weekend before April 4. So that with a new organization, we do hope that we will see a better new insurance figures panning out in Germany. And of course, also on the internal side, we want to improve quality and efficiency. Cost management and cost reduction, of course, is something that will be with us over the next few years for us as well as for our competitors, because the intense earnings situation, of course, means pressure is increasing. Because, of course, if the capital investments don't bring in the yields and earnings, it's all the more important that you're profitable in your core business, in your primary insurance. And this also includes cost management, which means I now hand over to my colleague from reinsurance, Thorsten Newe. Well, good morning, ladies and gentlemen. Over the next few minutes, I would like to show you the reinsurance figures. In the second part of my presentation, I would also like to give some comments about the market environment and renewals. As to 2013, the result, reinsurance on a very good level. Strong figures in life and non-life. If you look at the charts and the premiums, then you might say that the situation has not changed. You might ask, why haven't you grown over the years? Of course, we've got some exchange rate changes, which Mr. Schneider touched on in his presentation. But the gross premiums, I could say EUR 1.2 billion negative. And this is the contribution. On the other hand, this is offset or is compared with organic growth, which is good. So the results are good at the end of the day. The technical result, slightly lower in comparison with last year. This has to do with the capital investment. As you can see, that year-on-year, low interest rates are reflected in these figures. And we have to fight this. Combined ratio, I'm going to talk about it separately. Still on a good level. Life. The result of EUR 400 million, i.e. technical result, has been achieved almost. Taking into account the situation, we believe that this is a good result because in the third quarter, in particular in Australia and the invalidity business, we had some problems with results. There's nothing new on this front. So against this background, I should say that this is a sensible and reasonable result. If you look at the rest of the life portfolio, then here the yields are relatively good. Life from another perspective, so to speak. Here we are using the multi-year perspective for reinsurance. Here you see the significant business increase which we've generated over the last six years. In life reinsurance, we are number one in the world. If you ask, where does this come from? What is the reason for that? How is it possible to double premiums over six years? Then this has to do with two effects. On the one hand, with the beginning of the financial crisis, the demand for products coming from reinsurance, which lower the burden on the capital. This was one of the tools which was being used as an alternative form for other investments or equity. This is an ongoing trend. The second development is that in the so-called emerging markets, particularly in Asia, we were able to expand our business considerably. Now, lower premiums last year. This has to do with FX effects. Life. You see, this is a long-term business. We therefore measure our new business according to the normal value. We are going to have it expired. It is still on a very high level, EUR 577 million. Our cautious underwriting policy has not really changed. Really cautious and careful. Here we are talking about longevity. This is something which is being written about in the press. You see huge old age pension provisions, some obligations which have to be taken into account. We use a cautious approach because we accumulate, say, we've got an accumulated demographic trend which is working against us. We have to take this into account. We sometimes think we should do this underwriting business. We are doing it. But we use a restrictive and cautious approach, particularly with a view to profitability aspect. I can say that our expectations for the future are also positive. Now, property casualty 92.1% for 2013 combined ratio. This is better than our result or the objective which we set ourselves. We tried to achieve 94%. Under current conditions, or rather, how can you explain this result? Well, you see, on the one hand, there's some kind of coincidence. Well, a small factor, actually. When looking at the catastrophes and when looking at man-made losses, I can say that our middle expectations amounted to 12% and the loss contribution was 4.2%, slightly below that value. But here we had fewer natural catastrophe losses, and this is what you can see on the right bar. EUR 4.7 billion is the amount given in comparison with an expected loss of 8%+. So we also had the positive reserve release losses here. We had some effects, which we have to take into account. Important it is to remember that the reserve releases in non-life were not carried out at the expense of our substance. So we do that as they are necessary, as they are confirmed, and the level of the reserves, that is of the remaining reserves, is at least on the same safety level. In other words, we always form new cautious appraisals of what we will do. From my point of view, and this refers to the next quarters and the next few years, I should say, and this is a consequence of the past, that we will release reserves, and this is something which we can anticipate to some extent. What about the future? This takes me to the market environment. You probably have seen it in various reports in the press. At the beginning of the renewal phase, 1st of July 2013 in particular, in the U.S., we had a non-life worldwide. Our margins were under pressure. Often, the media said that this is a direct consequence of the new capital, which was available because of hedge funds and old age pensions. We reported on that several times. That is, we now have unit-linked pension funds, and therefore some people believe they haven't got enough investments. One way of finding yields and returns was also entering the reinsurance market, particularly the non-proportional natural catastrophe reinsurance. Indeed, this is a trend which has been on the increase, but it is only one component, one module, one piece of influence which affects our business, our operations. In principle, the primary as well as the reinsurance business feels after the downturn on account of the financial crisis is still on a relatively high level. The economic development worldwide, of course, we haven't got the significant growth rates in the emerging markets either. Therefore, we hardly got any possibilities to make this invested capital to earn more money. So we've got some surplus money. Of course, the various unit linked pension funds, et cetera. They also have a share in this. The pressure on our margins, if you start in Asia and move towards the west, towards the U.S., the higher the pressure on prices was. In the U.S., we had the highest pressure on account of natural catastrophes. In Asia, in Australia, I can say that the pressure was a moderate one. We believe that in response to, maybe this is something which I'm going to elaborate on later, we are going to follow a threefold strategy. Portfolio together in the group, together with ERGO as well as reinsurance. I can say that our position is a wide one, and we will, of course, feel any repercussions of natural catastrophes. But because of our position, overall position, the effect will be say, dampened. We always have to look at our profitability, and because of that, when talking about prices, we also are ready to give up some business if the margins are no longer there. Of course, we've got the tailored reinsurance solutions. This is something which we've seen in life. You see new life solutions, which are considered to be some kind of substitute capital build up products, and things are handled accordingly. On the next pages, on the next slides, this is the renewal picture. Something which we published already. As at the 1st of January, we had a premium volume of EUR 8.7 billion to be subject to renewals. You see growth on the right side. 2.7% was the result. I can say that this is good taking into account the environment. But it also means that we've got a minor pressure on our portfolio, 1.5% only. If you compare that with the fact that our risk-free interest rates, which are higher, particularly here influences coming from the U.S. We've got a value of 1.7%. We are quite satisfied with this result, taking into account the general market conditions. Now, a different perspective to our portfolio, if you like. What we try to achieve is an expansion of tailored reinsurance solutions for clients, particularly as a capital management instrument. You see that at the top of the picture, this is something we were able to expand from 23 to 34. This, of course, is not business which Munich Re is handling alone, but at least we can be freely placed in this kind of pricing competition environment, and you can position yourself very well offering good margins or having good margins. The privately placed business, that is business which involves bilateral conditions, business which has been entered into with Munich Re. Here we have a development from 45 to 49. Again, an aspect which differentiates us from the marketplace. Before I conclude my presentation, I would like to show you a slide, and we definitely wanted to show it to the press, and we thought that this is a good opportunity. Mr. von Bomhard or Mr. Schneider mentioned that in their presentations is you see, in 2004, 2005, we had enormous reservation problems in the U.S. stemming from the second half of the '90s. Here we've got the worker accident business, which has to do with the third party liability business. Here on this chart, you see that we followed two strategies, a two-pronged strategy approach, which helped us to end up with a very good portfolio. Here we've got a short of EUR 4 million as premiums, and one strategy refers to changing the portfolio and handled, and this is what you see, Munich Re America. It explains here traditional reinsurance. Here we focused on third party liability business with shorter durations. We also had a look at the pricing processes, the ones from the parent company. Again, a very good combined ratio, 77%. And usually you see lower 90s. And in the U.S., we also expanded our underwriting policy by expanding our life insurance business. We added to that business, and this is what you see under HSB and American Modern. This is business which live off the so-called risk expertise, and they always generate constantly good results. Combined ratios in the 80s, in the 90s. And something which we call risk solutions. This is a business which we would like to continue to develop and here we can also differentiate ourselves. What is the result? And you know the result for 2013, strong portfolio, strict cycle management is necessary. At the same time, we would like to expand and come up with intelligent creative solutions in reinsurance and specialty primary insurance. We also believe when following this strategy, we will be able to hold our position in this highly competitive market, and that we will be able to offer a balanced portfolio and cycle management. It also means that sometimes we give up premium and at the same time we generate new business, new business which is not yet existence in the marketplace and which will, say, retain our good profitability in this respect. Last element before we come to the Q&A is Mr. von Bomhard with the outlook for the group. Well, thank you. Before I give you the outlook directly, allow me to just briefly address two issues that lately have caused for some stir in the public limelight or should have at least been addressed in the public. I start with the latter. Everything to do with demographic changes and demographic developments in Germany. I do not know whether you have seen