Munich Reinsurance Company

• Munich Re Group makes extensive provision for developments in the US 
  
  
• Very positive overall result nevertheless expected for first half year, thanks to large capital gains from transactions with Allianz and favourable trend in reinsurance business
   
• Realignment of American Re underpinned with $ 2bn strengthening of reserves
• Group provision for WTC loss increased by $ 500m
• Shareholding transactions with Allianz completed at 30th June 2002 / Capital gains of €4.7bn
• Strong upward trend in reinsurance prices and conditions continues in the treaty renewals at 1st July

Despite substantial reserving measures, the Munich Re Group is likely to show a high net profit for the 1st half year 2002. Major contributors to this will be the large capital gains from Munich Re's transactions with Allianz and the ongoing positive trend in its reinsurance business.

End of ad-hoc announcement

During the first six months of 2002 Munich Re's in-force reinsurance business developed very favourably. This was due both to higher earnings and to lower expenditure: on the one hand, the Group achieved distinct improvements in premiums and conditions; on the other, pressure from claims costs decreased owing to the very low inflation rates worldwide and the relatively low claims burdens from natural catastrophes and other major losses.

The Group has added $ 500m to its provisions for losses that may be incurred in the longer term from the terrorist attack of 11th September 2001. This increase in the claims reserve is to be seen against the background of the unique complexity and magnitude of the WTC event. With this adjustment, Munich Re has made provision for possible claims which may arise in time even though not yet reported and which are thus difficult to estimate. This applies in particular to workman's compensation, liability and also business interruption.

As already reported, a wide-ranging review of the reserve situation of the US subsidiary American Reinsurance was conducted. The key objective of this analysis was to ensure that both foreseeable and possible market and loss developments, especially in liability but also as regards workman's compensation were fully dealt with and provided for. The Munich Re accordingly decided that the underwriting reserves of American Re be strengthened by a total of altogether US $ 2 billion. With this increase, Munich Re has decisively dealt with the substantially increased claims burden reported to reinsurers by US insurers.

In this connection, Munich Re will furnish American Re with sufficient funds calculated on a basis that ensures superior positioning to take advantage of future business opportunities as a function of its strong capitalization.

John Phelan, CEO of American Re since March and a member of Munich Re's Board of Management since the beginning of April, comments: In terms of leadership, organization, cost reduction and target markets, we have completely realigned American Re over the last few months. This has included the signalized review of our entire portfolio with regard to claims development and provisions. The measures taken illustrate our resolute business policy and Munich Re's support for American Re, which will now be able to take full advantage of the upturn in its home market.

Dr. Hans-Jürgen Schinzler, Chairman of the Board of Management: After the fundamental realignment I expect American Re to start generating significant profits immediately. Seldom has the market situation for such improvement been better than now.

With effect from 30th June, Munich Re and Allianz have taken the last step in reorganizing their shareholdings in the primary insurance sector: Munich Re has acquired from Allianz the latter's 36% holding in Karlsruher Lebensversicherung AG, thus increasing its stake to 90.1%. In return, it has sold all its shares in Frankfurter Versicherungs-AG (just under 50%) and Bayerische Versicherungsbank (45%). This means that Munich Re and Allianz no longer hold any shares in insurance subsidiaries in each other's groups.

The profit from the recent sales amounts to around Euro 900m. Including the sales of shares in Allianz and Allianz Leben in the first quarter, Munich Re recorded capital gains of Euro 4.7bn in the first half year.

The renewals in the Munich Re Group's reinsurance business at 1st July confirm the upward trend in prices and conditions apparent worldwide since 1st January 2002 and maintained in the renewals in the Asian markets at 1st April. Schinzler: In view of the progress in the reinsurance market, we continue to expect double-digit growth in the Group's premium income for the current year. Given further normal development in our non-life reinsurance business, I expect the second half year 2002 to show a very good combined ratio of under 100%.

Details regarding the second quarter and the first half year 2002 will be published on 29th August.

Munich, 10th July 2002

Munich Reinsurance Company
Board of Management