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

Good morning, ladies and gentlemen. I now open the Annual General Meeting 2022 of Munich Reinsurance Company and welcome you most cordially. My name is Nikolaus von Bomhard. As Chairman of the Supervisory Board, I will chair this meeting as stipulated in the Articles of Association. Mr. Wenning, the Chairman of the Board of Management, is sitting here next to me. The 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 are also following the video and audio transmission of this Annual General Meeting. Sitting next to me, I welcome Mr. Jens Kirchner, Notary Public. He's going to take the minutes of today's virtual Annual General Meeting. The proxies of the company are also in attendance here. Today's Annual General Meeting has been convened in due time and form when it was published in the electronic Federal Gazette on the 18th of March, 2022. This year, this Annual General Meeting is being transmitted in full on our company website. Moreover, shareholders and their proxies can follow this Annual General Meeting via our shareholder portal. You can find all required information on rights and possible choices of the shareholders and their proxies in the invitation on the shareholder portal or/and on our Internet page This especially relates to exercising voting rights by postal vote or authorizing proxies and issuing instructions to proxies. These choices are especially available to you on the shareholder portal until voting begins. Registered shareholders and their proxies have the opportunity to submit questions on our shareholder portal before and on the 26th of April 2022. Later, the Board of Management and I will answer these questions on a voluntary basis, which means going beyond legal requirements, the company resolved to allow follow-up questions during today's Annual General Meeting. As explained in the invitation in more detail, shareholders and their proxies who submitted questions in due time can ask follow-up questions on the shareholder portal. Later, I will determine beginning and end of the period of time during which this will be possible. In addition, our shareholders and their proxies had the option also going beyond legal requirements, to submit written statements and video messages regarding items on the agenda to be published on the shareholder portal. These can be accessed on the shareholder portal until the end of this AGM. Moreover, some of the statements will be screened before your questions will be answered. Now briefly about countermotions and election proposals. Submitted countermotions and election proposals, including the reasons, for them have been made available on the company's Internet page insofar as it is required by law. In addition, you have the option to lodge objections against proposed resolutions via the shareholder portal. And finally, I also must point out that recording any part of today's Annual General Meeting is not permitted. I will announce the attendance later. Now ladies and gentlemen, I will now move on to the agenda items of the Annual General Meeting which I will now call. You will find the full text of all the agenda items and the resolutions as proposed by the management in the invitation to this Annual General Meeting published in the Federal Gazette on the Internet page of the company. All additional documents relevant to this Annual General Meeting have been available on the company's Internet page since the announcement of this Annual General Meeting. And moreover, on the 19th of April, 2022, we published my and Mr. Wenning's presentations in advance on the Internet. Dear shareholders, before I give the floor to Mr. Wenning, I would like to elaborate on the report of the Supervisory Board and highlight a few topics the Supervisory Board particularly intensively dealt with in the previous financial year 2021. Among others, the key issue were the international reinsurance activities. Next to the regions, Asia Pacific and Africa, the Supervisory Board, in particular, focused on the core market, North America, the market developments over there and the business perspectives of Munich Re. In addition, the special focus was on the area of risk solutions. Here, market environment, business strategy and its inclusion in Ambition 2025 took center stage. In his presentation, Mr. Wenning will elaborate on the Risk Solutions business and, in particular, on its gratifying development during the previous financial year. In addition, we monitored various strategic initiatives and advised the Board of Management in these matters, particularly in the context of digitalization. As always, work in the committees of the Supervisory Board played a significant account. Most recently, the Supervisory Board discussed the situation in Ukraine. In his presentation, Mr. Wenning will detail repercussions of this geopolitical crisis on our business. I take this opportunity to state that we are very dismayed that this will of aggression. We express our deepest sympathies for everyone in Ukraine suffering from this war. During the previous period under review, we also had an in-depth look at corporate governance. In other words, good and responsible corporate management. Nowadays, it matters more than ever. For this reason, we were very delighted in December 2021 to be informed that Munich Re has again been awarded the first place as a result of the evaluation by DVFA, the Society of Investment Professionals in Germany. Furthermore, we managed to defend the top position among the extended group of DAX40 companies. According to the DVRA scorecard, corporate governance of Munich Re is excellent. This rating has been given to any other company among the DAX40 family. I believe this is a great acknowledgment and, at the same time, an incentive for the Supervisory Board to continue to further develop our corporate governance. At present, it is above all about suitable measures to address the challenges in the context of sustainability. Here, we