the handout we have presented and have available for you because on 45 pages it is impossible to look at the entire demographic trends. But there is different aspects to a development that is very exact to forecast, and these are changes, though they move slowly, they will be coming. While they are coming so slow or because they are coming so slow, the politicians find it hard to address this because they are only elected for four years and therefore shy away from addressing these demographic changes. Lately, we feel the reform zest of the politicians has come to, shall we say, drop to lackluster. I do not want to stress that you all will live seven years longer. No, but if you were to be born now, you would live seven years longer than today's life expectancy. Secondly, you have to look at the rising old age dependency ratio and that here, as you can see from a mere 50 years from 2008 to 2060, the number of those who will be dependent is in- Doubling. So those paying into the old age dependency funds have to pay twice as much. Now this may affect some of you. That is, of course, the pension payment period. That is also increasing. Here you can see we are going backwards from 1960, again, another 50 years into the future, and again, you can see almost a doubling of that pension payment period. All of this taken together is, of course, an enormous potential to burden households, burden pension funds, burden the federal or state budget, and of course, in the legal pension commitments, we have, what is it, EUR 80 billion in subsidies being paid by state that already is now telling us this is a system that is not really looking at the potential here. Our solution would be to offer not just capital insurances, not just for pension, but also for health and old age care to put these back on the agenda. Look at them frankly, honestly. It starts with the question, when do you start to go into old age pension? What age? 63, 65, 67? At this point, if you bear in mind the EUR 80 billion that the state is paying every year in subsidies, what the state has done to support private health provisioning in 2009 was only EUR 2.9 billion. You can see there's a huge difference here in state subsidy for these pension commitments, which means you have to make a private pension plan, and we all have to ready ourselves to work longer. Secondly, this is maybe even more current on our political agenda. That is the valuation reserves. This is only here, as you can see on the bottom right hand corner. This has to do with the interest rate developments and what this means for how we deal and how we handle valuation reserves. I would say, looking back at 2008, a legal, a legislative reform was initiated to participate in these valuation reserves. One felt this was only addressing equity and real estate, and one also looked at pension commitments. At the time, the insurance industry failed to articulate that this is a major problem. The fact that it could be a problem was already clear then. But in 2008, I think, although the crisis was just starting, you may recall September 2007, it really kicked off. At the time, 2008, interest rates were never foreseen to fall by 200 basis points, so that valuation reserves, of course, here would go through the roof. On our balance sheet alone, we had well over EUR 20 billion in pension reserves. We always said, this is nothing but hot air. Let the interest rates grow again and that hot air evaporates. Now, that a small part of the insurance industry never expected this, while the bulk of the insurance industry, those who stick to their contracts, those who serve their contracts, no longer can make use of this because you're forcing insurance here to sell and to liquidize these valuation reserves is so nonsensical that the lengthy debates in the public really just surprise me. Only lately I heard a financial secretary from North Rhine-Westphalia who said he doesn't know why we debate this for so long. Me neither. You don't have to add here legislation to something that is really clearly in the wrong. I don't know why consumer protection agencies make such an effort for the just 5% that they need to protect, and they just ignore the 95% others in these evaluation reserves issue. Of course, this is as holds true for life. The louder you shout, the more you're heard. If the big mass is not shouting out here, I simply fail to understand what's happening here on the valuation reserves front as far as legislators are concerned. Now, if I recall Mr. Schneider correctly, he spoke of a rock solid balance sheet and financial prowess. All I can say, he is dead on. The earnings result that we are targeting for the current year, it is EUR 3 billion. You may recall last we spoke about close to EUR 3 billion. We feel this is like a bit of an emotional upgrade, at least. Equally important in this context is to say that the interest rate development is one that we cannot foresee. Mr. Jeworrek just said it in a side sentence. Already last night, the new head of Fed, Mrs. Yellen in the U.S., said something very important because she said, looking at the interest rate development in the U.S., she said that by the end of 2016, the interest rate should be somewhere between 2% and 2.5%, 2.3% or slightly higher. Now that, of course, is owed to the fact that in the U.S., the economic development is picking up a little, which of course will push interest rates up. Why am I speaking at length about this? Because in our assumptions, we do not expect interest rates to move upwards at the moment, which of course then applies to what Mr. Schneider said. Our earnings forecast will be burdened. If you go back five years only, you will find that earnings would have been EUR 0.5 billion higher with the interest rate prevalent at the time. Now that's a gap. A gap between the return on reinvestment and the current return. This is gradually closing again. So the melting down of this gap is here, is with us. As we move into the new year in 2014, so to say, looking back at last year's earnings, we first of all have to earn against this falling interest ratio. Of course, having said so, we'll also have to look at what volatility does to us, both in our primary business as well as in our investments. So we think this EUR 3 billion in earnings is, I'd say, clearly ambitious, and we will work flat out to achieve it. However, why are we optimistic that we can make it? I'd say, as a group, we are well-positioned, not only from our financial prowess, where we have that leeway to do things if necessary, both in the primary business as well as in our investment, but it's also the breadth of the group. Of course, we are affected by developments on the natural catastrophe side, on the primary and reinsurance side. But here we are also broadly positioned. It's not just one development that runs like a red thread through the entire market. No, we are exposed to different markets. We can switch to different business with the customers. We have a proportional distribution and share in the different markets. So we have the opportunities that we can, for example, switch into cat bonds. So we have a real array of possibilities, strategically and tactically, to react to changing market conditions. But of course, as Mr. Jeworrek showed, in the case of the U.S., we've got ERGO, we've got Munich Health. They all are confronted with challenges. But of course, we're not, so to say, spreading our sufferings here. No, it is diversifying. Diversifying not just in a technical sense, but also diversifying from a strategic perspective. That's why we think we are well-positioned. Maybe just as an interesting figure, what we are paying back to our shareholders. If you look at January 2007 as a starting point, as a period under review, and go up all the way to May 2014, in that period of seven years, we have paid our shareholders more than EUR 14 billion in dividend and share buyback contributions. I think you will have to look hard or fast for another insurance company to have paid back similar amounts during the crisis. We will switch our hand back to Mr. Lorenz. Thank you, Mr. von Bomhard. Good figures from Munich Re. Bad news is, though, as we just said, we all have to work longer. Now we look forward to your questions and Mr. Eipka to start. Please, no more than three questions per contribution, and just say what is the paper you write for. Mr. Eipka, Plato, brief Plato letter. I have got three questions. I will try. I would like to start out with what you said at the end, Mr. von Bomhard. You say your earnings forecast is ambitious but will be low the prior year. At the same time, you are increasing the dividend. The signal from, what I would say, a cautious company, that is unexpected, the signal that you are emitting. Are you pursuing any targets as far as yield on dividends is concerned? At the moment, this is about 5% currently, where of course, if you look at primary insurance clients, they would say, "Hmm, this is interesting." They would be glad with other investments if they could get 5%. So are your shareholders getting too much from you? First question. Secondly, cost management, cost reductions is what has been mentioned here today. This is one way to counter the falling yields in capital investments. So where can you see the opportunities to cut costs? What are the plans? And thirdly, and my last question, in the motor segment, Mr. Oletzky, profitability in primary insurance on the motor side is still not profitable. Other insurance companies are really retreating from the business. Is not that something that you at ERGO should also look into, just abandoning the motor segment? Mr. von Bomhard. Well, I will hand over the second part to Mr. Oletzky, cost management in general, and start with the first question. Yield on dividend and this triangle customer-client shareholder. On an IFRS basis, the earnings of our group, the figures you were given by me and Mr. Schneider, is about EUR 3 billion. Why we think this is ambitious is what we already outlined. The HGB result that is relevant for the dividend policy is below that. There is a number of reasons for that, because the translation from HGB, German commercial code, to IFRS is complex, but it has also to do with refilling our reserves, our fluctuation reserves, where we have to refill it by about EUR 1 billion. That is the tune to which we have to refill that fluctuation reserve, which was EUR 7.7 billion at the end of 2013, but with an increasing trend. That is why the optical leeway is smaller. However, also according to HGB, we are well equipped to pay that dividend, but also to buy back own shares. Otherwise, we would not be doing this because we feel that dividend is important. Now, you already indicated whether this may be borne out on the back of our clients, our insurance clients, but then I have to tell you that the German insurance companies have paid out a dividend and put it back into retained earnings. So no cent, no euro cent of the German health insurance companies are going to their shareholders at the moment. Apart from that, our dividend policy, well, I think it is 10 years ago when we said that the floor for the dividend should be 25% of the IFRS result. So at EUR 3 billion, that will be EUR 750 million minimum. At the moment, we are paying out 1.2, 1.2.5, so that's more close to 50% of our IFRS result, but never clearly specified this, but we just said we don't want to lower the dividend. Now, this statement applies for as long as we don't hit an exceptional situation, one that we haven't had for 45 years, that we say, "Look, everybody will instantly recognize it doesn't make sense to pay such a high dividend." As far as what the return on the dividend is concerned, we think this is an interesting one. We believe we are paying the highest yield or return, highest one in the DAX, but it doesn't mean that we would now go up by leaps and bounds. But we think that the buyback program of own shares is another flexible instrument