Munchener Ruckversicherungs-Gesellschaft AG · XETR:MUV2
Munchener Ruckversicherungs-Gesellschaft — Munich Re — Investor Day (December 2022)
51 slides from Munchener Ruckversicherungs-Gesellschaft's investor day presentation, Dec 15, 2022
Slide 1: Investor Day (IFRS 17)
Munich Re Group Investor Day (IFRS 17) 15 December 2022 Christoph Jurecka Investor Day 2022 15 December 2022 1
Slide 2: Disclaimer
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
Slide 3: Agenda
Investor Day (IFRS 17) Agenda 01 02 03 04 05 Introduction Balance sheet P&L Segment specifics Outlook Investor Day 2022 15 December 2022 3
Slide 4: Introduction
Introduction Investor Day 2022 15 December 2022 4
Slide 5: Roadmap IFRS 9/17
Introduction Roadmap IFRS 9/17 Munich Re prepared for transition to new accounting regime Investor Day – IFRS 17 Publication of Publication date Publication of Publication of key figures annual report 2022 H1 2023 annual report 2023 and outlook 2023 Opening balance sheet H1 figures and 2023 result a
Slide 6: IFRS 9/17 is a landmark change
Introduction IFRS 9/17 is a landmark change Addressing shortcomings of the former accounting regime NO IMPACT ON CONSISTENCY Market-consistent valuation to solve systematic IAS 39/IFRS 4 Business strategy accounting mismatches Dividend and share IFRS 9/17 better buy-back policy CLARITY Insurance bus
Slide 7: Accounting options to implement IFRS 9/17
Introduction Accounting options to implement IFRS 9/17 Following our guiding principles, while increasing transparency ▪ Alignment with Solvency II ▪ Acceptable P&L volatility Guiding and internal steering ▪ Show all earnings in P&L principles ▪ Maintain prudency ACCOUNTING OPTIONS Discount rates OC
Slide 8: Transition to IFRS 9 implies higher P&L volatility
Introduction Transition to IFRS 9 implies higher P&L volatility Munich Re uses OCI option to dampen volatility Impact on Munich Re OCI ▪ OCI option for fixed-income investments ▪ Fixed income and loans in general1 reduces accounting AL mismatch ▪ Share of fully P&L-sensitive investments P&L increase
Slide 9: Higher share of P&L-sensitive investments
Introduction Preliminary/unaudited Higher share of P&L-sensitive investments Increase in total investments due to stronger reflection of fair values IAS 39 IFRS 9 Total investments Deposits retained Amortised costs Participations Participations Real estate 31% 4% Real estate (non-VFA) ~€230bn ~€240b
Slide 10: Transition to IFRS 17
Introduction Transition to IFRS 17 Better reflection of Munich Re’s economic earnings power Impact on Munich Re ▪ Current measurement of liabilities, ▪ Discounting leads to lower combined ratio discounting of expected cash flows ▪ CSM better reflects value of long-term based on current yield curves
Slide 11: Insurance liabilities under IFRS 17
Introduction Insurance liabilities under IFRS 17 Generally following a building-block approach (General Measurement Model) Future cash 1 1 in-/outflows Estimation of all future cash flows within the boundary of each contract Outflows 2 2 Discounting Discount rates adjust cash flows for the time valu
Slide 12: Two types of IFRS 17 insurance liabilities: LRC and LIC
Introduction Two types of IFRS 17 insurance liabilities: LRC and LIC Differentiation between pre-claim and post-claim liability General Premium Variable Measurement Allocation Fee Approach Model (GMM) Approach (PAA) (VFA) IFRS 4 analogues Liability for remaining Cash in-/ outflows ✓ Unearned premium
Slide 13: Measurement models according to IFRS 17
Introduction Preliminary/unaudited Measurement models according to IFRS 17 Reflecting underlying business specifics of each segment Share of insurance revenue % Reasoning Group Reinsurance ERGO General Reflects economic Measurement characteristics of 30% 100 59 Model (GMM) long-tail business 2 47 Pr
Slide 14: Transition approaches under IFRS 17
Introduction Preliminary/unaudited Transition approaches under IFRS 17 Depending on availability of historical data Full Retrospective Approach (FRA) ~10% Fair Value Approach (FVA) ~40% DESCRIPTION DESCRIPTION Standard transition approach, required data Alternative transition approach if full retros
Slide 15: Balance sheet
Balance sheet shansekala / iStockphoto / Getty Images
Slide 16: IFRS 9/17 implies a new balance-sheet structure
Balance sheet IFRS 9/17 implies a new balance-sheet structure Changing assets and liabilities Assets Equity and liabilities A. Intangible assets Change due to IFRS 17 I. Goodwill A. Equity II. Other intangible assets I. Issued capital and capital reserve II. Retained earnings Change due to IFRS 9 B.
