Press release

• Munich Re Group with record profit of over €2.7bn for 2005
  
  
• Very solid basic business 
  
  
• Owing to natural catastrophes, combined ratio of 110.5% in reinsurance, but a very gratifying 93.1% in primary insurance 
  
  
• Proposed dividend of €3.10 (2.00) per share 
  
  
• Return of 15% on risk-adjusted capital (RORAC) aimed at for 2006 
  
  
• New target corresponds to a consolidated profit of €2.6-2.8bn 
  
  
• Strategy for the global health market: Growth and earnings potentials in the Group

In its anniversary year, with a stable premium base, the Munich Re Group achieved a record profit of over €2.7bn. "We have thus slightly exceeded our target. Our solid basic business makes the achieved level of profitability sustainable. We therefore expect a profit for the current year of the same level as in 2005", said Nikolaus von Bomhard, Chairman of the Board of Management, when presenting the figures. "ERGO is delivering strong results. And in reinsurance, we can be optimistic in the light of the latest renewals in non-life business. In the global health market, we have begun to network primary insurance and reinsurance more closely, with the aim of tapping substantial growth and earnings potentials."

The Group posted a high consolidated profit of €2,743m, a further increase on the previous year (€1,887m), to which both reinsurance and primary insurance contributed, the latter with a markedly improved result.

Even though it was a record hurricane year, the Group posted a profit of €1.4bn (1.7bn) in reinsurance, thanks to its very solid basic business and excellent investment result. The operating result (before tax and finance costs) was again high at €2.4bn (2.6bn), despite the hurricane losses (€2.3bn after retrocession) and the reserve strengthening at American Re (€388m before tax and after relief of €906m from IBNR reserves). Given that these two events accounted for 15.4 and 2.6 percentage points of the combined ratio respectively, the overall ratio of 110.5% (98.9%) reflects the high quality of the Group's portfolio in non-life reinsurance.

Gross premiums written in the reinsurance segment remained virtually stable at €22.3bn, in spite of Munich Re's strictly profit-oriented underwriting policy and the scheduled termination of individual treaties. In life and health, premium rose to €7.8bn (7.5bn) with high-profitability business, whereas in property-casualty reinsurance it decreased by 2.1% to €14.5bn. Premium generated in regions of dynamic economic growth showed a strong rise in 2005, e.g. to €499m (200m) in the People's Republic of China, Taiwan and Hong Kong.

With a profit of €1.2bn (0.3bn), the primary insurance segment clearly exceeded original expectations. Partly due to the very good investment result, its operating result (before tax and finance costs) was more than trebled to €1.5bn. Low claims burdens and consistent cost reduction enabled the primary insurers to record another excellent combined ratio of 93.1% (93.0%) – well below the target of 95%.

Gross premiums written in primary insurance grew by a further 0.3% to €17.6bn, even though the sale of Karlsruher to Württembergische Leben in the fourth quarter impacted premium growth by 1.6 percentage points. In health insurance, premium volume expanded by no less than 7.8% to €4.9bn by virtue of premium adjustments and good sales figures for supplementary insurances, thus making up for the reduction in life insurance, where premium decreased to €7.4bn (7.8bn). Property-casualty insurance (including legal expenses insurance) grew slightly, like the market as a whole, and recorded a premium volume of €5.3bn (5.2bn).

Besides the solid results from basic business in primary insurance and reinsurance, the greatly improved investment result of €10.8bn (8.0bn) was an important factor in the Group's record profit. The realised capital gains from cutting back holdings in Allianz and Commerzbank, the sale of stakes in MAN and Karlsruher, and above all the exchange of HVB shares into UniCredit stock (stake meanwhile below 5%) contributed €2.1bn to the investment result. In line with their strategic objective, these transactions also significantly improved the diversification of the portfolio. The investment result includes write-downs of investments totalling €1,150m (1,050m). Return on investment increased to 5.9% (4.5%), whilst unrealised gains on investments available for sale grew to €11.0bn (8.4bn). At 13.4%, the proportion of investments in equities (after taking hedging into account) remained at the same level as in the previous year.

Equity rose by 19.4% to €24.7bn, mainly due to the increased consolidated profit. RoE – the return based on average equity (including minority interests) – amounted to 12.3%. At the AGM, the Board of Management and the Supervisory Board will propose a dividend of €3.10 per share, an increase of 55% on the previous year, resulting in a total distribution to shareholders of €707m (457m).
(Further Munich Re Group key figures for the business year 2005 can be found in the attachment.)

