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

Earnings Call: Q4 2012

← View all transcripts

Mar 12, 2013

Morning, ladies and gentlemen. Welcome to our financial press conference for the business year 2012. I would also like to welcome our listeners online. As always, we are going to broadcast our press conference live in its full length. We have also published the figures online as well. You know that the key figures for 2012 and the renewal results for reinsurance, that is something we already published on February 5. Today, we are going to explain in more detail the results, as well as giving you an outlook. We have here present today on your right-hand side, Nikolaus von Bomhard. We also have Jörg Schneider, as well as Mr. Oletzky and Mr. Jeworrek. Mr. Jeworrek is responsible for reinsurance. Let us get started. I will hand over to Mr. von Bomhard. Good morning, ladies and gentlemen. Thank you for the introduction. Well, first of all, let us take a look at the past year from a bird's-eye view. It was a good, if not to say very good year, the year 2012, for our company. We are still deeply in the crisis. That is something you have to keep in mind. Our strategy to focus on insurance as well as reinsurance in the narrower sense, has actually paid out. Before looking at last year in more detail, let me just give you a short report from yesterday's supervisory board meeting. Two facts are interesting for you. First of all, the supervisory board has given its consent to increase the dividend as suggested by the board. The dividend will be increased to 7%. That will be suggested during the AGM. An additional information is that the contract of Mr. Strassl will not be extended beyond the year 2013, which will lead to some shifts in the different segments. Mr. Wenning, he will become the labor director of the company. As of October 1, for the last three months of the year, I will also be responsible for Munich Health together with Mr. Strassl. As of January 1, 2014, I will be solely responsible. I think these two pieces of information are of importance to you from yesterday's supervisory board meeting. Now, let us take a look what we are going to do today. No surprises here as far as our agenda is concerned. Let me get started with the last year. It is important for us to have ambitious goals, but goals that make sense. They need to be realistic, and then we want to deliver on our promises. That is what you can see on slide 3 with the results of the past three years. Apart from the year 2011, that was due to the major natural catastrophes we had. But apart from that, we have very clearly achieved the goals we have set ourselves. Also, I think it is quite interesting to keep in mind what we had planned before the crisis. Back then, we believed that we would have a revenue of about EUR 3 billion. But as you know, the risk-free interest rates have come down significantly so that we had to reorient ourselves at a new platform, which was at about EUR 2.45 billion. Now based on this platform, we have gone up to the EUR 3 billion once again. The biggest challenge in the insurance industry, apart from all the uncertainties, is definitely the low yield environment, low interest rate environment. A lot of our work is focused on that, and on the right-hand side of this slide, you see the summary of the success factors which made it possible that we had such a good year as a group. We are also quite confident as far as the future is concerned. You see some of the qualities which are necessary, especially for the reinsurance, which showed an exceptionally good result, and it is a knowledge-driven business. It needs to be the first goal of the reinsurance industry to have the best possible knowledge in order to detect new risks and offer solutions, especially for our clients. We have different challenges in primary insurance because here the low interest rate plays even a bigger role. The development of new products is important. Mr. Oletzky will touch upon that later on. Also, we have some good news as far as our international business is concerned. We are back to normal in the international business and in the ERGO Group. We are also working hard on streamlining the sales organization. Munich Health, as our only segment, showed a loss last year. It was a very difficult year. But if we do have some good news, we focused on primary insurance in the U.S. But I will get back to that later on. If I were to sum all of that up, this development of last year reflects the developments of the past two or three years. So we continue to focus on insurance with a very disciplined risk management and also a very disciplined underwriting policy. Why do we focus so much on our core business, insurance, reinsurance, and always from a technical point of view? Well, now during the times we are living in with a low interest rate environment, which is something which you can see on slide 4, you can see how the interest rates have come down, and that means our earnings have come down. We have not compensated that by taking greater risks. So together with the risks, we have also lowered our results. Yeah, it is just like an elevator. We went down. But of course, it was our goal to compensate that, but we cannot take any more risks on the other side of the balance sheet. But what we can do is we can improve the technical margin in the insurance industry. That is something you can see on the right-hand side of slide 4, where you see the underwriting results and its contribution to our overall earnings. Behind all that, we have a very careful management of our investments. For example, we have drastically reduced our banking exposure. We cut it down by about 50%, and now the reinsurance industry has no longer any peripheral European government bonds. So we have acted very carefully. At the same time, we try to diversify our investments. That is, on the one hand, a method in order to distribute the risks on very many different assets. Nevertheless, where we see a profitability, we want to make use of it, and we were not as diversified in the past as we are right now when you look at the different asset classes, the different regions. We had some risk-adequate earnings here, and we have also moved in more or less liquid investments, for example, infrastructure, renewable energies, but you are familiar with that. So much about that. As far as our investments go, we do not take any bets. We do not believe that we know better what is going to happen within the next 2 years. We do not have any high hopes, and therefore you can also not expect any spectacular earnings, but also on the other hand, no spectacular losses when the markets might turn into an unpredicted direction. We have a result which can be easily calculated. On this slide, which is not new, at least in the upper part, you can see how we manage our capital investments. Capital investments are a difficult business right now because we have a lot of money to invest. Let me put it in the following way. Capital investments are less sure than insurance these days. What you can see here is how we control our investments in economic terms, and you can see that when you look how sensitive we are to changes of the interest rate. When the interest rate changes by one basis point, you can see what effect it has on our economic capital. You can see how reinsurance and primary insurance complement each other because of the different durations. The reinsurance has longer durations, and the primary insurance, because of its business model, is slightly too short, but across the group, we can balance that out. We do not always hit the jackpot so that we stand at zero. But we try to keep it low, and that is the economic management. For example, the balance sheet according to HGB, the German Commercial Code, that is not what we focus on. We focus on managing it in economic terms. The main three drivers of capital investment are listed at the bottom of the slide, asset liability management. That means we try to take into account durations, we try to enter account interest rate sensitivities, and we are also using derivatives for that, especially for primary insurance. For example, the famous swaptions program, which we started back in 2005, where we have a reinvestment interest rate, which we want to safeguard on a particular level. We were one of the first companies doing that. In 2005, we were one of the first companies, as I said, however, the German Commercial Code would have given you no impulse to do something like that. The second one I have already mentioned, diversify, diversify, and to do it in an intelligent fashion so that you can profit, even though where you do not see any correlations between the asset classes and no risk. But as I said before, we are not taking any bets here. The mitigating yield attrition, we are looking for assets where we believe that we are going for the long-term investments, so we can also look for illiquid assets. You get an illiquidity premium, and sometimes you get a little extra. We are actually able to do that, to go into such illiquid long-term investments. Now, when I look at our core business on slide 6. I mentioned before the result platform, which we had to develop up to EUR 3 billion again through the crisis. The main contribution, as you can see here, comes from our insurance business. You can also recognize that by looking at the combined ratio. Let's take a look at reinsurance first. You see our target combined ratio, and you can see how over the years we see a downward trend. When I first started in my position, we were at 98 and went down to 97, 96, and now we stand at 94 combined ratio. That does not mean necessarily more money for the shareholder because we lost money on the interest rate side. But we definitely have made great improvements here. Now let's take a look at primary insurance right next to it. Also, when you look at non-life, we had three difficult years in our international business. We're back to where we were back in 2007, 2008. That means a combined ratio of below 100%. On the right-hand side, you see U.S. primary insurance, Munich Health. Here we have given you the different figures so that you can see what Here you see the operating result. At the bottom you see the life insurance development. In the reinsurance, you can see how the technical side has improved on the bottom left of the slide. Now we see a sideways movement in primary insurance. As I said before, this low interest rate environment is a huge challenge, which we try to tackle wherever we can. But it is hard to have an influence of, and you can lengthen the duration, which we have done recently. I said we have the swaption program in place. Also we've introduced other measures which have not necessarily helped us with our ranking, but it always depends on what you're going to do in the future. But also, with our reserves, we have been very careful. We have EUR 22 billion in terms of reserves, and we have been very careful with releasing reserves, and sometimes you have to reshift in order to replicate what is necessary. Apart from that, we have not taken money out of the pot of our reserves. What is important to know here is the new product family we have gotten underway, but we will touch upon that later as well in more detail. Apart from the U.S. primary insurance in Munich Health, I'm on the right-hand side. Munich Health is doing quite well except for U.S. primary. In order to be able to profit from the growth of the health industry. I'm moving to my last slide seven right now, which again is a bird's-eye view, and I want to focus on the capitalization. During the past years, of course, we have significantly improved our capitalization, which gives us some leeway in different areas. We can make use of business opportunities. As you can see here on the left-hand side of the slide, these are several examples from our different segments. It is true for organic growth, especially the large solvency relief deals in the reinsurance industry, call for a reinsurance company with a good capitalization because the customers are quite high, and when they have a volume of 1 or 2 billion, we need to make sure that the company, without any doubt, can handle the situation, and we are able to do that. Then we have also seen organic growth, especially in Asia and Latin America, for reinsurance. But also for ERGO in Asia and in other European countries, then we can also look at strategic partners. Who am I going to cooperate with? Then we might also be looking at mergers and acquisitions. That is an ongoing topic. But as you know, we are quite careful when it comes to that because we always focus on the economic benefits of such a takeover and when the strategy would fit into our portfolio, the price often is not right. That means we can seize profitable business opportunities. On the other hand, let me also mention our dividend policy, which goes back to 1969, and now with the decision of the supervisory board we have again increased our dividend. So for the past year, we suggest a dividend of EUR 7. So with our dividend, when the AGM decides upon that, then within the German DAX, we are behind the two large utilities and maybe Telekom, and then we should come in fourth or fifth. But we should be amongst the top five, which from the point of view of the shareholder is quite positive. So now let me hand over to Mr. Schneider. Thank you very much, Mr. Schneider. Mr. Bomhard, sorry. I would like to explain a few figures of the last fiscal year. Many of the catch-and-buzz words which Mr. Bomhard underlined will be mentioned again. This has to do with calculability, with continuity, with capital strength. Not in the sense of a kind of supercilious sleepiness, but it is our firm conviction that a sound financial backbone is necessary in order to be successful in this business and harness all the opportunities and chances which might arise. 