Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (MUV2) Earnings Call Transcript & Summary

Wonderful. Good morning, ladies and gentlemen. As Chair of the meeting, I now open the Annual General Meeting 2020 of Munich Re Insurance Company. As you may have gathered from the invitation, according to the provisions of the law on measures against COVID-19, this year's Annual General Meeting is being held as a virtual Annual General Meeting. Thank you for following the video and audio transmission of this Annual General Meeting. My name is Nikolaus von Bomhard, and I admit, I imagine my first presentation to you to be quite different. As the Chairman of the Supervisory Board, I will chair this meeting as stipulated in the Articles of Association. Today's Annual General Meeting has been convened in due time and form when it was published in the Electronic Federal Gazette on the 7th of April 2020. This virtual Annual General Meeting is being transmitted in full on our shareholder portal. Until we begin to feel questions, everyone can follow the live broadcast of this virtual Annual General Meeting. Therefore, I would like to point out to shareholders and proxies, while following this virtual Annual General Meeting via the Internet that it is necessary to log into the shareholder portal to be able to follow the meeting in full. Mr. Wenning, the Chairman of the Board of Management, is sitting next to me at a good distance. Other members of the Board of Management follow the video and audio transmission of this Annual General Meeting, some of them in the room next door. The members of the Supervisory Board also follow the video and audio transmission of this Annual General Meeting. Mr. Tilman Götte, notary public, will take the minutes of today's virtual Annual General Meeting. And as you can see, he is sitting next to me. For relevant information and instructions regarding the course of this meeting included in Annual General Meeting on the Internet, and you can download them to your personal electronic devices at any time. The statements and reports mentioned under Item 1 and the proposal of the Board of Management, full year appropriation of the net retained profits are included in the group Annual Report 2019 or in the Annual Report 2019 of Munich Re. You will find the report of the Supervisory Board in the group Annual Report 2019, on Pages 9 to 15, the corporate governance statements on the following Pages 16 to 28 and the compensation report on Pages 36 to 53. To summarize, nonfinancial statement from Munich Re and the group for the 2019 financial year is available on the Internet. The Supervisory Board also looked at personal matters, and Mr. Kassow has been appointed to the position on the Board. He follows Mr. Pohlchristoph who is going to resign from his position because his term in office expired, and he's not extended this term for personal reasons, and he's going to leave the company tomorrow. The Board of Management and the Supervisory Board would like to expressly thank Mr. Pohlchristoph for his successful work at all 17 years at Munich Re. Mr. Kassow will be in charge of the Asia Pacific and Africa division and for the central divisions, central procurement and services. He's been with the group since 2016 and will be Chairman of the Board of Management of ERGO Deutschland AG in Düsseldorf until tomorrow. In addition to the very comprehensive explanations in the group annual report, I would like to talk in more detail about the compensation report of the management. The compensation report is based on the compensation system for the Board of Management, which has been approved by the 2018 Annual General Meeting with a majority of 92%. The compensation system meets the relevant company and supervision-related lead requirements, including those of the German Corporate Governance Code. The compensation mainly consists of a fixed nonperformance and variable profit-related performance components and the company pension. In its meeting on the 17th of March 2020, the Supervisory Board took a decision on the evaluation of the annual bonus 2019. And for 2019, consolidated results according to IFRS of EUR 2.7 million were achieved. Based on the defined linear scale, the company achieved 130% of its targets. Regarding the appreciation of the overall performance, the Supervisory Board's considerations based on the predefined criteria for it have led to the conclusion that neither increases nor reductions will be made when assessing attainment of targets. The multiyear bonus of the new compensation system, by the way, is due for the first evaluation in 2022, and is based on the development of our total shareholder returns, which is measured in relative terms in comparison with the peer group. This much about the compensation report. According to the provisions of the Second Shareholder Rights Directive, ARUG II, we will submit the compensation system for the Board of management at next year's Annual General Meeting for renewed approval. Ladies and gentlemen, I'll now proceed to Item 2 of the agenda regarding the appropriation of the net retained profits achieved in the 2019 financial year. The Board of Management and Supervisory Board have updated their resolution proposed under this agenda item. The net retained profits of 2019 financial year of EUR 1,414,315,037.80 is planned to be appropriated as follows. Payment of a dividend of EUR 9.80 for each no par share entitled to a dividend, i.e., EUR 1,372,969,523.80. And then carried forward to new account, EUR 41,345,514. And Item 3 of the agenda, Supervisory Board and Board of Management propose that approval for the actions of the members of the Board of Management in the 2019 financial year be given for this period. And Item 4 of the agenda. The Supervisory Board and Board of Management propose that approval for the actions of the members of the Board of Management of the Supervisory Board in the financial year be given for that period. And Item 5 of the agenda, the Supervisory Board proposes to elect to the Supervisory Board, Mr. Carsten Spohr as representative of the shareholders for Dr. Kurt Wilhelm Bock remaining -- Bock's remaining term in office until the end of the Annual General Meeting 2024. Mr. Bock will resign from his position on the Supervisory Board at the end of today's Annual General Meeting. And Mr. Bock has been a member of the Board since April 2018. And during his time on the Supervisory Board, he made an important contribution to the development of the company. We have greatly appreciated his wise advice. And