"Growth is not an end in itself. Smart growth means seeking profitability and growth potentials off the beaten track as well. Here the global health market offers us great opportunities", said von Bomhard. Since 2000, the global market for financial protection in healthcare has grown by nearly 40% to an estimated US$ 4 trillion, with an average annual growth rate of around 6%. This trend will continue – driven by demographic development, medical progress and an improved economic situation for many people in the emerging countries. For the year 2015, a global volume of almost US$ 7 trillion per year is projected.

With its product range and combined know-how from primary insurance and reinsurance, the Munich Re Group is better prepared than other players when its comes to benefiting from the rising demand for financing healthcare services. "We are focusing our skills and resources on markets which offer the greatest earnings and growth potential. We intend to strategically exploit our Group's unparalleled opportunities for synergy and to coordinate operations more intensively across segmental and divisional boundaries. In the next ten years, the Munich Re Group will tap substantial new premium potential in the health market", added von Bomhard. The field of activities ranges from classical reinsurance and DKV's primary insurance to special companies like MedNet, ArztPartner almeda and Mercur Assistance, which offer services primarily in the health market (managed care services). Thus positioned, the Munich Re Group can support its business partners more extensively in this market in all functions along the value chain.

Munich Re is active in several growth markets outside Europe. In China, where it has been represented for 50 years and is the first reinsurer to have gained a licence, the Group is participating via DKV in the first private health insurer, PICC Health. And with a project in the Gulf region, the Group is taking advantage of the scope for innovation there and thus the chance to gain a competitive edge. In Abu Dhabi, Munich Re is establishing and operating the first specialist health insurer, with basic and supplementary insurance for expatriates.

The Munich Re Group is continuing to pursue its line of profit before growth. In the latest renewals of many non-life reinsurance treaties, it again adhered to its rigorous underwriting policy with risk-adequate prices, terms and conditions, and intends to do the same in the forthcoming renewals in 2006 (in Japan and South Korea and in parts of the US market, Australia and Latin America).

The Group expects gross premiums written of €37-38bn for 2006, with about the same volume coming from reinsurance* as in the previous year (between €22bn and €23bn). In primary insurance, gross premiums* of between €16.5bn and €17.0bn are expected, thus remaining stable when adjusted for the sale of Karlsruher. In non-life reinsurance business, the goal is to outperform the combined ratio target of 97%, given normal claims experience, i.e. assuming that the share of natural catastrophe losses in the combined ratio does not exceed 5%. The primary insurers again aim to achieve a combined ratio of under 95%. With a return on investment of 4.5%, a profit of the same level as last year's outstanding result could be achieved, in a range of €2.6-2.8bn.

Altogether, the Munich Re Group's target for the year is a return on risk-adjusted capital (RORAC) of 15%. The basis for this performance indicator is the risk-based capital of currently €17.0bn, determined using the Group's internal risk model and reflecting all the risks of underwriting and investment. As a key factor, risk-based capital will be used from this business year onwards not only in the Group's internal management but also in the external communication of its targets. In contrast to the previous performance indicator (return on equity – RoE), RORAC will take into account the risk exposure of the portfolio, thus providing a much better reflection of economic return and value added. Von Bomhard: "For a diversified insurance group like Munich Re, a risk-oriented corporate target is necessary. After all, we base our capital management on risk-return considerations as well. Our strong capitalisation provides opportunities for growth. It is also the solid foundation of our financial strength, on which our clients can rely. We would counter any excessive capitalisation with active capital management. The substantial dividend increase is emphatic proof of our shareholder orientation. We do not rule out other measures either, such as share buy-backs, given appropriate parameters. This approach also keeps our underwriting discipline strong."

(More information on the new performance indicator can be found on page 48 ff. of the Munich Re Group Annual Report).

* Figures in the segments reinsurance and primary insurance before elimination of intra-Group transactions across segments

The Annual Report 2005 and the presentation for the balance sheet press conference (at 10.30 a.m. today) can be viewed in German and English at www.munichre.com/bilanz-pk.
The Company's Annual General Meeting will take place at 10 a.m. on 19 April 2006.

Munich, 14 March 2006

Münchener Rückversicherungs-Gesellschaft
signed Dr. von Bomhard           signed Küppers