This publication is available exclusively to Munich Re clients. Please contact your Client Manager.
Ladies and Gentlemen,
In the 2017 financial year, the Supervisory Board fulfilled all the tasks and duties incumbent upon it by law and under the Articles of Association and the rules of procedure. We monitored the Board of Management in its conduct of the business, and gave advice on all matters of importance for the Group. No inspection measures in accordance with Section 111(2) sentence 1 of the German Stock Corporation Act (AktG) were required at any time.
With the exception of Peter Gruss and Renata Jungo Brüngger, all members of the Supervisory Board and of the committees took part in over half of the respective meetings. Peter Gruss chose to step down from the Supervisory Board in order to pursue a new role in Japan. Renata Jungo Brüngger only joined the Supervisory Board in 2017. As Supervisory Board meetings are arranged far in advance, Renata Jungo Brüngger was only able to participate in 50% of the meetings in her first year of membership.
Collaboration between Supervisory Board and Board of Management
The Board of Management involved the Supervisory Board in all important business transactions and decisions of fundamental significance for the Group. In our meetings, we discussed all reports from the Board of Management at length. Cooperation with the Board of Management was characterised in every regard by targeted and responsible action aimed at promoting the successful development of Munich Re. The Board of Management satisfied its reporting obligations towards the Supervisory Board in all respects, both verbally and in writing.
Outside of Supervisory Board meetings, the Board of Management informed us promptly about important events in the Group, in particular the impact of hurricanes Harvey, Irma and Maria, and the decision of the Board of Management of ERGO Group AG to end discussions concerning the sale of its traditional life insurance portfolio. The shareholder representatives and the employee representatives met regularly with the Chairman of the Board of Management for separate discussions in preparation for the meetings.
Between meetings, I met regularly with the Chairman of the Board of Management Nikolaus von Bomhard (until 26 April 2017) and Joachim Wenning (from 27 April 2017). We discussed individual questions of strategic orientation and risk management, as well as Munich Re’s current business situation. Also between meetings, the Chairman of the Audit Committee, Henning Kagermann, remained in close contact with Jörg Schneider, the member of the Board of Management responsible for Group reporting.
Focal points of the meetings of the full Supervisory Board
There were six meetings of the Supervisory Board in the year under review. We regularly held in-depth discussions with the Board of Management about business performance and current topics, with a special focus on strategic considerations of the Board of Management with respect to the individual fields of business. The Board of Management reported regularly on Munich Re’s investments, addressing the development of the global economy and financial markets in detail, as well as their impact on the Group’s assets and earnings. The Board also supplied us with frequent updates on the implementation of the ERGO Strategy Programme. Following the rejection of the remuneration system at the 2017 Annual General Meeting, we addressed in detail the reasons for this decision in a number of meetings, and worked on a new remuneration system for the members of the Board of Management. Moreover, we took advantage of the opportunity to confer on matters involving the Board of Management even in the Board’s absence. We also dealt with the following topics in the individual meetings in 2017:
The meeting on 14 March focused among other things on the Company and Group financial statements for 2016, the combined management report, and the motions for resolution by the 2017 Annual General Meeting. Furthermore, we conferred and took decisions regarding the extension of two appointments to the Board of Management and a change to the Board of Management, and established the personal objectives for the Board members’ variable remuneration for 2017. We also made decisions concerning the Guideline on fringe benefits. In addition, we received updates on the Group-wide compliance management system. Representatives of the German Federal Financial Supervisory Authority (BaFin) routinely attended this meeting as guests.
The meeting on 25 April dealt with matters involving the Board of Management, specifically the evaluation of the individual Board members’ annual performance for 2016 and their multi-year performance for 2014–2016. We also dealt with a selfassessment of the members of the Supervisory Board concerning their knowledge of specific fields that are important for the supervision of Munich Re. We found that the Supervisory Board as a whole possesses the appropriate diversity of qualifications, knowledge and experience to ensure that Munich Re is supervised in a professional manner, taking account of the company-specific characteristics.