for us. That's why we said and announced today, again, because I believe this is now the sixth or seventh billion in euros that we're using to buy back own shares. We're using this. We, of course, don't feel committed that we have to continue this infinitively. We're doing this at short term. We're doing this flexible. But I'm sure that on the capital markets, we are seen as a paper where the dividend plays a key role for people investing in Munich Re. No doubt about this. Second question, maybe briefly from me before I hand over to Mr. Oletzky, who also is asked to take over the third question. Now, cost management isn't limited to ERGO alone. All our divisions, of course, have to really ramp up their efforts, and especially the reinsurance segments addressed cost management last year. Now, in primary insurance, of course, cost management is all the more important because if the combined ratio expectations are wrong, they have a much bigger problem. Then that holds true for the primary insurance company where costs are so more prominent. So it is not only for optical reasons that cost management is vital than with a reinsurance company. But of course, we do expect our reinsurers worldwide to keep a close eye on costs. With the cost rates, we also just saw sideways movements over the last few years, simply to remain competitive. With that, I hand over to Mr. Oletzky. Well, cost pressure in primary insurance exists, of course, particularly where the yields are no longer available for balancing out this, particularly markets with low interest rates, in particular Germany, and also in those areas where markets are no longer growing so that you cannot really offset such developments. Therefore, in Germany, we have got two major cost reduction programs which we initiated in sales. For instance, here we initiated restructuring, of course, also involving a cost component. We are going to conclude this project by April. We have also been in discussion with our works council saying, "Okay, now we had two cost reduction phases. Now we have concluded this project. Therefore, we are not continuing to work on cost effects." No, we are going to try to stretch everything over several years, and we have been in intensive discussions with our works council. That is how we can manage all that, how we can bring about this, and this will, however, not be the issues which will really make the headlines. If ERGO, with more than 10,000 staff, 200 and 300 workplaces are being cut or axed over the year, then this also means that we do not really need major restructure programs. We want to do things on a continuous basis, and we also need the support of our works councilors, which we need. And surely, we also face some conflicts with our works council, but nevertheless. Motor industry. Well, yes, in 2013, I can say, at least for the ERGO business, 2013 was not really a very good year in terms of profitability. But nevertheless, we are not one of the major or the very big players in this marketplace. In our portfolio, the motor business has got a much smaller part there in comparison with our competitors. So from this point of view, I can say that this will not certainly exert or trigger some pressure. Surely, it is our ambition that we want to select risk. We also want to follow an appropriate cost policy. We will have a very good combined ratio. We will not achieve 95%, but nevertheless, the motor business should at least come up or end up with a black or a red zero. And we think that we still stand some chance to achieve this figure. The motor business, the motor product, like an all-round or comprehensive cover, is something which we would like to continue to offer our clients, but we do not really focus on this product like HUK-Coburg or other insurance companies are doing. You see, we are looking at the mechanisms in this marketplace. I do not think that this is a good idea for ERGO, but do not expect that we are going to leave this business or give up this business. Mr. Lacour, Mr. Beyer, and Mr. Fromme. Stefan Beyer from DPA. Three questions. One is very topical, Malaysia Airlines. Could you talk about the burden, or could you say a few words about your expectations? Maybe you could give us a total loss estimate or appraisal because some wreckage parts have been found this morning. New life insurance products, the new models. Allianz fourth quarter. Here I can say that they really were very successful with their products. Half of the new business accounts for this success. This is not really reflected in your press release. Maybe you could comment on that. U.S. Nat cat business, Warren Buffett said that he is going to get out of this business completely, so he will move towards Asia. If you move somewhere else, where to? What about the U.S. business? What are your expectations? Could you give us some facts or figures in comparison to the previous year, or the things which you have in mind, particularly when talking about the non-proportional business, what's the current situation or view? Well, thank you very much for these three questions. Most of them will be answered by Mr. Jeworrek. The second question to Mr. Oletzky. Yes. Please bear in mind that this product, the Allianz product that is, and what ERGO did, these two products are completely different from each other. These are two different kettle of fish. Talking about the accident, we do not know whether this was really a dramatic and tragic accident. Mr. Jeworrek, please, could you start? Well, let me start with Malaysia. The market loss or the damage, or the insured loss cannot be estimated yet because the third-party liability claims are quite unclear. Well, an accident is an accident. At present, on the other hand, we do not really know. There's lots of speculations going on. There's just one figure we can mention, which is known. The aircraft value is just above $100 million plus, and here, insurance claims might come into place. Then also any other claims relating to the passengers, well, this is something which has to be clarified using national legislation. At present, the situation is very unclear, that is what the final result might be. Therefore, I do not really want to voice any speculations. It's bad enough what happens. But one estimate or one appraisal, well, when I was sitting in my car yesterday coming to job, I think this was even on public TV, some reports were given then more than a half billion U.S. dollars or something in total. There are some figures flying around the world, which I can't really understand. I will not give you a figure, an appraisal, or an estimate for the situation, but half a billion, now that really would be very surprising if this happens. Now, an estimate for Munich Re. Well, I think it would not be a huge loss for Munich Re, to put it this way. Oh, United States. Oh, by the way, we also had other speculations, and I really would like to counteract these speculations. Do the insurance companies know anything? Talking about the property losses, to be paid out. We do not know anything, and we are not involved in any search actions. We have not got specific information. All this has to do with the policies or policyholders. You see an airplane, an aircraft which has been missed for 48 hours, cannot be found, and that this will lead to payments. The future development, this is something which depends on the results or the outcome of the entire development. But we do not speculate. It is a technical process. This is what you will find written in the terms and conditions for policies. This is something which we would like to make sure, i.e., make sure that there is cash flow as quickly as is possible. That is all that happens. Nat cat, natural catastrophes. Yes, we heard this contribution. That is what Warren Buffett said. He is going to retreat or withdraw from the natural catastrophe business completely. Let us see what will happen. We have not observed something like this in the marketplace yet. We would not follow this approach. I want to repeat it. We would not do it like this. Many years we have been asked whether our cycle management is all right, whether we will be able to go on like this, but we would not use this lopsided approach. Maybe Warren Buffett is not going to do it like this. We do not know. If you ask how much capacity we use, make available, then this is a question of individual customer relations and profitability. We do not have a market segment. Talking about the U.S. business or any other natural catastrophe business, we have to withdraw from this business. Surely, within our risk management limits, we have got specific capacity limits. This refers to any kind of business. We have got maximum limits for risk management. It has got nothing to do with the market and profitability targets. We have to act for our clients within the scope of the contracts, and we always have to make sure that we earn money with this business. So we control everything. We manage everything appropriately. In January, you see, we have not talked about major catastrophe renewals, at least not in the United States. We had more in Europe and in Asia. At the time, our liability was not reduced for the United States. But over the last 2, 3 years, we have not signed everything or underwritten everything fully. If we reduce our efforts, then this is something which has to happen as a result of our ongoing customer relationships. What about liability? How can we earn money there? I touched on that already. The Asian-Australian markets are a bit more attractive when it comes to competitors. But the United States, they come from a higher level. Secondly, we always think, if we have got some free liability, we think about the long-term effects, short-term effects. So i.e., we think about letting it lie, not doing anything or hard for the HSB or, we make it available for others. This is another idea. So they would generate additional primary insurance business. The primary insurance business in the United States, when talking about prices, I can say it is on the increase. On slightly increasing, moving up. So talking about the proportional business, we can say that our performance was relatively good. From this point of view, there are options and alternatives, and nothing helps. Well, then capacity is not being used, and we will have enough or a sufficient number of other alternatives available. This is not necessary that we really have to make capacities start earning money. Life insurance, the figure which we are looking for, 60% in your presentation, in your documents, 60% in third level and the new business accounts for this 60%. This refers to the second half since we have used this product. Allianz as well, they introduced their product at the same time. I assume if they indicate percentages, then they refer to the second quarter and not to the entire business. You mentioned 50%, as far as I remember. Of course, I do not know the Allianz business as well as I do know our business. But again, I assume that this refers to the relevant percentage or proportion. That is part of the business, which has to be seen in the context of this new product. I have seen preliminary figures from Allianz, and I have seen that the relative penetration is similar for both companies. Here we have a relatively small field. I believe we have to wait another two or three years in order to find out whether this product will be available for all kinds of old pension provisions or schemes. I believe if the environment or the market continues like this, if the interest rates continue to rise over the next few years, then this will have a positive effect on our business as well. Of course, we have to think here or there. There are some areas, sometimes in one or the other area, it is not really competitive, but this might be a sign of the fact that some services are being offered which are cross-financed. We have got low absolute figures, but we have got a different market share in comparison