Munich Re CFO Christoph Jurecka erläutert die Bilanz 2018

Good morning from my side. I would like to start my part of the presentation by taking you a bit into the engine room of our work. On page 14, you see an overview of various metrics: you see Solvency II, you see the rating, you see HGB, and IFRS. The core task of the CFO area is to align these metrics and, from the steering impulses that are sometimes contradictory, to find compromises, find an optimum, and carry out optimization. That is sometimes quite difficult because the things are not consistent. There is a bit of hope with IFRS 17 that it might align things a bit, but I would not overestimate that hope yet; we have to remain realistic, and the purpose of the different metrics is also quite different. So that will remain part of the task. And when we write here nicely that IFRS 4 is the basis for performance management, that does not simply mean it is performance management; we must naturally ensure that we keep our capital situation in view, that we keep Solvency II and the economic view in view, that we keep HGB in view, that we pay attention to the rating—all these things simultaneously, optimizing as far as possible. In 2018, from my perspective, that succeeded well, because if you go with me to the next page, you will see that we achieved a very good result in 2018 according to all metrics, and that despite—and that was also mentioned in the wedding—despite it being a year characterized by quite volatile and difficult capital markets, and on the other side, on the claims side, it was also quite a difficult year. In IFRS, we hit exactly 2.3 billion euros in the middle of our earnings range. Economic earnings, i.e., the real economic value creation, also in the box for Solvency II principles, at 1.9 billion, is from my perspective also very good. It is a bit below IFRS, but if you consider what was going on in the capital markets, then 1.9 billion shows that we were very, very well able to compensate for this unfavorable capital market development. You can also see that when you look at the capitalization, also at the Solvency II capitalization: 245 percent, thus stable and still clearly above our target capitalization. I will say more about that later. An HGB result of 2.2 billion euros, also stable compared to the previous year and roughly at the level of our capital return to shareholders, then also allows this capital return and is thus also a sign of stability. At this point, the already mentioned proposed dividend increase, together with the continued share buyback, underscores that we are confident that we can continue to deliver very attractive results going forward and is a clear sign of our strength going forward. On the next page, I would like to go into a bit how we benefit from building on a very solid balance sheet, and I have listed one or two examples for that. Basically, one can say that a strong balance sheet is really advantageous for two reasons. One reason is that in negative developments, you have good protection against, for example, adverse capital market developments, against increased claims burden—that you are really very stable and solidly positioned. On the other side, the strong balance sheet is naturally also a good and welcome support for future earnings power. For example, if we look at the topic of reserving, you know we are traditionally very cautious. That is naturally a very, very nice protection against unfavorable developments; we feel very well armed there. On the other side, we have been able to benefit for years, many years already, from ongoing reserve releases that have supported our result very well. On the investment side, I have a defensive portfolio that, despite this defensiveness, was able to deliver a 2.8 percent return on investment in 2018, and that with still 22 billion in reserves on the investment side, which are inevitably realized again and again when one makes reallocations in normal portfolio management activities. We have a prudent and cautious provisioning practice for taxes, which has again and again led to releases in the past, so the tax rate has benefited from that. And we also have very, very little risk on the balance sheet in intangible assets compared to the industry. I would like to explain two examples of this in a bit more detail on the next two pages and begin with our reserve position. We have already spoken about this before: our fundamental approach to the topic of reserving is that at the slightest sign of a small deterioration, we react immediately, and we react very, very clearly in the sense that we are really cautiously positioned. If there is a positive development, then we take our time, and only over time and very, very slowly are we then ready to reflect this positive development in the reserving. A large part of this caution in the reserves comes from that—that we really handle it very prudently. The reserve strength was unchanged in 2018 compared to 2017, meaning it also did nothing. Part of the task of reserving is also a very consistent monitoring of all our reserves; there is a very elaborate and consistently conducted regular monitoring process basically for all reserves, and especially where we know that there are particular challenges in certain markets regarding reserve strength, we then look twice as closely. The result of this cautious reserving is then run-off gains: in 2018, more than 9 percent. And here on the right side, you see only the run-off of basic claims at 4.6 percent, and that was already above the original guidance of 4 percent. And the 4.6 percent is also equally high in absolute numbers as the figure in 2017, which was 5.2 percent, but that was based on a then still smaller portfolio, Joachim less of the growth we were also able to achieve. And so here too, stability, overfulfillment also of the reserve, of the positive reserve development. In summary, I think one can rightly say that through our strong reserves, we have very nice flexibility going forward regarding the topic of result support, also regarding the result. On the next page, then a bit more details on the investments. Our portfolio is traditionally characterized by having fewer risk-bearing assets than the industry average, and that also regarding the rating quality, i.e., the credit risk in our assets, we are also clearly more cautiously positioned than the industry average. This brings very good protection in the event of capital market turmoil, as could be seen very, very well in the fourth quarter of last year. That was, if you will, almost the perfect storm: interest rates in the eurozone fell, the US dollar fell in the fourth quarter, spreads widened, equities went significantly down. So a very, very difficult fourth quarter, from which you could see that it was practically not visible in IFRS and that we could also compensate very, very well in economic terms. Over the years, this cautious approach to investments, together with the fallen interest rate level, has also led to us being able to build up considerable reserves: 22 billion. That is partly unavoidable; when we reallocate, it almost never happens that there are no reserves. It is also quite normal that we regularly have larger gains. Beyond that, in selected cases, we also consciously realize them as part of our asset liability management. It is important to note that we are very restrained in lifting valuation reserves and particularly do not endanger the substance and do not weaken it. All these reserves are attributable to the shareholder—I should perhaps also say that large parts of them naturally also belong to the policyholders; these are all pre-tax portions. So these are reserves that benefit stakeholders. The flexibility we have with them, however, also means that both we and our customers benefit from the strong balance sheet and the sharpening of our senses. On the next page, I would then also say something about Solvency II: the ratio we already saw at 245 percent, still above the optimal range. Naturally, we are asked again and again why we are not more active in reducing this ratio into the optimal range. I think the fourth quarter showed quite well why a positioning somewhat above this optimal range makes sense in difficult capital markets, and the macroeconomic uncertainty has not reduced since then. At the same time, this reserve and capital buffer naturally brings financial strategic leeway that we can use, be it for organic growth, be it for M&A, be it for further capital returns. All would be possible. And if I may refer as an illustration to the year 2018: in 2018, we returned 2.3 billion in capital, showed significant organic growth, especially in reinsurance but also at ERGO, and in the intangible area with Lila, I think we made a very, very interesting acquisition that Torsten Jeworrek will certainly speak about briefly later. So we actually use all these strategic options that present themselves to us in reality. We do all this under the proviso that in case of need, we can go beyond the annual result in capital return. That was very pronounced in 2017, but even for 2018, we are now paying out more than we earned. So that belongs to our approach; we do that, and we naturally ensure that the return on equity remains attractive. And the last point, less to mention: no significant increase in risk appetite; on the contrary, what worked very well regarding the growth we were able to generate, also towards the end of the year, is that for the first time in many years, we are in a risk situation where market and credit risk—capital market-driven risks—are smaller than the insurance technical risk. Under insurance technical risk, that is our core business where we earn our money, where we also want to position ourselves strategically. And that we now have a market risk that lies below the insurance technical risk, that it has also somewhat given up its dominance, the insurance technical risk—that means a very, very good positioning also into the year 2019, where we all know there are still large macroeconomic uncertainties ahead of us, and basically one or another surprise cannot be ruled out for the year 2019. With that, I am at the end of my presentation.