On 26 April, directly prior to the Annual General Meeting, we heard the Board of Management’s report on the present status of business performance in 2017. We also used the meeting to make last-minute preparations for the Annual General Meeting.
On 18 July, we were informed about the cyber insurance market and Munich Re’s strategy in this area. In addition, we adopted a Communications Policy setting out basic rules for the Supervisory Board’s communication with investors. Beyond this, we were briefed on the 2016 remuneration report in accordance with the German Remuneration Regulation for Insurance Companies (VersVergV) and adopted an amendment to the Guideline on fringe benefits.
On 19 October, we discussed corporate governance issues including the results of the annual efficiency review, the adoption of amendments to the Munich Re Fit and Proper Policy, and the resolution regarding the annual Declaration of Conformity with the German Corporate Governance Code. And, in the light of new non-financial reporting requirements, we decided to amend the allocation of responsibilities on the Supervisory Board. The Board of Management also reported on digitalisation and innovation initiatives at Munich Re.
After a comprehensive discussion, on 14 December we decided on the redesign of the structure of the remuneration system for the Board of Management, which takes effect as from 2018. We also made decisions on changes to the standard contract for Board of Management members and to the rules of procedure for the Supervisory Board. We discussed the Group’s risk strategy against the backdrop of the yearly report on Munich Re’s risk situation provided by the Group Chief Risk Officer. The Board reported on Group planning for 2018 to 2020. The Board also presented us with the Group human resources report for 2016/2017 and detailed the focal points of human resources work and workforce planning within the Group. Furthermore, there was a report on changes in the Life and Health Division.
Work of the committees
There are six Supervisory Board committees. These are assigned certain matters for resolution and also prepare the topics which are to be addressed and decided upon by the full Supervisory Board. At each Supervisory Board meeting, detailed information about the work of the committees was provided to the full Supervisory Board by the respective chairs of the committees.
Details of the tasks of the committees and their composition can be obtained on page 18 f. and from our website at www.munichre.com/supervisory-board.
The Personnel Committee held eight meetings in the period under review. It essentially prepared the resolutions on matters involving the Board of Management already mentioned in the report on the work of the full Supervisory Board. One of the main tasks here was to design a new remuneration system for the members of the Board of Management. It also dealt with seats held by members of the Board of Management on supervisory, advisory and similar boards, and with Group-wide succession planning, especially with respect to Board-level appointments.
The Supervisory Board set up a separate Remuneration Committee with effect from 1 January 2018, of which the Chairman of the Supervisory Board and one representative each of the shareholders and employees are members. Following the 2019 Supervisory Board election, the Committee is to be set up in such a way that the two shareholder representatives may not be members of the Supervisory Board for more than ten years. This enables us to comply with a key demand of our investors. As a result of the establishment of the Remuneration Committee, responsibility for all remunerationrelated matters concerning members of the Board of Management has been transferred from the Personnel Committee to the Remuneration Committee. This has no effect on the remaining tasks of the Personnel Committee, such as the appointment and dismissal of Board members or the conclusion of contracts.
At its four meetings in 2017, the Standing Committee dealt with the preparation of the respective Supervisory Board meetings and topics of corporate governance. In addition, the Standing Committee carried out a review of the efficiency of the Supervisory Board’s work in 2017, and determined that, overall, the reporting by the Board of Management and the work of the Supervisory Board was efficient and appropriate. Regular reports by the Chairman of the Board of Management covered changes to the shareholder structure and the status of the share buy-back programmes. The Committee also received the annual report on expenses for donations and sponsoring. It was also assigned specific tasks concerning the scrutiny of the non-financial reporting produced for the first time this year in accordance with the German act implementing the CSR Directive on the disclosure of non-financial and diversity information. In keeping with an applicable decision taken by the full Supervisory Board, the Standing Committee commissioned audit company Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft with the auditor’s review of the separate non-financial (Group) statement.
