Press release

• Munich Re Group 2004: Profit of €1.833bn 
  
  
• Pleasing combined ratio of 98.9% in reinsurance, despite high natural catastrophe losses
  
  
• Combined ratio in primary insurance of only 93.0% / Dividend proposal of €2.00 (1.25) per share 
  
  
• Target for anniversary year 2005: 12% return on equity
  
  
• Innovation offensive to create new earnings potentials

Munich Re earned a profit of over €1.8bn in 2004. "I am more than satisfied with the result of this mixed year. We are well on the way to achieving sustained profitability and thus regaining our former strength", said Nikolaus von Bomhard, Chairman of the Board of Management, when presenting the full results. "I am optimistic for the current year 2005. We were very successful in the renewal of most of our non-life reinsurance business at 1 January. And the new structure that ERGO has adopted will enable our primary insurers to exploit market opportunities even more effectively."

In its 125th year, Munich Re is building on its know-how: "There is no progress without innovation. Our primary task is to identify, understand and evaluate known and, above all, new risks, and to offer future-oriented insurance concepts", said von Bomhard. "Seen as a whole, Munich Re's history is a success story. I am delighted that the anniversary has coincided with one of our best-ever annual results." Munich Re will be expanding its social commitment in its anniversary year. Details will be revealed at a press conference on 8 April.

All business segments contributed to the greatly improved result of €1,833m (previous year: -€434m).

In reinsurance, Munich Re's disciplined and selective underwriting paid off. The positive result stabilised at a high level of €1.7bn (1.6bn). The combined ratio rose only slightly to 98.9% (96.7%), despite the following adverse effects:

• Natural catastrophes contributed no less than 4.5 percentage points, almost three times as much as in the previous year (1.6) and well above the ten-year average of 3 percentage points. The exceptional series of natural catastrophes in the second half of the year cost Munich Re €713m (hurricanes and typhoons in the 3rd and 4th quarter: €613m; earthquake/tsunami in the 4th quarter: €100m).
• 2.5 percentage points were due to the strengthening of reserves for US business: US$ 180m for asbestos-related claims dating back many years and US$ 302m for losses stemming mainly from other US liability business written prior to 2002.

Premium income in this segment declined – primarily owing to Munich Re's profit-oriented underwriting policy – by 9.7% to €22.4bn (24.8bn), of which 2.8 percentage points were assignable to changes in exchange rates. In property-casualty reinsurance, premium income decreased by 17.1% to €14.9bn, partly because of the termination of non-profitable treaties and also as a consequence of exchange-rate fluctuations. Premium income in life and health reinsurance grew by 9.7% to €7.5bn.

The primary insurers strikingly returned to the profit zone, with a result of €261m (-€1,091m). The underwriting business had produced a positive result in 2003; in 2004, with a result of €615m (212m) before amortisation of goodwill, this almost trebled. Premium income in primary insurance fell slightly by 0.6% to €17.5bn. The combined ratio in the primary insurance segment, which was not burdened by major losses, amounted to an outstanding 93.0% (96.4%).

The ERGO Insurance Group, which writes the bulk of this business segment, earned its cost of capital in 2004 with a profit for the year of €202m, thus already achieving the target that was set for this year. With effect from 1 January 2005, ERGO implemented a new management organisation that will enable it to pursue its business objectives even more rigorously.

The Munich Re Group life insurers recorded premium income of €7.8bn, a decline of 2.8% that was mainly attributable to an increase in the number of planned policy expiries and to less new business. The health insurers wrote premiums of €4.5bn (-0.2%); adjusted to eliminate the effects of acquisitions and disposals, premium volume rose by 3.6%. As the number one health insurer in Europe, the ERGO Insurance Group pursued its "health enterprise" strategy in 2004 through the acquisition by DKV of a shareholding in the first private health insurer in China and recently through an investment in Spain. Premiums in the especially profitable property-casualty insurance sector increased by 2.4% to €5.2bn, with the German market showing growth of 1.8% in 2004. Profit-oriented underwriting and a cost-reduction programme further enhanced the good combined ratio, which has long been better than average.

Besides the underwriting results in reinsurance and primary insurance business, the overall investment result improved substantially in 2004 to €8.0bn (7.1bn). Included in this figure are writedowns on real estate totalling €459m and HVB's special writedown, which had an impact of €459m. The proportion of investments in equities fell to 13.4% (end of 2003: 14.5%, after hedging in each case). Advantage was taken of the favourable stock market environment to further reduce exposure in the financial services sector, with Munich Re's stake in Allianz being cut from 12.2% to 9.0% and its shareholding in the HVB Group decreasing from 25.7% to 18.4%.

Shareholders' equity rose by €1.3bn in 2004 to €20.2bn. The return on equity – annual result in relation to average shareholders' equity (excluding minority interests) – was 9.4%. The Board of Management and the Supervisory Board will propose at the AGM that an increased dividend of €2 per share be paid (€0.75 more than last year), resulting in a total distribution to shareholders of €457m (286m).

Further Munich Re Group key figures for the business year 2004 can be found in the attachment.

"The high profit for 2004 shows that we have focused on the right areas. Our work in a turbulent year proved very successful. We intend to continue this work in order to gain more strategic scope to secure lasting success in the future", said von Bomhard. The Munich Re Group has adopted the following programme for the coming years:

• Risks are to be actively diversified. Progressive derisking (reduction of concentration risks) will enhance the quality and mobility of the Group's capital. Earnings potential will be strengthened by extensive accumulation control designed to limit losses per event, and also by efficient asset-liability management.
• With its core-business focus on risk assumption and risk management, Munich Re takes a holistic approach to risks, so that it is immaterial whether the risks stem from reinsurance or primary insurance. The Group unites the two segments in an unparalleled way, giving it opportunities and synergy potentials that competitors cannot realise. Munich Re's aim is to develop new risk fields and to obtain a lead on the competition by occupying these with know-how and products, thus growing profitably as a result of its competitive edge. This growth is to be achieved on the solid basis of unique risk knowledge and technique. In its 125-year history, Munich Re has set standards in the market with its innovations (such as engineering insurance, risk-based rating in life insurance, or its work in geo risks research).
• Optimised methods and tools will enable the Group to steer the selection and assumption of risks dynamically and profitably. Data resources for analysing, managing and controlling the business will be continually improved. Transparent objectives, clear accountability and effective performance incentives are core components of Group management, which are constantly checked for their effectiveness by means of performance reviews.

Munich Re puts profitability before growth. In the recent renewals of non-life reinsurance treaties at the turn of the year, its underwriters were able to achieve risk-adequate prices and conditions. Munich Re expects similar success in the forthcoming 2005 renewals in Japan and South Korea, as well as those in sections of the Australian and US markets and in Latin America.

Group premiums for 2005 are expected to total around €38.5bn, with a slight decrease in reinsurance and a moderate increase in primary insurance. In reinsurance business, the aim is to outperform the combined ratio target of 97%, given normal claims experience, whilst the objective in primary insurance is a combined ratio of 95%. Altogether, the Munich Re Group is looking to achieve an ambitious return on equity of 12% after tax, based on average Group shareholders' equity (including minority interests).

Disclaimer
This media information contains forward-looking statements that are based on current assumptions and forecasts of the management of Munich Re. Known and unknown risks, uncertainties and other factors could lead to material differences between the forward-looking statements given here and the actual development, in particular the results, financial situation and performance of our Company. The Company assumes no liability to update these forward-looking statements or to conform them to future events or developments.