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Image: Getty Images/fStop Shaping change in insurance Balance sheet press conference 2017 Munich, 15 March 2017 Agenda 1 Shaping change in insurance Nikolaus von Bomhard 2 Group Finance Jörg Schneider 11 3 ERGO Markus Rieß 17 4 Reinsurance Torsten Jeworrek 29 5 Outlook Nikolaus von Bomhard 37 2 Balance sheet press conference 2017 2 Shaping change in insurance Strategic keystones laying foundation for Munich Re’s good positioning Integrated Risk Management Conservative Asset Management PI and RI under one roof Innovative Solutions Emphasis on profitable Underwriting Shareholder friendly dividend policy Corporate Responsibility Balance sheet press conference 2017 3 Shaping change in insurance Munich Re delivers financial stability IFRS net income HGB result €2.6bn €3.4bn Meeting guidance Safeguards capital repatriation Solvency II ratio Dividend per share1 267% €8.60 Well above target capitalisation +4.2% Balance sheet press conference 2017 1 Subject to approval of AGM. 4 Shaping change in insurance Seizing long-term opportunities while managing short-term pressure Changing competitive landscape Digitalisation Macroeconomic/political risks Emergence of new players and business models New technologies and partnerships Persistently low interest rates Dramatically enhanced availability of data and analysis tools Reflation Proliferation of “alternative” capital Transformation of traditional value chain Global political uncertainty Changing customer expectations Source: Shutterstock [M] GOAL GOAL GOAL Agile business model Fostering innovation Dampening volatility Balance sheet press conference 2017 5 Shaping change in insurance Strong balance sheet supports sound profitability Medium Low High Strong capitalisation RoE exceeds cost of capital according to all metrics 16 % 12 8 Average cost of capital Rock-solid 4 reserving position 0 €28bn unrealised investment 2005 2016 ~10.7% > ~8% gains1 12-year average RoE Average cost of capital 1 As at 31.12.2016. Balance sheet press conference 2017 6 Shaping change in insurance Attractive shareholder returns Further dividend increase, continuation of share buy-back Outperforming major peers and insurance index2 Continuous growth of dividend per share CAGR: 9.7% €8.60 Peer 3 15 3.10 % Total shareholder return (p.a.) 18 12 2016 1 2005 9 >€23bn 6 Total pay-out since 2005 (dividend and share buy-back) 3 Peer 1 Index Peer 4 Peer 6 Peer 5 0 Peer 2 74 million > 50.9 million Shares repurchased since 2006 Shares issued in 2003 (capital increase) –3 20 25 30 35 40 45 Volatility of total shareholder return (p.a.) 1 Subject to approval of AGM. 2 Annualised total shareholder return defined as price performance plus dividend yield over the period from 1.1.2005 until 28.2.2017; based on Datastream total return indices in local currency; volatility calculation with 250 trading days per year. Peers: Allianz, Axa, Generali, Hannover Re, Swiss Re, ZIG, Stoxx Europe 600 Insurance (“index”). Balance sheet press conference 2017 7 Shaping change in insurance Reinsurance – Well positioned to manage the current market environment and drive innovative solutions New ILLUSTRATIVE Traditional reinsurance Emerging markets Markets Risk Solutions New products/ risk-related services Solutions for emerging risks Established Traditional reinsurance €23bn Risk Solutions Tailor-made solutions Underinsurance in developed markets TOTAL1,2 Successfully managing the soft cycle TOTAL3 Continuous growth in specialty and niche business Incremental innovations Innovation TOTAL1,4 Steady expansion of innovative products/solutions Established €4.8bn ~€650m New Products 1 Gross premiums written as at 31.12.2016. 2 Life (traditional and strategic initiatives): €10bn, traditional P-C: €13bn. 3 Management view, not comparable with IFRS reporting. 4 Munich Re (Group); indirect effects on traditional business not included. 8 Balance sheet press conference 2017 Shaping change in insurance ERGO – Turnaround initiated, well on track to become a significant earnings contributor ERGO Strategy Programme/International Strategy Fit Digital Successful! Leaner and more efficient structures Transforming the business model Convincing solutions, committed to profitable growth €m Increasing IFRS net profit1 530 ~600+ 150–200 –40 2016 1 From 2017, figures include primary insurance business of Munich Health. 