2017 was one of the most loss-affected years in the history of
our Company. Hurricanes Harvey, Irma and Maria, as well as the
earthquakes in Mexico, caused misery and destruction across the
Caribbean, Central America and the southern USA. Munich Re is
paying out over €3,000m for these events
alone, and is thus helping to alleviate the plight of those
affected, at least financially. Although this unusual accumulation
of severe catastrophes meant that our original profit guidance for
2017 was no longer attainable, we were well positioned to absorb
even such heavy losses.
These disasters have once again highlighted the importance and
necessity of reinsurance cover, and Munich Re is committed to
providing strong support for the insurance industry in all lines of
business and throughout the world. Nevertheless, we need to change.
With ever-shorter innovation cycles, increased competition in the
reinsurance markets, persistently low interest rates,
digitalisation sweeping through all areas of life and work, and
disruptive new business models, our world is changing fast
– as are the demands on our Company. We are
transforming Munich Re in order to seize new opportunities,
including those offered by digitalisation, and sustain
our earnings power in the long term.
Munich Re is investing heavily in digital transformation. We have
set up dedicated units to capture, structure, and analyse data, and
we make these findings available to our business units. Munich Re
already employs over 200 data specialists, and more than 300 staff
work in innovation. And these numbers are set to rise. More and
more of our experts are spending most or all of their time coming
up with innovative solutions to meet existing and new requirements
in their area of expertise. We are developing new digital business
models – such as for the Internet of
Things. We are the world leader in the rapidly growing cyber
insurance market. And insurance start-ups see Munich Re as their
go-to partner. We also have our own start-up, as it were, in the
form of our purely digital insurer, nexible. We are investing
heavily in digitalisation at ERGO, and are working to offer
customers a seamless and modern customer experience
– whether they choose to deal with us
online, by telephone, or in person at one of our offices.
These are just a few examples of the profound digital
transformation taking place in our Group. Our strategy is not to
imitate the business models of data and internet companies
– but rather to enhance our core business
and push back its boundaries by adding digital elements.
Reinsurance and insurance will continue to be the heart of our
business.
At the same time as building digital competence, we are reducing
complexity in other areas. Internal processes are being streamlined
and made more efficient. We are reducing costs and lowering our
headcount where we can do so without harming our business. This is
how we are making Munich Re fit for the future.
We will halt the downward profit trend that we have seen in recent
years – even adjusted for the major-loss
expenditure in 2017 – and gradually
increase our profitability. With this in mind, we have launched
ambitious initiatives for profitable growth in our two fields of
business and at our assetmanagement subsidiary, MEAG.
ERGO is making good progress with its Strategy Programme, having
reached important milestones in 2017. ERGO is also delivering in
terms of results: its profit of €273m
surpassed our guidance for 2017, which we had already raised
halfway through the year. But we still have a lot of hard work to
do until the Strategy Programme is successfully completed. Our aim
is still for ERGO to contribute at least
€600m to the consolidated result for the
year as from 2021, and lay the strategic foundations for a
successful future.
The hurricanes in the USA and the Caribbean, the fierce wildfires
in California, and the earthquakes in Mexico had a severe impact on
our result in the reinsurance field of business. Property-casualty
reinsurance, which usually generates most of Munich
Re’s profits in normal years, posted a loss
in 2017. But – and this is the good news
– prices for reinsurance business renewed
at the start of the year increased as a result of the huge market
losses. This positive development is likely to intensify later in
the year when many other treaties come up for renewal in the
markets affected by the catastrophes. We are confident that market
conditions will continue to improve.
In addition, we want to grow profitability in reinsurance with our
own initiatives. We will be resolute in seizing opportunities for
profitable business. In some selected markets, we will increase our
willingness to take on risk without compromising our underwriting
principles. At the same time, we will vigorously pursue new markets
in uninsured or under-insured risks. One good example of this is
the partnership we struck with the World Bank and the World Health
Organization last year to cover pandemic risk in developing
countries.
As regards our long-term investment horizon, we are seeking to
improve our investment result by expanding our investments in less
liquid markets and slightly raising the risk profile of our
portfolio without abandoning our tried-and-tested policy of gearing
our investments to the structure of our liabilities. Munich Re
remains a conservative investor – both in
absolute terms and by market comparison. As Munich Re invests
heavily in interest-bearing securities, decisions made by central
banks are of great significance to us. We are still not feeling any
tailwinds in this respect, but at least the headwinds have eased.
Interest rates have started to rise again slowly, particularly in
the US where we are a heavyweight in reinsurance. Accordingly, in
2018 we should see an end to the falling running yield in
reinsurance overall.
We will continue to reward your investment in Munich Re by making
high payouts, and increasing them where possible. You can rely on
the Munich Re dividend, which we have not lowered for almost 50
years. Of course, we strive to continue this success story. Despite
a financial year marked by large losses –
and subject to the approval of the Supervisory Board and Annual
General Meeting – Munich Re will pay an
unchanged dividend of €8.60 per share.
Overall, we can look to the future with optimism. Munich Re is
well on track to actively use digital transformation to provide our
clients with better, more efficient and tailored solutions. At the
same time, we are cutting costs and setting targeted impulses for
profitable growth. We have the financial strength to expand through
acquisitions, but especially through organic growth. We envisage
generating a profit in the range of
€2.1–2.5bn for the
year 2018, which is a slight increase on our profit guidance for
2017.
Thank you – also on behalf of my 42,000
colleagues across the world – for the trust
you place in Munich Re by investing in our Company.
Yours sincerely,
Joachim Wenning
Dr. Joachim Wenning Chairman of Munich Reinsurance Company’s Board of Management
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