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The financial market crisis and Munich Re’s situation - “We will emerge stronger from the crisis”
Munich Re remains stable and very well capitalised – despite the market turmoil. With the insolvency of Lehman and the quasi-nationalisation of AIG, the financial crisis has recently assumed dramatic proportions, leading clients and many staff to ask: How serious are the consequences for Munich Re? Might the Group be endangered? Our answer is a clear “No”.
We as the Munich Re Group will emerge from the crisis (which has already destroyed assets worth over US$ 500bn) stronger in relative terms. That is because risk expertise, risk management and financial strength have increased in significance as a result of recent developments. And that is exactly where our core competence lies. The re-evaluation of risks will be reflected in greater demand for cover from financially strong insurers and reinsurers like us, and in a markedly higher overall price level for reinsurance protection.
As always, major losses or crises like the present one are also a test for our business model. And we are passing this test: The correct assessment and active management of risks on the investment and insurance side are proving their worth. With this strength, we will decisively utilise the opportunities arising from the upheavals in the financial industry.
Naturally, as a leading player in primary insurance and reinsurance, we have not been left unscathed by the recent falls on the capital markets or major losses such as the recent hurricanes. But our financial strength remains intact; the substance of our Group is strong.
At the same time, we see very attractive short-term chances for our business. The erosion of many primary insurers’ capital and the increased importance of security and stability, particularly in reinsurance relations, will lead to a drastic change in the reinsurance market. Virtually overnight we are back in a hard market with rising prices. And many opportunities could arise in primary insurance as well. We have always said that in primary insurance we are interested in acquisitions in target markets such as Eastern Europe and Asia – provided they fit our strategy and the price is right.
With regard to AIG, we on the Board of Management wish to stress that the extent of the developments there has surprised us. AIG has been a good client of Munich Re for many years, with whom we enjoy a close relations. In traditional insurance business – especially in the area of large risks and industrial business – AIG is a very respected and important market player.
Much of the current crisis has to do with lack of risk management and inadequate evaluation and consideration of risks in operative business, along with strategic decisions geared too strongly to short-term results. The lesson for the financial services industry is that when evaluating returns, the risks entered into have to be scrupulously and honestly assessed and made transparent. The expertise and management philosophy necessary for this are core competencies of the Munich Re Group. That is why we are sure of having just the right set-up in the current crisis, and will be in a stronger position relative to other market players at the end of it.
Nikolaus von Bomhard
The Munich Re Group operates worldwide, turning risk into value. In the financial year 2006, it achieved a profit of €3,519m, the highest since the company was founded in 1880, on premium income of approximately €37bn. The Group operates in all lines of business, with around 37,000 employees at over 50 locations throughout the world and is characterised by particularly pronounced diversification, client focus and earnings stability. With premium income of around €22bn from reinsurance alone, it is one of the world's leading reinsurers. Its primary insurance operations are mainly concentrated in the ERGO Insurance Group. With premium income of almost €17bn, ERGO is one of the largest insurance groups in Europe and Germany. It is the market leader in Europe in health and legal expenses insurance, and 33 million clients in 25 countries place their trust in the services and security it provides. The global investments of the Munich Re Group amounting to €177bn are managed by MEAG, which also makes its competence available to private and institutional investors outside the Group.
Disclaimer
This press release 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 actual development, in particular the results, financial situation and performance of our Company. The Company assumes no liability to update these forward-looking statements or to conform them to future events or developments. |
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