Letter to Shareholders
We kicked off our Ambition 2025 strategy last year. In posting an annual result of €2.9bn, we surpassed our 2021 profit target of €2.8bn, thus laying the foundation for realising our bold objectives.
With regard to earnings per share, our goal was to match the normalised result from 2020 in 2021 – but in fact, it grew by 4.7%. Accordingly, we are already close to our goal of increasing it by an average of at least 5% annually by 2025. In addition, we are fully on track to meet our commitment of generating a return on equity (RoE) between 12 and 14% by 2025; our RoE in 2021 was 12.6%. Munich Re’s capital strength is reflected in our solvency ratio, which was 227% at the end of last year – placing it slightly above our target range.
As Munich Re shareholders, you benefit from this solid business performance. Between 2018 and 2021, our total shareholder return was outstanding among the leading eight global reinsurers and European primary insurers. In line with our sustained corporate success, we are fulfilling our Ambition 2025 pledge to increase our dividend. We are proposing that the Annual General Meeting approve a dividend of €11 per share – an increase of 12.2% year on year. In addition, we have now approved a new share buy-back. An attractive dividend policy remains one of Munich Re’s hallmarks.
In short, Munich Re has kept its word despite difficult circumstances.
In addition to a challenging economic environment, persistently low interest rates, and rapidly rising inflation, there were major losses in 2021. As in previous years, natural catastrophes unleashed devastating losses around the world. And the coronavirus pandemic again developed an unexpected dynamic. Moreover, the number and intensity of cyber attacks are rising considerably.
Natural catastrophes caused US$ 280bn in worldwide losses last year. At US$ 120bn in insured losses, the 2021 figure is second only to the record year of 2017. The extreme flash flooding in Germany and other European countries alone resulted in losses of US$ 54bn, of which US$ 13bn were insured. This is Germany’s and Europe’s costliest natural disaster ever – and only one of last year’s many severe weather events, which are becoming more frequent and more severe due to climate change.
In 2021, the pandemic likewise resulted in higher claims expenses, particularly in our life and health reinsurance and, to a minor extent, in property-casualty reinsurance. The overall expenditure due to COVID-19 amounted to around €1bn in 2021, €785m of which was attributable to the life and health segment.
Last but not least, there was a considerable spike in cyber crime last year. Various research companies estimate that cyber incidents have caused global financial losses totalling trillions, of which merely a very small fraction is currently insured. The awareness of cyber risks has been heightened by unsettling events, such as the ransomware attack on the Colonial Pipeline Company in the United States in May 2021 and the recent discovery of the Log4j security vulnerability.
We met our profit target in spite of all these challenges, which underlines anew just how robust and resilient our Group is. Once more, our risk portfolio, our range of business lines and our risk management proved their worth in 2021. All fields of business showed strong operational performance, in turn further fuelling the positive business momentum.
The ERGO field of business was once again able to boost its result contribution, thanks to focused business expansion and strict cost discipline. Better still, ERGO clearly surpassed its annual target by generating a result of around €600m. In the Property-casualty Germany segment, a successful renewal round in motor insurance and an expansion of commercial/industrial business played key roles in spurring premium growth. ERGO Life and Health Germany also contributed to growth through its new capital-efficient and biometric life products, good performance in supplementary health covers and the recovery in travel insurance business. In addition, the “hybrid customer” business model in particular paid off during the pandemic, while further enhancing the productivity of sales agents. In international business and elsewhere, ERGO substantially increased gross premium income in 2021, primarily attributable to strong growth in property-casualty business in Poland and Austria and high demand for health products in Spain and Belgium. Going forward, ERGO will continue to earn higher premiums and more income, while increasingly relying on digital solutions.
Munich Reinsurance Company benefited particularly from rate increases in property-casualty reinsurance. Our renewals in 2021 generated premium growth of 11.7%, and prices rose by 2.3%. The renewal results for January 2022 make it clear that this trend will continue this year and we will continue to expand profitably. We similarly managed to firmly consolidate our less cyclical Risk Solutions business (+18%) thanks to an impressive product portfolio. And we are tapping into new opportunities – especially in digital business through, for example, our subsidiary Munich Re New Ventures (MRNV). Founded to exploit untapped potential in our industry, MRNV has since become an incubator for cutting-edge technology, sales channels and product offerings for Munich Re clients and partners. MRNV’s acquisition in 2021 of GroupHEALTH, one of Canada’s largest administrators of group policies, grants us broader access to a market with an attractive risk-return profile. This is just one instance of our astute strategy for expanding our business.