define more precisely the responsibilities of the Audit Committee regarding the ESG risks. Regarding agenda item 7, I would like to emphasize, in particular the extended responsibilities of the standing committee, who from now on will deal with sustainability issues on a regular basis. As a result of this new key issue, the Standing Committee is planned to be renamed Presidium and Sustainable Committee. Establishing the Sustainability Committee is a clear acknowledgment on the part of the Supervisory Board of the topics of environmental, social and governance, in short, ESG. At the same time, this will determine a robust framework to accompany sustainability initiatives of the Board of Management in a competent manner. In his presentation, Mr. Wenning will elaborate on selected initiatives. Speaking of sustainability, please allow me to make the following statement. I've noticed occasional excessive expectations and inordinate legal requirements, for instance, concerning the EU taxonomy. In practice, it is nearly impossible to meet all expectations. We must maintain a sense of proportion and may not, though agreeing to the substance of this important objectives of sustainability obstruct the business of this company by making disproportionate or even unreasonable bureaucratic demands. I will now move on to the compensation or remuneration report, item 6, on our agenda. For the first time, the compensation report is published in the new format. Board of Management and Supervisory Board prepared this report in accordance with the requirements of ARUG II, the second shareholder rights directive. Today, it will be presented to the Annual General Meeting for approval. It outlines compensation granted in each case and payable to the current and former members of the Board of Management and Supervisory Board in the 2021 financial year and provides explanations. The compensation report includes all information about each remuneration component, the assessment basis of the variable components and achievement of targets in the annual and multiyear bonus plans. For reasons of completeness and transparency and in response to the expectations of our investors, the compensation report also includes additional voluntary information, which is marked as such, in addition to the information that is required according to Section 162 of the German Stock Corporation Act. This means that in our compensation report for the year 2021, we already informed you of the expected bonus amounts which will be paid to the members of the Board of Management in 2022, underlying targets and their achievement related to bonus plans ending the year under review will also be reported 1 year in advance. For this reason, our shareholders can form a comprehensive picture early on about the bonus payments expected in the context of the business success of the company and the achievements of the members of the Board of Management during the year under review. The compensation system for the Board of Management has included at least one specific sustainability target since 2022. This compensation report reveals that for the period 2022 to 2025, a reduction of CO2 emissions and increase of the number of women in executive positions and timely implementation of review-based recommendations have been defined as Board of management targets. On a voluntary basis, we also show target compensation and stock held by members of the Board of Management as well as information about the relationship between Board of Management and the employees' compensation which has not changed year-on-year. In short, the compensation report contains all essential information about the compensation systems and the compensation of Board of Management and Supervisory Board members. From the company's perspective, the compensation report for the 2021 financial year presented for approval is clear and easy to understand and complies with the requirements of Section 162 of the German Stock Corporation Act. And now a few words about the election of the auditor, item 5 on our agenda. Based on the recommendation of the Audit Committee, the Supervisory Board submitted the proposal to elect Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart, abbreviated EY, as auditor. The quality of the audits conducted by EY for financial years 2020 and 2021 is judged as being very positive in line with the structured catalog of criteria. The professional qualification and the integrity of persons working on the audit team play a central role for the Supervisory Board. Persons EY authorizes to work at Munich Re show a high level of awareness and knowledge about Munich Re's business activities and, in the opinion of the Supervisory Board, have all necessary qualifications and experience to ensure a high-quality audit. Moreover, the quality assurance concept and the trust in quality program started in 2021, which were both established by EY, have been positively considered in the election proposal. In addition, there are no other known reasons which may bar EY from being elected as an auditor. Because of her retiring from the Board of Management, we bid very to our long-standing and esteemed colleague, Mrs. Höpke, who will leave the company at her own request on the 30th of April. For many years and with high level of expertise and skill, Mrs. Höpke has not only promoted our business in the EU/LA region, but in her role as a Labor Director she also supported and shaped employee matters. We thank Mrs. Höpke for her commitment and wish her the very best for the future. With Mrs. Höpke, the only female member will retire from the Board of Management. Appointing a woman as a member of the Board of Management at the earliest opportunity has a high priority for the Supervisory Board. Talking to him regularly, I know that this is a matter of great concern for Mr. Wenning. Mr. Wenning, I'll now ask you to present the report on the 2021 financial year and present an outlook for the current financial year.