with Allianz. But at the end of the day, I can only say that the development or the situation is similar for both. Natural catastrophe strategy. I would like to comment on that now, and this is something what Warren Buffett is going to do. He follows another strategy because he is driven by transactions. This is how he conducts business. So he has got tickets for individual coverages and $1 billion or $1.5 billion for one customer, earthquake commission in California, for instance. This is what he does. This, as a rule, is not our business. Of course, we could do something like this, but we don't. Now his portfolio is characterized by such individual or separate tickets, and then it is a binary decision. Of course, we always have to take decisions as well. Are we going to go for it or not? So when looking at our portfolio, I can say that the effect is much smaller, but if he is not going to write two or three tickets, then of course, there isn't so much left over. Mr. Kur and Mrs. Frommer, please. Yes, one question. Maybe it goes beyond this press conference. I am talking about Crimea and Ukraine or Russia. Today, new sanctions have been mentioned, new sanctions against Russia. Not necessarily economically significant sanctions, but you as a company, does that play a role when it comes to the operations, the business of Munich Re, particularly if this crisis exacerbates? What about the economic relationships with Russia? Will they be affected? What might be an outcome? Of course, you used some sharp words in this respect, but I would like to get some opinion and explanations from you in this respect. Thank you very much. As a financial service provider, you have got little standing on the floor. We've got people, we've got offices, most of them very small, and we haven't got any production facilities. This is an important statement because it means that we are flexible. Two, we have to distinguish insurance business in a country or did we invest in facilities in this country? Usually, the second aspect is larger. This applies to Russia as well. In the Ukraine space, as far as I know, we haven't got anything, or at least it's so small that we don't see it. ERGO, they've got a company over there. All this within very moderate limits. If reinsurance, prime insurance, all that in Russia, if we add up everything, then we will have a very low three-digit million amount. Our capital investment, capital expenditure, slightly higher. Here you always have to look at what have you invested where, always against the backdrop of any assumptions. What could happen? To what extent will we be affected? Give some major statements. I can simply say, at the end of day, everything is more or less under control. For us, The indirect repercussions or consequences are of greater significance for us. Everything that happens in the world in political or economical terms, while we can't really consider these developments to be positive as an investor, because there are some secondary effects which you don't really see for Russia. The stock exchanges get nervous, interest rates go up or down, whatever the situation is. Political aspects, it is not up to us to give a comment. Talking about such questions, my answer in general is, the problems have started much earlier. Suddenly, a problem really starts, and surely mistakes have been made in the past, but nevertheless, you should not only look at the present times, but also at the future. Then I'm sure you will come up with very reasonable and sensible solutions. We take the situation very seriously. Surely, we are concerned as citizens and as a company. Mr. Fromme, can you just give us a clearer figure about this lower three-digit figure? Now, in the new business life insurance, Allianz had said 10% across the entire new business. Can we have a similar figure from you, Mr. Oletzky, please, including business pension commitments and the likes? Can you also tell us how much fewer capital you will need for a new product in comparison to the old product on the pension commitments from the businesses? Then the 5% that were mentioned earlier. That means 95% are getting nothing. This is nonsense. This is something that has been paid out for the last five years already, 25% have been receiving that. I cannot quite follow the line of argumentation. I know that the valuation reserves are tricky, and I cannot argument for changing it. But to say that only 5% are benefiting and 95% are not benefiting. Once you end it, once you call it a day, you will benefit. And of course, others will also benefit from this. I am not quite certain whether your industry does not make that major mistake to look at, shall we say, ownership rights of 30 million at the moment, that the product life insurance is not coming to a complete end. If you say, well, others have to earn this, I do not know whether in five years time, you may not say that shares and equity holdings in companies is not also nonsense. So you are talking here about a huge volume of life insurance pension plans, which is costing people millions of euros, and you say this is quite normal, and with that, you are just really putting life insurances to grave. Now, I would not accuse you of saying you are talking nonsense, but look, if we no longer have valuation reserves in two years time, then you no longer have investment opportunities, then the people will get less. If the shelves are emptied, just let interest rates increase by 100 basis points, we have nothing to pay out, and another 20 on top of that means all those who will be paid out later will receive a lot more. You are just saying as if the valuation reserves are here for good, forever. No, that is not true. They will be gone. Well, interest rates do not even have to increase. This just aggravates the problem. So a cash evaluation, a measurement of these reserves is simply wrong. Secondly, your question about these figures, I am not going to give you concrete figures because, of course, our capital investments are always on the move. They are not static. And premiums are stable. They are slightly above EUR 100 million in Russia. Ukraine is negligible. And the capital investments are between EUR 200 million and EUR 300 million, but that is also oscillating. But that is the region we are talking about. So it is a risk we can manage. We are not talking about naught to 100. No, we are looking at market value movements. And many of these capital investments are also then have other assets underlying it or other substance underlying it. So for us, at the moment, it is not a major problem. We're more concerned with the bigger problem and the wider issue at stake here for the world, but of course, also for capital investments as such. The other question, Mr. Oletzky, the mid one is one I think Mr. Oletzky should answer. Thank you, Mr. Baumann. The 5% story, I can understand your line of argumentation, but how do you explain this to somebody who's getting EUR 200,000 to EUR 300,000 today and should renounce EUR 10,000 in payback with the empty argument by saying others would have more? From the perspective of a client, this is of no interest what other clients are getting. Why isn't the industry saying, quite frankly, what it's about? The whole system has to be stabilized. It's not about justice being administered, but you should have enough in your reserves. Why don't you say this frankly? This is not about the justice for clients who are expecting payout in 10 years time. Well, as this goes slightly in the direction of primary insurance business, I would have problems if Mr. Baumann was to answer this all by himself, because I do think that this line of argumentation is very difficult to follow. I heard this yesterday from a consumer protection agent. It was an event that I attended yesterday where I felt people were clearly understanding, have something taken away from them, because at the time when they signed these contracts, they didn't have this claim, had not counted this, and now with a legislative mistake in 2007, 2008 in the VVG reform, they suddenly now received a claim here that really would in any way be unfair to the other contract holders. Now, with this legislative mistake, if we extrapolate our figures, we are talking about EUR 4 billion that will have seeped out from these reserves that are no longer available for younger insurance holders, policy holders, which are getting their claims paid out at a later point in time. There can be no point of saying that the federal Constitutional Court has, in its jurisdiction, said, "Look, we have to reform the VVG." Because if you look at the figure of the valuation reserves, and we've looked closely at the valuation reserves for ERGO. Look at the figure of 2000, plus the development of shares. At the time, we still had Hamburg-Mannheimer Life there, and we had about EUR 6 billion in reserves. This was more or less exclusively made up of shares and real estate investments, which of course, triggered the amendment of the VVG. When that became law at the start of 2008, all these valuation reserves had dried up. The capital markets, the exchanges had collapsed. We had no valuation reserve anymore. We are just talking for ERGO here. The insurance companies protested, and at the time, of course, could not foresee in line with journalists and politicians, how big this problem could one day become on the fixed interest rate side. We knew that this legislation is nonsense for the fixed rate interest policies. Six years later, we have again, EUR 6 billion in valuation reserves, but now we have a totally different structure. We have hardly any reserves made up in shares or in equity investments because, of course, the ratios were much lower than at the year 2000. Lower valuation reserves in properties and most of the reserves are in fixed interest rate bonds or sovereign debt. If you had told me four or five years ago that we are accruing interest here of 4%-5%, but we are getting these interest rates to pay them to a policyholder who is leaving, so that the next ones will still get 2.5% from his new investment, that is nonsense, makes no economic sense. If a mistake is made, then you expect us as insurance company to rectify this error, and the same can be done and expected from the legislators. The damage that has been done comes up to a significant EUR 3 million figure. Of course, if you extrapolate this for the industry, I would say somewhere in the region of EUR 4 billion, if not more for the entire industry. You wanted to know concrete facts and figures. I can give you them short and sharp. In the second half of 2013, we had about 11% that we made with new transactions with the new products, because of course, the second half year always is stronger in its new figures and new production transactions. About 7%. For the second half, we had about 11% for the new products, so roughly higher than what Allianz reported. Savings on the capital side is indeed here at the time, something that is touchy, that is tricky, because it is always very much dependent on current parameters in an environment which we are calculating or were calculating when we launched and created these products in a low interest rate environment. Savings can be up to 75% here. Of course, it is highly dependent on the conditions at the time of valuation. If interest rates go back up again, these figures can change again. I would not like to report or communicate the figure because as of tomorrow, it could already been outdated again. Says Mr. von Bomhard. If we, of course, do these economic calculations for us, we use the most fundamental and conservative assumptions possible. If we say 70%-75%, others, if they make an economic calculation, is somewhere between 20%-30%. I am not here about who is right or wrong, but we use extreme figures because we are mark consistent, and we are ultra-conservative, and I would not know of any other one who does the same. Mr. Kohn, and then thereafter, Mrs. Leitl. I have one question