2012 was a year with good general conditions. We achieved a good result. The result was good not only in comparison with the previous year, but also in absolute terms. In comparison with the previous year, we had an increase of EUR 2.5 billion, and of those, EUR 2 billion because of fewer major losses. But in order to give you the right perspective, the major losses in the previous year was not significantly lower. It was just slightly lower with respect to statistical assumptions, and this accounted for about EUR 150 million in this respect. We also had a very strong capital investment or CapEx result and very good indicators in reinsurance. Special burdens for ERGO. The provisions for restructuring expenses of sales, and of course, the losses of Munich Health, they also have to be taken into account. Both special burdens were met in the fourth quarter. Add to that losses, EUR 800 million from the Sandy storm. Now, if you look at the upper part of this chart, you will see that we have got a quarterly profit of EUR 481 million. Then this underlines the soundness and the strength of the group and our business. This profit was achieved because of a sound reserves and provisions policy. We had a loss of claims reserves in the amount of EUR 900 million were released towards the end of the year. This was a driving force for this high profit at the end of the fourth quarter. Capitalization has been strengthened again. Here, a simple picture, an increase of EUR 4 billion. This is influenced by an increase of unrealized gains and losses, EUR 2.3 billion. It's that part of the unrealized valuation reserves, which is included in the equity. This is the deducted and the parts which have to be attributed to the share of the policyholders and taxes. I believe that this is a very high figure. Taking into account increasing interest rates of 1.5% only, such valuation reserves would have melted down, so to speak. This means that such valuation reserves should be at one's disposal, and you should not turn them into liquid assets too early. A second reason for this increase is the high profit. If you look at the lower part of this chart, the debt leverage, 17% in relation to the sum of equity and debt, I believe that this leverage is very low. Our equity also has to be interpreted against the background of, that's what I believe, realistic and conservative valuation policy. We've got 3.4 billion goodwill in our balance sheet. Munich Health. Well, here you can see how decidedly we handle such good wills and write them down if result expectations do not become reality. Then we have provisions for losses. We have losses carried forward, which are shown on the balance sheet and similar items. Here we used a very cautious approach. This means that our capitalization or capital reserves is very strong. This is all in line with the valid Solvency I regulations, 78% of the minimum. Mr. Bomhard also mentioned the high significance of an economical view. All obligations and all assets are valuated according to their market values. Here we also had a significant increase. At present, we've got 29% more capital than corresponding to our own objective or target. This means it is 2.3 fold the amount, what we should have under Solvency II. Now about investments or the investment portfolio. We believe it's a very balanced portfolio. No bets, so to speak, diversification, mixing. These are the important catchwords in this respect. We've got EUR 225 billion. Why is the share of the fixed interest securities so high? It has to do with our obligations. We want to reduce our exposure to capital market fluctuations and therefore this high share of fixed interest securities. We also try to diversify more. We emphasize government bonds with a high credit standing and high liquidity. This is very important, particularly if you think of bunds and then reducing those of peripheral states and also bonds coming from EU institutions and emerging market countries. Diversification. Here we also try to reduce our dependence on inflation-sensitive securities. We try to reach these moderate 3+% and we also have inflation swaps and inflation-indicated bonds. We make progress when it comes to commitments with a view to renewable energy resources, EUR 1.5 billion, taking into account the infrastructure. Here we are also highly diversified wind energy, solar energy, bonds for, or facilities for energy storage and energy transportation systems. The investment result or the CapEx result is also influenced by the yield, which is a calculable one. EUR 8.4 billion or 3.9%. Here I can say that this is on a gratifying, on a pleasing level. The running income, 0.4% lower than in the previous year. The result from the divestment, EUR 256 million. This is a contribution of 0.3 percentage points. In comparison with the high valuation reserves, we can say that this is very low. Indeed, when looking at the turnover, we really have been using a very restrained approach. Segments. Let me start with Munich Health. Gratifying growth, 12.3%, half of that due to foreign exchange influences and organic growth. Two-thirds in reinsurance, one-third primary insurance. Growth in reinsurance is also due to large volume capital relief or solvency relief contracts. Here we are very qualified at offering such contracts and we also specialize in such contracts. This does not mean that we neglect or reprioritize the other types of business, but I can say that in this respect, we've got special know-how. Primary insurance. The premium growth in the United States Spain's while in Spain, but in the United States, the results were very disappointing. This, of course, influenced Munich Health figures minus EUR 92 million for 2012. Why? We bought two companies, two health insurers in the United States, and they have been specializing in the market for old age people. Here we are focusing or we focused on capital relief products. In 2008, new legislation became valid, which made this approach useless and paying. In this case, we had to arrange everything ourselves, and we did not succeed in being as successful as we planned. For several reasons, we have a clearly high cost burden with clearly low premium and premium income and additional income. Therefore, we incurred high operational losses in 2011 and 2012. As a precautionary measure, we took this into account for 2013 and wrote down the goodwill for this year, EUR 252 million. Apart from that, Munich Health was performing very well. You can see that on the left side. This is a larger chart than the one which Mr. von Bomhard showed. This is adjusted for Munich Health. We'd have achieved a result of more than EUR 200 million. Good development in Spain and Belgium have to be taken into account. I must say that we also got promising commitments in the Middle East, in the Arabic region, and in India. For 2013, we can say that new losses cannot be excluded because of Munich Health. But our position is very good in this business field of health, primary, and reinsurance, and we are quite optimistic that we will grow profitably. This much about the smallest business field, i.e. Munich Health. Now, Torsten Oletzky, my colleague, is going to talk about the development at ERGO. Good morning, ladies and gentlemen. The year 2012 was a sound year for ERGO, the primary insurer of Munich Re. It was not a good one, but not a bad year either. Talking about our central issues, we are always well on track, I must say, but in some areas, we still have to look at the results of the new product which we want to offer. In 2012, we have seen good development in our international business. Here, the Polish company helped us and other companies which were a reason of concern in the last few years. For instance, our Turkish ERGO companies. Here, we made progress. The property casualty business, international business has to be compared with a combined ratio in Germany. Here I must say that some negative effects in 2012 have to be taken into account, but they will not be repeated in 2013. In this respect, we are also quite optimistic that we will have a combined ratio in Germany of about 95% or lower. Another issue which is of concern this day, and it started in 2012, is that through 2013 we will face this problem, that is, we have to restructure our sales and distribution channels. Now let me look at the figures of 2012. This is how I'd like to start my presentation. Primary insurance. Well, here I think it is necessary to interpret these figures, and the first chart shows you that on the one hand, on one side, here you see the primary insurance figures. Everything consolidated. You see an increase from 2011 to 2012. From an ERGO's point of view, you see a decrease from 349 to 289. This decline is due to provisions for the expected restructuring expenses, our sales organization. If you look at the EUR 128 million and add them to the EUR 289 million, then we'd have exceeded EUR 400 million, which means we'd have exceeded our objective slightly. But we booked this provision so that we are just below the 2011 results with our EUR 289 million. But this means we also took into account the things which are in store for us. In 2012, we had a few individual major losses. I'm going to talk about that later in my presentation. This also led to differences between the presentation of Munich Re and ERGO. Here the effect of the reinsurance. That is, that product which ERGO buys from Munich Re. You can compare these figures with our primary insurance competitors. The net figures are figures after reinsurance. The property casualty result is influenced heavily by this fact. Here you see a negative result. Just let me look at the property casualty result in Germany. ERGO figures. Here we've got a plus of €150 million. So I must say the interpretation is a bit difficult because of the special non-recurring or one-off effects, and therefore, during the ERGO annual results press conference, we will present these figures in more detail. This much about the, say, general figures. Now a look at the premium development. In our written gross premiums, we had a decline of 2.1%. Of those, €141 million decrease from selling companies. This refers to Portugal and Korea. In Portugal, we sold this company in 2011, and it was included in the 2011 figures. The Korean company, well, we announced it in 2012, and we sold it in 2012. Talking about organic declines. Here we've got the effects from life insurance. Well, I'm going to elaborate on that later, but I will not give more details about the health side of our business. I just want to say that we've got, say, a slight increase of 0.4% and 0.5% in health. This means in life, we've got a relatively good growth, stronger growth, and a negative contribution from the traveling segment. I can say that the European travel insurance, they are aiming at consolidating their business. The contribution is about 5%, so again, a decline. Now, let us have a closer look at the premiums in life and property and casualty. You see that in life, the low interest phase has reached our business as well. The surplus contribution was reduced, and the low interest rate environment had a perceivable impact on our premium business, not