Investors' Day on ERGO - Munich Re · 2019. 8. 17. · 5 0 7 1 2006 e Changing Gear programme ERGO contributes to EPS growth target EPS 2004–2006 Munich Re target 2010 in € 1

Munich Re Group

Investors' Day on ERGO

London, 13 December 2007

2

Agenda

Workshops

1.00

10.30

10.15

9.00

15 min.Break

Q&A

59

47

31

14

3

Rolf Ulrich1: Expenses

Nikolaus von BomhardMunich Re integrated business model

Informal get-together

Jürgen Vetter –Andreas Kleiner

3: Growth – German sales and international strategy

Torsten OletzkyERGO CEO Agenda 2012

Daniel von Borries –Johannes Lörper2: Life insurance Germany

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Agenda

Workshops



Jürgen Vetter – Andreas Kleiner3: Growth – German sales and international strategy


Daniel von Borries – Johannes Lörper2: Life insurance Germany

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GDP Reinsurance (GWP) Primary insurance (GWP)

Expected annual compound growth rates for global markets 2005–2015

Market growth expectationsPrimary insurance and reinsurance will outperform GDP growth

6–7%

7–8%

Integrated business model

Munich Re benefits from growing markets in primary insurance and reinsurance

5–6%

Source: Munich Re economic research.

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Overall market environment One growing and converging global market for insurance risks

Borderlines between reinsurance and primary insurance increasingly blurred

Part of "business of reinsurers" de-facto "primary insurance solution" (Munich Re: approx.15% of business)

High level of commonalities and synergies in steering a combined group

Competitive advantage of approaching full value chain

Attractive >US$ 3 trillion market1

Capital

markets

Primary insurance

Private individuals

Corporates

Reinsurance(~ US$ 200bn)


1 As at 2005.

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Revenue synergiesLeverage global presence of Munich Re to enter specific growth markets

ERGO within Munich Re Group ERGO is essential pillar within Munich Re Group's strategy

Detach from traditionalreinsurance cycle

Realise profitability clearly above cost of capital

Expense synergiesEfficiency improve-ments within integrated business model

Capital requirements Add diversification to Munich Re Group risk exposure

Adding value

to Munich Re

shareholders


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Example revenue synergiesLeveraging know-how – Markets, business models and products

ExamplesERGO Isviçre

TurkeyHDFC ERGO

IndiaUCI CEE

Daman Health Ins.Abu Dhabi


Borderlines between reinsurance and primary insurance increasingly blurred

Strong market presence in all LoB and global

market as platform for further growth

Flexible combination of business models and

products as unique selling proposition

Outstanding knowledge and experience in primary

insurance and reinsurance

Competitive advantage of approaching full value chain

High level of commonalities and synergies in steering combined group

Market

Munich Re Group

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Example revenue synergiesLeveraging market know-how – India

High Munich Re brand awareness in Indian business community

Very strong Munich Re Group financial strength

Munich Re with in-depth market knowledge and expertise in India supports ERGO

Support through Munich Re in building relationships with local regulator and decision makers

ERGO by being part of Munich Re Group is able to secure high-profile joint-venture partners

Non-life JV HDFC

Health JV Apollo


1

Munich Re as door opener

Example India

Life to be announced

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Example revenue synergies Leveraging business models – Health insurance

Reinsurance

Primary insurance

Services

Top-line potential

DevelopmentstatusIndia China Saudi

Arabia/Abu Dhabi

Germany USA

ExamplesIndia Joint venture with Apollo Hospitals Group

China Strategic partnership with PICC Health

Abu Dhabi First specialised health insurer Daman

GermanyLeading private health insurer DKV

USA Specialised niche player


Integrated approach

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Example expense synergiesJoint asset management

Asset Management

Advantages of joint asset management

Efficiency improvement along entire value chain

Specialising effect in portfolio management and capital markets research

Risk-adequate asset management due to Group-wide investment controlling

Group-wide accounting enables fast close reporting in all relevant financial reporting standards

Economies of scale and scope via joint back-office functions

Reinsurance

International health

Primary insurance


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Example capital requirementsDiversification to Munich Re Group risk exposure

Munich Re Group required risk capital 1 January 2007 Measures to increase capital fungibility

Optimisation of group internal reinsurance and retrocession structures

Differentiated capitalisation policy for different individual companies

Optimisation of group internal capital structures

The measured diversification effect depends on the risk categories considered and the explicit modelling of fungibility constraints. The first-time application of fungibility constraints in the RI segment reduces RI segment diversification credits by €0.7bn. The first-time recognition of diversification effects within PI P-C and between RI and PI segments increases diversification credits by €0.6bn. Currently, diversification with the L&H PI segment is not recognised.

Increase of diversification and capital efficiency

Stand-alone Group diversification

Groupdiversification€400m


Primary insurance

Reinsurance

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>18

13.5

8.0

11.7

15.1

2004 2005 2006

Changing Gear programme

Changing Gear programme ERGO contributes to EPS growth target

Munich Re target 2010EPS 2004–2006in €

2010e–2007e21

Ambitious growth targets

Best in class

Capital efficiency

Average EPS growth2007–2010 >10% p.a.

1 Adjusted due to first-time application of IAS 19 (rev. 2004). 2 Based on assumed IFRS earnings (excl. minority interests) of ~€3bn and 220.2 million shares (weighted average).Presented at Analysts' Conference on 4 May 2007.