regarding the very first item on your income statement. That is the posted product contributions. You expect in the current year to see a drop of EUR 1 billion. What would you expect here to be the key effects? Is it foreign currency effects? Is it the lower margins in the reinsurance business? If so, I would like to know, I would ask, what does this mean in gross premiums? Do you justify the drop in gross premiums because you think that the actuarial earnings must be maintained in such a way that you can offset these drops in capital or income from capital investments? Thank you, says Mr. von Bomhard. For us, the level of premium doesn't really concern us. You may find this interesting, but for us, of course, this is born from our reinsurance mindset more than our primary insurance business. Premiums written are of no great concern to us. Why? Because one big contract, more or less, can be more or less half a billion. The margin here on revenue is much smaller than when you have a contract that doesn't even bring in 10% of revenue. For us, revenue is not a helpful parameter for us to gauge or meter our earnings price. Quite different to any other industrial company or primary insurance company. Of course, revenues are driven by the reinsurance contracts. We have more than 50% at the moment. Mr. Jeworrek can give you an example of if you omit one major contract. Doesn't cost him in his revenue, but in his earnings would be different, well, up and down by 10%. So it's difficult to say that revenue or premium determines our earnings. If we only have EUR 40 billion, but in the right business, we can tell you EUR 3.2 billion in earnings and promise that for next year. So don't even try to deduct from our revenue and infer anything about the earnings potential. You have to look at the portfolio, and that's of course why the debate about the Nat Cat business is so vital, because though there is little premium to be found here, but with low premiums, given the contract constructions, it is a relatively margin strong business because it's of course not proportional. Therefore, EUR 1 billion, more or less, where does it come from? Well, these are assumptions that certain contracts and the major transactions always have a time limit. They run for two to three years. They have a term of two to three years, that they come to an end and will not be extended, renewed. Over the last years, our assumptions were wrong because they were renewed or new ones were added. But we are always conservative in our assumption, and we do not expect all these contracts to be replaced by new ones or prolonged. That's the main reason. It's down to transactions. Good. Just one explanation. Looking at the gross premiums, do you have a forecast for the actuarial result for 2014? Will it continue to drop? Because of course, interest rate effects play a role in this earnings development. Says Mr. von Bomhard. If you take the technical result and break this down into pure insurance, then the combined ratio is a possibility to approximate yourself to the actual earnings. Here you can see that the reinsurance companies are expecting a sideways movement, 94%, and that the primary insurance company wants to achieve its target, as Mr. Oletzky said, and the Munich Health division is also more expecting a sideways movement. We think we can hold our position. The technical interest rate, that of course is to be calculated, will be affected. If you refer to the technical insurance result and find a dent there, then that's down to our capital investment side, namely the interest rate we can assume for the capital investment side. Mrs. Leitl, and then afterwards Mr. Süß. Mrs. Leitl from the Handelsblatt. Last year was obviously a good year for the shareholders. You're getting more money, but you are also to receive more, if I read this correctly from the remuneration report. There's a clear leap forward that is down to pay-off from the first three-year plan. Maybe you can talk about this briefly, and also your defined benefit contributions that have now reached somewhere of EUR 10 million. Mr. von Bomhard, for you, can you say a few words about this? No, 10.5%, yes. Then, of course, the package of measures that the government is taking that goes beyond here, the reserve package that you are providing for. Then one question here for those in the know. The non-actuarial result in the primary insurance business has clearly changed significantly over the last year. Can you also just briefly comment on that? Maybe the last one, Mr. Oletzky, with the first one, I do not know much about. I would have to read that up myself, what you're asking me, even if it affects me, myself, about my benefit contributions. Let's put it this way. We have a substantial part of our remuneration in variable components. If you look at the footnotes, these are not the final figures. The final figures for the fine calibration of the variable remuneration are not yet available, and we are not actually disclosing them yet in the annual report because, of course, we have two accounting principles. We have the accounting principle for the shareholders, but the economic calculations, which are of course the basis for this, what we report here, can't be completed that quickly that we can give you the final figures. That's why the footnotes tell you that we have corrections subsequently added year by year. So the exact figure for how much we're getting is one I can't give you. But as you, I can only look into the annual report and tell you there's a little more or little less, but it has to do a lot with the multiyear remuneration package, which in the past was disclosed and paid out differently. In the past, we had so-called long-term incentive plans, which were, as you can see, paid out with shares. You wouldn't find them here on this page. But in principle, you may safely assume that the entire cash target remuneration only goes up with the average inflation rate, and that the annual result is crucial here for determining that. Let's say anything between 80%-120%. Okay? In an usual base, it could be 130% on the individual colleague. That will always oscillate around 100% plus, minus. What you can see here in your annual report, now I can't calculate this back so quickly. The fact why we are seeing here such a steep rise is the multiyear disclosure. If you, for example, go on page 57, you can see that the multiyear performance in the expectation here was, as you can see below, inflation, and here these figures match. So it has something to do with disclosure according to DRS 17. So it's not as if you suddenly find EUR 12 million in remuneration added. No, it's actually less. The remuneration report has become a scientific exercise. I'm sorry to say. I always felt it's better to say what's the target remuneration and how much is actually paid out. What they do so in the past, and now you do this flow diagram and all the figures look different. I'd say very confusing. I can't even give you a certain figure to say whether the Board of Management received more for 2013 or less. I assume it might be a little more, but I only assume so. I'm sorry to say, you've lost me there. Well, so am I. On page 55, it says that total remuneration has gone up to EUR 24.7 million by EUR 13.3 million. Yes. Take the variable remuneration, which starts on page 57. Deduct the EUR 13 million or add it because that's the new reporting method. So every three years. No, you report this every year, it's a revolving variable. Says Mr. Schneider, there's a multi-year plan. If you go to page 57, you can see the structure of the target remuneration, the committed remuneration, and they are slightly increasing. While on page 56, you can see that the first multi-year plan has come into the payout phase, 10 to 12. I'm sorry to say, we are not expert on this. You can see how important remuneration is for us. It's secondary significance. I think it's DRS 17, the German accounting standard that triggered us to move from the old long-term incentive plan to this multi-year disclosure or reporting method. Please, take my word for granted here. The difference is up or down. If our performance doesn't change significantly, and it hasn't changed significant from 2012 to 2013, the movement or changes in our remunerations are relatively minor. However, if our earnings drop considerably, which is more likely, given our calibration, you will note it. There was one year, I think it was in 2008, when you could see it clearly, and that was quite significant because I remember here, that was a year that really was hugely oscillating. We didn't have a variable remuneration at all in 2008, and this is simply, I'd say, it's a disclosure matter. These EUR 12.8 million were not zero last year. Either it was, as Mr. Schneider say, I would have to look it up myself. It was either the long-term incentive plan that is not reported here because it was shown differently, or accounting simply gives you a different disclosure here. Please believe me, you have my commitment. You can see year prior to current year, and you can see from EUR 13.9 to EUR 14.8 million. Now my cash emoluments, which I don't calculate myself, it's EUR 4 million. But on the other side, I also have something here. I want to 58, you have 10.4 million. So it is not just 4 million. No. If our accountants have calculated right, it is 14.5 million in cash remuneration. I would say that is sufficient for the time. If you would like your second question to be answered, over to Mr. Oletzky. Well, the problem in defining the set of measures by the government, it is hard to say what they will look like directly. We think at the moment there are four topics that are being debated, interest rate, regulations for the sales management, sales organizations, and the likes. And at the moment, it is hard to say what that will mean. As far as the evaluation reserves are concerned, I have just tried in a slightly more emotional statement to make it clear that we think the new regulation is long overdue and that we would have assumed that this should have been passed or should have been ratified after the government, respectively, the parliament had passed it in 2012. It should have already been implemented. So here we are all for the change in this legislation. Highest interest rate calculation, if I understand this correctly, the highest interest rate is somewhere to be in the region of 2.5%. Here our view is that this is comprehendible. That with the long-term lower interest rate base, the long-term interest rate also drops. But it is important to note that we are given sufficient lead time to calculate this. So if the highest actuary interest rate should be lowered by 2015, then that should be soon and clearly governed and stipulated so that in the product design, we can provide for this because it will have a greater impact on our products than in the past. Because, of course, the higher the guaranteed and highest interest rate is, the more the cost component will play a role. And then we will have to look once again at the cost side, what we can do, what we have to do to make products attractive in the calculation. So what would be the worst thing for us is to have a lengthy debate in the world of politics about the guaranteed interest rate, and then we would have to implement it at short notice. I can imagine that a higher interest rate needs to be debated, and I can also follow up how you arrive at 2.5%. But if it should already be introduced in 2015, we would have to get this settled very quickly. Otherwise, I think you cannot introduce it before the 1st of January 2016. Then, contributions by the policyholders. Well, the way the debate or discussion is being waged at the moment is one I dislike because it sounds as if, at the moment, we hear as if the insurance companies are withdrawing from the life insurance business. But I think we have said time and again that life insurance was everything but an easy ride for the insurance