28 August 2003

Press Release

Munich Re Group: quarterly and half-yearly figures Still very pleasing development in underwriting business; combined ratio for the first half year down to 95.9% in reinsurance and 96.0% in primary insurance / Funds increased by €6bn over previous quarter or 50% to over €18bn / Excellent result before tax of €737m in the second quarter after €40m in the first quarter. High provision for taxation leads to half-yearly result of -€603m / Agricultural losses due to drought hardly affect insurance industry

Munich Re's performance in the period under review and since then is characterised by three partially countervailing trends:

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  The Group's core business of underwriting has continued to improve significantly. This applies above all to the areas of non-life (reinsurance) and property-casualty (primary insurance), a fact that is underscored by the further decline in the combined ratios.
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  The clean-up efforts undertaken after the worldwide stock market slumps have largely been absorbed in our income statement. The upward trend in share prices also reflect brightly on our balance sheet and, together with the successful bond placement, have further increased our funds.
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  In light of the controversial fiscal policy debate, the Munich Re Group has made provision for taxation already in the second quarter instead of in later reporting periods.

Given the prevailing positive trend in its core business of underwriting, Munich Re is on the whole very confident. If business performance in insurance and reinsurance stays normal, Munich Re expects the combined ratio for the current year to be under 100%. In the forthcoming renewals, Munich Re will therefore continue to focus strictly on obtaining risk-adequate prices and conditions. This remains a key requirement in the present situation, as stated in its quarterly report.

Re. figures of the Munich Re Group at 30 June 2003:

Group premium income increased from €20.4bn in the first half of 2002 to €20.8bn. Despite the stronger euro, premium income thus maintained last year's high level.
The operating result before tax amounts to €777m in the first half year, compared to €3,486m in the same period last year. Given the current legal uncertainty regarding the tax treatment of writedowns on and losses on the sale of shares in equity funds and the taxation of life and health insurers, Munich Re has made provision for the anticipated tax liabilities. This taxation provision is reflected in the half-yearly result of -€603m, as are the after-effects of the stock-market slumps in previous quarters.

The favourable performance of underwriting business and the rise in the price of shares and fixed-interest securities have substantially improved our equity capital base: shareholders' equity rose to €15.1bn, following €12.5bn in the first quarter. In addition to this, the successful placement in mid-April of the subordinated bonds with a total volume of €3.4bn also substantially contributed to the increase of our funds to €18.5bn. These funds thus rose by €6bn over the first quarter and by €4.6bn as against the end of 2002.

In a presentation of the half-yearly figures to the press, Dr. Jörg Schneider, member of Munich Re's Board of Management, said the following: "The after-effects of the weak stock markets in the last three years have largely been absorbed in our equity portfolios. Underwriting business is performing very well, funds have increased by 50%. The trend is obviously upward, and therefore the reasons given by Standard & Poor's for the downgrading measure are unconvincing."

Reinsurance: Excellent combined ratio despite severe tornadoes

After a first quarter that was less affected by natural catastrophes, the second quarter was characterised by numerous instances of extreme weather conditions. Two severe tornadoes and hailstorms in the midwestern US in April and May caused insured losses totalling almost US$ 5bn. The hailstorm in Texas in early April, with insured losses of over US$ 1.1bn is thus one of the world's most costly hailstorms of all times. The partially devastating forest fires that raged in southwestern Europe and North America during this year's extremely hot summer have thus far inflicted economic losses totalling several billion euros The burden to insurers remained low, however, because forests are generally not insured. This is also true of the drought losses in farming: the estimated economic damage of more than €10bn is hardly insured, since crop losses as a result of heat waves and drought are still largely uncovered in the European Union.

The significant improvement in the quality of our underwriting business is reflected in spite of these natural catastrophes in a very good combined ratio of 95.9% in our non-life portfolio for the first half year (Q2: 94.9%). For the whole of the year 2002, it had amounted to 122.4%, and even adjusted to eliminate the reserve strengthening at American Re and for the World Trade Center loss, had still been 106.5%.

We made further clear progress in prices and conditions in the renewals of reinsurance treaties at 1 January, 1 April and 1 July. Improvements in quality resulted partly from significant price increases averaging 7% on the non-life portfolio of Munich Re. In addition, improved conditions in the reinsurance treaties have directly and durably strengthened the profitability of our business. Examples of this are exclusions for highly exposed risks, higher retentions, loss, event or annual aggregate limits, and, in particular, exclusions and limitations of liability for losses caused by terrorist attacks.

As a result of the effects from exchange rates of €1.5bn (0.1bn) in the first half of the year, premiumincome in reinsurance in the first half year climbed by 1.8% to €12.9bn (13.2bn) compared with the same period last year. It would have grown by 9.5% if the same exchange rates had been applied as in the same period last year. In the second quarter, the Group's reinsurers wrote gross premiums of €6.4bn (6.2bn).

At our largest subsidiary abroad, American Re, the positive effects of the extensive organisational and personnel measures taken since the beginning of 2002 are becoming more and more apparent: despite the high costs arising from the storm losses, American Re's combined ratio in the first half of the year was an excellent 95.4%.

The reinsurers' result before amortisation of goodwill totalled €882m (4,282m) in the first half year and €531m (-1,186m) in the second quarter. In the first half year, reinsurers accounted for €74m (4,902m) of the Group's overall result after tax.