2017 … 2020 2021 Balance sheet press conference 2017 9 Shaping change in insurance Innovation – Munich Re establishing a strong position to tap opportunities – Focus on tangible business impact Munich Re has successfully laid the groundwork … Innovation strategy Group-wide approach Defined innovation areas Corporate venturing and partnering Innovation infrastructure Leveraging core competencies Intensive know-how and resource sharing Data analysis Joint business development Cooperation models Agile IT … to seize opportunities from digitalisation Business model Products/services Provide digital infrastructure Improve customer experience Digitalise insurance offerings Expand offering for online customers (e.g. “nexible”) Improve process efficiency Customised products and tailor-made solutions Foster customer-centric support Balance sheet press conference 2017 10 Balance sheet press conference 2017 11 Group Finance Group Finance – Financial highlights 2016 2016 net result meets annual guidance Munich Re (Group) 2016 (Q4 2016) Net result €m Technical result €2,581m (Q4: €486m) 3,924 Sound underlying performance without dilution of strong balance sheet – investments in ERGO strategy programme and FX gains 2,581 1,322 1,664 1,625 525 2015 2016 Solid return given low interest rates – prudent asset liability management once again proved beneficial Q4 Q4 2015 2016 Reinsurance Life: Technical result €487m (Q4: €169m) Shareholders' equity €31.8bn (–1.8% vs. 30.9.) P-C: Combined ratio 95.7% (Q4: 101.9%) Major-loss ratio 9.1% (Q4: 14.8%) Strong capitalisation according to all metrics €m Net result 3,122 2,815 Return on investment1 3.2% (Q4: 2.7%) €m Investment result 7,536 7,567 2015 2016 Q4 Q4 2015 2016 ERGO 731 486 2015 2016 Q4 Q4 2015 2016 Munich Health L/H Germany: Result impacted technical one-offs Reinsurance: Combined ratio 99.5% (Q4: 95.4%) P-C: Combined ratio 97.0% (Q4: 100.0%) Primary insurance: Combined ratio 94.2% (Q4: 98.8%) International: Combined ratio 99.0% (Q4: 100.4%) 1 Annualised. 12 Balance sheet press conference 2017 Group Finance – Capitalisation IFRS capital position €m Equity Equity 31.12.2015 Consolidated result 30,966 2,581 Change Q4 486 Changes Dividend Unrealised gains/losses Exchange rates Share buy-backs Other Equity 31.12.2016 –1,329 265 345 –971 –71 31,785 – –2,049 910 –260 344 –570 Unrealised gains/losses Exchange rates Fixed-interest securities 2016: –€37m Q4: –€2,390m FX effect mainly driven by US$ €bn Capitalisation 0.4 0.4 0.4 0.4 0.4 4.4 4.4 4.3 4.3 4.2 4.2 13.6 13.4 12.8 12.6 12.4 12.6 30.3 31.0 31.8 32.0 32.4 31.8 2014 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 0.3 Debt leverage1 (%) Non-fixed-interest securities 2016: +€304m Q4: +€335m Senior and other debt2 Subordinated debt Equity 1 Strategic debt (senior, subordinated and other debt) divided by total capital (strategic debt + equity). 2 Other debt includes Munich Re bank borrowings and other strategic debt. Balance sheet press conference 2017 13 Group Finance – Risk management High Solvency II ratio Munich Re actions SII ratio % >220%: Above target capitalisation Capital repatriation Increased risk-taking Holding excess capital to meet external constraints 267% 220% 175% – 220%: Target capitalisation Optimum level of capitalisation 140% – 175%: Below target capitalisation Tolerate (management decision) or If necessary, take management action (e.g. risk transfer, scalingdown of activities; raising of hybrid capital) <140%: Sub-optimal capitalisation Take risk-management action (e.g. risk transfer, scaling-down of activities; raising of hybrid capital) or In exceptional cases, tolerate situation (management decision) 175% 140% 100% 2010 2011 2012 2013 20141 2015 2016 Balance sheet press conference 2017 1 Transition into SII metric. 