only in Germany, but particularly in Germany. In Germany, we've got a decline in the single premiums from EUR 360 million. Of those, EUR 240 million decline from a capitalization product of ERGO Direct, which we have separated from the other life products. In property casualty insurance in Germany, we've achieved an increase of 1.6%. This is slightly below the market growth in general. It has to do with the fact that market growth comes from power plant growth, and our market share is relatively low in comparison with other segments. Private property insurance, here, our contribution or our market share is higher. Then we have sold the companies in Portugal and Korea, and therefore, our result is lower. If you adjust it for that, then our international property and casual business would show a plus, a positive figure, and the growth of the profitable companies, Poland, for instance. We also have companies in Turkey, for instance, which is being streamlined. If you take all this into account, then we have a slight decrease in our international property and casualty business. Now, we would like to show you the new business, particularly with a view to life, because here you can see very well how everything developed. That is the running income and also the single premiums. I alluded to the fact that this decline comes from the single premium business. In this case, we've got a decline of 23% in Germany, short of 25% in our international business, about 20% decrease, and we've got a slight decrease with a view to running income. Life business, taking into account the interest rate environment, well, this is not an easy business. I think the decisions which have to be taken in this respect are not easily taken, and there is a thrilling and exciting discussion about new products which might surface, and ERGO contributed to these discussions with its own ideas and approaches. We are still faced with the problem that the new product is still kept under wraps, so to speak. I can say that the new product will be introduced to the journalists in a specially organized workshop, and from the 1st of July, unless something unexpected happens, we will be able to sell this new product. We are faced with a problem that the interest rates in the German market are falling lower than the average guarantees. Now, this, of course, is a challenge for the life primary insurance that they have to hedge this in their portfolio and taking into account the programs. We are probably one of the first insurers having launched such options. We started in 2005. We always provided respective information. This does not solve the challenge with a view to our new business, and interest rates over the last few years have gone down. Last year, we have the impression that on the 31st of December, we say it cannot go lower. Nevertheless, in 2012, things still went down further. Also longer interest rates, the swaps and the bunds all have to be taken into account in this respect. Therefore, it is small wonder that we have got a wider discussion about new product concepts. Our product concept will be a product between the classical life insurance and the fund-linked insurance types. We want to offer our clients a combination of guarantees, and clients ask about these guarantees. These guarantees are expensive, but the customers want to have these guarantees, particularly in insecure times. We want to hedge these products at reasonable prices, and I believe that this is a wonderful example for the synergies in our integrated insurance company, and I am sure that Mr. Jeworrek is going to sell these products to our competitors as well. This joint or common development workshop means that we are ahead of the others and for our reinsurance colleagues, they see an advantage that together or in cooperation with the primary insurer, they are able to develop respective products. I must say, if other insurers offer or think about similar concepts, then this is not really a reason for concern for me. We have to convince our clients in this respect, and if colleagues are walking in the same direction, then I believe that this is the right thing. We see that, for instance, in Zurich, they try to come up with their own answers how to handle the current capital market environment. We believe that there must be a sensible balance between security, flexibility, and yield. This for customers, clients, and the investors. We will be able to be successful only if we offer an attractive product to our customers. When talking and developing products, you always have to start with the customer first. We cannot build and develop products without providing fund to the investors, because otherwise we will not get the necessary hedging capital. Otherwise, we will not be able to get such funds over a long period of time. The German market is one of the most interesting and exciting markets because after many years when talking about products, we did not have a high level of differentiation. Here, the products were influenced by legislation, Riester, the bAV, and Rürup pension schemes. They were initiated because of new laws. This was a difficult market phase. Now we will have more differentiation simply because of initiatives of individual vendors or companies. So this market, which has been of interest or interesting all the time, will be even more interesting and exciting. Now about health. In comparison with 2011, I can say that we see a clear decline in our new business, particularly comprehensive insurance. This is not a fair comparison because 2011 benefited from the three-year blocking period, which was no longer in effect. You want to be honest and say that new business in life and health has not become easier, and this also applies to the new unisex product generation because, since last December or since 1 January, we have to offer products using unisex rates. In addition to this change, we also have to take into account new aspects with a view to this new generation of products. This means new business 2013 and new contracts and concluding such contracts will be much more expensive. You have a decrease of the calculated interest from 3.5% to 2.75%. Many competitors did that, but this had an influence on our prices. We also had a look at the cost increases in our health business. The new regulations for the dentists and risk calibration. Here, we had to think about private health insurance issues. They were cherry-picking. This means lots of risks were not accepted. They only accepted good risk. I think that this is a reproach which is not really fair, but it caused us to think about how we select our risks and accepting this or that risk. We thought that it is better to be more generous, but it also means that this will have an influence on our prices and the coverage also. That or the benefits catalog. We believe that we will be able to offer the benefits catalog, which is similar to that of the legal insurance companies. I think it was quite interesting that my DKV colleague said one example is that we now have ergotherapy, which was included in the portfolio, and this was an increase in cost. Now, the unisex effect, we showed it separately. Here we've got price effects. Men and women, +6.6%. Women, -10%. This means the unisex legislation will impact prices. The reproach that things have not become cheaper is not quite right because other things had to be taken into account or have been included. DKV, you see, they didn't implement this unisex legislation properly. It is a debate which was conducted in health. Only if you look at the situation in life, then you will see that there are price decreases, which were implemented. Then supplementary insurance. Here we calculated everything in line with our property insurance calculations. The loss does not depend on age, and therefore we do not use We do not calculate any provisions for old age. Here, the figure is 20%, and it is certainly a product category which will probably play a major role for DKV or other companies. You see that Pflege-Bahr is also a new care product. In 2030, we are going to have it in our portfolio. In this respect, it is very difficult to say or forecast whether this will be a success in the marketplace. Now a brief look at the property casualty business. Here we've got a mixed picture in our combined ratios. We have a very good development in our international business. The combined ratios are from 104.5%, and it went down to 99.8% in other countries. This means improvements in all markets are possible. Very good combined ratios in markets like Poland and Greece, but also improvements in markets where we were fighting or struggling. In the Turkish market exceeding 100%, but I must say that we have introduced and implemented the first step to improve this situation. In Germany, combined ratio, I must say it was a difficult year. Here we have 98%, and the reinsurance effects were taken into account. If you look at the ERGO figures, then the figure is slightly lower, 95%, 96% is a more realistic figure. But this means we have not reached the level in Germany which we wanted to achieve. Of course, we have implemented improvements, particularly with a view to our motor insurances, but we still have got lots of things to do when it comes to, say, building insurances. We also had a year with many claims and losses, particularly with a view to industrial insurances. In 2012, we had the largest market claim or loss with a loss in a chemical company, and it was the highest loss, 10% of EUR 360 million. So it was 10%. This is still a major loss. Smaller catastrophes, and Mr. Jeworrek mentioned some such losses for 2012. But I can say that all this impacts our combined ratio. But at the end of the day, I am quite optimistic that in 2013, unless there are unusual losses, we will be able to fall below 95% in Germany. If you take into account the positive trend in our international business, I believe that we are well on track with a view to our property casualty business. This much about our organization. We will have in 2013 our restructuring efforts to our sales, and this business is influenced by two components. One, very stringent advice which we want to use for all sales and distribution channels. It is also in the context of delivering our promises. This is what we have to see. Everything will be rolled out electronically. Of course, you can get it on paper already. But we have got a new PC system generation which we have introduced, and we are going to roll them out for our field service staff. This means they will have an electronically guided advice or consulting process. This will lead to a higher level of homogeneity. This is also the catchword for our restructuring efforts. We are going to merge five existing organizations into two, and we will reduce the number of regional sales offices from 218 to 120. This means we are going to handle our business with a fewer small organization. We will be represented in 66 cities. In the past, 83. You see, we had a very good network, even in mid-sized cities. Sometimes we were represented with two or three offices, and we thought that this is not necessary. We are going to have a new sales organization, a streamlined sales organization. These measures are to be implemented over the next 12 months. We want to reduce or axe 1,000 plus jobs. This will be a painful process. But with customers, the consumer protectionists always demand that the combined ratio must be improved. We believe that this is necessary, and we believe that the savings effect will be EUR 160 million. This brings me to the perspective. Life, a new product. We are very hopeful in this respect. We are interested in seeing to what extent and how fast it will be accepted, how our clients and sales partners will accept it. This is a very interesting question. Health. We believe that we will have a better growth in our portfolio. Last year, and this was the reason for the lower premium growth, we will have a few adjustments of our premiums this year. When it comes to supplementary insurances, because of the sales related to success, we will be more successful than in 2012. Property casualty. Here, the combined ratio. Well, I talked about it just now. In Germany, we want to fall below 95%, and in our international business, we want to stabilize our business. So a combined ratio is to be stabilized below 100%. Industrial products, here we are in the midst of restructuring our sales channels. Now I hand over to Mr. Jeworrek. Well, thank you so much, Mr. Oletzky. Good morning, ladies and gentlemen. I'm