Slide 17: Equity at transition
Balance sheet Preliminary/unaudited Equity at transition Shift of unrealised gains from equity to CSM €bn Change in valuation base Equity IFRS 4 31.12.2021 30.9 ▪ Change from IFRS 4 to IFRS 17 best-estimate cash flows ▪ Discounting of insurance cash flows Change in ▪ Current off-balance-sheet reserv
Slide 18: Interest rates aligned with EIOPA Solvency II rates
Balance sheet Change in valuation base 1 Interest rates aligned with EIOPA Solvency II rates IFRS 17/EIOPA yield curves Bottom-up approach applied with EIOPA SII yield curves as risk-free rates Euro 30.09.2022 4% 31.12.2021 3% 2% In general, changes of 1% Risk-free rates discount rates will be 0% (E
Slide 19: Risk adjustment derived with cost-of-capital approach
Balance sheet Preliminary/unaudited Risk adjustment 2 Derived with cost-of-capital approach, aligned with Solvency II Risk adjustment Risk adjustment vs. Solvency II risk margin €bn €14.8bn Life and health reinsurance 3.9 (70%) ▪ Diversification Property-casualty reinsurance 0.3 (6%) ▪ Full usage of
Slide 20: CSM reflects value of long-term life and health business
Balance sheet Preliminary/unaudited CSM – Reflects value of long-term life and health business, 3 while loss component reflects conservative reserving in P-C €bn CSM contributors Life and health reinsurance 9.8 (44%) L&H Mortality, longevity and living benefits Property-casualty reinsurance 0.0 (0%)
Slide 21: Minor impact at transition to IFRS 17 on RoE
Balance sheet Preliminary/unaudited RoE calculation based on adjusted equity 4 Minor impact at transition to IFRS 17 Impact of IFRS 17 transition on RoE €24.3bn –€0.1bn €24.2bn Return Consolidated result ERGO 6.0 4.2 on equity Average adjusted equity ERGO RoE increase due to slightly higher earnings
Slide 22: Debt leverage
Balance sheet Preliminary/unaudited Debt leverage Remains one of the lowest in the insurance industry €bn Impact of IFRS 17 transition on debt leverage 14.7% 10.7% Debt Strategic debt1 leverage Strategic debt1 + equity + CSM (after tax) 0.3 5.1 Debt leverage ▪ Slight decline of equity due to one-off
Slide 23: P&L
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Slide 24: P&L better reflects economic value creation
P&L P&L better reflects economic value creation Increase of overall earnings level due to transition to IFRS 9/17 Life and health Property-casualty reinsurance reinsurance ERGO ▪ Continued CSM release ensures ▪ Some earnings volatility from ▪ L&H: CSM as buffer under VFA higher earnings stability in
Slide 25: New P&L structure according to IFRS 9/17
P&L New P&L structure according to IFRS 9/17 Providing more transparency on Munich Re’s sources of earnings 1 Gross premiums written (Non GAAP) 1 Gross premiums written (GWP) Insurance revenue Use as non-GAAP measure to indicate sales performance 2 Insurance service expenses 2 Revenues and expenses
Slide 26: Insurance revenue lower than GWP
P&L Preliminary/unaudited Insurance revenue lower than GWP Sales performance is unaffected Reinsurance €bn 50 –11 39 Munich Re Group €bn Main drivers of delta between 70 –12 insurance revenue and GWP GWP Delta Insurance 58 revenue ▪ Exclusion of fixed commissions ▪ Exclusion of non-distinct investme
Slide 27: IFRS 17 measurement models
P&L IFRS 17 measurement models Different impact on earnings General Measurement Premium Allocation Variable Fee Model (GMM) Approach (PAA) Approach (VFA) Change in interest-rate assumptions OCI OCI CSM Experience variances1 P&L P&L CSM Assumption changes (LRC)2 CSM --- CSM Release of CSM P&L --- P&L
Slide 28: GMM and VFA: CSM release vs. replenishment
