Types of risk

Given that risks can arise in all operational areas, functions and processes for a whole range of different reasons, assessing the risk situation requires consideration of each individual risk and the implications for the Munich Re Group as a whole.

We classify our risks according to German Accounting Standard DRS 5-20 as follows:

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  Underwriting risks
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  Risks from defaults on receivables from underwriting business
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  Investment risks
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  Operational risks

Underwriting risks result from the fact that significant cash flows for underwriting business may deviate from expected figures. We distinguish here between

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  the premium/claims risk in property-casualty business: premiums fixed in advance have to finance claims and benefits whose scope is uncertain at the time the premiums are calculated (risk of random fluctuations and risk of change);
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  the premium/benefits risk in life and health insurance: a premium that may be fixed for many years at a constant level has to finance benefits which can be affected by intervening trends as regards when they become due and also in terms of scope (risk of change);
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  the interest-guarantee risk in lines of insurance with guaranteed interest payments; and
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  the reserving risk in the assessment of the underwriting provisions required.

Risks from defaults on receivables from underwriting business These may occur

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  in primary insurance in relation to reinsurers, policyholders and insurance agents;
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  in reinsurance in relation to retrocessionaires, cedants and brokers.

Investment risks comprise

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  market price risks: changes in interest rates, share prices or exchange rates may result in losses in the value of invested capital;
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  credit risks: the creditworthiness of issuers or counterparties may deteriorate, to our disadvantage;
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  liquidity risks: delays in cash inflows and outflows can jeopardise the fulfilment of our own payment obligations.

Operational risks manifest themselves

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  as operating risks attributable to human or technical failure or to external factors;
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  as legal risks arising from contractual agreements or the general legal environment.