companies over the last few years. If I am correct in understanding, the analysts are of a similar opinion. It's not as if the shareholders are getting too much of the cake. If you get a 90/10 allocation or distribution, as you would find in the deregulated business for capital investments, if that should also apply to other earning sources, then at first sight, this is negative for the industry. If you go into that direction, then you will have allow at least for offsetting your earning sources. Something we had in the past, but with a new minimum contribution regulation, this is no longer possible. Just think, you have one earning source, you make 100 gains, and the other one has 100% loss. If you have to allocate 90% from the gains and the 100% are then coughed up by the company, then, of course, shareholders would just leave us in droves, and then we would have a huge problem in life insurance because nobody is willing to offer life insurance companies anymore. If you've got 90/10 regulations also for other earning sources, which I don't think is mandatory nor necessary, then you at least have to allow offsetting earnings. Capital income, capital investment income, risk income, and the likes. That should at least be offset again. That is not, shall I say, me advertising or canvassing this new rule. We could also keep it with the old situation. Sales team regulations, please spare me commenting on this because here the proposal is so unclear that we'd rather wait until we have a clear proposal on the table, and it's not worthwhile to speculate right now what politics is doing here. I think that would be premature. Then you also had a question regarding the actuarial result in the primary insurance business. I'm not quite sure whether I've understood you correctly. I will try to answer it nonetheless. If I was wrong, please let me know. In the non-insurance side, we have effects from the capital investment side, which has been lower over the previous year, and we've got effects from taxes. That is from the life insurance segment. We have received a major tax rebate. The good news is that the tax rebate also needs to be meted out to the insurance holders, benefit shareholders, as well as policyholders. The nuisance is that the insurance policyholders here are, so to say, above the reporting. At the end of balance sheet, the other one is not in the balance sheet. I don't know whether this is what you refer to in your question. Please follow up with a question if that has not been answered correctly. All right, Mr. Suess now, and then Mr. Fromme. Oliver Suess from Bloomberg News. I've got a question. You see in the annual report about the legal issues, here it says that you've concluded any, say, legal disputes with the sales staff at ERGO. Could you tell us more, maybe give us some quantities or amounts? Longevity. You said that you're going to expand this business cautiously, and now you've just concluded the biggest deal in this market. Is that what you consider to be cautious or moderate? Then life reinsurance. What about the outlook? What about the perspective? Because it is certainly not an easy year. Australia and invalidity risks. How high were the expenses? How much did you had to put into provisions or reserves, rather? You also mentioned expansion, specialty primary insurance. Are you also having in your mind any takeovers? Are there any pearls in the marketplace? Well, I think I can answer the first and the last question, and Mr. Jeworrek is going to answer the second one. Number one, I cannot give you any figures. Let me put it like this. If there had been a wave of letting sales staff go, then I think this has been handled. Sometimes when talking about severance agreements, sometimes you go to court. But looking at the overall development in 2010 and 2011, and on account of any restructuring efforts, I can say that everything has been dealt with, concluded. But Mr. Oletzky certainly knows more. There are always new cases coming on board. I understood your question that you want to put an end to this development. Here we're talking about structural sales staff. You will always have agreements which are always discontinued. I think this is a normal process. But if there had been a wave, then this is due to one or the other pending proceedings or other things which have not yet been concluded. Another question, I would like to answer it in general terms. I talked about this financial latitude or leeway. The capital position of the group is such that It can look at companies or say, objects which might be of interest. Primary insurance here. Primary insurances are not necessarily positioned worldwide, and they just try to expand their position. But experience told us over the last 10 years, I can say, that it is very difficult from our point of view to acquire something at economically sound prices or sensible prices. Maybe we have less hope, if you are looking at one or the other target. Sometimes we are the third or fourth. We are not even the runner-up. This does not mean that we are going to give up. We thought that during the crisis we would have more. The reinsurer is operating at a slowdown pace. If you look at the specialty business, which Mr. Jeworrek mentioned in the context of the U.S. business. Well, here we are talking about specialties, specialty insurance products, something which you will find in the United States. But this business or these objects or companies are not very large. Next year, I think you cannot and should not expect any spectacular developments in this respect. But we will not shy away from looking at major, larger companies. If something is going on, if something is moving, then of course we are going to have a look. Mr. Jeworrek, now you answer the second question. Let me start with Australia, which you touched on. In Australia, the problem which we face there refers to the entire market, but also us. We reported on that in Q3, the burden on the result was EUR 130 million for the Australian invalidity business. This is how you have to understand my comment. Although we had this burden, the overall life business still reached EUR 400 billion or rather EUR 370 million. So I think this backs up the proper approach we used. Then changes to our product portfolio, pricing changes, that is changed prices for these products, different way of handling losses, different loss management, how you can avoid these or those claims. Longevity? Yes. That was a major transaction, you are right. But we have to be fair, we have not underwritten anything in the past. This is not to justify everything that has happened. All this refers to the parameters which I tried to describe. So if we are doing something, we do so on a selective basis, and then we should generate margins in order to also have some kind of buffering effect for this or that problem. You see, we do not use restrictive underwriting policy. One transaction, yes, we handle it, and when you look at the risk capital allocation, then of course we have capped things. Mr. Fromme and afterwards, Mrs. Bukel. Mr. Schneider, you said very sound balance sheet, that the company emphasizes this. Then of course the question arises, why are they emphasizing this? Where are the risks in your balance sheet? What can go wrong over the next 24 months? Life insurance. You have to tell the customers or the clients. You told them how much they can expect. You have to tell them that the amount might be less. How do you do that? Mr. von Bomhard did not answer one of the questions. Now, what about the reputation of this business? The third question, there are additional reserves in order to find out. Some of these reserves are being released. Now, additional reserves, this refers to people with contracts 3.5%, 4%. These people are preferred because these contracts are hedged. Everyone is paying in. What about the justice argument? Mr. Schneider, the sound balance sheet. Strong balance sheet. Surely there are risks, says Mr. Schneider. Of course, we've got latitude or scope, which we try to harness, i.e., we always move using a cautious approach. Some of the risks come from our day-to-day business, major natural catastrophes, major trends in the capital market. Looking at today's position, I can say that we've got relatively low goodwills. We've got relatively low other intangible assets. This means one or the other thing may happen, of course, if a business plan is scaled down. This also might mean that we have to correct our valuations. From today's perspective, we have no legacies or legacy burdens. Things carried over from the past. Primary Insurance, let me start with the technical issues, and Mr. von Bomhard is going to give you some supplementary information. Information to the customers. It always depends on how everything will be handled. There's always a kind of provisional regulation saying from the time the cabinet resolution is in effect, then things will become new law, and then the legislation process is kicked off, and then it will not be a major problem. Because the customer, the client, doesn't have a choice saying to take along valuation reserves and take it away from the rest of the clients. We do not want to organize, say, a limited run on insurance reserves. Then we've got the Federal Authority for Consumer Protection that was mentioned yesterday. Okay, in this case, it might happen that the rule or the regulation, which will be in effect until, I don't know, day X, amount A or B, whatever. Of course, in this case, you have to draw a customer's attention to this fact. I'm quite sure that we will not have such a regulation, but that we will have a rule or a regulation becoming effect after or following the resolution on the part of the cabinet. I believe this is the typical way or typical situation, i.e., you do not want to give people a kind of period of sales or summer sales or winter sales. Attitude. The legislator was thinking that the claim for a guarantee is the highest claim and that the claim for surplus distribution follows that is subordinated. I believe, or I consider all this unproblematic. I keep the guarantees of all customers, that there is contracts which have been concluded 2.5%, 4%. If you look at the rest, then this will be distributed to the customers, and in this case, not following certain cycles, distributing these amounts in waves to this or that customer. Usually, we've got customers who accepted higher interest rates over many years, and then in times of lower interest rates, they would take along the valuation reserves. I should say that there's a fundamental difference between these two, Mr. Fromme. You see, just to use these figures, here we are not focusing on one single customer. It's available to the collective. It is a difference if the money is still available or if it is taken away from a person. Reputation? Damage to the reputation? Difficult to answer. As a representative of the insurance business, I should say that the explanations or the reports have been asymmetrical. Sometimes people said the returns are so low at a time when all those who offered high guarantees were carrying around gold nuggets. It was very difficult to tell the public, even we found it difficult, and maybe we didn't use the perfect approach. You see, we gave guarantees saying that a value above 3% is something good. Well, we didn't succeed in this. Then people are talking about the interest-bearing warranties. I see beyond 4. Still the situation is still lopsided because the 3% or 4%, they were just the plinth, the bases which everything was based on. Everything is a bit lopsided, I should say. The valuation reserve discussion, well, you probably noticed this is a discussion which I really believe is extremely, if not crassly so, asymmetrical. We cannot say that the others are wrong, and for us, the insurance business and we reinsurance, we have not managed to present this product in such a way. The new product, Virgo, is an exciting product because