Dear shareholders, dear colleagues, both current and former, welcome to Munich Re's Annual General Meeting. Today, we'll be talking about this past financial year and our plans for the future. But if I may, I would first like to say some words about the most important topic of the recent weeks. Now Of course, compared to the suffering of people in Ukraine over the past 2 months since the Russian invasion, everything else seems to pale by comparison. We feel devastated by the images from Ukraine that we see day after day. Many believed until recently that war in Europe was a relic of the dark past, but a bitter reality of more returns to Europe when the Russian military attacked Ukraine. This war of aggression violates international law and we denounce it in the strongest possible terms. Although our company does not have any branches or offices in Ukraine, some of our colleagues are Ukrainian citizens. We want to offer our heartfelt sympathy to all of them during this time. Now in addition, we wish to express our full solidarity with people in Ukraine and their families. Millions of people have fled to other countries, many of them women and children who need our help. Colleagues around the globe have kicked off dozens of initiatives, donating time, money and material aid. What's more, we, as Munich Re, have donated, have been donating to reputable charities in Germany and elsewhere, and we are helping make sure that displaced people have accommodations, receive care and support and are integrated into the German society. We have earmarked as much as EUR 3.5 million in financial aid for refugees, many of whom are now in Poland. Beyond providing humanitarian aid for Ukrainians, of course, we've also seen free provision for universities here in Germany because, of course, lots of refugees will come here to the universities. Now again, beyond providing this humanitarian aid for Ukrainians, pressure must be exerted on the Kremlin to end this war of aggression. we therefore expressly support the sanctions initiated by Western governments despite being fully aware of the tremendous resulting strain on our national economies. To this end, we are taking responsibilities in our own industry by not renewing any agreements in Russia or Belarus. In addition, Munich Re has suspended all new business in both countries and we are handling our investments in the region in the same way. Exceptions will only be made here if a change would harm people or companies in need of protection. I will address the war's overall impact on our business a bit later during the AGM. Dear shareholders, there is only so much our industry can do to help -- to help affect the people who are affected by award. But we can strive to prevent everyday risks from jeopardizing people's livelihood and company's survival. That is what we do after all. And if we are to live up to our responsibilities, we need to stay competitive and strong. And our business performance serves as a foundation for all we accomplish on behalf of both the company and the society as a whole. Now with this in mind, we presented our Ambition 2025 in December 2020. This targeted strategy is enhancing the growth drivers in our proven business strategies. For example, we are investing in data and digital transformation. And we are trailblazers when it comes to offering extensive flexibility in the working world of tomorrow. And with a 12% to 14% return on equity, we are consistently delivering excellent results. Last year, of course, was the kickoff for the implementation of the strategy. A key benchmark for our business performance is our annual results. After announcing a target profit of EUR 2.8 billion for 2021, we actually generated EUR 2.9 billion. This initial milestone is giving us tailwind for our achieving our Ambition 2025. Our return on equity amounted to 12.6%. And when it comes to earnings per share. In 2021, we wanted to maintain the momentum of our normalized results of 2020. In fact, we did manage to boost earnings per share by 4.7%. And until 2025, we expect this metric to increase annually by at least 5% on average. Our capital position remained very strong. Even after factoring in our dividend payout and share buyback, our solvency ratio is at 222%, which is even slightly above the optimum range. Now as Munich Re shareholders, we want you to benefit from our solid business performance appropriately. As you know, our dividend policy has been one of our standout features for decades. Until 2025, we want to increase our dividend annually by at least 5% on average. For the 2021 dividend, we have outdone ourselves in this regard. Today, we are proposing to you an increased dividend of EUR 11 per share. That is a 12.2% increase compared to the previous year. The share buyback, which has already been approved, will further boost your return on investment. As you can see, Munich Re delivers on its promises. Our strategy is proven effective. Our clients trust us and rely on us. And last but not least, of course, our 39,000 staff members around the world work hard every single day to sustain our prosperity. I am especially grateful to all of our Munich Re workforce. All of you, my esteemed colleagues, are the pillars of our success. Dear shareholders, the pleasant results of 2021 were by no means a foregone conclusion. After all, 2021 posed various challenges for