at this time, thank him again for his dedicated work on our Supervisory Board and on individual committees. And on agenda Item 5 of today's AGM, the Supervisory Board, on recommendation of the Nomination Committee, proposes to the meeting to elect to the Supervisory Board Mr. Carsten Spohr as a representative of the shareholders for Mr. Bock's remaining term of office, i.e., until the end of the general meeting 2024. The election proposal of the Supervisory Board takes into consideration the targets decided by the Supervisory Board regarding its composition, and takes as orientation, the competence profile of the entire Board. Let me now introduce Mr. Spohr to you briefly. From 2007 to 2010, Mr. Spohr has been CEO of Lufthansa Cargo AG. Since 2011, Mr. Spohr has been a member of the Board of Management of Deutsche Lufthansa AG, and during that time, was Chairman of the Lufthansa Passage Management Board. Since 2014, he's been CEO of Deutsche Lufthansa AG. We were able to attract a very experienced corporate executive for the Supervisory Board of Munich Re. The Supervisory Board selected Mr. Spohr, having considered the catalog of criteria drawn up by the Nomination Committee, and at the same time, also considered the targets decided by the Supervisory Board regarding its composition. In particular, we considered expertise, management experience, especially in international context, since these are relevant criteria when giving advice about our operations and when supervising them. Thanks to his many years as CEO of the largest European Airline group. Mr. Spohr has gathered comprehensive experience in the strategic and operative management of an enterprise. In addition, he will enrich the Supervisory Board on the strength of his technical expertise in international orientation. Moreover, he will bring far-reaching experience in Supervisory Board work, which he gained over many years to this Board as well as value of expertise in the field of corporate governance. Surely, the Supervisory Board and I personally obtained reassurance from Mr. Spohr to ensure that he will be able to spend the time required and expected for this position, particularly in these times of the corona crisis. In keeping with the code, Mr. Spohr is to be considered independent. Well, this much about agenda Item 5. And Item 6, as announced when convening this Annual General Meeting on the 7th of April this year, the Supervisory Board and the Board of Management proposed to authorize the company to acquire and dispose off own shares to enable exclusion of tender and subscription rights and to retire acquired treasury shares. The current authorization is to be -- or is proposed to be revoked. In addition, the Supervisory Board and the Board of Management proposed under agenda Item 7 to authorize the company to issue convertible bonds, bonds with warrants, profit participation rights and profit participation certificates, including combinations of such instruments and hybrid financial instruments and to exclude the subscription. In addition, a resolution to cancel the contingent capital 2015 to create a new contingent capital and to amend the Articles of Association accordingly. And all this is to be passed. Under agenda item, as announced, when convening this Annual General Meeting, further amendments of the Articles of Association will be voted on. A synopsis of the respective amendments of the Articles of Association is available for your information on our Internet page. Well, Mr. Wenning. I now would like to ask you to present the report on the 2019 financial year, and at the same time, present an outlook for the current financial year.

Well, thank you, Mr. von Bomhard. Dear shareholders, dear colleagues, former and active colleagues, welcome to the Annual General Meeting of Munich Re. In this AGM, also in its pure digital form, we can see that coronavirus is influencing our lives considerably and also in quite remarkable ways. Whilst we are optimistic for the future, we first look upon current developments with concern. Our sympathy goes especially to all people and families directly affected. And our great respect and gratitude goes to the many working in health care as well as to those selflessly ensuring that our daily needs are met. Now we at Munich Re are, of course, also impacted by the effects of the coronavirus. In concrete terms, the weakness of the capital markets in recent weeks has been challenging. On top of this come claims, payments, for example, in connection with event cancellations and travel insurances as well as the ongoing global debate on whether or not, business interruption insurance covers pandemics or do not cover them. Now in the course of the year, here and in other classes of business, such as life and health insurance, we can expect further losses, which, together with the major losses outside the coronavirus complex such as natural catastrophe losses, will likely exceed our large loss expectations for the full year. Now our original target of EUR 2.8 billion in profit for 2020 is, thus, from today's perspective to be unattainable. At the same time, until any further notice, we are postponing the implementation of the share buyback program we had announced until we have greater knowledge of the actual burdens arising from the coronavirus and of any capital requirements for potentially promising organic or inorganic business opportunities. For us, this is a mark of good and responsible corporate governance. Moreover, COVID-19 has also radically changed every day working patterns across our entire group. At Munich Re, at ERGO, at MEAG, American Modern, HSB and many other group companies. Tens of thousands of colleagues are working from their home offices. They are operating in difficult conditions with all kinds of challenges. First, of course, servicing our clients as comprehensively as possible at the present time, while also scrutinizing all claims reported, justified or unjustified, and to clearly distinguish between them. So my gratitude is thus, of course, first and foremost, to our clients and partners for their professional corporation and trust. Most explicitly, it also goes out to our more than 39,000 members of staff who are, at the moment, doing an excellent job right now. I'm expressing this gratitude on behalf of the whole Board of Management, and I'm convinced that you too, dear shareholders, are particularly appreciative of these outstanding efforts of our members of staff in these challenging times. Now although we cannot yet foresee the exact effects