going to talk about the segment reinsurance Life and non-Life, and I will start with our premiums. Well, the premiums and reinsurance in 2012 have developed in a positive fashion from EUR 26 billion to EUR 28 billion. Well, EUR 2 billion sounds good. However, you have to keep in mind that mainly we had a very positive effect, which is due to foreign exchange effects. This effect is slightly different when you differentiate between Life and non-Life. In Life, we still have seen organic growth. However, in non-Life, the effect of the foreign exchange was also characterized by contracts which we bought in China. We reported on that last year, that we had special contracts last year because of the difficult market environment. They were bought as a capital release by these companies, often on a quarterly basis. Here we had more than EUR 600 million from them. So non-Life, adjusted for exchange rate effects, would have gone down slightly. Now let's take a look at the different segments by starting with Life. Life in reinsurance. Here I have tried to look at the growth of the premiums over the past six years, and you can see that reinsurance Life is on a very profitable growth path. That is noticeable when you look at the premium growth on the upper right-hand side, where we have gone up to €11.1 billion. You can also see it, and that is even more important when you look at the value of the new business on the bottom right, which went from EUR 270 million to EUR 570 million, where especially our business activities in Asia and in financially motivated reinsurance, but also special developments which were caused by the financial crisis, especially in the North American market. All of this led to a lot of additional business, which is also quite profitable. In the medium term, we expect that the value of new business will amount to about EUR 500 million, roughly, because also a part of the large volume business will disappear in the long run. All in all, reinsurance Life has a share of 39%, as you can see on the left-hand side. Munich Re, compared to its international competitors, especially in reinsurance Life, is definitely the number one. Some mistakes which our competitors made were not committed by Munich Re, and Munich Re has definitely seized the opportunities offered by the financial crisis. Now let's take a look at the results of 2012. On a good level, but nothing really stands out. Segment result was about EUR 500 million. Technical result about EUR 420 million, where we said our medium-term goal was to be above EUR 400 million. That goal remains valid, and we have achieved that, and we believe that the drivers for the reinsurance Life, especially in the current capital market environment, that the drivers are well in place, and we will see also stable results in the years ahead of us. Now let's take a look at reinsurance non-Life on slide 31. We had a difficult story which we had to tell last year. We had good renewal results. However, we had very negative overall figures. You could call it bad luck or whatever you want to call it. We had a very unusual sequence of natural catastrophes, which are very rare, and that had definitely a negative effect on our burden. In 2012, we had a development back to a normal situation, a technical result of EUR 2.8 billion. This difference compared to 2011 is due to the fact that the situation of the natural catastrophes normalized again. That goes to show that also in 2011, we had a similar situation in our portfolio, but because of our business model, we have to live with these ups and downs. That is also the reason why our customers buy reinsurance from us. This is part and parcel of our business model, and we can only afford it as long as our risk management works and as long as our scientific models are working properly, and also as long as we have or receive a necessary margin for these major natural catastrophes. That's why we focus so much on the profitability, and that's why we adhere to our policy that we want margin before growth. Now let's take a look at the combined ratio. Very good, 91%, which you can see in the upper part of the chart, slide 32. You can also see what it consists of. On the one hand, we had a very good profitability of the basic losses. You can see the 50% basic losses, which is slightly above average or slightly below what we would expect in the long run. Then we had the natural catastrophes, which were good luck. Larger natural catastrophes and large man-made losses together amounted to about 10.8 percentage points. Normally, on average, we would see about 12 percentage points. So 1.2 percentage points of the combined ratio is what you can call good luck for last year. That was the deviation from what we would normally expect. Then we also have had a slightly positive effect from releasing reserves. We evaluated our reserves. That is what we usually do in the fourth quarter, and that amounted to about EUR 900 million for the total of the year. But normally we would expect releases of about EUR 600 million, or in other words, about 2 percentage points the releases were actually better compared to the previous years, and that led us to a normalized combined ratio of about 94%-95%. That is also what we have in terms of expectations for 2013. If you include the price increases we have implemented, then we can expect, as I said, about 94%-95%. Then major natural catastrophes were the hurricane Sandy, for example, EUR 800 million, one of the largest hurricanes in the U.S. when you look at the insured losses. But it was actually more of a flood event compared to a storm event when you look at the losses. Then there was also the bad drought in the U.S., and then there were the earthquakes in Italy, which amounted to about EUR 150 million in total. So all in all, a very positive year, and I expect that we can deliver similar figures also in 2013. Now, in the next part, I would like to talk about our business segment risk solutions within property casualty. What is risk solutions all about? We mentioned that a few times already. Under this headline, we sum up the primary insurance activities within reinsurance, which are pretty close to our core knowledge, our knowledge about risk. So already a few years back, we have tried to expand our business range, and we try to come up with products which are based on our core competency to knowledge about risks, and this does not depend so much on our sales activities. You can see, for example, the corporate insurance partners. It used to be MARP, Munich-American RiskPartners. That is what we bought in the second half of the 1990s, or we build it up respectively. Then the other activities took place in the second part of the last decade through M&As or through starting it ourselves. By now, all of this together amounts to about EUR 3.8 billion within the reinsurance and also probably will be one of the growth areas in reinsurance property casualty. Now, what do the results look like for the past few years? Quite positive. We have seen a continuous increase of the premiums, which was also quite profitable. As you can see on slide 34, the combined ratio over the past five years is the five-year average is 92.4%, and also we expect here for the future combined ratios of roughly 92%. I believe with this business segment, we have developed something which differentiates us clearly from our competitors. We are not just doing any other product. We are doing something which is very close to our core competencies, namely the knowledge about risks. In the last part of my presentation, I would like to talk about the market environment. I will mention briefly the renewal round of January, then I will also be talking about the next renewal rounds for 2013. What was the market environment like on January 1st? All in all, the worldwide reinsurance industry was covered by a good capital basis, and that had to do with the fact that the results were very good for the previous year. There were no major natural catastrophes. On the other hand, the capital base also increased significantly because other forms of investment, because of the low interest rates, that had an influence. The reinsurance industry feels richer than it actually is. I am not saying the capital base is weak, but it is not as strong as you might think, because of the development of the interest rates. Despite Hurricane Sandy, and despite the damages here, we still saw some competition. Sandy maybe helped us to stop price erosions in the U.S. segment, but it also, on the other hand, did not drive up the prices like we would normally see that in other parts of the world. There were enough capacities in the market. Also what we have seen, and this is especially true for the last half year, second year of 2012, we have seen new capital entering our industry. Money coming from institutional investors, capital investors such as pension funds, which simply they do not know where to invest, and they look for new ways to make a profit, and they want to offer catastrophe bonds or sidecars or whatever these vehicles are called. They discovered that newly, these products for themselves, and they enter market which they think is attractive for them. What does that mean? It leads to more capacity within the market. It also leads to more competition in the market. However, we do not see a replacement of the traditional reinsurance market. It is actually more a complementary reinsurance situation. The demand for reinsurance on a worldwide basis was relatively stable. Amongst some of our large customers, there were some slight shifts, but no major changes. What do the figures look like based on the January renewals? You have to start on the very left, going to the very right. We start with a volume of about EUR 9 billion on the very left. That means the January round is the largest renewal round within the Munich Re portfolio. At the end, on the very right, we have a slightly smaller volume of about EUR 9 billion. What happened here? How can that be explained? We focused once again on discipline. It was not easy to implement price increases, and we have adhered to our strategy. We have seen some premium growth in the non-proportional business, Nordic countries, also for the transport industry. But we have also seen some attrition. We have given up some business in Southern Europe, and we also have given up some other volume in the airline industry, especially the airline industry is highly competitive. The price increases amounted to 0.5%. Despite the competition, we were able to slightly raise our prices. When you look at the figures, 0.5%, these figures also include changes of the portfolio mix, for example. We are showing you a very comprehensive picture of what we think the portfolio looks like right now. We believe, and that is also our ambition for the future, that keeping in mind the low interest rate environment, there will be a pressure, or we have to put on pressure, especially in liability business. The longer that this development continues, the more important it will become, because especially in liability business, you can invest the money in capital products for a while, and you can only realize the interest rate which is available right now. That is how we calculate right now. We never take the interest rate which we are already getting for our current investments. No, we always assume the interest rates which we will get for new investments, and that increases the pressure. This is the necessary pressure in order to stay profitable, and we can only stay profitable by improving our prices. What do we expect for the rest of the year? There are two more renewal rounds ahead of us. One is pretty much underway right now, the April renewals, especially Japan and Korea. Then in June, July, we have the renewal rounds for the U.S., the Caribbean states, and Australia. These are smaller renewal rounds compared to the January round, but it is more important in terms of the catastrophe business, because the catastrophe business has a much larger proportion during these two upcoming rounds. What does the market environment look like right now? We believe we will achieve similar results compared to the January round. We will see more competition, and the prices will develop in a sideways movement, which will support our projections for 2013, 2014, that we adhere to our planned combined ratio. I will hand over again to Mr. von Bomhard. Well, I would like to thank you, my dear colleagues, for your presentations, and we will get now to the end of our presentations. I have two