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Withholding tax on income from foreign investments is included in the tax expenditure of the life or health insurer although this tax is predominantly borne by the policyholder. This procedure inflates the tax expenditure of the life or health insurer and as a result distorts the effective tax rate.
An example:
A foreign company, in which a life or health insurer of our Group holds shares, distributes a dividend of €100 for the shares held by the insurer. 10% of this is deducted for withholding tax, and €90 go to Germany. The policyholders are entitled to at least 90% of that amount, i.e. €81 in our example. The life insurer’s share is €9. Besides the foreign withholding tax burden of €10, a 40% tax or €7.60 is also levied in Germany on the taxable base of €19. However, of the foreign withholding tax that can be credited against the German tax burden (and thus recoverable by the insurance undertaking) only 26.4% or €5 (corporation tax and solidarity income-tax surcharge) of the taxable base of €19 may be credited against tax. This leaves a tax expenditure of €12.60, while the result before tax is €19 (dividend of €100 less the policyholders’ share of €81). The effective tax rate is around 66.3%.
Changes in exchange rates are primarily relevant to reinsurance business. The bulk of our primary insurance business is transacted in euros.
In the case of reinsurance, the principle of currency matching applies for the balance sheet. This means that foreign currency liabilities are generally matched with equal amounts of investments in the same currency to safeguard against exchange losses. In the income statement, the effect on the premium is mitigated by similar effects on losses and expenses.
The balance sheets of our foreign subsidiaries are translated into euros at the exchange rates applicable at year-end, and their income statements at the average quarterly rates; any translation differences arising in the process are recognised in equity.
Company
Key conditions for an acquisition are that the target company fits in with our corporate strategy and that financially our internal risk-return targets are maintained. On the reinsurance side, diversification effects are an important factor. In primary insurance, the focus is on personal lines. In regional terms, the main features are markets in which profit margins and growth are strong.
Munich Re's capital management is geared to those stakeholders that are key to capitalisation, i.e. shareholders, supervisory authorities and rating agencies. The supervisory authority, rating agencies and our internal risk model determine the necessary solvency requirements, taking into account the expected growth in business, while the justified interests of the shareholders in seeing their capital being used efficiently upwardly limit capital resources.
Retrocession is one of the levers we use in risk management to keep our business on track. Its sole purpose is to protect our capital and our annual result from major losses. We do not use it to increase our capacity.
Our retrocession cover is triggered if we are hit by an extremely high loss exceeding the risk appetite defined by the Board of Management, such as the terrorist attack on the World Trade Center in 2001 or Hurricane Katrina in 2005, the largest insured loss event of all time. In years in which no such extreme losses occur, the retrocessionaires retain the premiums we have paid as their profit. Retrocession cover is only purchased if prices, terms and conditions meet our requirements.
The precondition for squeezing out minority shareholders of the ERGO Insurance Group is a participation of at least 95%. As we currently have a 94.7% stake in the ERGO Insurance Group, the basic legal requirement for a squeeze-out is not given.
Shares
In former years, Munich Re's dividend remained more or less constant, independent of results. Since 2004, in conjunction with our active capital management, we have been pursuing a more flexible dividend policy. The amount distributed essentially depends on our result for the year and our capital requirements, our aim being to pay out at least 25% of the annual result as a dividend to our shareholders.
For the business year 2006, we paid a dividend of €4.50 per share (i.e. 45% higher than last year). Altogether, we thus distributed a record amount of €988m (706m) to shareholders. Based on the closing price for 2006, this meant an attractive dividend yield of 3.5%.
For the next three years we have announced a minimum payout of €1bn per year.
To view what dividend has been paid out over the past few years, click
here
There was a corporate tax credit of slightly more than 2% of the dividend payment attached to the dividend of €3.10 for 2005 (this fact was duly recognised). Due to changes in law there is no tax credit any longer for the years 2006 onwards.
Shareholders or investors domiciled or normally resident in Germany whose shares are considered personal assets must pay tax on dividends according to the so-called half-income method. This means that only half of the dividend income is taxable. Accordingly, the investor can claim only half of any dividend-related expenditure as a tax break. Tax withheld on income on payout of the dividend either can be credited to the personal income tax burden of investors domiciled in Germany or it is reimbursed. Tax credits are not linked to the dividend. Corporation tax relief amounts shown in the tax certificate and claimed by the corporation that pays the dividend are of no significance to shareholders domiciled in Germany whose stock is held privately.
Foreign shareholders (i.e. persons neither domiciled nor normally resident in Germany) are subject to limited taxation requirements in Germany in connection with certain investment income. This includes dividends from corporations whose management or seat is located in Germany. Taxation on dividends in Germany is covered by the withholding tax on income. Where a Double Taxation Agreement exists between Germany and the country of residence of the foreign shareholder, the withholding tax on income is generally limited to a maximum of 15% of gross dividend. Normally, there is a standard application procedure. Taxation in the shareholder's country of residence on dividends earned in Germany is subject to the fiscal regulations in the country of residence. Tax credits are not linked to dividends. Corporation tax relief amounts shown in the tax certificate and claimed by the corporation that pays the dividend are of no significance to foreign shareholders.
You are entitled to a dividend on any Munich Re shares you have in your deposit on the day of the AGM. Even if you purchase the shares on the day of the AGM, you will receive the dividend since the date that counts is the final day of business. Please ask your bank if you are unsure.
Dividend payment for Munich Re shares is usually the first business day following the AGM.
In accordance with the resolution adopted by the AGM on 2 July 1999, the Company no longer issues effective certificates; accordingly, there are only very few effective certificates in circulation. The stock exchanges trade exclusively in Munich Re shares through the giro transfer system.