2

Most profitable among Top 5 global reinsurers

Market leadership in international health with integrated approach

Expand into primary insurance growth markets/segments

Strategic risk management –maximising reward for volatility


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A mbitious growth targets

B est in class

C apital efficiency

Changing Gear programme Initiatives in primary insurance

Munich Re Group initiatives

Most profitable among Top 5 global reinsurers:

Expand into PI growth markets/segments:

Market leadership with integrated approach:

Reinsurance International health Primary insurance

Expansion in life re VANB CAGR: 15%A

Execution of 15 defined growth initiativesA

Efficiency programme B

Cycle management with sustainable CR <97%

BC

Global health strategy with profit growth above 20%A Increase P-C profits with

sustainable CR <95% A

Foreign profit CAGR until 2010: 15%A

Distribution initiativeA

Integrated back- and front-office initiativeB

German PI cost targetsB

B IH-wide skills and knowledge management initiative

Optimise ERGO capital structureC


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Agenda

Workshops






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Europe Germany

15 million customers

No. 2 €13bn total premiums

33 million customers

No. 11 €16.8bn total premiums

No. 1 in health and legal expenses

ERGO Group The primary insurance division of Munich Re

Benchmark case study for merger and integrationIntegration

Best in class

International

Synergies

Excellent portfolio management in non-life business

Systematic internationalisation

Value-accretive synergies

CEO Agenda 2012

No. 1 in health and legal expenses, No. 3 in life

1

2

3

4

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Management responsibility along lines of business (segments) – Across brands and legal entities

Group-wide central functions

Fully-integrated back-office functions

Fully-integrated IT system

Single back office Customer focus

Merger and integrationBenchmark case study

One entity ...

Comprehensive product portfolio

Group-wide service levels

Holistic view on customer

Focus on cross-selling

... with strong brands and distribution power

Full scope of sales channels in all lines of business: Tied agents, multi-level distribution, brokers, direct, bank

Multi-brand approach in tied agent networks

Bundling of know-how and resources in direct (KQV), broker and bank channel

CEO Agenda 2012

1

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1999 2000 2001

100

20062005200420032002

85

90

95

90.893.193.0

96.4

99.9101.4

97.296.4

Property-casualty businessExcellent portfolio management

Portfolio split Germany (2006)

2522

1417 15

711

36

5

21

14 13

Personal accident Motor Legal expenses Fire/Property Liability Other

in % German market

CEO Agenda 2012

IFRS combined ratios property-casualtyin %

1

1 Mainly due to German flood and acquisitions in Italy and Eastern Europe.

1

2

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1 Incl. ERGO's international health activities.

Focus region Europe Focus region Asia

Increased share of international business from 8% (1997) to >20% in 20071

International businessFocus on Europe and Asia

Management priority to increase

profitability

M&A or greenfieldto enter fast-growing (emerging) markets

Partner approachin distribution

Transfer of technical and administrative

know-how

Regional approach and line-of-

business focus

CEO Agenda 2012

3

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CEO Agenda 2012

ERGO – Part of Munich Re Group Value-accretive synergies

opportunities for international staff developmentopens

realise joint projects and share knowledge while deploying Chinese Walls regarding customer information

ERGOandMunich Re

access to internationally experienced work-forcegivesMunich Re's worldwide presence

by leveraging reputation, global presence and international experience

ERGO's international expansionsupportsMunich Re

ERGO's value proposition to customerssupportsMunich Re's financial strength

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ERGO vision for 2012Become a member of Europe's top class of primary insurers

CEO Agenda 2012

Good starting point Vision for 20121

Strong profitabilitybut supported by favourable environment

(tax, capital markets)

International growthbut slow momentumin domestic market

Cost savings achieved but still room

for improvement

Strong commitment to achieve ERGO's share in >10% p.a. EPS growth target of Munich Re

Total premiums3

>€23bn

Leading incustomer satisfaction and profitability

Known for quality and operating excellence

Experienced inintegration

Net profit2

>€900m

Sustainable RoE12–15%

2 Normalised net profit 2006: €473m.1 Figures excluding international health. 3 Statutory premiums. 2006: €16.1bn.

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ERGO 2012A member of Europe's top class of primary insurers

CEO Agenda 2012

Strengthen ERGO's sales organisations

1

Realign ERGO strategy in life

2

Increase share of international

business

3

OptimiseERGO's capital

structure

4

Encourage more

entrepreneurial freedom

5

Fully implement value- and risk-based management

Enhance ERGO Operations Model

Further develop ERGO spirit

Programme for 2012Five pillars building on a strong foundation

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ERGO Operations Model (EOM)

Separatesimple and complex processes

Integratecustomer perspective in all processes

Simplify, harmonise and eliminateprocesses wherever possible

Designtransparent and measurable processes

Advanceuniform process architecture

Development of EOM towards process of continuous improvement

in quality, service and costs

Implementation of regular measurement

Integration into individual bonus system

+

+

1 German business, German GAAP. Admin. expense ratio in life and health, operating expense ratio in P-C. 2 Incl. legal expenses.

CEO Agenda 2012

Reduction in all segments

Foundation EOMOperations model for service insurer ERGO

Expense ratio1

in %

For details see Workshop 1

3.5 3.32.9 2.8

31.8 30.5

Life Health P-C

2006 2010

2

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VBM logic fully applied

Ceded reinsuranceIndividual contract design life and health

Implementation of MCEV calculation and MCEV-based steeringManagement incentives follow VBM logicDefined catalogue of processes to be supported by fully institutionalised VBM solutions, e.g. strategy, loss reserving, underwriting, profit participation, etc.

