15 April 2004

Statements by Dr. Jörg Schneider, Member of Munich Re's Board of Management

Balance sheet press conference on 15 April 2004

2003 was a business year marked by contrasts and transition. On the one hand, with high writedowns and an excessive tax burden, we have now absorbed the after effects of the weak stock markets that had prevailed over the past few years. The loss of €434m emanating from here finally draws a line under three difficult years. On the other hand, we have turned the corner and made the transition to a profitable future. The measures we introduced clearly started to bear fruit in 2003: an excellent combined ratio in primary insurance and reinsurance (PI: 96.4% / RI: 96.7%), a good underwriting result of €2bn and a marked strengthening of our capital base.

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  We have again slightly increased our premium income at a high level. Expressed in original currencies, we even grew markedly by 7%. A firm euro ultimately curbed premium growth: expressed in terms of our balance sheet currency (euros), premium income rose by 1% to €40.4bn.
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  The investment result has stabilised pleasingly. Besides achieving a return of 4.3% on our investment portfolio, we have grown our valuation reserves appreciably. If we add on the valuation reserves, the total figure comes to 7%.
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  Taxes: Our life and health insurers enjoyed a certain degree of relief from the new statutory regulation that came into force shortly before the end of the year. By posting so-called deferred taxes, these companies have already made substantial provision for the years to come. Our good pre-tax earnings of €1.3bn were subject to tax expenditure of €1.8bn, an absurdly high tax burden of 135%, the reason being that expenses in respect of writedowns on shares and sales of shares were not tax deductible in reinsurance and only to a certain extent in primary insurance. Since our underwriting result was good, we were left with an out-of-proportion tax burden.
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  Our shareholders' equity grew substantially by €5bn, and that despite considerable burdens from changes in exchange rates. The positive trend on the stock exchanges, our successful investments and the capital increase contributed to this figure. A positive balance of almost €7bn from unrealised gains and losses on securities and of a further €1.8bn from off-balance-sheet valuation reserves also contributed substantially to reinforcing the solidity of our Group.
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  In reinsurance, our earnings were excellent, with a profit of €1.6bn. A combined ratio of 96.7% in non-life reinsurance is first-rate, also by historical comparison. The outstanding result illustrates the success of consistent profit-orientation in the reinsurance group.
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  In primary insurance, we had to battle with the long-term effects of the weak capital markets. But we are moving in the right direction, also thanks to the new management structure at ERGO, and things are starting to look up. In life insurance, we have taken the necessary steps to improve our product policy. In property-casualty and legal expenses insurance, ERGO was already in good shape: the combined ratio of only 96.4%, low even by market comparison, once again underlines the high quality of the business.

For 2004 we expect a slight increase in premium income. However, profitability takes precedence over growth. We seek to turn the operating strength shown in 2003 into a Group profit and stand by our objective to achieve a profit for the year of €2bn in 2004. A sustainable return on equity of 12% remains our guiding principle.