In asset management, we achieved a very good return on investment of 2.8%, persistently low interest rates notwithstanding. Alternative types of investment – in infrastructure, for example – merit particular emphasis, as they account for an increasing share of results. We intend to further intensify our alternative investments. Environmental criteria are also increasingly important. MEAG, for instance, has invested in the expansion of emission-free wind power in Sweden and Finland. It has also added to its forestry portfolio by purchasing forests in the United States and New Zealand. Compared to the volume in 2019, our investments in renewable energies are poised to double by 2025 to some €3bn.
Following the first year of Ambition 2025, Munich Re is in an outstanding position to achieve its stated objectives over the next four years. To this end, we will continue tapping into the hardening reinsurance market for profitable growth. Our future earnings will increasingly become less volatile thanks to the sustainably improving performance of ERGO, growth in life and health reinsurance, and growth in our specialty insurance – particularly in the United States. Our strong return on investment is also part of the pleasing big picture.
Beyond the optimisation of economic key performance indicators, our Ambition 2025 also embodies our commitment to creating long-term value for our shareholders, clients, staff, and society as a whole. Doing so entails steady dedication to environmental, social and governance (ESG) issues in all of our Group’s spheres of influence.
In order to emphasise the strategic importance of ESG for Munich Re and to consolidate ESG management, an ESG Committee was created at Board of Management level in mid-2021. This committee works closely with an interdisciplinary team of top-notch ESG managers who ensure that all of our ESG objectives are met throughout the Group.
A key aspect of our ESG pursuits is climate protection. We focus here, for example, on acting to reduce CO2 emissions. In line with stringent CO2 requirements, we do not (re)insure operations that will not adapt over time, starting with coal – now, not in the distant future. We have undertaken to meet our first reduction targets by 2025. To this end, we set up the requisite frameworks last year, including mandatory underwriting guidelines for coal, oil and natural gas in accordance with our climate strategy.
We also regard ourselves as a driving force in the energy transition. Munich Re provides risk transfer solutions that promote the growth of established and proven as well as new green technologies. By assuming guarantee or availability risks, we help the renewable energy sector to attract investors and grow their business. Our Green Tech Solutions unit has already enabled us to underwrite risks in over 1,000 projects worldwide, with generation capacity totalling about 42 gigawatts. That is more than two thirds of the capacity of all photovoltaic systems operating in Germany.
Our issuance last year of another green bond reaffirmed our mission of helping to propel the economy towards a climate-neutral future. Munich Re will use the capital thus raised to finance projects devoted to energy efficiency, sustainable transport, green buildings, the circular economy, etc. Our first green bond, issued in 2020, generated €1.3bn in proceeds – all of which we have since invested in eight sustainable projects.
Only fast, resolute action will protect our climate; the private and public sectors must both pitch in. At the Climate Change Conference (COP26) in Glasgow in November 2021, Munich Re once again highlighted the urgency of all that must be done to tackle the climate crisis. We made specific suggestions at COP26 on how to address the challenges. First, the number and reach of public-private partnerships must increase so as to help poorer countries in particular deal with the consequences of climate change. Second, a sufficiently high CO2 price – more than US$ 100 per tonne by 2030 – should incentivise the use of climate-friendly technologies. Third, annual investments in renewable energies for power generation must be quadrupled by 2030. Fourth, the promotion and use of technologies that remove CO2 from the atmosphere is essential. And fifth, it is incumbent on governments to pivot away from settling for sub-targets towards defining coherent, all-encompassing projects that put into practice the above-mentioned action items and further climate-protection measures.
Beyond our commitment to greater climate protection, we pledged in our Ambition 2025 to improve gender diversity throughout the Munich Re Group. We aim to increase the percentage of women in management positions from 35% in 2020 to 40% by 2025. Because senior managers are appointed by Board members throughout the Group and because we are deliberately fostering a diverse and inclusive corporate culture, the percentage of women managers rose to about 38% last year.
All in all, Ambition 2025 guides our Group along the path of fully realising the potential for growth and value creation. In 2021, we took several big steps forward on this path. Please rest assured that we will not slow down in 2022. On the contrary, we will spare no effort translating our Ambition into success. On behalf of more than 39,000 staff members worldwide, I wish to thank you for the trust you place in our Group.