Letter to Shareholders

Dear Shareholders,

When we set out our result target for 2022, no one could have imagined the geopolitical and macroeconomic upheavals the year would have in store: the Russian war of aggression and the ensuing economic turbulence were not foreseeable. As a consequence, our investments in particular were subject to significant volatility. While the sharp increase in interest rates is welcome in the long run, it has wiped out hidden reserves and led to substantial impairment losses in the short term. Energy scarcity owing to the war further fuelled global inflation, which had already been on the rise; we have made provisions for increased claims expenditure as a result of rising inflation.

Despite the challenges, we delivered a profit of €3.4bn and thus even slightly exceeded our €3.3bn result target. With earnings per share increasing by 17.6%, a return on equity of 13.5% and a solvency ratio of 260%, we are on track to also meet the medium-term targets set out in our Ambition 2025.

The resilience of our business model is also recognised on the capital markets: despite a difficult stock market environment in 2022, Munich  Re’s shares ended the year with just shy of a 17% gain on the previous year. Only one DAX 40 company managed to outperform this increase. As regards total shareholder return, we occupied the top spot among the world’s eight leading reinsurers and European primary insurers between 2019 and 2022. As usual, our shareholders will benefit greatly from our gratifying performance: we are proposing that the Annual General Meeting approve a dividend increase of 5.5% to €11.60 per share. In addition, we have now approved a new share buy-back with a volume of €1bn.

Russia’s war against Ukraine has left its mark on Munich  Re, too. We cancelled all new business in Russia and Belarus shortly after war broke out, and existing contracts have not been renewed. We took the same approach to our investments in the region. War-related expenditure across various lines of business amounted to €475m in 2022. The impact on our investment business was also pronounced: war-related write-downs of approx. €850m were necessary in 2022.

We are committed to alleviating the suffering of the people of Ukraine. Companies and employees around the world are involved in dozens of initiatives and have made numerous donations. In addition to this, Munich  Re and MEAG are directly supporting the operations and humanitarian work of the Ukrainian Free University (UFU) in Munich, a Ukrainian university in exile. We are providing the UFU with over 1,000 square metres of rent-free space within the MEAG premises and had the area converted to make it suitable for teaching. Thanks to this project, approximately 150 students who have fled Ukraine have been able to continue with their studies in exile.

Amidst major crises in the past year, Munich  Re has once again proven its social relevance and financial robustness. We owe this resilience primarily to the diversification of our business model and the operational strength of our individual fields of business.

In 2022, the ERGO field of business was once again able to improve its result contribution thanks to good operational development supported by a one-off effect. Generating a result of around €830m, ERGO significantly exceeded its target for the year. In the Property-casualty Germany segment, we were able to increase premium income substantially. Business growth was achieved in commercial/industrial business in particular, as well as in homeowners’ insurance and motor insurance. In the ERGO Life and Health Germany segment, capital-efficient and biometric life products, considerable premium growth in travel insurance and higher demand for supplementary health covers contributed to growth. In international business, too, ERGO achieved higher gross premium income in 2022. Above all, growth in property-casualty insurance business in Poland and the Baltic states as well as the good performance of health business in Belgium supported this positive premium development.

Reinsurance continued to benefit from the ongoing hard market. Our renewals in 2022 generated premium growth of 11.9%, and prices rose by 0.5%. In times of elevated uncertainty, we were an especially sought after partner for our clients thanks to our capacity and the strength of our balance sheet. On the claims side, Hurricane Ian – one of the costliest hurricanes of all time – was a poignant symbol of yet another year with high natural catastrophe losses. For the second year in a row and the fifth in the recent past, insured losses surpassed the €100bn mark – a figure that is becoming the new normal in times of climate change. Nevertheless, property-casualty business is proving to be robust in the face of high major losses – a mark of quality for our nat cat models in particular. At €2.6bn, the contribution to profits of the reinsurance field of business almost exactly matched our original target of €2.7bn. Life and health as well as our Risk Solutions business both made a very positive contribution to this result.

In asset management, we achieved a return on investment of 2.1% – despite an environment in which almost every asset class declined in value on average over the year. In particular, write-downs of Russian and Ukrainian bonds in the context of the war as well as of shares, derivatives and fixed interest securities as a result of falling stock markets and the abrupt rise in interest rates weighed on investments. This was offset by balancing effects from rising interest rates on insurance business and the very high currency result of €676m, neither of which is included in the investment result for accounting reasons. In addition, rising interest rates are positive for insurers in the long term, as can already be seen from the significant increase in the reinvestment yield to 2.8%. We once again expanded our investments in renewable energies: now at €2.4bn, the investment volume climbed by around 40% year on year.

