Dear Shareholders,

Dr. Joachim Wenning
Chairman of Munich Reinsurance Company’s Board of Management

2018 was a good year for Munich Re. We increased our profit to €2.3bn and achieved our result target. And you, our shareholders, will participate in our success through a higher dividend. Subject to the approval of the Supervisory Board and Annual General Meeting, Munich Re will raise the figure to €9.25 per share. Our shares thus remain a high-return investment.

At the same time, Munich Re is a company that plays a significant economic and social role. The very purpose of our undertaking becomes clear when disaster strikes: by providing insurance, we redistribute funds from those spared by tragedy to those affected by it. We alleviate human suffering. After all, it is only because we make risks insurable that people are prepared and in a position to take on new challenges with an uncertain outcome. This benefits society and engenders progress, which increases the prosperity we all depend on.

We have become more ambitious, and that calls for clear goals. In that sense, 2018 was a year of transition. We are setting ourselves a medium-term profit target of €2.8bn for 2020. And we have geared our strategy to this target: we are driving digital transformation forward, reducing complexity and working towards our medium-term profit guidance on the basis of ambitious growth initiatives in reinsurance and primary insurance. In 2018, we made good progress in all three areas of our strategy.

Munich Re is becoming more digital. We are investing systematically in digital transformation. Our focus is on solving the specific problems that our primary insurance clients or sales partners face, and in return we want to participate in the business this generates. We are one of the leading providers of cyber risk insurance, and we offer our clients insurance cover and a wide array of services ranging from preventive measures to the recovery of lost data. In 2018, our purely online insurer nexible almost doubled the number of policies sold, and is now also active in the Austrian market. ERGO is one of the first insurers in Europe to enable its customers to buy insurance using the Alexa voice assistant. We insure algorithms, such as those developed by the start-up company Fraugster, and thus help online traders to check for suspicious transactions more quickly and effectively. Furthermore, the platform of our new digital insurance agent in Canada offers partners with or without an insurance licence the opportunity to sell insurance products online.

The Internet of Things is opening up new, digital fields of business that we will tap into together with partners. In cooperation with Bosch, we intend to continue to support industrial clients that utilise connected manufacturing, so that they can minimise downtimes at their plants, increase the number of units manufactured and improve the quality of their products. For instance, we can provide insurance for the operational risks involved in connected manufacturing or the requisite financing. Together with KUKA and the consulting company MHP, we are also working on a solution to enable commercially viable, flexible small-batch manufacturing and thereby reduce the time to market for new products by up to a third. By covering the cost of investment in production plants and risks such as business interruption through Smart Factory as a Service, we ensure that in future these companies will be able to focus their efforts on developing and testing new products.

We have also invested over US$ 250m in the acquisition of Relayr, a technology company that mainly helps small and medium-sized enterprises to increase their relevance by evaluating data from legacy and new versions of equipment and software in real time, thus enabling them to anticipate production downtimes and raise productivity.

The number of digital undertakings we have become involved in has allowed us to secure a leading position in the markets, and it has reinforced not only our existing business but also provides us with new sources of income.

Munich Re is getting leaner. Last year, we systematically reduced costs in reinsurance and the Group as a whole. Since then, we have been managing a growing business with fewer resources, which in return is creating further scope for investment in digitalisation through cost savings. This has made us more competitive.

Munich Re is becoming more profitable. After four years of decreasing results, we succeeded in raising our profit – despite unexpectedly high major losses and weak capital markets – and thus made good on our promise.

Our primary insurer ERGO is picking up pace. It is consistently and successfully pursuing its five-year Strategy Programme launched in 2016, as a consequence of which ERGO has strengthened its competitive position, and was once again able to exceed its result target in 2018.

In reinsurance, we wrote profitable new business and saw pleasing growth. The life and health segment generated a technical result that significantly surpassed our expectations – in part thanks to very favourable claims development in the USA. We posted a good profit in property-casualty reinsurance – despite high natural catastrophe losses in the fourth quarter, including Typhoon Jebi and the wildfires in California. This segment accounted for around half of our consolidated profit.

Compared with 2017, reinsurance prices remained stable for treaties renegotiated at the turn of the year. We are confident that the market environment will see an improvement in the course of this year. Nevertheless, we will continue to actively seek and seize opportunities to grow profitably.

Our result ambition is clear: in the coming two years, we intend to increase our consolidated result by a further €500m to €2.8bn. To this end, ERGO will rigorously pursue the successful path it has taken. In reinsurance, we will carry on expanding our new business selectively. The main levers for achieving these goals are growing demand, our technical excellence and our financial strength. In addition, we expect the appointment of a Chief Investment Officer to lead to a progressive increase in our investment income. For 2019, we envisage a profit of approximately €2.5bn.

Munich Re is becoming more digital, leaner, and more profitable. Going forward, we will continue to be a partner that is globally in demand – a provider of reinsurance, primary insurance and insurance-related risk solutions. On behalf of myself and around 41,000 colleagues across the world, I wish to thank you for the trust you place in Munich Re and for accompanying us on this journey.

Yours sincerely,

Joachim Wenning

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