more slides which I would like to show you a few things about our outlook. Gross premiums written, you can see that we have reasonable, ambitious goals. We expect a slight decrease that has to do also with the large capital releases. However, the premium volume is not everything. When it comes to investment, Mr. Schneider already mentioned that 3.3%, a lot of people said that is a small target, but as I said, we do not want to put some money in our pockets right now, and then we have a lower reinvestment rate. The net result, around EUR 3 billion. As I mentioned before, the platform which we have reached going through the crisis, we started at around three, and then the interest rates brought us down, and now we have reached that level again where we were already back in 2007. My colleagues have already mentioned the combined ratios, around 100% for Munich Health, 98% for primary insurance and, excuse me, 95% is the target for primary insurance and 94% for reinsurance. Well, so much about the outlook. Now a few more strategic points to keep in mind. What remains important for us and has been always important for us is we want to focus on a sustainable development. We do not want to make a big leap forward in one year and then fall back in the next year. We want to have a continuous development. For us, it is important that we do not lose track of our long-term goals. The core business is overall quite healthy. We have this one issue we have to deal with, Munich Health in the U.S. Apart from that, there is no other problems which we have not addressed yet. Our level of reserves is good. We have a total of over EUR 50 billion in reserves. So if we were to make any mistakes, you would notice that right away. But we are in a comfortable position, and last year, we were actually able to release EUR 900 million and have thereby improved our overall situation. The basis of everything we do is a solid risk management and a disciplined underwriting policy. That is what rules everything else. Of course, the environment is not easy. The interest rate situation, we mentioned that quite a few times already. Therefore, when it comes to our capital investments, we are careful. Of course, we do have some things in mind. We might even buy back shares. But when we take into account the uncertainties, and even if the crisis actually is showing signs of improvement, then the markets can easily be shocked by some new events. There are also uncertainties because of the regulatory authorities, and we do also not believe that things will become easier in the next one or two years. Then we also have politically not the most stable situation. So being careful is definitely one of our main beliefs. We would like to become more independent of what is happening in the capital market. If you have EUR 225 billion in investments, then it is obviously not so easy to do things independent of the capital market. Whatever happens to the capital market affects us, but we always try to keep in mind that we see a positive development, even though you cannot see it right away in our balance sheet. But if you look good on the capital side, you can sometimes afford to do something else. We can afford the fact that our balance sheet actually looks worse than our economic figures. But for us, it is more important to focus on the economic situation. Well, one more thing, we are already two and a half months into the new year. We have started the new year with a lot of confidence because we do not have any burdens from the past. One example which Mr. Schneider has mentioned is how we deal with goodwills. We have been quite radical when it comes to goodwills. When something is not quite right, we write it off, and that is why our goodwill compared to our equity is quite low, especially compared to our competitors. That gives us strength. For the first two months, as far as we can see, everything is within our plans. If it remains like this for the rest of the year, that would be great. That brings me to the end of my presentation. We are now willing to take your questions. This will be moderated by Mr. Lorenz. Thank you so much. We will now start with the Q&A round. We will do it like we always do. Please tell us your name and the paper you write for and do not ask more than three questions at once. Mr. Kunz. Michel Kunz from Süddeutsche Zeitung. I have two questions. Can you tell us something about the most profitable forms of investment right now? My second question is, we have heard that Mr. Strassl will leave the company. Is that only due to the bad performance in Munich Health, or is that also due to his work as a labor director? Well, thank you, Mr. Kunz. About the first question, if you assume that the capital market is efficient, then every capital investment has the same profitability, because the risk capital is reflected in the interest rate development. Who actually believes in an efficient capital market these days? For us, it is not so much about finding one particular form of investment where only we have found out this is a profitable form of investment. What we rather do is, what are our duties and how can this be best replicated and diversified? Through the mixture, we can generate something which others cannot generate, because we have obligations on the one hand, and we have the mixture on the other side. There is no one single answer to this question. If everybody was going to do the same, then the profitability would go down. There is no one single answer. Also, as my colleague, Mr. Schneider has said, we are actually more focusing on a broader range. We are looking for corporate bonds in countries where we were not active at all in the past. Not because we did not dare to do that back then, but it was necessary back then. That is a lesson we learned from the crisis, diversify even more because then you are not always hit very hard, but you are always hit when something happens. There is no one particular form of capital investment which we prefer to others, but because of our diversification and because of our long-term approach, we are doing better than some of our competitors. We can profit from the illiquidity premium. Other investors cannot profit from that. About the second question, as you can probably assume, I will not make any comments on decisions on our personnel. That is usually our standard procedure. What is important for you to know is that the decision has been taken, but I would like to say no further comments about that. Mr. Reitker, followed by Mr. Kroneck. My name is Reitker, Platow Brief. Why did you increase the dividend so significantly? Because you keep telling us how careful you are when it comes to capital investment. Was that pressure you experienced from the investor side? You also mentioned towards the end that you might also think about a share buyback program. So, with the development of the share price, the investors can be happy, but do the investors actually want to have such a high dividend? You worry the price increase, which you're hoping for reinsurance. How realistic is that? Because the economic situation is not. We do not have a situation where the companies are spending a lot of money. They might actually spend less on reinsurance coverage. Also, the competition is increasing. So what is realistic here? What can you imagine here? What development? I have a third question about ERGO, Mr. Oletzky. When do you think the restructuring of the company will be completed? Because it's been going on for quite some time, if I remember correctly. Then maybe you could also quickly explain to us, the reserves you have set up, what did you build up these reserves for? Well, when you asked your first question, it wasn't quite clear who you wanted to ask, but I think the CFO should answer here because the CEO is usually more euphoric. So the CFO will give you the answer, which is hopefully convincing for you. Of course, we are talking to our investors, and we are also interested in their preferences. There is a strong preference for high dividend payouts. We believe that. We don't want to collect and accumulate capital. We want to maintain the generous situation we are in. I have explained to you how we have actually improved our situation so that dividend payout, the overall dividend amount will amount to about EUR 1.25 billion. Then when you look at our results of about EUR 3 billion according to IFRS, so we are talking about 4% payout rate. That is quite moderate. We don't have a particular goal here, but we want to make sure that our shareholders can profit in a timely fashion from the good development of our business. That is our main driving force. I think it goes without saying that our shareholders should profit under the conditions what we're working on right now. About the price increases, the next question. About the price increases. Let me give you some examples. We are in an environment which is not really bad. There's a lot of competition, that goes without saying. You cannot automatically expect to do a lot of business. That is not the case. However, you need to look at the fact, what did the insurance industry do 10, 15 years ago in a similar situation? When you compare that, we as an industry, we have become really disciplined. Ten, 15 years ago, at the end of the 1990s, combined ratios of 110%, 150% was normal. Of course, the interest rates were higher. Today, the environment is more disciplined. So through positive selection, you can achieve good results these days. Then we, on the other hand, have the situation that you have a lot of fragments. In certain countries where the pain increases, you can increase the prices. That has to happen or needs to be done mostly by primary insurance. It will not be possible that the reinsurance is actually implementing the price increases, whereas the primary insurance companies cannot actually increase the prices, and they still have to pay the money to the reinsurance industries. So the primary insurance companies have to become active, and there are some good examples. We have seen price increases beyond inflation in U.S. liability business, for example, also in the U.S. property business, that was also caused by natural catastrophes to a certain extent. We have also seen significant price increases. Now we have reached a particular level in the automobile insurance in the U.K. I am talking about 30, 40%. We have seen price increases in Japan, in Australia. The German automobile business has also shown positive signs. We are seeing the movement into the right direction, but it is not enough. I am not pessimistic. It is actually the art not to take the same approach for every single market. You have to focus on the individual markets, and you have to go in where you see a positive development of the prices of the markets. You nevertheless, you have to take a disciplined approach, and you shouldn't go for growth where it is not sustainable. The question about ERGO, well, the one more thing we have to do is now the restructuring of our sales organization, which is meant to be fully implemented until the beginning of next year. When you look at the overall situation, we had independent sales agents in the past years, and we have actually implemented quite a few of our integration steps. I wasn't there from the very start, but I have been with the company for 13 years. I have seen it from different sides. We have seen an integration in IT, in the back office, in the management functions. We have also bundled the brands, and now we are doing the last step. I don't think such a restructuring cannot be done in one major step, but it takes different steps. Whether it needs to take 10 or 12 years or whether it could have been done faster, well, that's not really worth discussing right now. We have implemented things. For example, a brand integration was not the plan of the first management generation. Then back in 2009, we decided on the brand integration, and then the next step for the sales integration was the logical consequence. Now, once we have completed our restructuring process. Even once we have done this restructuring process, it does not mean that we will not see any further restructuring in the future. Look at the cost pressure, look at the low interest rates, and the consumers have also become more price sensitive. They compare the premiums online, and we are under constant pressure to come up with new ideas, new products. I am sure once we are done with our sales integration in 2014, we will not have an organization which will remain unchanged for