it offers something in a phase, in a period of time, where the low interests are low. If you buy a product like this and interest rates are rising, then of course you will have a good product. What I mean is that these details can really be conveyed. We do not manage to do so. Now, this has got to do with an image, which is not good enough in order to make yourself heard, if you like. If you're in a corner, you're cornered, then the life insurance has been in the corner for quite some time. Wrong arguments, yes, but if the reputation of the stock of goodwill is not sufficient to get you out of this corner, you need a whole plethora of good news in order to turn tables, so to speak. Mrs. Fouquet, afterwards Mr. Kaspar. I've got a different question. Change of energy policies and others. What is your commitment or what is in store for you? Or is this something which has been pushed to the side? What about new energy resources? Have you any plans up your sleeve relating to new resources? Costs to be borne by shareholders, EUR 125,000 per year. In addition, for our company, the staff capacity in order to make sure that internal support is given. Looking at products, this initiative is very important because we will be able to get closer to partners and shareholders, and at the same time, we also developed a network which helps us to monitor, say, developments and also to find out insurances needed. So you might say that this still is an investment issue, i.e., we prepare ourselves for times when this wave expands, grows. When talking about photovoltaics or wind power fields, Desertec partnership. On account of these contexts, we are in a position to ensure this solar plant, which is being built in Morocco. So we provide the insurance for this consortium. Mr. Kasper, please. Kasper, for targets report of the insurance business in Karlsruhe. I've got a question about public-private partnership. Now, could you imagine that there is some kind of commitment, and what are or might be interesting projects, and what is the potential you see? You mentioned measures and strategies for 2014 as a response, as a reaction to the general conditions, low interest rates, and attractive capital flowing in. What is your proactive approach, or how much fun is it to run a reinsurance business in these times? I think Mr. Gewehr should answer that, and sometimes I can assure you that I really would sit in his place instead of mine. This is how much fun it is. Mr. Gewehr started by saying, well it's more and more fun every day. You see, we as a company are very active in looking and monitoring the situation. World Bank, other banks in other regions, sometimes we also in cooperation with some brokers. We believe that the insurance claim or the coverage requirements will be on the rise. You see, we've got the up-and-coming middle class. How can we insure them, offer them the right products? What about exposed countries, earthquakes, climate change affected by these issues? How can we protect the infrastructure of such countries? If you then compare a high natural catastrophe burden, then those countries have been affected mostly who always will handle such situation out of their own pocket, out of their own taxes. Sometimes they get something, but at the end of the day, lots and lots of things are diluted. It is not an institutionalized product. It is not, say, a standard product which will help the economy to recover quickly. Let me mention three products. Products which we initiated or where we have a share in. The FONDEN product, this is an infrastructure coverage product in Mexico against natural catastrophes. The Mexican government, i.e. the financial minister, is buying this product, and it is calculated according to a complicated system, distributed among central government and regional governments. So if there are hurricanes, if there are floods, et cetera, then one or the other things have to be calculated and have to be, say, replaced. Then Caribbean, again, floods, et cetera. These are examples which show you what people are thinking about. Who is financing what? Looking at the construction of such a product. Here, we are in close cooperation with our scientists, how to structure that product, how to work it out. Of course, we are cooperating with World Bank and the UN in order to make available capital. For us, it is a long-term business. At present, still in its infancy, but we plan capacities to develop this product more. Reinsurance business, I can only say it's great business. It's exciting. This particularly because of the fact, when you look at new capital, but this is just one phenomenon, which I can use to describe the reinsurance business. What are the models? What about risk transfers? How new risks are taken into account? Looking at the new capital issue, we reported on that in the past. We just want to use a more structured approach, which we are going to do during this year. It's quite exciting to see how much new capital pushes into our industry. At the same time, we have no returns in our traditional asset management, so this is a kind of emergency. Nevertheless, we try to have this structural penetration. What are the new products? What can we learn from them? What are the corporations? How can we make our projects safer, so to speak? These are issues which will generate lots and lots of new opportunities and chances. Well, this answered your question, Mr. Kasper, please. Yes, okay. Mr. Otter, Jonathan Gold and Mr. Kornick. Three short questions. If you discussed them already, I would like to ask you to apologize for me being late. First question. What about your benchmarks? In this reinsurance business, in comparison with other competitors, particularly Swiss Re. Second question. How do you see the development in the combined ratio area? Do you see any possible improvements for the U.S. market? Because I believe that the U.S. companies are the major players in this field, and now the losses which you had or suffered or incurred on account of Windsor Health and did that influence other aspects? The major structural change will take place on the supervisory board, in particular looking at Mr. Pischetsrieder. What about the function of the smaller shareholders? In the past, the Munich Re shares were quite attractive also for smaller shareholders. Now, what are your expectations when it comes to new supervisory board members? There's something Mr. Jeworrek can answer, and another question. You see, we are not talking about our competitors. They are to talk about us, but we are not talking about them. Benchmark U.S., and I would start with or answer question three. All right. I'm not going to talk about the competitor. Let's do it like this. Anyway, let me describe the situation like this. Business strategy. That is how we conduct our reinsurance business, what range of services we offer our customers. Against this backdrop, I can say that there is a differentiation in the market. There is differences between Swiss Re and Munich Re and many other competitors which run different models. Now looking at the major players, I'm not talking about premium size. Now, how can I describe the situation? We certainly have got a very pronounced business model. We try not only to access the market or the customers using translation and models. Yeah, surely, we would like to do that. But what it is all about from our point of view is that we look at the demand and try to offer products based on this demand, coming up with solutions and structure the product accordingly. There are two lines of attack, so to speak. Classical reinsurance demands a restructuring process. It has to do with the fact that the classical reinsurance customers or clients use a different approach to buying such insurance, here also based on CFO actions, et cetera. Now, this centralization will lead to the pie becoming smaller, but major players like Munich Re might be among the winners at the end. Sometimes we've got 25, 30, sometimes 40%, so we try to make a product marketable, and it also means we push out smaller companies from the marketplace. Service, it has to do with structuring this product, i.e., can we assume risks, major risks, accumulated risks, cumulative risks, value chains? Can we identify these entities and integrate them into the product which we develop for customers? I believe we are in a leading position. This is what I see. Munich Re as a reinsurance company, also on a group level, looking at the entire glomeration, I should say that we are very well-diversified looking at the product range. This is my answer. I think that is all from me. Two comments from me, Mr. Otter. Windsor Health Group, I think I would give you a more detailed answer. The commitment of the group, referring to primary insurance, U.S., Medicare, and cost relief products. We have been in this business for five years. It cost the company EUR 225 million losses, including everything, looking at the entire five-year period. I think you mentioned NG or something. I believe you meant E.ON. You see, if we buy something and it was wrong, then, of course, we made a mistake and we were not cheated out. We just were not lucky in this respect. You see, the acquisition of the Windsor Health Group was not a mistake. It was a zero-sum game. We have a single industry and we have got one distribution channel. This is what we acquired. Then suddenly, politicians moved or changed the general condition, and then a decision was taken in strategic terms. That is, we opted for buying, acquiring Windsor Health Group. That was a correct decision, and of course, you can always have an argument about management. We spent the money and we did not see quickly enough, and of course, this is always a risk, say In the health insurance industry suffers from. Over the last few years, we also found out that the smaller shareholders committed themselves more for our company, 12.5%, I believe is the percentage. Maybe this has to do with the dividend policy. For us, it is gratifying that this kind of basis is developing, but we are not one of the companies listed on the DAX index with lots and lots of smaller shareholders. There is the other, more delicate question about the supervisory board, because it is their business. Things which the supervisory board is dealing with or thinking about, it all has to do with diversity. It is not about man or woman. It is all based on the experience, the width, the breadth of the experience, which is made available. Science, very important for us, maybe more so in reinsurance rather than in prime insurance. It might always be good to have someone here who has got a scientific approach and someone who look beyond the fences of Germany. You see, the quality of the individual member of the board cannot be assessed properly. You always have to look at the entire board, and I remember various rankings. We always have been ranked between one and five, and I believe by looking at the diversity of our business, this is the right approach. I would have something to say to Mrs. Leitl about a point that we earlier maybe muddled through a bit. That was the board of management remuneration. If we go back to that table on the multi-year remuneration, we see strong amounts, big amounts for 2013 and only dashes for 2012. As we just assumed earlier, there was a switch in the disclosure system. This multi-year remuneration took over from what had previously been a pure share-based remuneration. They were option rights that we had earlier, and the question when you exercise these was not a matter when they were reported, but they were reported when they were served, and these share options were served in 2009. Now, replacing these option right based system, we now have this multi-year performance, which needs to be disclosed, and it is disclosed, and that's why we have no previous year figures. By the way, it's paid out in a way that a large share is invested in shares of Munich RE. So it's a pure disclosure issue, and