Two natural events play a prominent role in the 2005 catastrophe figures:

• Devastating earthquake in Kashmir: More than 80,000 killed and numerous people injured or homeless
  
  
• Hurricanes make 2005 the costliest natural catastrophe year so far in insurance history

Despite the large volume of delayed Katrina claims notifications, Munich Re can still achieve its target result for 2005 and aims to increase its dividend by 55% to €3.10 / 18 April 2006: The centenary of the San Francisco earthquake

The year 2005 began with the world still reeling from the tsunami which on 26 December 2004 had destroyed the coastal strip and human settlements along many thousand kilometres around the Indian Ocean.

A high death toll numbering more than a hundred thousand victims, above all due to the catastrophic earthquake in Kashmir on 8 October, and record losses for the insurance industry of over US$ 75bn dominate the natural catastrophe year 2005. According to Munich Re estimates, Hurricane Katrina alone caused insured losses of some US$ 45bn, forcefully underlining the increased risk from windstorms. Nevertheless, natural catastrophes will continue to be insurable, assuming that prices and conditions keep pace with the increase in insured risks.

The unusually active and destructive hurricane season in 2005, with the storms Dennis, Emily, Katrina, and Rita (in the 3rd quarter) and finally Wilma, also hit Munich Re harder than previously foreseeable. Since the last estimate on 7 November, there has been a constant flow of further claims notifications and reports from loss adjusters. The impact of these storms on the consolidated result after tax is now nearly €1.5bn. That figure – adjusted to eliminate the net burden from Wilma, which affected the 4th quarter – is roughly €500m more than that announced in the reporting on the first three quarters. The Group anticipates, before tax and after retrocessions, costs of just over €1.6bn from Katrina (= €815m more than the previous estimate), an unchanged burden of more than €250m from Rita, and around €330m from Wilma. The ultimate outcome is an impact of almost €2.3bn before tax and after retrocessions. However, this figure also includes more than €600m in IBNR reserves (provisions for incurred but not reported losses which Munich Re has established specifically in view of the continued uncertainties).

Despite record losses from this series of natural catastrophes, the Munich Re Group can still maintain its result target for 2005. The Board of Management intends to propose to the Supervisory Board and the AGM that the dividend per share be increased by €1.10 to €3.10. Nikolaus von Bomhard, Chairman of Munich Re's Board of Management: "We have decided on this substantial increase in the dividend because we want our shareholders to participate in the good result. The results of our basic reinsurance and insurance business have been good, our primary insurers have maintained their positive development, and further derisking of investments has led not only to the desired improvement in the portfolio composition but also to gains on disposals." The exchange of HVB shares into UniCredit stock produced a net gain of approx. €1.15bn.

The markedly higher burden, both for Munich Re and most of the other market players, resulting from delayed Katrina claims notifications is naturally reflected in the market loss too. Munich Re originally estimated it at up to US$ 30bn, but now expects a figure of around US$ 45bn. One reason is that the full extent of the considerable flood losses which occurred along a broad coastal strip and which are covered under commercial and industrial policies only gradually emerged. A large proportion of these losses are reinsured. Another factor is that, in addition to the complex loss situation, unrestricted access to New Orleans has only been possible since the beginning of December, which has meant substantial delays in surveying the business interruption and building losses. The subsequent storms Rita and Wilma also had a retroactive impact on the loss amount from the preceding storm Katrina because they led to a further increase in demand and prices for building materials and wages in the construction and craft sectors, thus inflating the cost of Katrina claims.

Above all, the horrendous earthquake in Kashmir and the effects of Hurricane Katrina again drew attention to the global threats emanating from natural hazards.

Torsten Jeworrek, member of Munich Re's Board of Management: "We are gearing our business more than ever to the new risk situation and to these enormous loss potentials, as we recognise the additional business opportunities they offer. Our products and our services are urgently needed. We will take advantage of the business opportunities but, in doing so, will only accept risk-adequate prices and conditions."

Economic losses shot up to a record high of over US$ 200bn (including US$ 125bn from Katrina alone) and are thus far higher than in the previous year (2004: around US$ 145bn). At over US$ 75bn, insured losses reached a new dimension altogether, almost doubling the previous record set in 2004. Cyclones in the Atlantic accounted for more than US$ 60bn. As in 2004, when the Pacific region was also involved, high concentrations of values with a high insurance penetration were hit in particular by windstorm events.

With some 650 loss events, the number of natural catastrophes was the same as in the previous year and was in line with the average of the last ten years.

Natural catastrophes in 2005 claimed over 100,000 lives. This human loss has only been matched twice in the last 25 years: in 1991 (around 160,000 dead, mainly due to the storm surge in Bangladesh) and 2004 (over 200,000 dead, mainly due to the tsunami catastrophe). The earthquake in Kashmir on 8 October 2005 not only claimed the lives of many more than 80,000 people but also injured countless others and made many thousands homeless. It is thus one of the worst earthquake catastrophes of the last hundred years (see attachment) and the largest natural catastrophe in the history of Pakistan. Lack of shelter in the cold mountain regions is a particularly serious existential problem. International aid has been mobilised.

In 2005, Atlantic hurricanes set new records, both meteorological and economic. In terms of the number and strength of tropical storms and hurricanes in the Atlantic (26), the 2005 hurricane season surpassed all other years since recordings began (in 1851). Losses are not only dependent on the frequency and intensity of the windstorms but also on the concentrations of values affected.