the next 50 years. We will constantly see changes within our company, but also amongst our competitors, because we are always under great cost pressure. That is something our customers and the public demands from us. About the reserves. Well, as I said, we will have to let 1,300 people go, people from the back office as well as sales agents. We want to do that in a social and fair way. We have to close some offices, and that means we have to give the people some incentives, for example, for early retirement, or some people will receive severance payments. That will cost us some money. I'm talking about EUR 128 billion. The gross figure is actually twice as high. However, after taxes, we will be looking at about EUR 128 million, what we have in reserves right now. There's a slight fact of uncertainty because we have already agreed on a schedule with the different partners. We are offering now early retirement or severance packages, but we haven't completed all the negotiations yet. This is a cautious figure, so I don't expect any dramatic changes. That is a price which we have to pay for being or for offering generous solutions if we don't just want to fire the people and that is what we promised the works counselors in order for their promise to support us in the restructuring process. The first step has already been taken, and right now we are having talks, we're having negotiations with the employees at the different locations. Hopefully by the end of the second quarter, we will know more precisely how expensive it will be, this whole process for us. Now, Mr. Kroneck, and afterwards, Mr. Hübmer. Stefan Kroneck from the Börsen-Zeitung. A question about the profit forecast and the profit target. What is the basis for your forecast, EUR 3 billion of net profit? I do not really understand because you said that in a low interest phase, around about EUR 2.3, EUR 2.4 are possible, but now you say EUR 3 billion. This is how you went up. Now, what are the crucial points? What made you so optimistic that you will reach this target, then the forecast? Can you explain how much you or how much stress you will accept in order to keep this target? Now dividend distribution. How high is the surplus capital of Munich Re? Could you give us a figure? Thank you very much, Mr. Kroneck. Let me start with your first question, and Mr. Schneider will give you more figures in this respect. Combined ratio, reinsurance combined ratio is very important in answering your question. As you've seen, and we haven't shown you this in graphical terms, but I think it would be exciting to see this. You will remember that some time ago, we had a reserve issue in the United States. When Mr. Schneider and I took over, this was an issue high on the agenda. At the time, we had subsequent reservations two or three times a year at the time. We've never had that afterwards. This reservation level has been raised over the years. If you look at our annual report, then you see what is called a triangulation diagram of these loss reserves. If you do so over the last few years, of course, this is difficult because you have to place each and every annual report next to each other, but I will help you. If you look at our profits and the respective figures, now short of EUR 900 million. Now we have reached a level, and we believe these were figures which were mentioned before. Now EUR 600 million is the figure which we can calculate or take into account every year. This is the reason why we dare to make this leap forward against the background of the combined ratio in reinsurance. What we call the conservative approach is carried over, and this refers to the new business as well. So we use a conservative approach first and then look at the situation. The auditors tell us that this is a good approach, that these figures or these reserves are sufficient, meaning EUR 600 million per year. This puts pressure on the combined ratio, and you might say that this is around about EUR 300 million. Then, of course, there are other issues which we had over the years, and we had a growing business. So the basis which is used to generate profit has increased widened as well. This, you will understand, closes the gap. Just to single out an example, we had losses carried forward in the United States, and we didn't include them in the balance sheet. So this is what you might call conservative way of drawing up your balance sheet. This means some of our profits are tax-free in the United States. Of course, this cannot last forever, but at least this is the situation at present. Major losses. Reinsurance. The budget, which we always mentioned, is the calculating basis. Major losses, large losses, 12% of the earned net premiums of property casualty have to be taken into account, and you break them down, then it is like this, 8.5 natural catastrophes, 3.5% so-called man-made major losses. So this equates an amount, Mr. Jeworrek, I believe EUR 2 billion. Of those 1.4, 1.5 net cut and the others. Well, Mr. Jeworrek, have we got a loss this year? Oh, yes, one satellite damage or loss, rather. This is why I voiced optimism before. The last question, Mr. Schneider. Capital resources, surplus capital, very difficult to specify because we do not necessarily want to hit the bull's eye. No, we do not want to reach the risk or risky edge. Let me diversify a little bit in my answer. We've got 129% of our economical capital resources or economical capital requirement. Here we've got our own resources. Requirement is EUR 27 billion, so the amount would be EUR 8 billion, which would exceed the target which we set ourselves. Rating, here the figure is a bit lower. It is a single-digit EUR 1 billion amount just above the A rating. How much of that can be distributed? You see dividends, but also share buybacks are handled by the Munich Re Aktiengesellschaft. Here we use the calculation in accordance with the German Commercial Code, and they provide for a large fluctuation reserves, and we are very grateful to that. in 2011, for instance, this provision smoothed out the fluctuations. But the volume which can be distributed is much lower because of that. After dividend distribution, which will take place in April as is planned, if the AGM agrees, we will have EUR 2.5 billion, which can be distributed without any additional measures. This means the latitude, the leeway does exist. The wish to have the shareholders' participation, well, all this exists. But we also see market opportunities, market chances, particularly in this difficult environment. This means we are not just spending or throwing money out of the window. We just will have a very careful look at our resources. Mr. Hueger, and afterwards Mrs. Bauer. Thank you. I'd like to start to ask a question. I'd like to put a question to Mr. Oletzky. You talked about the new life insurance product, but you described all this in very abstract terms. Could you be a bit more specific? It was revealed what you plan. Do you have a similar model up your sleeve, so to speak, or different plans? I'd like to ask Mr. von Bomhard or Mr. Schneider, the reserves which you mentioned and the problem, which was faced by GDV. You see these temporary reserves and then the fixed interest bearing securities. What is the percentage you allocated to these? I'd like to know this figure. I also like to come back to the dividends. Maybe say it in different words. We or you pay dividends, and the situation is quite comfortable. Now, you handle things in a very generous manner. Does that mean you do not see, say, any positive development in this respect? Okay, let me start. Allianz published their own product plans. I'm not sure whether I understood perfectly what they want to do. But I understood that we are all working on the same products. The long-term guarantees. You see, we have got 30 years, sometimes 35 years of durations. It is very expensive to come up with such a product. I understood Allianz to mean that they developed a product where the annuity guarantee will be redetermined or redefined when this product will have to be paid out. The challenge, if you give the customer a guarantee, and if you take into account the situation in the capital market. So the problem or the issue always is how you can handle hedging issues. This is something which we know from the U.S., and we certainly have to deal with something like this in Germany as well. Please bear with me. I cannot be very specific, but I can say that the volatility is something which we have to get under control. If we keep, say, volatility stable, then I believe we will be able to offer long-term guarantees using respective insurance contracts. So we are going to opt for a combination, and this in cooperation with our parent company and also using hedging opportunities in the capital market. You can see in the market how to keep volatilities stable in order to keep guarantees stable. We can offer such products only if the customers accept them. We've conducted intensive market research and asked the customers what they want to have. The customers want to have what they will get after the specific period in time. Of course, they look at the capital market, or maybe the customers look at the annuities. Annuity, this is a relative abstract concept, and this means you still have to talk about capital payments, because this is something people can envisage better. I think in the past, things will become more a matter of course. You see, Rürup pension, here you cannot pay out capital, but sometimes you still can choose to have this payment. The customers really opt for this option. At the end of the day, I'm quite sure, and this refers to the duration or longevity and the level of the legal pension schemes. I'm sure that more and more people will opt for a product like this one. We now have a guarantee for the end or the expiry time of the product, and we do that using 54A and 54B. This means this product will be different from the Allianz product. I'm sure I was not as specific as you wished me to be. You see, in the second quarter of this, we're going to offer a product workshop. When it comes to selling such a product, we want to make sure that everyone, not only our sales partners and customers, but the public and the journalists should also understand what we have in mind. I think this is quite exciting, and it will be a paradigm shift for the insurance business. Obviously, cannot say so. ERGO initiated transparency campaign, and they implemented something similar. Now back to the other two questions. You talked about the valuation reserves. That is the 2008 rule, i.e. derivatives and fixed interest-bearing securities. 50% of these reserves have to be taken into account. The amount from the ERGO Life amounts to EUR 8 billion. I may add that this process doesn't really make sense because it means that we treat a few very well who never, ever hoped or could hope for that, and we put the majority at a disadvantage. This is very regrettable. It has to do with communication and organization, and it certainly doesn't make sense for me to complain, but I must say it is really regrettable, even almost not understandable. Why it is not possible to get this under control? Dividend. That's a classical issue. Now the question is, where does growth or should growth come from? Mr. Jeworrek said when talking about reinsurance, he said, "We haven't got a problem with offerings. There are plenty of offerings around. Only by knowing exactly, having good knowledge or being very close to the customers, you will be able to generate new business." At this point, we may have a happy problem. The yield we generate is so high and the risk capital decrease is so small that we hardly manage to use the money on the level of profitability which we've achieved. Therefore, for us, paying such dividends is not really dividend. Also share buyback. This is an issue which will also be discussed later. The market will have problems and of course, we are always prepared. Particularly talking about reinsurance, we can say that we have a happy problem, as I said, to earn this money on this high level. The proportion of the hidden reserves, these are the EUR 8 billion which you just mentioned. You want to diffuse this over time? Yes, right. This is exactly what is in the focus. This is something which we do not want to realize, and we did not realize, unless you take into account the interest rate additional reserve. That is the coupon. That is the yield generated, belongs to all policyholders. Now, if it is due, then this is a different kettle of