it's not an obscure leap in the remuneration of the board of management. Thank you. We come to the end. Two further questions, Mr. Gould, Mr. Kornick. Two from Reuters. Two brief questions to Mr. Oletzky, I believe. I'd like to know whether you can make a forecast regarding the new life products. Over and above the core and traditional products, will it be somewhere 60/40, or where do you think it will level out in the foreseeable future, especially when you look at a change to the interest rate landscape? Will that have any effect? Mr. Jeworrek, I'd like to know from you how you assess the upcoming hurricane season. The last few years, we were enormously lucky, and I don't know whether you don't talk about it anymore because the hurricanes did not materialize as had been expected from past experience. Then, a question regarding a French reinsurance company, which also spoke about, well, the smaller reinsurance companies being pushed and ostracized from the market, saying there will be 5 to 15 global reinsurance companies in future. So what do you think when you hear about this? Because you spoke about market oscillations, about what happened with all your other smaller reinsurance companies. Where do you see the market moving? Since Mr. Oletzky, in our midterm plan, we do assume that the new life insurance products, once it is introduced across all 3 tiers, will make between 40%-50% of our new business. We expect that the classic life insurance policies will make about 20%, and the remaining will be life risk insurance policies and insurance policies against interruption in the work time. But 40, 50% will be taken up for the new products. What happens if interest rates go up now? Now, it's a very interesting question. We expect that the new products will become more competitive, of course. As the new products have been developed on an annual basis, and we also buy them directly with a hedge transaction in time, they can be combined. While in the classic form, these interest rates take some time to affect the portfolio. Because, of course, in the classic, I can only increase my excess interest On my reserves once my entire capital investments have gone up. An interest rate increase will, to our view, not mean that these new products will vanish from the market. No, on the contrary, we think that at least the first few years, where the classic products will have to follow suit if interest rates go up. We think these products will become even more competitive. Do we think that the 40%-50% will definitely be achieved with the new products? Hurricane seasons, says Mr. Jeworrek. It's a bit early days to speculate about this because, of course, our, well, not our, but the entire scientists don't have suitable models yet to look that far ahead into the future. We are just about to develop the forecast for, well, the next hurricane season. What's the latest situation? Early indications would suggest, or there are no forecasts that says that this summer we are likely to see anomalies regarding the warm ocean temperature. These are positive drivers, of course, for hurricane activities, which the water temperature at the moment is estimated to be normal. Of course, at the moment, there's speculation whether we will have an El Niño. You know the El Niño, the cyclical, not quite even change, but the El Niño that followed the winds in the Pacific. This El Niño formation would mean, if it was to materialize, that we will have greater crosswinds in the higher strata of atmospheres, which then in many ways, well, take hurricanes out and have them not form as strongly. There could be a small indication that we are might be seeing a neutral phase or a slight El Niño, so that as of today, there will be an overactive hurricane season. Whether it will fall below average, we can't tell you right now. The fact that for the last two years, we didn't have any hurricanes is not true. Sandy, the question is, was that a hurricane or a superstorm? Well, it definitely was a major storm in November, one and a half years ago, in November 2011. Regarding consolidation in our market, well, we don't have figures here, and we don't make any forecasts for that consolidation. To what extent we will see a consolidation in the market. But we can see there's two trends in the reinsurance market. In an increasing competitive environment, we see business models differentiating itself. And if you have less or nothing else but competence to offer capacity, well, you will be, of course, forced out of the market. A second trend that we can see is that given the difficulties of bringing capacities into profit, into earnings, there are more attempts being made to structure these broker facilities, where some primary insurance companies just want to make sure that their capacity is being used. And with that, they give the broker the pen and a hand and say, "Look, you broker, go and use our capacity." This happens in primary insurance market, especially for the bigger risks. The facility, for example, or the 360 degree facility that was mentioned earlier. But there was also an attempt in the renewal for the regional reinsurance business to do something similar. But that was less successful. Having said so, though, if consolidation can increase with this price competition, let's not be mistaken. It will always find new innovative means coming into our industry. And this is what we see at the moment with the pension funds and hedge funds, kind of joint venture models that are simply trying out to see, well, can we offer a hybrid mixture between insurance and reinsurance companies? So we can see both trends really. Just maybe one addition. 2 years ago, there were quite a few hurricanes, but they didn't all make and come to landfall. Last contribution before we go for lunch, Mr. Kornick. Just a follow-up question. No, three follow-up questions, I was going to say. What's the amount of excess capital, surplus capital of the group? Is it still about EUR 8 billion? Then with a view to 2014 and net earnings, you also said that the tax rate is normalized. Is it 24%-25% on a group level? And then the price competition in the reinsurance coverage for nat cats. The two upcoming renewal rounds, Japan, of course, with focus on Japan and U.S.A. What do you think will be the price reduction, Mr. Jeworrek? Excess capital, surplus capital, depending on how you measure it, says Mr. Schneider. For us, the most relevant one is the economic capital. Here we are above EUR 12 billion over what we have defined as our benchmark internally. And with that, we are clearly above what we would expect from the regulatory authorities to be stipulated as minimum. In the rating, the lever we have at the moment is considerable, but I'm not going to give you a precise figure here, because here you find many analyst assessments and the allocation of individual positions in these rating models is not always crystal clear. What's more, you have different models by different agencies. But here you would also have to assume that we are more on the Well, higher single digit than a lower single digit billion amount. So mid single digit billion amount. So we're far away from being in the critical range, but very much depending on rating models. And tax rate. In 2014, our tax rate due to our U.S. business no longer being tax exempt, because in the accounting standards, we then only have capitalized losses carried forward, which we then, of course, have to depreciate against the gains. I would say tax rate in the U.S. business, we are somewhere in the region of 35%. As you said, for the group, it is about 25%. I would say 20%-25% is a realistic tax rate for the group. It always depends on where earnings are made and accrued and how they are made. For example, profit from the sale of shares are, of course, tax exempt. Other profits in the United States, for example, carry a tax rate of about 235%, so it is hard to forecast. Price developments, it is simply too early days to speak about the renewal rounds. I mean, the market environment in which we are moving is much the same as it was on January 1, and what we can also see from the other markets. Maybe put differently, we can see a similar price pressure in the non-nat cat element. This is interesting for Japan because we have pure non-nat cat earthquake contracts, and they are definitely unchanged as far as pricing is concerned. So we are talking about non-proportional business. I would say we see similar developments as in January. For United States, it is a bit harder to forecast for July 1. Well, because we would expect price pressure here, but flattening out price pressure because the renewal a year ago already had, should we say, sucked out the margin in the U.S. business. With that, there is not that appetite anymore on the prices that we had seen a year ago. But it does not mean that prices will increase. No. I think we would rather see the curve bottoming out. That is my best forecast at the moment. But reinsurance, as I say, remains an exciting business. With that, I close the Q&As and hand over to Mr. von Bomhard for a closing statement. I will be very brief. The good news is, and as Mr. Schade has repeated, we are entering the new fiscal year without any legacy. Our capital basis is, I would say, above doubt and gives us the possibility to do all the business we want to do. The good news is all the business divisions are well on their way. So we do not have any, shall we say, homework to do in any of the divisions. So if we all do our job right, it will be fine. As far as challenges is concerned, I would say they are the ones we had from the past. Politics, decisions by legislators going left to right. Could be rules and regulations in the closest sense. It can be rules and regulations in the wider sense, health and life, for example. For us, very hard to handle because though we are participating in these decisions, but only to a certain extent and often are confronted with decisions made. Secondly, the capital market, of course, that also often has to do with politics, but I am more talking about the major conflicts like the Crimea and Ukraine. But of course, could also be, for example, bank crisis, debt underlyings. All of this is still quite fragile. We take our competitor serious, but they are not causing us a fright. Here we feel we are well-positioned, and that, of course, is down to the fact that we have a broad base as a group. That in our business units, we are well on our way, and I think we are quite innovative. Good examples is the Invita product, for example, ERGO. The reinsurance with new products in, for example, the special business unit or segment. Up to EUR 250 million in new premiums have been signed only recently from these innovative products. Of course, I wish to see more, but this is something that is gradually building itself up. As a group, we're bundling the knowledge of our work groups, where primary and reinsurance units are working closely together to develop these new products because there's sufficient risk out there. The first quarter with, of course, I mean, major damages wasn't bad either. So I'd say the EUR 3 billion in profits remain ambitious in view of interest rates and taxes, but they are feasible. When you go out, make sure as you leave, take the demography paper to the left or to right, wherever it is. It's a debate that I'm sure would be worth its read because I say it's a great regret that we are not debating this order in German. We are going the wrong direction in Germany. With that, we are at the end. At 1:30 P.M., we will have the analyst conference here live where you can also hook up and link into. So please make sure that your material should be not left on the seat. You have a room available next door. We now look forward to inviting you for lunch. Hopefully, see you next time at the AGM on April 30th. Thank you very much.

Data Source: Quartr Last updated: Mar 20, 2014

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