18 June 1999

Letter to shareholders

Dear Shareholders,

The Munich Re Group has always ranked among the top players in the international insurance industry. In a time that is characterized by great change in the insurance markets around the world, we have again demonstrated our outstanding strength. Our strategy has proved its effectiveness: we have more than compensated for worse results in volatile reinsurance business with higher profits in more stable personal lines insurance. This diversification will also provide us with a good base for operating successfully in the increasingly competitive environment we will face in the years to come.

Earlier information for our shareholders

This year we are able to report to you substantially earlier than hitherto and thus also able to provide for payment of the dividend at an earlier date. We have achieved this by changing the Munich Reinsurance Company's balance sheet date. This measure is part of a process in which we are continually improving the quality of information provided to our shareholders. Two further steps envisaged also lead in this direction: the publication of a half-year report for the first time, in September 1999, and the publication of the 1999 consolidated accounts on the basis of International Accounting Standards (IAS).

In order to make Munich Re shares more transparent, more liquid and thus even more attractive for German and foreign shareholders, we have carried out a series of shareholder-friendly capital measures in recent months. They have all gone according to plan. A facility that has proved very effective in this connection is our shareholder service telephone, which many of you have used and which has enabled us to give direct answers to your enquiries regarding our package of capital measures.

We are especially pleased about the fact that the number of shareholders again increased markedly in the past year. Munich Re registered shares were once more among the winners on the German stock market last year; their value rose by more than 20%, thus outperforming the DAX.

Munich Re Group continuing on a successful course

Premium income has increased to almost DM 50bn; the Group profit for the year has improved to DM 1.2bn. Despite the parent company's short business year, it will be possible to pay an unchanged dividend of DM 1.80 to you, our shareholders. As expected, earnings per share were down on the previous year, but at an excellent DM 13.95 they still compare favourably with those of other companies in our industry.

Position in reinsurance successfully maintained despite intense competition

We have not only held our position in many important markets but have also extended it. Segments we regard as especially promising for the future are insurances of the person, financial reinsurance, alternative risk transfer and the Fortune-1000 and captives market. We are well positioned in these fields. In financial reinsurance, for instance, we have substantially strengthened our resources. And with our company Munich-American RiskPartners we are also a competent business partner for alternative markets.

In order to be able to offer our clients the best possible service, we have invested further in our international organization. Our office in Tokyo has been expanded into a service company and we have opened a new office in Warsaw. In the current year we will also open an office in Chile, which is mainly intended to help expand our life reinsurance business in South America.

ERGO Group grows together

In our direct insurance operations, the integration of VICTORIA, Hamburg-Mannheimer, DKV and D.A.S. in the ERGO Group is progressing well. Thus VICTORIA, Hamburg-Mannheimer Sach and D.A.S. will be combining claims handling resources in non-life insurance and introducing joint claims management. Cooperation in the distribution of products has already been restructured. Besides this, a detailed concept is being produced for the integration of their computer centres and the communication and data networks.

Increasing profitability in the investment sector

In the area of investments the Munich Reinsurance Company and ERGO will be pooling their resources in MEAG MUNICH ERGO AssetManagement GmbH. Given the globalization of the financial markets, our objective here is to jointly enhance our professionalism in terms of technology and know-how for our own investments. But it is also to develop asset management for third parties - both institutional and private clients - as a field of business in its own right. The Munich Re Group's range of products will thus be expanded by this particularly promising segment of financial services business.

Exchange of shareholdings with Allianz

At the turn of the year Munich Re and Allianz completed the restructuring of some more of their shareholdings. This enabled Munich Re to increase its interest in American Re to 100%, whilst Allianz became the sole shareholder of Allianz of America. In addition, Allianz transferred some of its shares in ERGO to Munich Re, which in return reduced its involvement in Allianz Lebensversicherung. The transaction provides for a clear arrangement of the corporate shareholdings involved and is the logical continuation of similar adjustments in previous years.

Heavier tax burden for insurance companies

Ladies and gentlemen, one subject that has occupied us a great deal in the last few months and has also given us great cause for concern is tax legislation. Although the German tax reform law, passed on 24 March 1999, originally gave rise to fears that the burden for the insurance industry would be enormous, it has proved possible to achieve a limitation of the additional tax related to insurance. Nevertheless, the insurance industry is still disproportionately affected. It is to be hoped that the business tax reform that has now been announced, holding out the prospect of lower tax rates, will indeed ease the tax burden so that Germany can regain some of its attractiveness internationally as a location for the insurance industry.

Another good result expected for 1999

For 1999 we currently expect a better overall Group result than last year. In particular, a considerably higher profit for the year looks likely for the parent company. As things stand at present, this should make it possible to maintain a dividend of DM 1.80 even though the number of shares has doubled as a consequence of the stock split and the capital measure for the holders of bearer shares, meaning that the overall dividend amount would need to be doubled to keep the dividend rate unchanged. This naturally presupposes that no exceptional loss events occur before the end of the current business year and that we are not hit by big price losses on the capital markets.

Munich Re shares are an attractive investment for long-term investors. The ten-year comparison shows a convincing performance with an average annual increase in value of 23.7%. Our objective is to continue to offer you, our shareholders, an above-average return.

Yours sincerely,
Dr. Hans-Jürgen Schinzler
Chairman

(Annual Report 1998)