our industry, including losses from natural catastrophes and the ongoing coronavirus pandemic, in particular. Natural disasters last year caused nearly EUR 250 billion in worldwide losses, of which about EUR 105 billion were insured. Out of those, EUR 3.1 billion fell to Munich Re in the reinsurance business. In short, 2021 was one of the costliest years ever. The extreme flash flood in Germany and other European countries alone resulted in losses of EUR 46 billion, of which EUR 11 billion were insured. It was the costliest natural catastrophe today, not just in Germany, but in the whole of Europe. And of course, this was only one of the many severe weather events of last year which are becoming more frequent and more severe due to climate change. In 2021, the pandemic also caused increasing claims expenses. Munich Re was particularly affected in its life and health reinsurance business. Claims here totaled about EUR 800 million. In this regard, our risk portfolio, our range of business lines and our risk management, once again proved their worth in 2021. All fields of business showed strong operational performance, in turn supporting the performance of our group. Our primary insurance entity ERGO exceeded expectations and contributed EUR 600 million to the result. Its focused business expansion and strict cost discipline certainly paid off. ERGO also made key structural improvements, such as replacing legacy systems with a modern IT infrastructure. The ongoing digital transformation of its processes further boosted customer satisfaction, with the speedy handling of claims filed after the flooding in July being just one example. ERGO continues to grow profitably with overall premium income across all lines rising in 2021 by 3.7%. In the property casualty segment in Germany, a successful renewal round in motor insurance and the rising demand for commercial industrial business played key roles in spurring premium growth. Internationally, there were 2 key drivers of growth: a strong showing in property casualty business in Poland and Austria as well as a high demand for health products in Spain and Belgium. In the Life and Health Germany segment, growth was a bit more moderate as expected which, of course, was also the result of the deliberate reduction of the traditional life insurance portfolio. By contrast, however, customers are showing great interest in our new investment type products where new business grew by 42%. Our reinsurance business continues to benefit from the market cycle. With a return on equity of 13.5%, this field of business is highly profitable. Rate increases in property casualty reinsurance played a pivotal role here. Our renewals in 2021 generated premium growth of 11.7% and prices rose by 2.3%. The renewal result of January 2022, this trend will continue this year and this has been made very clear. We're exploiting positive market conditions to foster more organic growth. We are consolidating our market position as a market leader in business fields like cyber, while cautiously limiting liability per incident, client and policy. As always, we exercise great discipline with underwriting risks. As mentioned before, our Life & Health segment was impacted by high COVID-19 losses in 2021. Now adjusted for these losses, the big picture is all together pleasing and the future looks very promising. Our Risk Solutions business likewise performed very well last year in its markets where products underwriting and sales are highly specialized. Nearly all sectional markets are placed in the United States where our premiums and our premium income rose by 18%. At the same time, the combined ratio decreased by 4%. In short, Risk Solutions is reporting considerable growth and increasing earnings power which is truly an outstanding combination. Dear shareholders, people understandably assess our group based on nonfinancial indicators as well. In our own accord, we pledged in our Ambition 2025 to focus even more on environmental, social and governance targets. Please allow me to briefly outline the progress we've made in this regard. We are, of course, completely committed to increasing the percentage of women in management positions. Specifically, our target is 40% by 2025. Whenever position the senior management needs to be filled, we apply our diversity requirement anywhere in the Munich Re group across the board and the Board of Management makes the decision. In addition, selection committees and lists of candidates featuring a diverse range of people have also become common practice, which is proving effective. Last year, the percent of women managers rose from 35% to about 38% group-wide. We're also committed to acting responsibly for the sake of society, which is exemplified by our dedication to greater climate protection. We are making good progress in realizing our climate strategy in 2021. We reduced the CO2 emissions from our investment portfolio by about 31% compared to 2019, the base year for Ambition 2025. We will, of course, have to wait a year to estimate the impact on our core business. But in addition, we managed to reduce our own operational emissions by approximately 25% per employee between 2019 and 2021. But we are not nearly just continuing certain types of business. We're also pursuing customized insurance covers to facilitate new climate-friendly solutions. In this way, we