CEO Agenda 2012

Foundation VBMValue- and risk-based management work plan

VBM logic fully applied

Asset management decisions following VBM logic (strategic asset allocation, mandates, management of trigger situations)Product design and sales force incenti-ves in new businessDecisions on reserving and profit participation life and health Underwriting and loss reserving non-life

DFA- and/or MCAV-based calculation of company value (incl. new business)

2008 2009 2010Today

MCEV: Market-consistent embedded value. VBM: Value- and risk-based management. RfB: Provision for premium refunds and policyholders’ dividendsDFA: Dynamic financial analysis. MCAV: Market consistent appraisal value.

Clearly defined catalogue of processes

supported by fully institutionalised VBM solutions

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Develop and implement growth strategies for all sales organisations

Advance direct sales

Sharpen brand portfolio strategy

Sales strategy

Target 2012

CEO Agenda 2012

Pillar 1Strengthen ERGO's sales organisations

Turn around trend of market share losses in all segments

Integrate sales division in all product and process development activities

Optimise team play between sales function and back office

Optimise Group-wide sales controlling

Enhance CRM

Step up cost management

New business to increase1

by 25% until 2010

by 50% until 2012

Marketorientation

Value-oriented steering

1

For details see Workshop 31 Regarding total sales (new business actively sold), APE.

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Target 2012

CEO Agenda 2012

Pillar 2Realign ERGO strategy in life

Increase IFRS net profit from German life business by 75%1

Increase premium income from corporate pensions

Higher focus on investment-type products

Reduce lapses

Increase new business margins

Apply cutting edge MCAV calculation methods

Fine-tune treasury approach for existing portfolio

Growth

Profitability

2

For details see Workshop 21 2006: €109m.

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Target 2012


CEO Agenda 2012

Pillar 3Increase the share of international business

Increase share of ERGO company value from international business to at least 1/3

3

Increase and establish activities in growth regions Eastern and Southern Europe – China/India – Selected AsiaOptimise existing business units

Growth in focus regions

Advance international legal expenses business

Advance international direct sales capacities

Advance international bancassurance

Optimise steering instruments

Adjust structures and provide resources

Strengthen cooperation between German and international units

Growth fromspecial approaches

Setting the basis

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Target

CEO Agenda 2012

Pillar 4Optimise ERGO capital structure

Reduce excess capital to minimum level

4

Required shareholders' funds defined by demands from internal risk model, solvency and ratings perspectiveCapital structure to be optimised using tier I, II and III capitalAnnual readjustment and distribution of excess capital

Strict capital management

Agenda for 2008

Payout of significantly increased dividend1

Refinancing by taking up hybrid capital

1 Subject to approval by governing bodies.

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Target

CEO Agenda 2012

Pillar 5Encourage more entrepreneurial freedom

Reduce 10% of internal activities to gain speed and innovation

5

Make decisionsDecide courageouslyBe target-orientedTake responsibility

"Entrepreneurial freedom"

Simplify

Concentrate on basics

Prioritise resources

Achieve results

Realise opportunities

Be innovative

Seek market potential

Identify advantages

Increase bottom line of our business

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Strengthen ERGO's sales organisations

Realign ERGO strategy in life

Increase share of international business

Optimise ERGO capital structure

Encourage more entrepreneurial freedom

CEO Agenda 2012

SummaryThe targets at a glance

1

2

3

4

5

Increase IFRS net profit from German life business by 75%

Increase share of ERGO company value from international business to at least 1/3

Reduce excess capital to minimum level

Reduce 10% of internal activities to gain speed and innovation

Turn around trend of market share losses in all segments

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Become a member of Europe's top class of primary insurers

Total premiums

CEO Agenda 2012

Summary financial targetsStrong commitment

RoE

Vision for 2012

2004 2005 2012e

25

2010e2007e2006

10

15

20

15.6 16.1 16.1 16.7

>23

>20

in €bn

2004 2005 2012e

20

2010e2007e2006

0

10

in %

20.9 20.3

~13.5~16

7.4

~15

Total premiums>€23bn

Net profit>€900m

Sustainable RoE12–15%

Adjusted due to one-off effects in net profit

Figures excluding international health.

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Agenda

Workshops






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12886.479.0481609Health

704

185

221

171

International

80.5

49.8

75.4

82.4

in % of premiums

74.7

46.5

76.1

81.1

in % of expenses

2,076

161

703

732

Germany

345Legal expenses

Total

2,780Total

924Property-casualty

in €m

902Life

Net operating expenses (IFRS) From Munich Re to ERGO accounts – Focus Germany

2006

2,832Total

1,390Property-casualty1

in €m

1,442Life and health

MUNICH RE GROUP annual accounts 2006 – Primary insurance

ERGO GROUP annual accounts 2006 – Fully consolidated

Workshop 1: Expenses

Rounding differences. 1 Incl. legal expenses.

Non-ERGO primary companies in Munich Re Group

Consolidation, e.g. P-GAAP accounting

Differences to ERGO accounts

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ERGO Group – German GAAP (HGB1) in €m

Property-casualty and legal expenses total costs IFRS vs. German GAAP (HGB) 2006

ERGO Group – IFRS


in €m

75

363

461

3.2 –124

703

161

–0.2–0.487

Admin. Acquisition DACs Reinsurance Total costs

Legal expenses

Property-casualty

438

5482.8 –124.2

864 Total

n.a.

n.a.

29.8%

Adjusted2 Target 2010ActualActual

14.0%14.8%15.2%thereof administration expense ratio

16.5%

30.5%

17.0%

31.8%

10.3%

25.6%

German market

thereof acquisition cost ratio

German GAAP (HGB) in %

Operating expense ratio

75

365

457

–124

698

162

–0.287

Admin. Acquisition Reinsurance Total costs

Legal expenses

Property-casualty

440

544–124.2

860 Total

Rounding differences.1 Adjusted and consolidated. 2 For ERGO portfolio split: ERGO expense ratio if ERGO had same portfolio split as market.