of the coronavirus at this time, there's one thing that's already certain, our group is in a strong economic position. The probable short- and long-term costs of the pandemic are substantial. But for Munich Re, these will stay financially well manageable, to be quite clear. Munich Re's capitalization remains very solid. With our strong balance sheet, we remain a reliable partner for our clients. And furthermore, we're confident that we will come out relatively stronger from the coronavirus crisis. And we'll be able to seize and avail of the opportunities likely to arise. So dear shareholders, we are currently seeing, also in Europe, a global ongoing discussion, whether insurers are liable for the pandemic-related costs of businesses and private individuals. Even if these have been explicitly or implicitly excluded in the policies. Now it should be noted that the broad exclusion of systemic risks such as pandemics is virtually imperative and responsible risk policy. Because it ensures that going forward, we will always be able to pull our financial commitments to millions of clients and not in danger of this by overstretching ourselves financially. Reliability is a great value for Munich Re, a virtue we hold dearly. But at the same time, we also need to be able to trust and this needs and requires the rule of law. Retroactive intervention in contract is incompatible with the principles of the rule of law. And it would severely damage the foundations of insurance, and thus, going forward, benefits of insurance businesses. We are, therefore, relying on governments not to call these fundamental principles into question, but back to the preceding fiscal year of 2019. Now our strategic focus is working. We are, firstly, driving the digital transformation. And secondly, we are reducing complexity. And thirdly, last year, we earned more. Moreover, we are continuing to optimize our investments. Now firstly, we're becoming more digital, faster, and becoming more flexible. We are tapping into new digital access to insurance markets. Already in 2016, we had started an intensive cooperation with a start-up Next Insurance, which offers small- and medium-sized enterprises, digital insurance solutions in the U.S. market and addresses, thus, a higher margin market segment with a premium volume totaling USD 140 billion. Very soon, we will hold about 1/3 in that company. We're continuing targeted investment in data analytics and artificial intelligence. We are expanding our core competencies in risk assessment. ERGO has automated numerous business procedures and increased the number of robotics applications. As a result, the average processing time of applications in the Life segment has been halved. Aside from this, we're opening up new fields of business via the Internet of Things. Now this digital transformation is helping us consolidate our existing business, broaden Munich Re's profit base and bolster our competitive situation. Secondly, we are operating more efficiently, managing a growing business with fewer resources. ERGO has successfully sold a number of smaller national companies in order to sharpen its focus on relevant core markets. In reinsurance, we have bundled facultative reinsurance units and direct industry business into one single global unit. By lowering costs, we are opening up additional scope for investing in digitalization and new areas of business. And thirdly, we have earned more. In 2019, Munich Re generated a profit of EUR 2.7 billion. This means we increased our results, once again, and managed to exceed our profit target of EUR 2.5 billion. ERGO came in over its profits guidance, the result of rigorous implementation of the strategy program. In reinsurance, we posted substantial business and earnings growth. And here, too, we surpassed our target. Key for this was favorable investments and the high quality of our reinsurance portfolio, which more than made up for the high natural catastrophe losses in the second half of the year and reserved strengthening in some areas. We've restructured our investment process within the group with the aim of further improving the risk return profile of our investment portfolio. Munich Re remains an attractive investment, which, last year, once again, managed in digital comparison bottom -- top ranking in the total shareholder return. This also includes the systematic integration of sustainability aspects into our value creation. Recently early, we joined the Net-Zero Asset Owner Alliance and have undertaken to make our investments climate-neutral by 2050. Led by the United Nations, institutional investors with assets under management totaling over USD 4 trillion have come together, seeking to make investments climate-neutral by 2050, and thus, meet the targets of the Paris Climate Agreement to limit global warming, if possible, at 1.5 degree Celsius. Through our membership, we have enhanced our climate strategy and are taking on social responsibility. So dear shareholders, today, we are proposing to you an increased dividend of EUR 9.80 per share. During in-depth discussion with BaFin, Munich Re succeeded in demonstrating its high risk-bearing capacity even in the event of extreme losses. BaFin did not express any reservations against its dividend payment. So in view of our strong capitalization, we can well afford this dividend. As you can see, Munich Re can and is the partner to be relied upon. Stay on tomorrow, as an attractive investment for our shareholders, it's a competent partner for our clients and a responsible employer for our members of staff. So I would like to thank you for your trust also on behalf of the Board of Management and all our colleagues. We greatly appreciate your loyalty to Munich Re, and please stay healthy.

Thank you, Mr. Wenning, for your overview of the 2019 financial year and the current situation of Munich Re. On behalf of the Supervisory Board, I'd like to take the opportunity to thank the members of the Board of Management and all employees worldwide for your great personal commitment and success you achieved, which resulted in a very gratifying operating result in 2019. Now those watching us over the Internet, here, I would like to point out that at this point in time, the public part of this meeting will end. From this point on, only those shareholders of the company and their proxies who have joined via the shareholder portal will be able to follow the course of this Annual General Meeting. [Statements in English on this transcript were spoken by an interpreter present on the live call.]