are making a significant contribution towards the insurability of those risks involved in generating renewable energies. Our green tech solutions has underwritten risks in over 1,000 projects worldwide with generating -- sorry, generation capacity totaling about 42 gigawatts. By way of comparison, this corresponds to more than 2/3 of the capacity of all photovoltaic systems installed in Germany. Now by assuming guarantee and availability risks, we are helping the renewable energy sector to expand further. Dear shareholders, we are taking the next step, now in 2022, towards meeting our ambitious targets. We have set a profit target of EUR 3.3 billion for 2022. And group premium income is expected to increase to about EUR 61 billion this year. I'm sure that is not the full extent of our potential. Number one thing, we are well on track to bolstering our earnings trajectory by diversifying and thus stabilizing it. The combination of primary insurance and reinsurance under one roof distinguishes us from the competition. And we want to capitalize even more on our competitive edge going forward. Now it was not so long ago that our group's performance was determined largely by property casualty reinsurance. And these, of course, were significantly shaped by market cycles. So we really had to tolerate considerable fluctuations in our consolidated results. That has changed. ERGO, Risk Solutions and our Life and Health Reinsurance segment will reliably make key contributions to our consolidated profit as part of our Ambition 2025 strategy combined with lower volatility on a comparable basis. We are putting our group's consolidated results on a more stable footing. We can offer more capacities in a hard market and then scale down considerably in a soft market. Now given the latest development, allow me to say a few words on the consequences of the war in Ukraine for Munich Re. Now first of all, Munich Re does a negligible amount of insurance business in Ukraine, Belarus and Russia. We have, as previously mentioned, suspended all new business in Russia and Belarus. Moreover, in classic property insurance, the line with the greatest potential exposure, war is a standard exclusion, and not just in the regions affected currently but around the globe. Consequently, we will not be affected in this regard and we'll therefore be able to easily absorb the direct effects on our business. Now that being said, we do offer limited cover for the direct and indirect impacts of war in certain specialty lines. These include, in particular, aerospace, transport and credits as well as political risks. In many cases, it cannot yet be determined to what extent cover and coverage applies. In comparison to our overall portfolio, Munich Re's investment exposure in the 3 above-mentioned countries is relatively low. From today's point of view, the effect on Munich Re's earnings resulting from changes in the value of our investment is manageable. However, I can guarantee that no negative consequences will emerge in the future. After all, the longer the war drags on and the sanctions in Russia and Belarus are maintained, the greater the political and economic upheavals in Europe and elsewhere will become. Dear shareholders, Moscow's war of aggression in Ukraine represent a threat to peace in Europe. In addition, Europe finds itself caught up in an increasing rivalry of systems between the U.S.A. and China. And an escalation in one of the world's regional troubled spots could have significant global repercussions. Against this backdrop, only a strong Europe as a guarantor of freedom, democracy and prosperity can endure. And accordingly, it's making Europe more competitive must become a central political priority. Europe's interest can be better represented from a position of strength. When, as we have seen for years, the complete political integration of Europe falters, we should at least focus Europe on those topics for which a joint European response is better than a national one. Now these include, firstly, a targeted migration and essential integration of hard-working individuals who are committed to working in and for Europe. Secondly, promoting digitalization for the benefit of the people, state and economy. In addition, a transformation from fossil to renewable energies. And fourthly and lastly, now more than ever, defense. Now though insurance cannot solve and resolve geopolitical conflicts, our industry certainly can do its part to protect both the safety and the livelihood of people and the resilience of companies on a day-to-day basis. When we cover risks, we also foster development, innovation and progress in our society. Therefore, I would like to also thank all of you for the trust you placed in our company. We greatly appreciate your loyalty to Munich Re, and thank you very much.

Yes. All right. Thank you very much, Mr. Wenning, for your clear and succinct overview of the financial 2021 business year and the current situation of Munich Re. On behalf of the Supervisory Board, I would also like to take the opportunity to thank the members of the Board of Management and all employees worldwide for your great personal commitment and the success we have achieved, which, of course, resulted in a very gratifying operating result in 2021. [Statements in English on this transcript were spoken by an interpreter present on the live call.]