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Operating expenses (HGB)Higher costs – but combined ratio better than market

Profit-oriented portfolio mix steering

Personal accident: High portfolio share with combined ratio well below market

Motor: Portfolio share below market

Main aspects ERGO


Development of operating expense ratio

Combined ratio 2006 – Main lines of businessin %

in % Gap to market significantly reduced

Trend to continue due to efficiency improvements

Expense ratio reflects tied agent sales model and decentralisedorganisation

Claims ratio

31.8 36.721.7

35.5 34.1 32.9

57.7 44.8 74.863.9

53.2 54.8

25.6 33.617.7

31.6 30.4 30.1

64.7 51.6 78.167.5

58.1 57.4

Total Personal accident

89.5 90.3

Expense ratio

Market

81.5 85.2

Motor Legal expenses Fire/Property Liability

96.5 95.7 99.5 99.187.4 88.4 87.7 87.5

34.831.8

26.5 25.6

30.532.5

29.828.4

2002 2003 2004 2005 2006 Target 2010

MarketAdjusted1

Rounding differences.1 For ERGO portfolio split: ERGO expense ratio if ERGO had same portfolio split as market.

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225

736 –115–115

732


Life total costs IFRS vs. German GAAP (HGB) 2006

ERGO Group – IFRS

Rounding differences.1 Adjusted and consolidated.


in €m

850735

224

–108


Target 2010ActualActual

2.9%3.5%3.1%Administration expense ratio

€17.8

5.4%

€19.3

5.8%

€24.3

5.0%

German market

Administration expenses/contract

German GAAP (HGB)

Acquisition cost ratio

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Life administration expenses (HGB)Reaping the benefits of IT harmonisation


Development administration expense ratioin %

3.6 3.5

2.93.5 3.43.1

3.9

3.43.7

3.5

3.5 3.4 3.3

2001 2002 2003 2004 2005 2006 Target 2010

Market

Development administration expenses per contract

Higher share of contracts with low sums insuredPremiums decline since 2004 – high maturitiesSpike in 2004 due to IT harmonisation Return to growth path

in €

18.419.6

17.8

25.0 24.4 24.3

21.719.920.0 19.3

25.5 25.1 24.3

2001 2002 2003 2004 2005 2006 Target 2010

Market

Main aspects ERGO

High degree of automatisation leads to lower cost per contract

Further improvement in efficiency targeted

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Higher acquisition cost ratio due to

Tied agent sales model

Lower sums insured

Large share of credit protection insurance

Lower ratio in 2010 due to growth and further efficiency improvement

Segment Life (HGB)Sales channel mix affects acquisition cost ratio


Development acquisition cost ratio

in %

7.2

6.3

5.45.6 5.5

5.0

5.4

5.7

6.4

5.8

5.3

5.0

4.6

2001 2002 2003 2004 2005 2006 Target 2010

Market

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143

471 –64–68

481


Health total costs IFRS vs. German GAAP (HGB) 2006

ERGO Group – IFRS

Rounding differences.1 Adjusted and consolidated.


in €m

–66

145

472551


Target 2010ActualActual

2.8%3.3%2.8%Administration expense ratio

€22.6€30.3€29.9

German market

Administration expenses / contract

German GAAP (HGB)

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Segment Health (HGB)Narrowing the gap

Administration expense ratio

Gap to market halved since 2001

IT harmonisation 2005–2007

Main aspects ERGO


4.44.3

3.7

3.53.4

3.3

2.8

3.4

3.23.1

2.9 2.92.8

2001 2002 2003 2004 2005 2006 Target 2010

Marketin %

Target 2010Administrate 75% higher amount of insured persons than 2002 with same absolute costs – in spite of inflation

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Operations processes based on industrial principles

Fully integrated back-office structure

One single IT platform Strictly performance-oriented MIS and company culture

Industrialisation Systematic transformation into an industrial organisation

+

OnestrongERGO


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Customer/Sales agents

Industrialisation Focus on productivity

Customer service

Across all lines of business for CustomersSales

High percentage in one-step processing

Life Health P-C Legal

Productivity (mass

processes

target: 80%)

Technical

result(individual

processes

target: 20%)

"Insurance factory" across segments (central) Segment individual functions (decentral along P&L responsibility)

1st level

Focus on

2nd level

Claims/Benefits

Applic./Contract

Document processing

Indexing

Automatic processing

E-mail PhoneLetter/Fax


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Expenses international business (ERGO, IFRS)Strict cost management by country and segment

Total premiums1 – Portfolio split 2006

Lines of business

LifeExpenses mainly driven by acquisition costs –reflecting dynamic growth

HealthInternational business model based on premium calculation without ageing reserves –therefore higher expense ratios than Germany

Property-casualty Expense ratios below average even in emerging Eastern European markets

Legal expensesRelatively high expense ratiosInvestments in greenfield operations and tied agent sales model International business highly profitable: Net combined ratio 95%

Expenses 2006


228

585 –44–64 704


in €m

Life40%

Legal expenses13%

Health21%

Property-casualty26%

Rounding differences. 1 International business, statutory premiums.