14 Group Finance – Investment portfolio Well diversified investment portfolio Investment portfolio1 % Land and buildings 2.9 (2.9) Fixed-interest securities 56.3 (55.7) Portfolio management in Q4 Ongoing geographic diversification Slight decrease in corporate bonds Reduction of cash and bank bonds Increase of net equity exposure to 5.0% Shares, equity funds and participating interests2 6.1 (5.2) Increase of asset duration in reinsurance TOTAL €236bn Miscellaneous3 6.2 (7.5) Loans 28.5 (28.7) 1 Fair values as at 31.12.2016 (31.12.2015). 2 Net of hedges: 5.0% (4.8%). and investments in renewable energies and gold. 3 Deposits retained on assumed reinsurance, deposits with banks, investment funds (excl. equities), derivatives Balance sheet press conference 2017 15 Group Finance – Investment result Investment result Investment result (€m) Regular income Write-ups/write-downs Disposal gains/losses Derivatives2 Other income/expenses Investment result 2016 Return1 2015 Return1 6,663 –400 2,603 –713 –586 7,567 2.8% –0.2% 1.1% –0.3% –0.2% 3.2% 4.3% 7,370 –754 2,693 –1,226 –548 7,536 3.1% –0.3% 1.1% –0.5% –0.2% 3.2% 0.9% Total return 2016 Fixed income3 Equities Commodities/Inflation Other 1 Annualised return on quarterly weighted investments (market values) in %. 2 Result from derivatives without regular income and other income/expenses. 3 Thereof interest-rate hedging ERGO: Q4 2016 (–€261m gross/–€34m net) and 2016 (€233m gross/€25m net). Write-ups/ writedowns Disposal gains/losses Derivatives –23 2,263 70 –323 440 –777 –2 27 –69 –99 4 Balance sheet press conference 2017 16 Balance sheet press conference 2017 17 ERGO ERGO ERGO Strategy Programme (ESP) fully on track seven months after announcement ESP guidance as at 1 June 2016 Total premiums1 Net profit Investments2 (net) Actual 2016 2016 2017 2020 13,202 13,180 – 13,460 –40 Slightly negative 130 ~450 –247 –302 –259 –1,0083 30 30 963 2793 97.0 98 99 92 Total cost savings (net) Combined ratio P-C Germany 1 L/H Germany, P-C Germany. 2 Including restructuring expenses. Balance sheet press conference 2017 3 Accumulated. 18 ERGO ESP – Timeline Fit Digital Workers´ council has agreed on major topics 30 June More than 90% of restructuring expenses booked Implementation of new structures in admin and central functions Sales: New organisational setup implemented Digital IT fully established IT workers´ council has agreed on major topics Successful! New IT organisational structure implemented ERGO Mobility Solutions GmbH started New Sourcing organisation implemented Q3: nexible to start with first product (motor) Products innovation: Residential building Legal protection Commercial liability online Launch of new MEAG funds Product innovation: Personal liability Motor Q2 2016 Q3 2016 Q4 2016 Go-live of separate organisational entity “Traditional Life” Product innovation: Personal accident Household H1 2017 Life Germany: Launch of new pension products End of Q4: New term-life and new annuity product life H2 2017 H1 2018 Balance sheet press conference 2017 19 ERGO Life and Health Germany – Status 2016 Gross premiums written Net result ROI €9.2bn €114m 3.6% Successful launch of new risktype product (“Solo-BU”) – 24,000 policies sold Above expectation, given restructuring expenses High investment result – Positive contribution from derivatives and disposal gains offset lower regular income Discontinuation of traditional life Exceptionally high technical result in Q4 Positive development in supplementary health Balance sheet press conference 2017 20 ERGO Property-casualty Germany – Status 2016 Gross premiums written Net result Combined ratio €3.2bn –€72m 97.0% Profitable growth in almost all lines of business Impacted by strategic investments and restructuring charges – In line with expectations Better than ESP1 guidance (–1%-pt.) Product innovations – Launch of cyber protection Strategic investments impacted combined ratio ~1%-pt. Confidence level of reserves increased 1 ERGO Strategy Programme. Balance sheet press conference 2017 21 ERGO Property-casualty Germany – Attractive portfolio for customers, consistent cost reduction P-C Germany – Combined ratio 98 Product innovations Launch of new cyber product in 2016 99 ESP Guidance Actual 96 97 2016 93 2017 2018 2019 92 Start of new modular product concept in H2 2016 (motor and private liability) Further products consistent in look and feel (e.g. personal accident, household contents, homeowners’ insurance) will follow in 2017 2020 P-C Germany to maintain and strengthen balanced portfolio Significant cost reduction in the medium term – improvement of expense ratio as main driver of higher profitability Balance sheet press conference 2017 22 ERGO International – Status 2016 P-C – Gross premiums written Life – Gross premiums written €2.5bn €1.2bn Strong new business growth, driven by Poland De-risking classical life business – Italy, Belgium P-C – Combined ratio Net result 99.0% –€82m Improvement in Poland – Recovering results and reduction of losses in UK and Turkey Restructuring of Belgian life entity planned Several one-offs, e.g. goodwill impairment, strategic investments Balance sheet press conference 2017 23 ERGO International strategy embedded in ERGO Strategy Programme (ESP) to achieve ambitious goals Fit Digital Successful! Governance ▪ Central steering with dedicated responsibilities Best practice exchange ▪ Interregional transfer of capabilities, e.g. implementation of adapted iMonitor from Poland in Turkey Portfolio ▪ Foster strong market positions ▪ Establish efficient global business models ▪ Exploit growth market exposure Regional cooperation ▪ Integration of back offices, e.g. in Baltics and Poland Interlocked business model reinsurance/primary insurance ▪ Identify value drivers in an interlocked business model between ERGO entities and MR Commercial business ▪ Strengthen commercial business internationally Accelerated innovation ▪ Digital delivery, e.g. via omni-channel communication to customers in India Establishing leaner and more effective structures to ensure swift execution Pure digital player ▪ Roll-out of nexible in attractive markets Laying the foundations for transforming the business model Committing to profitable growth Munich Health primary insurance business to be managed by ERGO in 2017 24 Balance sheet press conference 2017 ERGO ERGO International portfolio focuses on three pillars Share Rank Strong presence in selected developed markets GWP 2016 €m Country Poland 1,178 Focus segment Non-life Market position5 2 14% Austria 627 Life 4 9% Baltics 206 Non-life 3 5% Greece1 194 Non-life Specialised global business expertise Existing global businesses2 Pure Digital Player Mobility Solutions 1 ATE acquisition effective 1 June 2016; hence, only half year of ATE premium included. 6 Thereof German LPI business: €401m. 7 Thereof German travel business: €182m. 4527 Travel Market presence in 24 countries Launch new global businesses 1 Leverage existing scale to strengthen organic growth 1,1466 Legal protection Market presence in 18 countries 8% GWP3 2016 €m JVs China 25 India4 Segment Expected CAGR 2016-20, % Life 70 270 Non-life 21 Vietnam 11 Non-life 16 Thailand 21 Non-life 8 249 Non-life 10 Subsidiaries Turkey Efficient management and expansion of global businesses 2 Respective German and international business; D.A.S. including Italian JV. Promising exposure in prioritised growth markets GWP 2016 €m 3 ERGO share. Capture opportunities in growth markets 4 Step-up during 2016; premiums based on average share during the year. 5 In focus segment Balance sheet press conference 2017 25 ERGO ESP facilitates an interlocked business model between primary insurance and reinsurance Strategy development Innovation Product development Sales and distribution Leverage Link Joint Munich Re’s innovation approach to presence for labs and FinTech and market development InsurTech entries processes start-ups, Regional combining RI Bundled market product and PI committees solutions capabilities to coordinate Common strategic data initiatives analytics methodologies Risk analysis/ underwriting International broker management Cooperation in commercial lines Facilitation of cross-selling (white labelling) Automated underwriting Policy administration Group-wide churn rate analysis Leverage technical Joint policy skills from RI administration and PI – establish business lines expert groups Claims management Asset management Leverage Group-wide MEAG's fraud investment analytics tool expertise Data Monitor investment risks centrally analytics to identify claims prevention and risk mitigation HR Employee rotation to exchange RI and PI