The most devastating and meteorologically significant windstorm events:

• In terms of atmospheric pressure, Katrina was the sixth strongest hurricane ever recorded. It caused an unprecedented loss of approx. US$ 125bn, of which US$ 45bn was insured.
• Rita, the fourth strongest hurricane on record, caused an overall loss of some US$ 15bn in the United States and the Gulf of Mexico, of which more than half was insured.
• Hurricane Vince developed in the eastern North Atlantic, a region not previously affected by hurricanes. It passed Madeira as a full-blooded hurricane and even reached the European mainland in southern Spain, but only caused minor damage.
• Hurricane Wilma was the strongest hurricane ever recorded. Initially in Mexico and then after its second landfall in Florida, it destroyed insured values of some US$ 10bn, generating an overall loss of about US$ 16bn.
• At the end of November, the Canary Islands were hit by Hurricane Delta, the first such storm there since the recording of tropical cyclones in the Atlantic began.

Extremely heavy rainfall in August produced severe floods in northern Alpine regions of Germany, Austria, and above all central Switzerland. This event in fact became Switzerland's costliest insured natural catastrophe ever. The floods caused economic losses of about US$ 3bn, of which around US$ 1.7bn is insured.

In January, Winter Storm Erwin, had already crossed northern Europe and caused economic losses amounting to US$ 5.8bn, of which US$ 2.5bn was insured.

The hurricane losses of 2004 and 2005 have prompted a re-evaluation of the risk. Scientific analysis is focusing on the effects of natural fluctuations in the water temperature of the North Atlantic on the frequency and intensity of tropical cyclones, along with the effects of global warming. The insurance industry is now facing the challenge of adjusting the models it uses to calculate the hurricane risk so that they are in line with the current heightened hazard situation.

Even before Katrina happened, scientific studies had led Munich Re to expect an elevated risk situation in the North Atlantic. However, the exceptional losses from the tsunami-like storm surge along the coasts of Louisiana and Mississippi, and the leap in the price of construction materials, the wages for craftsmen, and the fees for loss surveyors (which could not be estimated in full until the end of the hurricane season) showed that Munich Re also needs to adjust its risk model again.

Many people consider earthquakes to be the most destructive of nature's forces. The tsunami on 26 December 2004 was also triggered by a quake. The San Francisco earthquake of 1906 has become a symbol of such an event that affected the insurance industry throughout the world. The centenary of this event will be on 18 April.

On that April day in 1906, the San-Andreas Fault ruptured over a length of 430 km – almost half as long as California itself. The earthquake had a magnitude of 7.8 on the Richter Scale and hit nearby San Francisco with its full force. Many of the already quite solid brick structures and the relatively flexible wooden structures held firm. However, the quake led to large numbers of gas pipes bursting and caused fires which, fanned by a strong dry wind, grew into a devastating conflagration in large parts of the city. The outcome of this catastrophe: more than 3,000 fatalities, economic losses of approx. US$ 520m, and insured losses of US$ 180m (original values). It was a severe test for the international insurance industry.

Munich Re's share of the loss was 11 million gold marks (about US$ 2.6m at that time). Measured in terms of business volume, this loss event still represents the largest burden the company has ever had to bear from one single catastrophe. It cost almost 15% of its premium volume at that time. As a result of the immediate payments and the quick and unbureaucratic handling of reinsurance claims, the saying "Thieme is money", with reference to the founder and head of the company, established itself among Munich Re's clients.

There have been numerous devastating earthquakes since then, the most recent being in Kobe/Japan (1995), Gujarat/India (2001), Bam/Iran (2003), Sumatra/Indonesia (2004), and in Kashmir/Pakistan and India (2005). The strongest quake in California since 1906 – the 6.7 Northridge/Los Angeles quake in 1994 – generated economic losses of US$ 44bn and insured losses of approx. US$ 15bn (original values).

Today, a quake like the one in 1906, which in statistical terms occurs every 250-300 years, could in the worst case – and in spite of all the precautions that have been taken – kill more than 10,000 people in San Francisco and cause economic losses in the region of US$ 200bn. Insured property losses alone would be at least US$ 40bn.

Agglomerations like San Francisco, Mexico City, New York, and Tokyo are highly complex systems. They create new types and new dimensions of risk – megarisks. Tokyo and Miami are examples of megacities in areas with major earthquake and/or hurricane exposures. On 11 January 2005, shortly after the tsunami catastrophe, Munich Re held a press workshop in which it drew attention to the fact that such megacities presented major challenges, especially in the political field and the insurance industry. Greater transparency in terms of loss potentials and liabilities is a central prerequisite for insurability because major losses cannot be ruled out even if prevention is optimised.

A concentrated effort must be made to improve risk prevention and control in megacities. The losses that may be caused by natural hazards, technological risks, terrorism, and even epidemics must be identified and modelled in advance. This is essential if we are to achieve or maintain the insurability of megacity risks.

A wide selection of Munich Re's geoscientific findings may be found at www.munichre.com. In addition to background information on climate change and the insurance of natural hazards, users will find analyses of topical loss events and interactive hazard maps for all regions of the world. The documentation on the press workshop "Megacities – Megarisks" can be found on the Munich Re internet at the following link: "Press" – "Press releases" – "11 January 2005".

Announcement: The media tele-conference on the renewal of reinsurance treaties in non-life business will take place on the morning of 15 February 2006. Details will follow in due course.

Munich, 29 December 2005

Münchener Rückversicherungs-Gesellschaft
signed Dr. Jeworrek           signed Küppers

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.