Analysis of our capital structure

The capital structure of the Munich Re Group is essentially governed by its activity as an insurer and reinsurer. Investments on the assets side of the balance sheet serve mainly to cover technical provisions (75.4% of the balance sheet total). Equity (9.9% of the balance sheet total) and bonds classified as strategic debt (2.5%) are the most important sources of funds.

enlarge

Reinsurance business accounts for approximately 32% of technical provi sions, and primary insurance business for about 68%. In contrast to liabilities under loans and securities issued, we cannot foresee with certainty how high our liabilities from underwriting business will be and when they will arise. This is especially true of reinsurance. Whilst in property insurance a major portion of the provisions is generally paid out after one year, in life insurance or liabil ity insurance substantial amounts are still due decades after the contracts were concluded. The currency distribution of our provisions reflects the global orientation of our Group. Besides the euro, our main currencies are the US dollar and pound sterling. We ensure that our business is sufficiently capitalised at all times by monitoring the situation continuously and taking suitable measures, which are dealt with in the section on capital management.

Strategic debt has not changed significantly compared with the previous year. A detailed analysis of the structuring of this type of funding is provided in the section on strategic debt on page 116 f.

Given our solid capitalisation, we decided in May 2008 to continue our share buy-back and repurchase shares with a value of €1bn by the next Annual General Meeting on 22 April 2009. We have virtually completed this share buyback programme 2008/2009. By 2 March 2009, we had repurchased 8.9 million shares worth €989m. This means that since November 2006, including dividends for the financial years 2006 and 2007, we have paid out a total of around €6bn to our shareholders.

On account of this capital returned and a strong decrease in net unrealised gains, equity decreased by €4,160m in 2008. Also, equity’s share of total cap ital fell marginally compared with the previous year.

Since we are an international (re)insurance group, some of our financial resources are subject to restraints on disposal. Supervisory authorities in some countries, for example, require foreign reinsurers to establish premium and reserve deposits with primary insurers. At the reporting date, this affected investments with a volume of €11.9bn (12.1bn).

In addition, there were contingent liabilities, which are described in the notes to the financial statements (see here). Off-balance-sheet financing does not play a significant role in the Munich Re Group.