skills MEAG to support financial product initiatives PI sales skills to support RI services 26 Balance sheet press conference 2017 ERGO International business to contribute substantially to ERGO’s results by 2020 Germany1 Net profit, €m 530 18,589 1,354 4,032 190 19,500 ~2% Munich Health PI 5,900 20,900 19,061 1,465 ~6% Total ▪ Reduction of ~+€1,800m ~+€900m ~600+ International Total premium incl. JVs, €m Total premium, €m 7,300 4,393 traditional back book in international Life business between 2016 and 2020 of more than €300m GWP (Italy, Belgium) ▪ Required capital 39 340 13,203 ~1% 13,600 A2016 CAGR P2020 13,203 ~1% 13,600 A2016 CAGR P2020 78 42 -82 A2016 P2020 Ambition 2021 International and MH PI to contribute ~€190m to overall profit in 2020 International and MH PI premiums amount to ~€5,900m in 2020 will be financed within ERGO Group, i.e. there will be no capital injection from Munich Re Premiums generated by JVs amount to ~€1,400m in 2020 1 Includes segments “Life and Health Germany” as well as “Property-casualty Germany”, hence including German share of LPI business as well as German and international travel business. Balance sheet press conference 2017 27 Reinsurance Balance sheet press conference 2017 28 Reinsurance – Financials 2016 Strong 2016 result at the upper end of guidance – Reinsurance P-C remains profitable core of our business P-C – Gross premiums written P-C – Net result Life – Gross premiums written €17.8bn €2.0bn €10.0bn Active cycle and portfolio management Strong technical result Reduction of one large deal, increasing contribution from initiatives P-C – Combined ratio P-C – Reserve releases Life – Net result 95.7% 5.5% €459m Below average major loss activity At least preserved confidence level Sound result contribution Balance sheet press conference 2017 29 Reinsurance Property-casualty – Portfolio quality Traditional book and Risk Solutions complement each other and provide diversification Total P-C book % Risk Solutions Tailor-made solutions 27 (28) 23 (18) 1 Traditional % Casualty Other 10 (10) 47 (47) 24 (23) TOTAL1 TOTAL €18bn €13bn Other traditional business Other property 50 (54) 34 (33) Demand for tailor-made solutions compensates for the reduction in other traditional business 2 Risk Solutions Nat cat XL % American Modern 22 (23) TOTAL4 Watkins €5bn 8 (9) Hartford Steam Boiler 21 (19) Specialty2 Specialty markets Corporate Insurance Partner3 9 (10) 13 (13) 12 (13) Well-balanced traditional portfolio Dominated by US business – More than 50% Slight shift from specialty lines to other property HSB top-line growth driven by new innovative products Risk Solutions an important pillar for top-line contribution Well balanced portfolio from a regional and line of business perspective 1 Gross premiums written property-casualty reinsurance as at 31.12.2016 (31.12.2015). 2 Aviation, marine and credit. large corporate clients. 4 Management view with rounded figures, not comparable with IFRS reporting. 3 Part of Special and Financial Risks providing solutions for Balance sheet press conference 2017 30 Reinsurance Property-casualty – January renewals 2017 Resilient January renewals – Client-centric approach pays off Market developments Abundant reinsurance capital, but signs of price stabilisation Flattening alternative capital growth Continued tiering – increasing discipline for Tier 1 reinsurers Hardly any pressure on wordings January renewals Price change –0.5% Munich Re Well positioned to counterbalance regional rate differences and flexibly shape the portfolio Decline slowed down further Scale and financial strength provide competitive advantage Exposure change Value proposition as strategic partner strongly valued –4.4% Cycle management reduction mitigated by new business opportunities Tailor-made solutions meet client demand Balance sheet press conference 2017 31 Reinsurance Property-casualty – Traditional portfolio Best-in-class solutions in mature markets – Dynamic growth and opportunities in emerging markets First foreign reinsurer to establish branch in Structured, holistic 3-year programme for regional India – Highly dynamic insurance market US client Nat cat schemes to mitigate Flood Re: One of Europe’s