Outlook

Back in September 2008, in response to the emerging economic crisis, we conducted a Group-wide project to examine the impact of a recession on insurance business, in order to identify suitable control measures. This analysis included all divisional units and the Munich Re Group’s experience during the 1929-33 global economic crisis. The historical analysis showed that Munich Re only suffered a very small decline in profits, because there are countervailing effects in insurance, e.g. in the property-casualty sector. A mild recession in the industrialised nations in 2009 can be expected to result in a short-term reduction in Munich Re’s profit but also in opportunities from the new competitive situation that would arise. In a prolonged, deep recession, however, we expect there to be material effects, especially in credit reinsurance and special lines of property-casualty business, as well as in life primary insurance and investments. The reinsurance segment is currently experiencing a heightened interest in major transactions that often contain substantial credit risks, commit liquidity reserves, or exhibit systemic risks in the current market environment. The identification and exact risk assessment of such transactions represent a considerable additional challenge for risk management. Our divisional units have been sensitised by IRM to the significance of underwriting policy and pricing policy in this market phase.

The future regulatory requirements for risk management have become more transparent as a result of the progress made in the European Union’s Solvency II project, particularly the publication of the draft Solvency II directive in mid- 2007 (updated version in 2008). Munich Re supports these developments, which accord with our internal risk management approaches in all the main elements. Agreement on the directive between the European Council and the European Parliament is still pending.

In 2008, Munich Re adopted a concept for an integrated internal control system (ICS) to systematise and harmonise the Munich Re Group’s existing risk management and its risk-control and steering functions. The Group-wide programme set up to implement the ICS is based on existing ICS elements. It takes account of new statutory and supervisory requirements as well as internal rules and principles, with a view to identifying, evaluating, controlling and managing risks even more efficiently and effectively. The ICS thus represents a significant component of our corporate governance. In addition to the ICS, other statutory and supervisory requirements resulting from Section 64 a of the German Insurance Control Act and the German Minimum Requirements for Risk Management are being identified and addressed.