The strong results achieved by ERGO and life and health reinsurance compensated for the expenditure in property-casualty reinsurance and in asset management. And that is not simply a happy coincidence. Indeed, the strategic course we have set ourselves as part of our Ambition 2025 is already coming to fruition: the greater the profit generated by our less volatile fields of business, the less susceptible our consolidated result is to fluctuations.

As a logical consequence of this strategic orientation and on the basis of the Group’s growth ambitions, Munich  Re established a new Board division – Global Speciality Insurance – which commenced operations on 1 January 2023. The division comprises specialty primary insurance business, which has grown substantially in the USA and the London market and is set to continue to see strong growth going forward. Pooling the business in this way will strengthen both growth and earnings potential in this segment.

With two successful financial years behind us, we are well on track to achieve the five-year targets set out in our Ambition 2025. For 2023, we have set ourselves a profit target of €4bn – calculated on the basis of the new accounting standard IFRS 17. Insurance revenue, the IFRS 17 item that will supersede “premium income” in future, is expected to reach around €58bn; return on investment is anticipated to be above 2.2%.

We made an excellent start to the new year in our core business of reinsurance. In the January 2023 renewals, the positive trend was even stronger than we have seen in the renewal rounds in recent years. With premium growth of 1.3% and a price increase of 2.3%, we grew in the areas in which we generate the highest earnings, and successfully outpaced inflation to improve our margins. Furthermore, and unlike in the past few years, we are not expecting any further substantial losses attributable to the waning coronavirus pandemic.

Munich Re’s pleasing performance goes hand in hand with the good progress we have made with our non-financial targets relating to environmental, social and governance (ESG) interests. In terms of environmental protection and given the pressing issue of climate change, the incremental decarbonisation of our investment and insurance portfolio is a particularly important objective. With regard to our targets for our investment activities, we lowered our greenhouse gas emissions by 46% in 2022 relative to 2019 (the base year for our Ambition 2025) – another 15 percentage points more than in the previous year. We were also able to quantify the effects in our insurance business for the first time, achieving a reduction of 29% for activities relating to coal-fired power plants, 37% for thermal coal extraction (mines) and 40% for property insurance business in oil and natural gas extraction. These figures already exceed or are within reach of our target values for 2025.

In addition, we issued new guidelines for insurance and investments associated with oil and gas in 2022. They will enter into effect on 1 April 2023 and, among other things, preclude Munich  Re from investing in or insuring contracts or projects that relate exclusively to the planning, financing, construction and operation of new oil or gas fields. Instead, we will continue to step up our investment in renewables and support the energy transition by providing smart insurance solutions for environmentally friendly technology and products.

Alongside our climate action, we are committed to achieving greater diversity in our workforce as a further pillar of our ESG activities. In this respect, increasing the percentage of women we have in management positions is especially important to us. By appointing Clarisse Kopff and Mari-Lizette Malherbe to the Board of Management, we now have two women at the most senior level of leadership in our Group. More women also occupy positions at other management levels than in the previous year. In total, 38.5% of management positions Group-wide are now held by women, thus putting us close to reaching our target of increasing this figure to 40% by 2025.

Besides these specified non-financial targets, a whole host of further ESG initiatives and projects created added value for the environment, society and for our staff in 2022. One example is the Social Engagement Awards launched by the Board of Management last year. Open to everyone in the Group, the competition was an opportunity for staff to win additional funding for charitable projects they are involved in. A total of 114 projects were entered into the running and then evaluated in-house – 25 of which received donations ranging between €5,000 and €250,000. Winning submissions ranged from day trips for Ukrainian children affected by the war to solar-powered night schools for girls in rural India and sustainable community farming to fight climate change and hunger.

It’s fair to say that 2022 was a value-creating year for our business and stakeholders alike. You can find further facts and figures in this report and in our Sustainability Report due for publication in April. This year’s Annual Report is the last we will publish on the basis of the IFRS 4 accounting standard we have followed to date. With effect from 1 January 2023, Munich  Re will be applying the new IFRS 17 standard.

The introduction of IFRS 17 will not make a difference to our profitability or impact our financial strength. What will change, though, is how we measure, present and disclose our insurance business. The new accounting framework introduces a more market-value-consistent regime to measure insurance contracts. IFRS 17 will increase the transparency of our financial reporting and render our diversified business model’s financial performance substantially more visible in the financial world and among stakeholders in future.

As you can see, Munich  Re remains an attractive and reliable investment – even in times of great uncertainty and change. On behalf of more than 41,000 staff members worldwide, I wish to thank you for the trust you place in our Group.

Yours sincerely,

Joachim Wenning