P&L Preliminary/unaudited GMM and VFA: CSM release vs. replenishment New business offsets regular CSM release ILLUSTRATIVE CSM after release CSM replenishment through new business ▪ Replenishment of CSM and risk €22.3bn adjustment from new business (for L&H reinsurance partly reported as operating c
Slide 29: Attributable vs. non-attributable expenses under IFRS 9/17
P&L Preliminary/unaudited Attributable vs. non-attributable expenses under IFRS 9/17 All expenses will be shown within the operating result % ILLUSTRATIVE Other Non-attributable expenses 20 expenses 30 ▪ More than 10% of former admin expenses are non-attributable – Other and costs that are not direc
Slide 30: IFRS 17 vs. Solvency II – Sum of equity and CSM
P&L Preliminary/unaudited IFRS 17 vs. Solvency II – Sum of equity and CSM (after tax) approximately equals SII eligible own funds, despite methodological differences Methodological bridge IFRS result vs. SII economic earnings SII/IFRS balance-sheet reconciliation €bn IAS 39 (overlay) / IFRS17 ILLUST
Slide 31: Reinsurance
Reinsurance Segment specifics
Slide 32: P-C reinsurance: Operating result generally stable
Reinsurance – Property-casualty reinsurance P-C reinsurance: Operating result generally stable Currently benefitting from increasing interest rates Gross premiums written (Non GAAP) Major earnings drivers 1 Insurance revenue 1 Insurance revenue Significantly lower compared to IFRS 4 earned premiums
Slide 33: P-C reinsurance: Reconciliation of combined ratio
Reinsurance – Property-casualty reinsurance P-C reinsurance: Reconciliation of combined ratio Declining noticeably under IFRS 17 ILLUSTRATIVE Major drivers ▪ Deduction of commissions from numerator and denominator leads Expense ratio to overall decrease of C/R1 ▪ Discounting of claims ▪ Changes in l
Slide 34: P-C reinsurance: Conservative reserving approach
Reinsurance – Property-casualty reinsurance P-C reinsurance: Conservative reserving approach Remains unchanged under IFRS 17 ILLUSTRATIVE Liability for incurred claims (LIC) Reserves continue to be set at Prudency elements Risk the upper end of the range of adjustment possible best estimates ▪ Liabi
Slide 35: P-C reinsurance: Loss component
Reinsurance – Property-casualty reinsurance P-C reinsurance: Loss component Results mainly from conservative loss picks and granular grouping ILLUSTRATIVE 100% PAA used for newly recognised P-C reinsurance business Sizeable loss component expected Prudency elements Loss Granular grouping component ▪
Slide 36: Life and health reinsurance: Overall, very profitable business
Reinsurance – Life and health reinsurance Life and health reinsurance: Overall, very profitable business Reflected in higher sustained earnings level Gross premiums written (Non GAAP) Major earnings drivers 1 Insurance revenue 1 Insurance revenue Similar order of magnitude as IFRS 4, some conceptual
Slide 37: Life and health reinsurance: Reconciliation of CSM and RA
Reinsurance – Life and health reinsurance Preliminary/unaudited Life and health reinsurance: Reconciliation of CSM and RA1 Increase of CSM due to profitable business growth ILLUSTRATIVE CSM/RA at opening 9.8 3.9 €13.7bn ▪ Business growth to New contracts New business definition very narrowly defined
Slide 38: ERGO
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Slide 39: ERGO L&H Germany: CSM as buffer under VFA
ERGO – Life and Health Germany ERGO L&H Germany: CSM as buffer under VFA Ensuring higher earnings stability Gross premiums written (Non GAAP) Major earnings drivers Insurance revenue 1 Insurance service result Insurance service expenses Under VFA the main source of income, consisting of CSM release,
