Press release

• Outstanding half-year result of €2.1bn 
  
  
• Reinsurance: Combined ratio of 92.2% 
  
  
• Successful renewals at 1 July 
  
  
• Still attractive market environment 
  
  
• Primary insurance: Combined ratio of 92.0% 
  
  
• Significant profit increase for ERGO
  
  
• Munich Re confident: Result target of €2.6-2.8bn for 2006 attainable even with higher burdens in the second half of the year

"With a profit of €2.1bn, we have already achieved three-quarters of our result target for the year at half-time", said Nikolaus von Bomhard, Chairman of Munich Re's Board of Management, at the half-year press conference. "Experience shows that the second half of the year brings higher burdens from major losses in reinsurance. But we have reason to be optimistic, given business performance to date, our well-balanced portfolio, and our selective risk acceptance. Even if we are affected more heavily than in the first half of the year by major losses or by a further moderate price fall on the stock markets, our target for 2006 – a 15% return on risk-adjusted capital – is still within reach."

The profit for the first six months amounted to €2,129m (1st half-year 2005: €876m), with the operating result rising by 48.6% to €3,322m (2,235m). At €19.1bn, with favourable exchange rate influences, gross premiums written by the Munich Re Group remained more or less stable compared with last year's figure adjusted to eliminate the effect of sales of companies (e.g. Karlsruher in October 2005). Group equity fell to €23.4bn (31.12.2005: €24.4bn) owing to the dividend payment of €707m in the second quarter and to development on the bond markets.

The result in reinsurance business continued to benefit from the consistent gearing of the Group's underwriting policy to profitability. The operating result for the first half-year rose to €2,587m (1,840m). Reinsurance contributed €1,756m to the Group profit, an increase of 156.4%. The reinsurers' investment result rose to €2,353m (2,179m). Buoyed by changes in exchange rates, premium volume was up slightly to €11.3bn (11.2bn). In the renewals in the Asian region at 1 April, as in the negotiations at the beginning of the year, Munich Re was able to achieve risk-commensurate prices, terms and conditions and to improve them further where necessary. It also exploited opportunities for lucrative growth.

With €327m (394m), the life and health segment again made a strong contribution to the profit in reinsurance. At €3.90bn (3.91bn), premium income stayed constant at last year's level.

In property-casualty reinsurance, premium grew slightly to €7.4bn (7.3bn) and the result was markedly better at €1,429m (291m). The combined ratio in the first-half year amounted to 92.2%, of which 0.9 (2.1) percentage points were attributable to natural catastrophes. By comparison, the half-year combined ratio in 2005 was 99.8%, including 5.3 percentage points for reserve strengthening at American Re. The largest individual losses in the second quarter were caused by two industrial fires, costing Munich Re €30m and €50m respectively.

In their half-year figures, the Munich Re Group's primary insurers surpassed the good level they achieved last year, recording a markedly improved operating result of €795m (495m) and a significantly increased profit of €448m (324m). This was mainly due to the performance of the ERGO Insurance Group which, with premium income of €8.1bn (8.1bn), earned around 95% of the gross premiums written in the primary insurance segment. ERGO showed an excellent post-tax profit of €450m (267m), with its combined ratio of 91.4% (93.2%) reflecting the healthy composition of its portfolio. The combined ratio for the primary insurance group as a whole, i.e. including Europäische Reiseversicherung and the Watkins Syndicate, was also excellent at 92.0% (94.5%). The primary insurers' investment result contributed €2,504m (2,916m) to the consolidated profit.

Gross premiums written in the primary insurance segment of the Munich Re Group fell to €8.5bn (9.2bn), with disposals (especially the sale of Karlsruher and the Nieuwe Hollandse Lloyd Verzekeringsgroep [NHL] in 2005) reducing premium income by €732m. Adjusted to eliminate this effect, the Munich Re Group's primary insurance premium rose by 1.2% in the first half-year.

The Group's life and health insurers recorded premium of €5.7bn (6.2bn), with these lines of business contributing €146m (106m) to the consolidated profit.