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Split of balance L&H

Other income/other expenses (IFRS)ERGO as part of Munich Re accounts

Split of balance P-C

–1,988 –348

–947 –208

–1,041 –140

Otherexpenses Balance

Otherincome

1,640Total

739P-C

in €m

901L&H

MUNICH RE GROUP annual accounts 2006

Primary insurance thereof ERGO


–1,925 –305

–887 –172

–1,038 –133

Otherexpenses Balance

Otherincome

1,620Total

715P-C

in €m

905L&H

in €m in €m

–172–77

719–109

–29

17

Exchange Services Interest Provisions Real estate Other Total

1 Thereof other writedowns €53m, company as a whole €40m, other tax €11m. Rounding differences.

1

Part of profit sharing with policyholders See next slide for further analysis

–133–132

450

2–19–29


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Other income and expenses on balanceComponents property-casualty

Insurance companies Other companies (e.g. holdings, service units)

–51–27710–21

–34

14


in €m in €m

–121–50

9–88

53

Exchange Services Interest Provisions Other Total


Rounding differences.

Analysis

Only 30% of other income/expenses balance is due to insurance companies

Those €51m must be financed by investment result not attributable to technical provisions –which can easily be done

Of the €121m balance of other companies, the bulk is investment- and finance-related cost

All costs are subject to strict cost management

–172Investment/finance-related costs

~70%

~30%

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Adjustment to previous column: Excl. other income/ expenses attributable to non-insurance companies

Adjustment to previous column:Excl. other Munich Re primary entities3

Incl. “full” net expenses for claims and benefits as reported in segment P&L2

Incl. total balance other income/ expenses

Incl. ERGO and all further primary entities within Munich Re Group3

As reported by Munich Re for primary insurance business

Alternative views calculating "full" combined ratioReported

90.8%

–

–1,390

–2,218

3,975

Primary insurance

Combined ratio

Other income/expenses

Net operating expenses

Net expenses for claims and benefits

Net earned premiums

in €m

93.8%

–51

–1,2741

–2,119

3,671

thereof insurance companies

97.1%

–172

–1,2741

–2,119

3,671

thereof ERGO

–2,282

–208

Primary insurance

97.6%

–1,390

3,975


Combined ratio in Munich Re annual accounts 2006Reported vs. alternative views

1 Thereof property-casualty €924m, legal expenses €345m, consolidation effect €5m. 2 Other underwriting income/expenses, change in other underwriting provisions, expenditures for premium refunds.3 Europäische Reiseversicherung, Mercur Assistance, Watkins Syndicate.

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SummaryTakeaways


ERGO

Well on track with cost reduction

PROFIT-GEARED PORTFOLIO STEERING AND SALES MODEL

Lead to above- market cost ratios in Germany

But below-market combined ratio

AMBITIOUS COST-SAVINGS TARGETS 2010

Life administration expense ratio 2.9% (–0.6%-pts.)

Health administration expense ratio 2.8% (–0.5%-pts.)

Non-life expense ratio 30.5% (–1.3%-pts.)

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Agenda

Workshops






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Ranking by market share in 2006

1 German GAAP.

Development ERGO market share

High share of tied agents and traditional products

Sub-average share in unit-linked and in broker market

Above-average lapse ratio

ERGO in German life businessOne of the leading players

Workshop 2: Life insurance Germany

8.4 8.1 7.9 8.08.8 9.0

8.3 8.0 7.6

1998 1999 2000 2001 2002 2003 2004 2005 2006

in %

Return to growth path as one of major challenges

100.078,258Market

10

9

8

7

6

5

4

3

2

1

...

2.51,945Nürnberger

3.12,410Württembergische

3.52,766Debeka

4.63,641R+V

5.24,037AXA

5.34,150Zurich

6.14,768Talanx

7.65,980ERGO

11.08,655AMB Generali

16.312,756Allianz

in %in €mGross premiums written1

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Endowment Annuities Group

United-linked Other

21.9

57.3

1998 2006

40.427.1

1998 2006

18.012.9

1998 2006

12.00.5

1998 2006

7.72.2

1998 2006

Endowment Annuities Group

United-linked Other

13.4

45.0

1998 2006

39.528.8

1998 2006

14.913.6

1998 2006

23.4

8.1

1998 2006

8.84.5

1998 2006

Growth from unit-linked and annuities

Decreasing importance of traditional endowment business

Product splitIncreasing share of annuities, unit-linked products and corporate pensions

Similar developments like market

Potential in unit-linked business

Market1

1 New business in APE. Source: German Insurance Association (GDV), ERGO

ERGO1


in %

2.7%CAGR

€7,677m2006

€6,205m1998

Total

in %

1.7%CAGR

€605m2006

€527m1998

Total

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Broker

Bank Direct

56.574.9

1998 2006

10.09.4

1998 2006

14.015.7

1998 2006

19.40.0

1998 2006

Tied agents Broker

Bank Direct

38.253.0

1998 2006

29.022.5

1998 2006

26.320.5

1998 2006

6.54.0

1998 2006

ERGO1

Growing market share for bank and broker/ IFA channels

Direct with largest relative growth but still small share

Tied agents lost their once dominant position

Sales channel splitStrong market position in 'direct' and 'tied agents'

Tied agents still dominant

Growth in direct business through KQV acquisition in 2002

Broker channel dominated by Victoria brand

Market1

1 Sales statistic (new business actively sold), APE. Source: ZfV, ERGO.


in % in %

Tied agents

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Cost management initiatives

Steering conceptMultiple measures taken to increase MCAV

MCAV MCEV Franchise Value= +

Product initiatives

Increase profitability through ERGO’s treasury concept

Reduce lapses

MarketConsistentAppraisalValue


1 Extend corporate pensions2

Strong focus on investment type products

3

Profitability initiatives

4

Distribution growth initiatives

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Comprehensive control systems allow detailed analysis of lapses

Step up customer loyalty management

Rationale Keeping established customer relationships is more expense-efficient than acquiring new customers

Threat Recent development: Increasing spread between current reinvestment interest rates and guaranteed interest rates of life insurances

Lapse ratio ERGO above market average

Lapse ratios ERGO and market

Initiatives to increase MCAVReduce lapses

Measures taken

Business in force

Commission system overhaul to offer additional incentives for low lapse rates

Product initiatives

New business

1 ERGO lapse ratio 2006 adjusted for one-off effect.


1

6.1 6.2

4.8 5.0

1998 20061

in % Market

Sensitivity

+€30mPremiums

+1.4%MCEV

–10%Lapses

Target: Reduce gap to market to 1%-point max.