largest extreme weather events natural hazard RI programmes National Flood Program Insurance (NFIP) in the MARKETS Rating solution South Africa Sovereign rating-triggered transaction for regional player US Product development for digital business models in Asia together with insurers and internet giants Northern Marmara Motorway – world’s longest suspension bridge Sample deals/opportunities Balance sheet press conference 2017 32 Reinsurance Property-casualty – Innovation Munich Re fosters innovation throughout the global organisation – Strong focus on tangible business impact Significant focus on innovation … Innovation infrastructure … with significant impact on business already today Innovation scouting Innovation labs Ideation Corporate partnering Innovation areas 1 New (re)insurance products 2 New business models 3 New clients and demands 4 New risk-related services Innovation enabler Data analytics Agile IT Collaboration 1 Munich Re (Group); indirect effects on traditional business not included. Innovation-related business already generating premium volume of €650m1 Risk carrier for established and new (digital) insurance and non-insurance companies Provider of integrated risk services (e.g. sensor-based) Tailored risk solutions and white-label products Data analytics-based services Balance sheet press conference 2017 33 Reinsurance Property-casualty – Innovation areas: Cyber (re)insurance Strong long-term growth in cyber (re)insurance expected – Munich Re with leading-edge expertise and market presence 1 New (re)insurance products GWP global cyber insurance market1 10 US$ bn GWP Munich Re cyber portfolio US$ m Reinsurance Primary insurance RoW US 263 191 5 0 2015 2016 2019 2020 126 135 2013 2014 2015 2016 Reinsurance: First mover and global market leader Primary insurance: Specialised single-risk taker Dynamic growth through joint projects with cedents Hartford Steam Boiler: Established player in US for SMEs and individuals Steady growth in the US Corporate Insurance Partner: Focus on larger corporate clients – Cooperation with IT providers and Beazley Strong accumulation models 1 Estimates based on different external sources (Marsh & McLennan, Barbican Insurance, Allianz). Balance sheet press conference 2017 34 Reinsurance Property-casualty – Innovation areas Focus areas: Internet of Things (IoT), corporate partnering and data analytics 2 New business models 3 New clients and demands Digital Partners – Partnering with start-ups to digitalise insurance IoT is expected to disrupt the (re)insurance industry – Munich Re well positioned Data volume in exabytes Internet of Things Social Media VoIP Enterprise data Source: “IDC’s Worldwide Internet of Things Taxonomy, 2015” IDC, May 2015. Digital distribution Digital economy Making insurance like the rest of the internet Insuring the sharing and gig economies For example: For example: Digital data Using new sources of data to price risk better 4 New risk-related services Most advanced data analytics platform Early Loss Detection System Digital Risk Management Platform Sales analytics For example: Balance sheet press conference 2017 35 Outlook Balance sheet press conference 2017 36 Outlook 2017 Group Reinsurance ERGO Gross premiums written Gross premiums written Gross premiums written €48–50bn €31–33bn €17–17.5bn Net result Net result Net result €2.0–2.4bn €1.8–2.2bn €150–200m Return on investment Combined ratio1 Combined ratio ~3 % ~97% 1 ~100% on a normalised basis (12%-pts. major losses, 4%-pts. reserve releases). Expectation for reserve releases in 2017 ~6%. ~99% ~98% Germany International Balance sheet press conference 2017 37 Disclaimer This presentation contains forward-looking statements that are based on current assumptions and forecasts of the management of Munich Re. Known and unknown risks, uncertainties and other factors could lead to material differences between the forward-looking statements given here and the actual development, in particular the results, financial situation and performance of our Company. The Company assumes no liability to update these forward-looking statements or to make them conform to future events or developments. Balance sheet press conference 2017 38