Primary insurance: Strong new business and continued excellent growth prospects

In the first half year, our Group's primary insurers - ERGO, Karlsruher and Europäische Reiseversicherung - recorded a premium growth of 6.7% to €8.9bn (8.4bn). This dynamic development was attributable to all fields of business, in particular life insurance with its high premium volume. Here, premium income rose by 6.3% to €3.7bn (3.5bn) over the first six months of last year. German new business performed very pleasingly with clear double-digit growth rates. This pronounced growth shows that, particularly in times of uncertain capital markets, policyholders greatly appreciate the solidity of life insurance policies with a strong group of companies.

The Group's health insurers wrote premiums of €2.3bn (2.1bn) in the first six months, 8.0% more than in the same period of last year. This growth was partly attributable to the number of policyholders with comprehensive cover rising to over one million since the beginning of the year. The growth in the period under review was also accounted for by the fact that in Germany premium rates were raised throughout the entire insurance industry as a result of higher healthcare costs. In the ongoing political debate, Munich Re considers the fair coexistence of statutory and private health insurance to be a decisive factor for an enduring and future-oriented solution.

From January to June, our primary insurers wrote gross premiums of €2.9bn (2.8bn) in property-casualty insurance, or 6.2% more than in the first half of last year. We achieved strong double-digit growth rates in German new business, especially in the profitable personal lines sector. Our consistent underwriting policy in treaty business as well as our cost-reduction measures have caused the combined ratio in the first half year to once again develop very positively, standing at an excellent 96.0%, compared with 101.8% in the same period last year.

The primary insurers' result before amortisation of goodwill totalled €67m (115m) in the first half year and €310m (6m) in the second quarter. The positive performance of underwriting business, in particular of our life and health insurers, was tarnished by the long-term consequences of the price losses in the previous quarters. The burden from writedowns on and losses on the sale of securities was €2,115m. Since the writedowns on shares held in funds are supposedly not deductible for tax purposes either - an opinion disputed by the insurance industry - and since the intended new regulation of the taxation of insurance and health insurance companies is still outstanding, the tax burden resulting from the provisions made rose to €661m. Primary insurers were thus responsible for -€665m of the Group result in the period under review.

Investments: Unrealised gains clearly surpass unrealised losses

Following the price losses suffered in the previous quarters, the prices of shares and fixed-interest securities were up significantly in the second quarter. In the case of a number of equities, where prices were not expected to return to the original acquisition prices in the medium term, writedowns on investments totalling €387m (1,398m) were made. In the first half of 2003, overall writedowns on such investments came to €1,267m (1,521m).

Thanks to the more favourable market environment and rigorous writedowns on our equity portfolios, unrealised gains on the item "investments available for sale" exceeded the remaining unrealised losses by more than €5.7bn over €1.0bn at 31 December 2002. Even if share prices do not rise any further, the potential for further writedowns is therefore very limited.

At 30 June 2003 the investments of the Munich Re Group rose to €163.1bn over €156.3bn at the end of 2002. The investment result for the first half of 2003 amounted to €1.9bn, being strongly affected by "aftermath losses" from the bear market prevailing in the previous quarters.

Outlook for 2003: Continued good underwriting performance expected

Overall, the Munich Re Group expects Group premium income for the business year 2003 to be comparable to that of last year at around €40bn, in spite of the dampening effect of exchange rate-influences. Taking the recent successful renewals and improvements in facultative reinsurance as a basis, the combined ratio at the end of the year should be noticeably below 100 provided the major losses sustained remain within normal bounds. Life reinsurance is also developing according to plan and profitably.

In primary insurance in 2003, we expect premiums to rise strongly by 5.6% and the combined ratio in property-casualty insurance to improve further. The measures to improve efficiency have been taken and will push down costs by €100m in the current year. The result in primary insurance should be better, even if it does not yet break even.

The losses from securities which, at the turn of the year 2002/2003, had already reduced shareholders' equity in the balance sheet, were for the most part absorbed in the result of the first half of the year by writedowns and losses on disposals. Consequently, Munich Re only expects appreciably lower burdens for the second half of the year than in the previous quarters, even if stock markets move sideways.

Disclaimer

This press release, in particular "Outlook 2003", refers to statements relating expressly and implicitly to the future and contains words such as "expect", "believe", "assume" and other similar expressions. Such forward-looking statements are based on current expectations, estimates, forecasts and prognoses concerning the development of the market as well as management estimates and assumptions. Such forward-looking statements are no guarantee that events or results will actually materialise in the future and are subject to risks, uncertainties, assumptions and other factors that could lead to actual events or results deviating substantially from those anticipated in these forward-looking statements. Other factors include in particular catastrophes that could lead to extraordinary loss burdens as well as considerable price changes on the capital market, namely share price changes which may have an impact on the financial situation of the Munich Re Group.

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Note for editorial departments:
In case of enquiries, please contact Rainer Küppers on +49 (0) 89/38 91-25 04 , Anke Rosumek on +49 (0) 89/38 91-23 38, Irmgard Joas on +49 (0) 89/38 91-93 92 or Florian Wöst on +49 (0) 89/38 91-94 01 .

Munich, 28 August 2003

Münchener Rückversicherungs-Gesellschaft
signed Dr. Schneider          signed Küppers