Unfortunately not. Now virtually all the Munich Re shares are traded on the giro transfer system for securities. As there are practically no historical securities from share certificate exchanges, we unfortunately have no non-valeurs to offer.
In 2007, the average daily trading volume was approx. 2.3 million shares or €295.0m.
Corporate Governance
The Government Commision appointed by Justice Minister September 2001 adopted the German Corporate Governance Code on February 26, 2002. The aim of the German Corporate Governance Code is to make Germany's corporate governance rules transparent for both national and international investors, thus strengthening confidence in the management of German corporations.
Munich Re welcomes the Code and the objectives it sets out. We follow the recommendations of the German Corporate Governance Code of May 2003 with a few exceptions. For further details please refer to the Compliance Statement.
>> Compliance Statement
Sustainability
As a consequence of its economic strength, its global business operations and its knowledge of risks worldwide, Munich Re bears a special responsibility for sustainable development.
We view sustainability from four perspectives: economic, ecological, employee-related and social. It is our objective to ensure the long-term success of our Group by continually improving our risks. Aspects of sustainability are to be systematically incorporated into product design so that we can offer insurance solutions that keep pace with technological progress. Another important objective is to make partnerships with clients and investors even more transparent, thus strengthening trust.
We already integrate numerous features of sustainability into our business: in evaluating and managing risks, investing capital, taking account of corporate governance guidelines, developing working-time models and advanced training concepts, devising insurance products, making available our expertise to numerous social and political bodies, and financially supporting cultural enterprises as well as the needy.
Our commitment to environmental protection and sustainability is anchored in our mission statement and in our environmental guidelines. In order to achieve our objectives, we build on our entrepreneurial responsibility with a commitment to transparency, sustainability and an obligation to society as a whole.
The environmental guidelines form an integral part of Munich Re's corporate strategy and are applicable throughout the reinsurance group. In them, Munich Re acknowledges its responsibility for environmental protection and sustainability. The environmental guidelines were adopted and signed by Munich Re's Board of Management in 2000. Munich Re's EMAS- and ISO14001-certified environmental management works steadily towards implementing the guidelines in insurance, investments and operational ecology.
Munich Re became a member of the Finance Initiative of the United Nations Environment Programme (UNEP) in 1999. We are thus committed to supporting sustainable development. Today we are actively involved especially in the Climate Change Working Group and in the Global Insurance Working Group of what is now known as the UNEP Finance Initiative.
Environmental protection and sustainable development are of strategic importance for Munich Re. We regard economy and ecology not as opposites but as two inseparably linked aspects of our long-term business operations. By systematically integrating aspects of sustainability into our business, we ensure the highest possible quality in the acceptance of risks and thus promote the success of our business in the long term.
Responsible underwriting of risks and judicious risk management are conditions we must fulfill to ensure the quality of our business in the long term and to enhance the value of our company. As insurers, we are especially committed to the precautionary principle. This applies in particular to those topics perceived to be the predominant global challenges of the future such as climate change, global energy supplies, developments in genetic engineering, and the associated implications for our underwriting and our investments.
Environmental protection and sustainability are of fundamental importance to Munich Re on a variety of levels: in reinsurance and in primary insurance, investments and in the way we handle resources in our daily working lives.
Munich Re is convinced that risk and return can be positively impacted by taking sustainability criteria into account. For this reason, we have as far as investments in shares and corporate bonds are concerned been guided since 2002 by the requirement that 80% of them should satisfy sustainability criteria in the long term. Leading sustainability indices and our own company analyses have been our yardstick in this context.
Munich Re also considers sustainability criteria in its long-term shareholdings. In 2001 we drew up and adopted a set of sustainability criteria for the acquisition of shareholdings. At the end of 2004 we also decided to integrate sustainability criteria in our regular screening of shareholdings.
Munich Re's commitment to environmental protection and sustainability are recognised by numerous sustainability analysts. Underlining this, Munich Re has been a member of the Dow Jones Sustainability Index (DJSI) and the FTSE4Good uninterruptedly since 2001. In addition, Munich Re has been included in the Advanced Sustainable Performance Index (ASPI), the Ethibel Sustainability Index (ESI) and the Ethical Index of Italian asset management E.Capital Partners. Our commitment to issues relating to climate change has been recognised by inclusion in the Climate Leadership Index of the Carbon Disclosure Project (CDP) and in the KLD Global Climate 100 Index.
>> Sustainability ratings
For further information on Munich Re's commitment to sustainability issues, please refer to the Company's environmental report in "Perspectives", the SRI Report specially addressed to sustainability analysts, or access the Sustainability section under Profile here on the Munich Re website. Alternatively, please contact our experts on sustainability and investments.
>> Sustainability>> Perspectives — Today's ideas for tomorrow's world
AGM
Munich Re’s 121st AGM will take place at the ICM – International Congress Center Munich, Messegelände, München-Riem, on 17 April 2008. The entrances to the ICM should be open from 8.30 a.m.
All shareholders may take part in the Annual General Meeting who have given due notice to the Company of their intention to participate and are entered in the Munich Re register of shareholders. The registration deadline is generally around one week prior to the Annual General Meeting.
We write to all shareholders entered in the register personally in good time before the Meeting. They can then register for the AGM directly via our shareholder portal (
www.munichre.com/register).
The AGM is transmitted for shareholders on the internet. You can access the transmission (at
www.munichre.com/register) using the access code and shareholder number you receive with the invitation to the AGM.
All information on current and past AGMs is available on our AGM portal (
www.munichre.com/AGM). Here you can find the agenda, voting results, documents and countermotions.