fish. But the life insurers also use this concept, and this is something which you want to take into account, and they are really emptying their shells at the expense of those who adhere to the provisions of their contract. This is the majority, and this is regrettable. It is not about insurers making profit, but I believe that the insurers even have been available to dispense with things in this respect. Mr. Fons and then Mrs. Bauer, sorry, and then Mr. Müller. Three questions to start with. in the past, I heard an absolute figure for the CapEx result. I missed this figure this time. Do you want to do that, or do you want to provide this figure later? Two, the major loss or claim budget for 2013. I would like to know the figure. I assume that there was no re-reservation. The World Trade Center. This was the time when this question arose. Munich Health. The U.S. business is not being sold or midterm it will not be offer although it had a negative result? Oh, yes. These are very specific questions. CapEx, if you take into account the average market value is EUR 7.3 billion at present. Surely this figure is going up and down. But it is of this order. But the assumptions for this year in comparison to the previous year, our assumptions are lower because some effects have not been taken into account. A major loss, EUR 2 billion, Mr. Jeworrek mentioned it. This is the amount which has been budgeted for major losses this year. Last year, and Mr. Schneider said that we did not have 12 exactly. It never happens, of course, but we had 10.8. He said that this is a bit, like I said, is we are 1 or 2 percentage points below our budget. The World Trade Center loss, I do not know anything about any post reservations. I think the sentence of the judgment you refer to refers to 1 or 2 events under the retrocession contract from the air industry. This has no effect here. CapEx, well, I can mention another EUR 100 million, EUR 7.4. Munich Health? The question how things will continue. At present, we look at the entire Munich Health strategy. Of course, we are also looking at the primary insurance business in the United States. Comprehensive measures have been initiated that kicked off in the United States in order to bring about a turnaround. But in this context, all options are being checked. No decisions have been taken so far. We have a look at everything, and we prepare for all kinds of alternatives and options. We manage the business in such a way that we will manage a turnaround in the United States. What will have happened by the end of this year is something I cannot tell you now, but of course, we always look at all options. They are all on our radar screen. I could not hear the question. The answer is yes. Strategy, well, it usually takes about two to three months, and afterwards you have to look at the position and the organizations, and certain options may become important, but everything will be clear by the end of the year. All right. Now Mr. Müller, and after that, Mrs. Edinger. Question one, does Munich Re anticipate a drastic inflation increase. Mr. Oletzky, talking about Life, you said premium guarantee. What is that. The other products, I know that you do not really want to divulge this information, but I did not really understand your words. I understood that ERGO wants to work out a concept for hedging any guarantees, and this is what others said, too. Mr. Oletzky still has time to think because I am going to answer the first question. Inflation. You see, using a macroeconomic perspective, then we do not expect increasing inflation or inflation leaps over the next few years. You see, the money does not reach the top because sometimes the money somehow disappears on its way from the banks to the industries. Surely we also need a demand increase, and this is something which we do not see at present. Unemployment is very high. We have got lots of insecurities and unclear situations in the various markets, and this means people do not want to ask about this or demand these products. If economies recover, then the situation may be different. When looking at our results, you will not find anything about it. If you look at the CapEx, if investment, then you will find a bit of information about that. We have got three items, duration, inflation, and the currency. To what extent do long-term products respond. For instance, bodily injuries. If there is inflation, you have got the medical, you have got the consumer-related, as well as the superimposed inflation. Now, to get this under control is very difficult, and you will not be able to find an on-the-spot solution or the bullseye solution. This is what we do. We have got inflation-sensitive investments. EUR 30 billion is the figure around, and here we are talking about the directly linked bonds. Swaps are included as well, together EUR 12 billion, and then the real assets, property, raw materials, whatever you do. Real estate, of course. All this is weighed very carefully. We added to that over the last few years because we see the spectrum, and we do not know when it will happen, and we protect ourselves. Over the next few years, we do not see rising or suddenly rising inflations, and I think I now hand over to Mr. Oletzky. A premium guarantee. What is all this. What we see today, Life products, we have got a guaranteed interest, 2.7% and 2.25% now, because we have got costs included, and this is what people blame us for. Your products are not transparent enough. What can you do. You can guarantee that the premiums are maintained, the gross premiums, including risks. This means we have to earn a positive return in order to earn our costs so that we can guarantee the customers to get back their money. If you pay in EUR 100 every month, then you do that for 30 years. This means 100 by 30 by 12. Then this is much easier to calculate than using percentage figures. This is a gross guarantee, so it all depends on maturities or rather durations, and it also depends on the development of interest rates. But it is also a guarantee which refers to the time of the end of the savings phase. This is what we have in mind. It is not revolutionarily new, but it makes it much easier to explain things, particularly when talking to customers. But when talking to insiders, they all use the terms used today. We have to tell people, start from scratch if you want to develop a product, and you always have to think about explaining things in very simple terms to a customer. This is what I call the gross premium guarantee. Mr. Hübmer led me on black eyes. I was tempted to do so. At Allianz, I did not participate in that meeting. I just read your reports, and this means I am not going to develop Allianz or similar products which are similar to that of Allianz. We are interested, however, we are interested in our own products. I have not been specific because we want to announce the specific details when we launch the product. Then Mrs. Kunz, and afterwards, Mr. Hofmann, please. Herr von Bomhard. Mr. von Bomhard, especially in the past, you had a critical opinion about bonus payments. What do you think about the current debate about bonus payments for managers? Well, thank you. That is an easy question. I look at what we are doing, and I believe it is quite okay what we have been doing. We have never been criticized. We usually tell the AGM what our bonus system looks like, and we always had a cap. We never had a single part without a cap. For us, and that gets more personal now, it is important how much personal risk is included. I do not think so much about Europe, but also in the U.S., you come across constellations where I believe it is not symmetrical anymore. Of course, you can discuss what is justified and what is not. That is something that society has to discuss. But there definitely needs to be a cap. It also needs to be transparent, and it also needs to be in line with the risk situation of the individual person. That is no science. In Europe as a whole, I believe we behave in a more reasonable fashion. The outliers, they need to be discussed, but you shouldn't believe that everybody falls into this category. Mr. Hofmann is next. Mr. Hofmann? Okay, Mr. Peitzmeier is next. If Mr. Hofmann is not there. Mr. von Bomhard, Henning Peitzmeier from FAZ. The business, Munich Health. Did it not have a mistake right from the beginning because it needed to bundle reinsurance as well as primary insurance? When you are responsible for the rest of the year as a CEO, shouldn't it be the option to get rid of this initial mistake? Because we have seen for quite some time right now that it is not profitable, then maybe it should actually become Well, you should dissolve it maybe, because otherwise I cannot explain why you as a CEO would lead this segment. Well, it is interesting that you're looking for the reasons. Of course, when you take an abstract approach, you can be doing the right thing in the wrong structure, but also in the right structure, you can do the wrong thing. But saying something went wrong and therefore the structure, it must be wrong. That is the wrong conclusion because Mr. Jeworrek has told me about EUR 3.8 billion he achieved with primary insurance under the heading of the reinsurance. Of course, we need to reevaluate every strategy constantly. Here, I think the combination of reinsurance and primary insurance makes a lot of sense in health insurance because the knowledge you need, of course, health reinsurance cannot be done if you don't know your way around the primary insurance products. It's similar to life insurance products, and that's why the know-how of the primary insurance people is quite relevant for the reinsurance people. The reinsurance people, they often see trends early compared to their primary insurance. So there are definitely ways where both parties can profit from each other. In the past we said, well, depending on the development of the market, it is interesting to be a reinsurer or a primary insurer. But, especially in health insurance, you rather start with reinsurance first, and then when the markets are mature, then that's when you get out as a reinsurer, and then you'd rather be a primary insurer. Otherwise, you would have to give up the market as a whole. But if there is a transition period, that can be done much easier if you're working together under one roof, and then you decide the right point to get out. Otherwise, the reinsurance company might get out too early and the handover doesn't work smoothly. Of course, you can reevaluate every strategy. You can change every strategy. What is however much more important is the execution. That is so much more important than the strategy itself. I have two more names on my list. James Wilson, followed by Mr. Kamp. My name is James Wilson from Financial Times. Mr. von Bomhard, I would like to know about your growth strategy. You said you would take an opportunistic approach, that means without fixed plans, but can you explain in more detail what kind of plans do you have in mind when it comes to M&As, especially which segments? You have the financial means, so what kind of M&As do you have in mind? When and what do we have to expect? And especially which segments would you prefer? Well, what we like best is organic growth. The best example, for example, is the life reinsurance. You have seen the spectacular growth described by Mr. Jeworrek. Only once in life reinsurance we bought a small portfolio. All of the rest was organic growth. Some of our competitors have gone about it differently. Of course, I don't know what is going to happen in 50 years from now, but for the timeframe I'm responsible for, we had the right strategy, and it was with much less risk compared to others. So organic growth is possible for us. We have the opportunity for regional growth in Asia and Latin America and Eastern Europe. The reinsurance company is present everywhere. The primary insurance isn't. Primary insurance is trying to profit from the growth in Asia. However, we're being careful. The same is true for Eastern Europe, and there's also growth where. Well, just like now, for example, when we develop a new product where we do something completely different, or that falls under the responsibility of Mr. Jeworrek, when we offer a totally different coverage. Think about the coverages which we offer for particular technologies. For example, PV panels or things like that. Photovoltaic panels or geothermal drillings. That is some business. Of course, if you have a balance sheet as big as ours, you don't see these small details, but