• Life insurance posted a premium volume of €3.1bn (3.7bn). In the previous year, Karlsruher and NHL still accounted for €475m. German new business with regular premiums grew by 1.7%, whereas single-premium business was down 5.6%. Overall, a weak June – owing to the FIFA World Cup – had a curbing effect on sales. In 2005, the half-year figures for new business had been improved by policies taken out at the end of the previous year but not placed to account until the first quarter of 2005. In the first six months of 2006, annuity insurance continued to develop positively, especially "Riester" business (70,000 new "Riester" policies in the first half-year), as did company pension business. For the year as a whole, double-digit growth in new business is expected.
• In health insurance, premium income grew by 4.1% to €2.6bn. The main pillar for ERGO in the German market remains comprehensive health insurance. With premium income of €1,675.4m (1,674.1m) in the first half-year, ERGO continues to be number 2 in this segment. The good new business with supplementary health insurance was maintained, above all in the direct insurance of Karstadt-Quelle-Versicherungen. Premiums in supplementary insurance, where ERGO is market leader with a share of 21%, increased to €489.6m (436.2m) in the first half-year, and the number of insured persons by an impressive 15.2% to 3.8 million (3.3 million). The Munich Re Group is proceeding on the assumption that supplementary insurance will continue to grow dynamically – because there is still a need to cut back benefits provided under statutory insurance even in the light of the political cornerstones for the health reform in Germany. ERGO will therefore expand this field of business further. For the third year running, it is successfully cooperating with several statutory health insurers in offering products that supplement statutory benefits. ERGO is the largest provider in the health insurance segment in Europe.

The property-casuality insurers (including legal expenses insurance) achieved a rise in their profit to €302m (218m). Premium income fell by 5.1% or €153m to €2.8bn, due partly to the sale of companies (effect of €257m) and partly to greater price competition in the German motor market, although this has relatively little effect on the Munich Re Group owing to its below-average market share. Business written by the property-casualty insurers outside Germany expanded appreciably. Premium also grew in legal expenses insurance as a result of the positive trend in foreign business.

The Munich Re Group's investments had a carrying amount of €172.5bn as at 30 June (31.12.2005: €177.2bn). The reduction of 2.7% was attributable to higher interest rates, with consequently declining prices for fixed-interest securities, and – after interim rises – to a fall in stock market prices towards the middle of the year to around their beginning-of-year level. The investment result was again very good at €4,757m (4,974m). It includes expenses of €330m for the revaluation of hedging instruments in life primary insurance due to higher interest rates; the remaining risk in respect of further such expenses amounts to €105m at most. The interest-rate environment is positive for new investments, which have higher yields. At the end of June, the proportion of investments in equities amounted to 13.8% (31.12.2005: 14.0%) at market values.

In the renewal negotiations in non-life reinsurance at 1 July in the USA and Latin America, a division of the market was evident. For property and offshore energy risks (mainly oil rigs) with natural catastrophe exposure in the USA, it was possible to achieve substantial price increases compared with the previous year in the light of generally increased risk awareness and the markedly higher assessment of the loss potential. "Reinsurers with capital strength, good diversification and professional competence will have good earnings opportunities in this environment", said von Bomhard. Unlike many competitors, Munich Re has kept its overall liability for natural catastrophe covers at the same volume, whilst further optimising its portfolio and thus improving its sustainable profit expectations. Outside the area of natural catastrophes, prices were generally stable at a risk-adequate level. "The renewals at 1 July are an early indicator for the negotiations at the turn of the year; they confirm the acceptance of our underwriting strategy of risk-adequate prices, terms and conditions", stated von Bomhard.

With stable exchange rates, the Group's premium income for the whole of 2006 is likely to be between €37bn and €38bn and thus at the same level (adjusted) as last year. Before consolidation, Munich Re currently expects reinsurance to provide approximately €22-23bn of this, and primary insurance around €16.5-17.0bn. Von Bomhard was confident that a combined ratio of 97% could be bettered, even with seasonally related heavier burdens from major losses in the second half of the year. In primary insurance, the combined ratio should be within the target of 95%.

The Munich Re Group operates worldwide, turning risk into value. In the business year 2005, it achieved a profit of €2,743m, the highest in its 126-year corporate history. In 2005, its premium income amounted to approximately €38bn and its investments to around €177bn. The Group is characterised by particularly pronounced diversification. It has approximately 38,000 employees at over 50 locations throughout the world and operates in all lines of insurance. With premium income of around €22bn in the year 2005 from reinsurance alone, it is one of the world's leading reinsurers. Its primary insurance operations are mainly concentrated in the ERGO Insurance Group, the second-largest provider in the German primary insurance market and a leading player in several other European insurance markets.

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.