The Audit Committee met six times in 2017, and two of these meetings were attended by the external auditor. The Committee discussed the Company and Group financial statements, the combined management report, the auditor’s report and the Board of Management’s proposal for the appropriation of the net retained profits for the 2016 financial year. The Audit Committee also considered the quarterly statements for 2017, and conducted a detailed review of the 2017 Half-Year Financial Report in conjunction with the auditor. The Committee heard regular reports on the key Solvency II figures and discussed the quarterly reporting to the Supervisory Authority in these meetings. Another key task of the Committee consisted of monitoring the Group’s risk situation and risk management on an ongoing basis, and discussing its risk strategy: the Group Chief Risk Officer regularly provided detailed verbal input at several meetings of the Committee in addition to the quarterly written reports submitted. The Head of the Actuarial Function also provided a report in a meeting. Further issues discussed regularly were the internal control system and compliance topics. The Group Chief Auditor informed the members of the Committee in full about the outcome of the audits for 2016 and the audit planning for 2017. The Committee received regular updates on the current status of individual compliance issues and the progress of audits. In the absence of the Board of Management, the members of the Committee took advantage of the opportunity to confer amongst themselves or with the Group Chief Auditor, the Group Chief Compliance Officer, the Group Chief Risk Officer and the external auditor. Furthermore, the Audit Committee reviewed and monitored the auditor’s independence. It regularly called for reports on the auditor’s new activities beyond the auditing of the annual financial statements and on the utilisation of the statutory limit for awarding such contracts. The auditor presented the Audit Committee with explanations of the key audit matters for the 2017 financial year. Following a resolution by the full Supervisory Board, the Chair of the Committee commissioned KPMG with the audit for the 2017 financial year, and also commissioned the auditor’s review of the Half-Year Financial Report 2017.
The Nomination Committee met once in 2017, and discussed suitable candidates for election to the Supervisory Board. In proposing its nomination, the Committee took account of the objectives set by the Supervisory Board for the composition of the Board and the set of criteria, among other things.
There was no need to convene the Conference Committee in the 2017 financial year.
Dialogue with investors
In my role as Chairman of the Supervisory Board, I held discussions with investors in 2017 and 2018. Following the rejection of the remuneration system for the members of the Board of Management at the Annual General Meeting in April 2017, these discussions often focused heavily on the remuneration system. The outcomes of these discussions were for the most part taken into consideration in the decision-making process and when drawing up the revised remuneration system proposal for the members of the Board of Management.
Corporate governance and Declaration of Conformity
The Supervisory Board pays close attention to good corporate governance. Together with the Board of Management, we therefore published the mandatory annual Declaration of Conformity pursuant to Section 161 of the German Stock Corporation Act (AktG) in November 2017. We again complied with all recommendations of the German Corporate Governance Code, and will continue to do so in future. We confirmed the assessment that all 20 members of the Supervisory Board are to be regarded as independent and that they do not have any relevant conflicts of interests.
Details of this can be found in the Corporate Governance Report on page 15 f.
Munich Re offered the members of the Supervisory Board specific training at an internal information event in 2017. Almost all members took the opportunity to learn more about selected topics related to investment, accounting and reinsurance.
Changes on the Board of Management
Nikolaus von Bomhard stepped down from the Board of Management and went into retirement at the end of the 2017 Annual General Meeting. Joachim Wenning took over as Chairman of the Board of Management on 27 April 2017. As a consequence of the change in management, the units belonging to the Group functions in the divisions for which Joachim Wenning and Jörg Schneider are responsible were reorganised in order to bring the functions related to the Group’s business development closer to the Chairman of the Board of Management and, at the same time, achieve a greater concentration of the governance functions in the division for which the Chief Financial Officer is responsible.
Member of the Board of Management Ludger Arnoldussen stepped down from the Board of Management as of 26 April 2017. Hermann Pohlchristoph was appointed his successor, and took responsibility for the Germany, Asia Pacific and Africa Division and the Central Procurement and Services central divisions.