Slide 40: ERGO L&H Germany: Reconciliation of CSM and RA
ERGO – Life and Health Germany Preliminary/unaudited ERGO L&H Germany: Reconciliation of CSM and RA¹ CSM expected to decrease over time ILLUSTRATIVE CSM/RA at opening 9.4 1.0 €10.5bn CSM Level of new business determined by business growth in ▪ Adjusted for all New contracts health and life new book;
Slide 41: ERGO L&H Germany: CSM under the VFA business
ERGO – Life and Health Germany ERGO L&H Germany: CSM under the VFA business Recognition of profits from expected over-return ILLUSTRATIVE Balance sheet view of the VFA business in case of ▪ Valuation of cash flows based on risk-free increasing market values of investments interest rates Released thr
Slide 42: ERGO P-C Germany: Operating result generally stable
ERGO – Property-casualty Germany ERGO P-C Germany: Operating result generally stable Currently benefitting from increasing interest rates Gross premiums written (Non GAAP) Major earnings drivers 1 Insurance revenue 1 Insurance revenue Insurance service expenses Comparable to IFRS 4 earned premiums 2
Slide 43: ERGO P-C Germany: Reconciliation of combined ratio
ERGO – Property-casualty Germany ERGO P-C Germany: Reconciliation of combined ratio Slightly declining under IFRS 17 ILLUSTRATIVE Major drivers ▪ Methodological changes, e.g. regarding accruals of Expense ratio earning patterns and seasonality of costs ▪ Discounting of claims ▪ Changes in loss compo
Slide 44: ERGO International: Major earnings drivers
ERGO – International ERGO International: Major earnings drivers Influenced by use of all IFRS 17 measurement models Gross premiums written (Non GAAP) Major earnings drivers Insurance revenue Insurance service expenses 1 Insurance service result 1 Insurance service result Mainly driven by CSM release
Slide 45: Outlook
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Slide 46: Outlook 2023
Outlook Outlook 2023 KPIs adjusted to IFRS 9/17 Group Insurance revenue (gross) Net result Return on investment ~ €58bn ~ €4.0bn > 2.2% Combined ratio ERGO Insurance revenue (gross) Net result P-C Germany International ~ €19bn ~ €0.7bn ~ 89% ~ 90% Combined ratio Total technical result Reinsurance In
Slide 47: Ambition 2025
Outlook Ambition 2025 Calculation of RoE and EPS adjusted to IFRS 9/17 Old Group targets 2025 NEW Group targets 2025 Improved RoE, 2025 12–14% 14–16% ▪ No update to operational Ambition EPS growth1 2025 targets – only “mechanical” translation ≥5% ≥5% to IFRS 9/17 ▪ Increased Group RoE DPS growth2 ow
Slide 48: Appendix
Appendix
Slide 49: List of abbreviations
Appendix List of abbreviations BBA Building Block Approach GMM General Measurement Model MRA Modified Retrospective Approach BEL Best-estimate liability GoC Group of contracts NDIC Non-Distinct Investment Component CF Cash flow GWP Gross premiums written OCI Other comprehensive income CoC Cost of ca
Slide 50: Glossary of main terms in alphabetical order
Appendix Glossary of main terms in alphabetical order Contractual service A component of the asset or liability for the group of Liability for The portion of the fulfilment cash flows that relates to coverage that will be provided margin (CSM) insurance contracts that represents the unearned profit
Slide 51: For more information, please contact
Appendix For more information, please contact Investor Relations team Christian Becker-Hussong Thorsten Dzuba Christine Franziszi Head of Investor & Rating Agency Relations Tel.: +49 (89) 3891-8030 Tel.: +49 (89) 3891-3875 Tel.: +49 (89) 3891-3910 Email: tdzuba@munichre.com Email: cfranziszi@munichr