it amounts to something over the time. So that is the growth I like best. M&A is much more risky. And you can ask any consultant or read their reports. The track record is one versus four. One is successful, the four others fail. So one that worked for us is Hartford Steam Boiler, for example, but I can also think of a few others which didn't work that well. So that's why we're extremely careful, and we don't want to buy our growth. If we come across a good opportunity, we don't hesitate, and we can afford quite a bit because we have a sound capital base. Also, as Mr. Schneider said at one point, when it comes to our debt leverage, we are well below the limit. We are quite flexible as far as our capitalization goes. It is not a problem in our heads, and it is not that we would not want to do it, but the likelihood that we are finding a target where we are interested in strategic as well as economic terms, the likelihood is not very high. Nevertheless, we spent EUR 3.5 billion over the past six years for M&As. It is not that we have not done anything, but compared to what others are doing or what we could be doing, you could say, well, you did not exaggerate. The position of our goodwill also speaks for itself. The goodwill is as it is. Of course, we had to write some things off, but also because we have not bought too much where we would have ended up with huge goodwill. We are quite modest here. We are holding back. Matthias Kamp, WirtschaftsWoche. About your new product in life insurance. If I understood you correctly, you are saying goodbye to the 1.75% guaranteed on the premiums which are being paid out. Then it would be similar product compared to what Allianz has outlined. Then another question about capital investment. We heard EUR 1.5 billion or million euro in renewable energies. That is a tiny amount when you look at the overall figures. Would you like to do more here? Can you not find enough projects, or are you trying to minimize the risks? Are the conditions as such that you cannot do more? For example, the change in energy consumption is not being implemented correctly. It is the guarantee on gross premiums. It is not a guarantee on the 1.75%. It is a different product. I cannot really compare it with what our competitors are offering, because I do not know their products. Okay, about the figures, EUR 1.5 billion is our goal for investments in infrastructure. EUR 2.5 billion is what we would like to invest in renewable energy technology or the production of renewable energy. First of all, you need to know the following. While that is an example for the so-called more illiquid capital investments, where we get a regular cash flow, however, we are tied up for quite a long time, which does not bother us because that is not a problem for us. We are able to do that. As far as the profit goes, it is actually quite interesting. You are actually making after taxes between 5% and 7%. However, what is important is that you diversify. You want to diversify the political risks as well as other risks. Then you also need to know your way around the technologies. Here we are making use of the engineers at our disposal. For example, Hartford Steam Boiler is a large engineering company, and we are using these people to do the due diligence of these projects. We do not invest in startups. We are investing in already existing projects, and we do not invest in everything. You said tiny amounts. We are investing tiny amounts. What can I say? If you look at our overall investments, you might say that we are talking about 2% if I add it up. Also, please keep in mind that we always want to replicate based on what our commitments are. We have tied up capital elsewhere as well, when you look at real estate, for example. It is part of a larger package. Secondly, there are not enough projects. We do not want to invest in everything. We are quite careful when it comes to offshore wind parks. What you also need to know, things do not just grow like mushrooms in a form where you can invest so that everybody who would like to invest can invest, because that would also have a negative impact on the profit. We used to be strong in Southern Europe. We are moving towards the U.K. right now. We are also invested in France. We can also imagine other plans outside of Europe. There is just not so much to choose from if you do a careful due diligence. Is it a tiny amount? No, I do not think so. Much more is not possible. About the energy turnaround in Germany, I really would not like to comment about that, because otherwise, we will be here until midnight. Can I add something? Also, what is important to know is that as far as the authorities go or regulations go, it calls for a lot of effort if you want to invest in such a project, even though the profits are quite reliable. A lot of work needs to be done here. There is a consensus amongst all participants, but it still needs to be implemented. One more thing, Mr. Kamp, about our investments. This is not exactly a clear science. We are looking at EUR 1 billion at the end of 2012, and we have about EUR 500 million invested in infrastructure of renewable energies. We have achieved about 30%-40% of what we would like to invest in this area. Okay, the next question will be by Mr. Meyer, and then once again, Ms. Dauer. Stefan Meyer, working for DPA. About the capital use, can you give me some more precise information? You mentioned a share buyback. Can we say this is not going to happen this year? Or can you give us some timeline? When will this going to happen? Mr. von Bomhard at some point said he had some dreams. I have another question about the dividend. You always focused on continuity, and that still seems to be the policy, even after the crisis year of 2011, the year which was characterized by major catastrophes. Nevertheless, you kept the amount of the dividend stable. Can the shareholders be looking forward to EUR 7? Well, the last question is easy to answer. Yes, the shareholders can look forward to that. Something truly exceptional would have to happen for us to interfere with the dividend. But I cannot exclude that. Horrible things can happen where everything is turning against us, and then we would have to cut the dividend, make it smaller. But we have been managed for a very long time in a sound fashion, so it was never necessary, even though we had some quite extreme years over the decades. About the share buyback, I do not want to say yes or no, that it will be happening until the end of the year. Of course, it has to do with the results which we will be able to achieve over the different quarters and the opportunities we see in the different Industry. If we do not see any opportunities, then the pressure increases, not just from the outside, but also on the inside. We want to have a good capitalization in line with the opportunities which we see out there. If we do not see any opportunities, and the results are as good as they are, then the pressure increases within the company, and it tells us that we have to do something. The dividend policy is just like it is. The dividend is of great importance. The continuity is of great importance. We keep a careful eye on that. Now the increase by 12% this time is quite a substantial one. We are always careful about potential share buybacks and the dividend increases. We have one more question by Ms. Dauer, followed by Mr. James Wilson. I would like to ask you about the global FIS or whatever it is called. I assume they will be on the list of. What will happen? What are your expectations? What implications will that have? Will that increase your capital requirements? That is an interesting question, and if Mr. James Wilson has not an even more interesting question. We are talking about the systemically relevant insurance companies. For those of you who are not familiar with this topic, the G20 has planned a number of things within the context of the crisis. What they want to know is which companies are systemically relevant. They want to manage that, and systemically relevant institutions should not be able to put their countries in such a situation so that the taxpayer has to help out. You are familiar with that from the banking industry, but now the Financial Stability Board also is looking at the insurance industry. The question is whether we have any systemically relevant insurance companies. I actually would contradict this. Whether this purely academic discussion will be successful, of course, there always were lists around. These lists were set up before people even focused on the question because people said, "Well, if it is true for banks, it is also true for insurance industries," without even looking at the business, because we have a totally different business. We are invested in the long term. We never have a problem with liquidity. If we do become insolvent, it would not bring about any major problems either. Of course, you can mismanage an insurance company as well. Only one did it. It was the exception. The others did not do it. The authorities, they could have seen that, and they could have intervened in a timely fashion if they had wanted to. We are definitely listed on a long list. I am not sure whether we are on the short list. Do I want to find our name on this list? No. Some other people that might be proud of it. If you are systemically relevant, then you have a government guarantee, makes your refinancing cheaper, and you are quite somebody with your large customers. I believe it is a wrong thing right from the start, but I am not quite sure what the consequences will or would be. When you look at the banks, there is always something in the air that it will have effects on the capital side. However, I know that the supervising authorities, they are asking themselves whether the capital is the right answer or capitalization. I believe that if you call some companies systemically relevant, you should rather focus on their activities. Of course, you can create a problem of illiquidity, but then you need to look at the products which cause this problem. Then you should say, "Well, no more than that." Or, "If you do it, do it in a particular fashion." Then you also need to report on that. If you just say capital, this just doesn't cover everything. Therefore, I think it's a much better approach to look at the activities, to try to create transparency, just like it is done with the derivatives right now, then the risk management, and then approach what is going wrong. Of course, insurance companies could go belly up as well. But if you do your business normally, then it shouldn't happen. Size doesn't really matter. Size actually is an advantage for insurance companies. Okay, now we have the last question by James Wilson, and we will see whether it's the most interesting question. Well, actually, it's the most boring question. Well, it's about the forecast for the share price within the DAX. Well, this will be done by Mr. Schneider. 7,964. That is my forecast for the DAX by the end of the year. Oh, that's a precise figure. That just gives me, once again, the reason that we're not good at placing bets. Therefore, we run our company in such a way so that we don't have to rely on the result of bets. One more thing I'd like to add. With our naive forecasts for the future, and that is what the person to my left said. Of course, we believe that stock markets are growing over time, and they need to grow faster than other firms because there's more risk, and we would say 400, 500 basis points above risk. That does not happen every year. That is just like with our major catastrophes. That doesn't happen every year. So you have good reasons to invest in equities because of inflation risks, et cetera. But MEAG, our asset managers, they have a limited amount of risk capital for certain positions, and they're making use of that. But you can see when you look at our relative amount of equities that we're not overdoing it. Our shareholders, they can buy shares. They don't need us for that. You see, we don't have any crystal balls, but actually, we do have prepared a nice snack for you, and we would like you to join us for some snack. Let me just add that tomorrow we have the analyst conference call at 1:00 P.M., and then next event of this time is our AGM on April 25th. Thank you for being here.

Data Source: Quartr Last updated: Mar 12, 2013

Earnings call transcripts are provided by Quartr and are published within hours after each earnings call.

Update frequency:

Quarterly

Data Sources Report a data error

• Slides
• Annual report