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Initiatives to increase MCAV ERGO with steady growth in corporate pension schemes

Ranking by market share in 2006 Growth of ERGO corporate pension business

New investment-driven products

Increase of corporate pension business via HypoVereinsbank

Further development of broker channel

Analyse additional sales channels


Measures taken

2

5

4

3

2

1

...

5.1Swiss Life

5.4AMB Generali

8.5ERGO

10.3R+V

37.8Allianzin %New business1

1 Current premiums and single premiums. German GAAP.

New business, APE in €m

Gross premiums writtenin €m

113

51

~200

1998 2006 2010e

768

440

~1,060

1998 2006 2010e

Target 2010: Increase corporate pensions GWP by ~40%

CAGR ~8.5%

CAGR ~15%

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Initiatives to increase MCAV Unit-linked and new investment-type products for retail business

Unit-linked/new investment type

Dynamic hybrid productHybrid product with conventional actuarial reserve plus funds certificate

Start 10/2007 with sales via HypoVereinsbank

Variable annuitiesERGO product designed as GMAB

Launch at the beginning of 2008; selling as a Vorsorge (Lux.) product

New business, APE in €m

New business margin3

Target: Raise profitability


Measures taken

3

1 New business, APE, German GAAP.

7.0

72.7

~206

1998 2006 2010e

CAGR ~30%

2.0

>3.0

2006 2010e

in %

~10 21.9Endowment

~3012.0Unit-linked/new investment type

7.7

18.0

40.4

2006

~7.5Other

~30Group

~22.5Annuities

2010in %1

ERGO portfolio split 2006 and 2010

2 GMAB: Guaranteed Minimum Accumulation Benefit. 3 Present value of new business premiums (VANB/PVNBP).

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Toolbox

Initiatives to increase MCAV ERGO treasury concept

TargetsBalance MCEV and Franchise Value

Safeguard shareholders against risk from existing portfolio

StepsManage Time Value of Options & Guarantees (TVOG) of business in force

Develop new products from capital market perspective

From risk carrying to risk hedging

Target: Fulfil customer expectations and guarantees using market instruments via matching market-dependent policyholder cash flows

Degree of fulfilment is steered with regard to shareholder interests

Replicating portfolio

Replicating portfolio can be used as risk-free position regarding ViF and franchise value

Management decision to deviate from this position to enhance one or both values

Management decision expressed in further portfolios which are used as benchmarks (benchmark portfolio)

Cost of capital management

Target: Control MCAV interest-rate dependency


4

Full hedge

Partial hedge

Unhedged

Shift in interest rate

Shift in MCAV Illustrative

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0

2

4

6

8

10

12

14

16

–2% –2% –1% –1% 0% 1% 1% 2% 2% 3% 3%

Shift in interest rate curve

Modified duration Safeguarding the MCEVHedge guarantees and reduce participation of policyholders in rising interest rates

Increasing franchise valueLet customers participate in case of rising interest rates according to financial strength of company

Increasing company value (ultimate target)Maximise sum of MCEV and franchise value

Customers' view on duration of liabilities

Treasury: Convexity decided by management

Treasury conceptManagement decides on convexity profile


4

Guaranteed interest rate

Management decision (treasury)

Optimising MCEV

Full policyholder participation

Illustrative

Focus on

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Traditional reserving model

German insurance company is able to cope with normal market changes by using tools inherent in German business model (reserving model)

Treasury concept Expands boundaries of traditional German reserving model


4

Serious issue in terms of FraV

Serious issue in terms of ViF

Consumption of reserves

Interest on reserves

Risk premium on shares

Investment result

Other result components

Treasury concept Impact on MCEV and FraV


Policyholder’s participation Policyholder’s participation


Compensation of significant interest-rates changes only possible up to very limited extent. ERGO uses capital market instruments to hedge against fat tail risks

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SummaryTakeaways

NEW BUSINESS

Share of innovative and investment-type products

30% by 2010


GOALReturn to growth path

GERMAN LIFE BUSINESS

Increase German IFRS net profit

75% by 2012

NEW BUSINESS MARGIN

VANB/PVNBP

3.0% by 2010

TREASURY APPROACH

Increase profitability and safeguard shareholders against

risk from business in force

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Agenda

Workshops






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Established at ERGO Board level since 1 July 2007

Before, sales channels reported to heads of segments

Now all sales channels report directly to new ERGO Head of Sales

ERGO head of sales establishedIntegrated steering of sales forces

New sales function at ERGO Board level …

One ERGO view of customer

Tapping full customer potential through ERGO-wide Customer Relationship Management

No conflict of interest between sales and segments

Further development of all sales channels

… with clear benefits and business effects

1 Including multi-level sales organisation HMI.

Management Board

Subsidiary Management Board

CEO Sales Life …

Tied agents Direct Bank Broker

D.A.S. DKV HM1 Victoria

Workshop 3: Growth – German sales and international strategy

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Sales channels Value-based sales steering and customer focus Market orientation