Member of the Board of Management Pina Albo stepped down from the Board of Management as of 31 December 2017. Until further notice, Peter Röder has responsibility for the Europe and Latin America Division in addition to the Global Clients and North America Division.
Changes on the Supervisory Board
Renata Jungo Brüngger, who had been appointed successor to Wolfgang Mayrhuber by an order of the Amtsgericht (Local Court) of Munich dated 3 January 2017, was elected to the Supervisory Board by the 2017 Annual General Meeting for the remainder of Wolfgang Mayrhuber’s term of office. With effect from 1 January 2017, Henning Kagermann was appointed Wolfgang Mayrhuber’s successor on the Personnel Committee, and Gerd Häusler as his successor on the Standing Committee.
Peter Gruss stepped down from the Supervisory Board with effect from 30 June 2017. Maximilian Zimmerer was appointed his successor by an order of the Amtsgericht (Local Court) of Munich dated 4 July 2017. The Supervisory Board will propose to the 2018 Annual General Meeting that Maximilian Zimmerer be elected to the Supervisory Board for the remainder of Peter Gruss’s term of office.
Further information on corporate governance in general is available in the joint report of the Board of Management and Supervisory Board on page 14 ff.
Company and Group financial statements for 2017, Solvency II reporting and non-financial information
Auditor KPMG Bayerische Treuhandgesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, München duly audited the Company and Group financial statements and the combined management report as at 31 December 2017, and issued them with an unqualified auditor’s opinion.
The respective reports and the Board of Management’s proposal for appropriation of the net retained profits were submitted directly to the members of the Supervisory Board. At its meeting on 5 February 2018, the Audit Committee had the opportunity to confer in detail about the preliminary year-end figures as at 31 December 2017. On 13 March 2018, it prepared the Supervisory Board’s resolution on the adoption of the Company financial statements and the approval of the Group financial statements. To this end, the Audit Committee examined in advance the Company and Group financial statements, the combined management report and the Board of Management’s proposal for appropriation of the net retained profits. It discussed these at length with the external auditor present at the meeting, and gave detailed consideration to the auditor’s reports. The Audit Committee paid particular attention to the key audit matters described in the auditor’s opinion, including audit activity. The Chair of the Audit Committee briefed the full Supervisory Board about the outcome of its consultations at the balance sheet meeting. In its March meeting, the Audit Committee discussed the preliminary key figures under Solvency II reporting – and the solvency ratio under Solvency II in particular – and reported on this in the plenary session.
The full Supervisory Board also reviewed the Company and Group financial statements and the combined management report, and the proposal of the Board of Management for appropriation of the net retained profits. The auditor’s reports were available to all members of the Supervisory Board and were discussed in detail at the balance sheet meeting of the Supervisory Board on 14 March 2018 in the presence of the external auditor. The auditor reported on the scope, the main points, and the key results of the audit, going into particular detail on the key audit matters (please refer to auditor’s report on page 180 ff. for information) and the audit activity conducted. There were no reports of material weaknesses in the internal control system or the risk management system.
On the basis of this comprehensive examination, the Supervisory Board raised no objections concerning the outcome of the external audit. It approved the Company and Group financial statements on 14 March 2018. The financial statements were thus adopted. Having carefully weighed all relevant aspects, the Supervisory Board followed the proposal of the Board of Management for appropriation of the net retained profits.
The Standing Committee dealt with the separate non-financial (Group) statement on 5 February 2018. On 14 March 2018, the full Supervisory Board examined this statement, taking due consideration of the external audit, and approved the statement.
Words of thanks to the Board of Management and employees
The Supervisory Board wishes to thank all members of the Board of Management and staff worldwide for their work and dedication in an eventful and challenging financial year.
Munich, 14 March 2018
For the Supervisory Board
This publication is available exclusively to Munich Re clients. Please contact your Client Manager.