Growth in all sales channels

Tied agentsMulti-level salesBrokersDirect salesBancassurance

Develop new sales channels

Optimise ERGO-wide value-based sales steering and controlling

Implement ERGO-wide customer view and Customer Relationship Management

Enforce strict cost management

Optimise team play between sales and

product development

customer-oriented processes

IT

Strategic growth programme for sales operations Boost sales power until 2012

+ +

SALES

+50%ERGO CUSTOMER BASE

+1 million


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Sales channels in Germany Multi-channel approach

€1.1bn

~6 %

~17 %

~17 %

~60 %

Total salesproportion

20061

>50% >€1.7bn

>50%

>100%

>40%

~40%

2010e 2012e

~40% Specialist KarstadtQuelle Insurance (KQV)

Direct insurer with largest customer baseDirect sales

~30% Exclusive cooperations with HVB in Germany

Additional cooperationsBanc-assurance

Relationship to all important brokers

Bundling of broker channels under way

Still cornerstone

Largest tied agent organisation in Germany

Comments

Growth targets

Channel

+25% ~€1.4bn

Total

~15% Brokers

~25% Tied agents

1 Regarding total sales (new business actively sold), APE.


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Tied agentsStill the cornerstone

Increase agents' headcount by 1–1.5% p.a. and sales per agent by 4–5% p.a. Reduce agents' administrative workload Raise medium performers' share of total new businessEnhance CRM tools to increase cross-selling Introduce sophisticated financial planning tools to multi-level sales forces (HMI)Strengthen HMI's agency networkSupport customer service through direct sales activities (in- and outbound)

No merger of tied agents organisations – But clear distinction in customer segments and products sold

Growth strategy

Sales 2006–2010

4%

34%

28%

34%

4%

35%

24%

37%

2006 2010e

CAGR ~5.7%€659m €827m

Share of sales 2006

77Legal expenses

65P-C

57Health

in %

56Life

Legal expenses

P-C

Health

Life (APE)


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Support by telephone

Basic service offering

On-site support

Medium service priority

Intensive on-site support

High service priority

Internet-based IT platform for brokers

C-BrokerB-BrokerA-Broker

Broker channelGrowth through bundling

Sales 2006–2010

Enhance ERGO sales potential by bundling broker channelsIncrease share of brokers active in at least 2 segments from 45% to 60%Generate added value for brokers

Comprehensive, tailor-made productsStep up sales support

Raise sales per segment by leveraging full product range of all brandsRealise cost synergies through harmonised processes

Growth strategy

Systematic allocation of resources

Prioritised broker clusters.

4%

31%

39%

26%

6%

33%

31%

30%

2006 2010e


Legal expenses

P-C

Health

Life (APE)

CAGR 3.3%€193m ~€220m

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Sales 2006–2010

39%

30%

31%

38%

37%

25%

2006 2010e

Direct sales KQVSuccess story continues

Expand market leadership in personalised direct marketingTarget group 45+ with positive demographic trendFine-tune highly efficient processes for mass productsIncrease supplementary health business Establish "pull" sales concept in addition to existing "push" conceptTap new target groups

Growth strategy

KQV most preferred direct insurer in Germany

560730

~1,500

2002 2006 2010e

GWP

1.9

3.2

~5.0

2002 2006 2010e

CAGR~20 %

CAGR~12 %

Customers in €bn in m

0

1

2

3

4

5

2000 2003 2006

KQV

Cosmos

Europa

Hann.Leben

Insurance policies in million


P-C

Health

Life (APE)

CAGR ~9%€192m ~€270m

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BancassuranceSuccessful partnership with UniCredit Group

Exclusive cooperation with HVB-Group Germany

Exclusive cooperation in CEE countries agreed in '07

Phase 1 from 2008 Phase 2 from 2009

Bundling of activities in newly set up hub ERGO Austria in Vienna

New business ambition for additional European markets >€500m in 2012 (APE >€100m)

European growth strategy with UniCredit European activities with UniCredit

German sales 2006 – 2010

CurrentPhase 1Phase 2

HVBBranches

HVBConsultants

Customer potential

44 180 33,000 Wealth management(systematic from '07)

9750080,000Corporate business(newly defined in '07)

6405,0002.3 mRetail business(since 1990)

Additional cooperations with Volksbanken(mutuals) in Austria and CEE

P-C

Health

Life (APE)

4%

87%

6%9% 5%

89%

2006 2010e

€64m ~€85mCAGR ~7.5%


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1 Incl. ERGO's international health activities.

Focus region Europe Focus region Asia

Increased share of international business from 8% (1997) to >20% in 20071

International businessSystematic internationalisation

Management priority to increase

profitability

M&A or greenfieldto enter fast-growing (emerging) markets

Partner approachin distribution

Transfer of technical and administrative

know-how

Regional approach and line-of-

business focus


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Strategic roadmap for international expansion International operations generate substantial part of value added

Optimisation

Existing business

Growth region

Selected Asia

Growth region

China / India

Growth region

Eastern and Southern Europe

DirectSales

inter-national

Action plan international operations

Groundwork: Further enhancement of management and steering processes / tools

Growth in Specialty lines

Legal expenses

inter-national

Banc-assurance

inter-national

R1 S1 S2 S3R2 R3 R4

Growth initiatives by Regional approach and focused M&A

Integrated steering and controlling

processes

G1

HR programme to groom best

international talent

G2

Continuous alignment of organisational structure

with expansion plans

G3

Structured knowledge-management programme for international entities

G4

Targets international operationsIncrease share in ERGO company value from 1/5 to 1/3 2012

Profit growth of 15% p.a. 2010


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ERGO Hestia (Poland) 2001–2007e

Excellent market position in non-life (No. 3) Implementation of second brand with basic, standardised products (MTU)Successful bank cooperation with BPH/PekaoHigh service and product quality: Ranked No. 1 in customer satisfaction in claims management (2005)

Highlights

ERGO Baltics 2001–2007e

Excellent market position (No. 3 overall with approx. 15% market share; No. 1 in Baltic annuity and health market)Realisation of potential synergies by implementing uniform and lean management structures and processesStrong agency sales network throughout Baltic region

Highlights

5002007e

in €m

2242001

2.82007e

in m

1.02001

29.82007e

in €m

10.32001

12.62007e

in %

5.92001

GWP Number of customers

Net profit RoE

179.32007e

in €m

67.92001

0.42007e

in m

0.22001

8.72007e

in €m

–3.82001

13.22007e

in %

–8.12001

GWP Number of customers

Net profit RoE

R2

Growth region Eastern EuropeExcellent M&A track record


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R3

Growth region India and ChinaLeveraging Munich Re reputation

Market entry Joint venture with HDFC Participation in existing insurance entity with strong group brand name, distribution capabilities and networkAmbition – Year 10

To be among top 5 private insurance companiesMarket share: ~7%

Leverage ERGO product development, operational excellence and multi-channel distribution skills

Market entry Joint venture with reputable Indian partner Status Planning and negotiations underway, greenfield operation envisagedAmbition – Year 10

To be among top 5 private insurance companiesMarket share: ~4%

Market entry Cooperation with Chinese partnerStatus Planning and negotiations underway

Focus Tier 2 and 3 provinces and cities as the future growth engines

Target provinces

India non-life

India life

China life and non-life

JiangsuShanghai

Guangdong

Shandong

Zhejiang

Sichuan

Liaoning

Henan

Hebei

Beijing


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Growth region Selected AsiaMarket entry in South Korea

R4

Vision and ambition

Strategic long-term positioning and investment in fastest-growing emerging Asian markets based on ambitious profit targets

Core markets – Emerging Asia: Malaysia, Thailand, Indonesia, Vietnam, South Korea and Taiwan

Total population 463 million

Total premium income US$ 173bn

Much higher market concentration in life than in non-life

South Korea one of priority markets in region

Market entry with various activities: Non-life –direct insurance, legal expenses, health

Recent acquisition of monoliner Daum Direct

No. 2 direct insurer in motor – excellent brand

Started operations in 2004

Gross premium volume ~US$ 260m

Breakeven expected for current financial year

Leverage of group-wide Korean experience

Strong local partners

Strategic focus on selected South East Asian and East Asian markets

Competitive advantage: Unique Munich Re Group market know-how

Potential Market entry in South Korea

Approach


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S1

GWP

Legal expenses Steady growth international

Business split 1998–2007e

48%69%

52%31%

1998 2007e

Current European activitiesSuccessful internationalisation since 1955

Market presence in Germany and 15 European countries

Market leader in 10 countries

Recent greenfield operations

Specialist in niche market (20% share)

Joint venture in South Korea 2007

3 more greenfield new market entries until 2010

Highlights

204

467

1998 2007e

CAGR+9.7%

37.2

19.7

1998 2007e

CAGR+7.3%

International

Germany

in €m in %

Net profit


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SummaryTakeaways

GERMAN SALES

NEW BUSINESS

Grow

25% until 2010, >50% until 2012

ERGO

Integrated steering

to strengthen all sales channels

INTERNATIONAL OPERATIONS

ERGO'S INTERNATIONAL BUSINESS

Profit growth of

15% p.a. until 2010

EXPANSION PROGRAM

Increase share in ERGO company value

from 1/5 to 1/3 until 2012


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SummaryClosing remarks

…strengthen its sales organisations

…realign its life strategy

…increase its share of international business

…optimise its capital structure,

…encourage more entrepreneurial freedom

By 2012 ERGO will

…is an essential pillar within Munich Re Group's strategy

…contributes significantly to Changing Gear targets

…delivers a sustainable RoE of 12–15%

ERGO

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Appendix

Financial calendar

Contacts

Disclaimer

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Financial calendar

Appendix

30 January 2008Press release on the renewal of reinsurance treaties

17 April 2008Annual General Meeting

7 October 2008Investors' Day on life reinsurance, London

19 February 2008Investors' Day on property-casualty reinsurance, London

7 November 2008Interim report as at 30 September 2008

6 August 2008Interim report as at 30 June 2008

8 May 2008Interim report as at 31 March 2008Analysts' conference, Munich

18 April 2008Dividend payment

12 March 2008Annual Report 2007

25 February 2008Balance sheet press conference for 2007 financial statements (preliminary figures)Conference call with analysts and investors

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For information please contact

Münchener Rückversicherungs-GesellschaftKöniginstrasse 107, 80802 München, Germany

Fax: +49 (89) 38 91-98 88E-mail: [email protected]: www.munichre.com

Andreas Silberhorn

Tel.: +49 (89) 38 91-33 66E-mail: [email protected]

Robert Kinsella


Dr. Thomas Dittmar


Ralf Kleinschroth


Sascha Bibert

Head of Investor & Rating Agency RelationsTel.: +49 (89) 38 91-39 10E-mail: [email protected]

Appendix

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Disclaimer

This presentation 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.

Appendix

Documents

Investors' Day on ERGO - Munich Re · 2019. 8. 17. · 5 0 7 1 2006 e Changing Gear programme ERGO contributes to EPS growth target EPS 2004–2006 Munich Re target 2010 in € 1