Disclosure obligations pursuant to Section 134c of the Stock Corporation Act

Pursuant to Section 134c(1) of the Stock Corporation Act (Aktiengesetz, AktG) institutional investors are required to disclose to what extent the main elements of their investment strategy align with the profile and maturities of their liabilities, and how they contribute to the medium-term performance of their assets. Where an asset manager is acting on behalf of the institutional investor, Section 134c(2) of the Stock Corporation Act requires asset managers to also disclose how they coordinate their investment strategies and investment decisions with the profile and maturities of the institutional investor’s liabilities.

Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München accordingly provides the following report.

The investment strategy of Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München („Munich Reinsurance Company“ or „Munich Re“) is designed to comply with the prudent person principle. This principle is the basis for the strategic investment principles of security, quality, profitability and liquidity. We seek to avoid risk concentration where possible, using various risk criteria and early-warning indicators to avoid inappropriate concentrations of risk from individual partners or sectors.

Guidelines and internal procedures ensure that we act in accordance with these principles when making investment decisions. 

The main focus of Munich Re’s investment strategy is asset-liability management (ALM), which is a fundamental pillar of our value-based management system.

ALM means that in putting together our investment portfolios (Assets), important qualities of technical and other obligations (Liabilities) are taken into account (Management). With ALM, we aim to ensure that changes in macroeconomic factors influence the value of our investments and our technical provisions and other liabilities in a similar way.

For this purpose, where possible, we mirror important capital-market sensibilities – such as maturity patterns, currency structures and inflation sensitivities of investments – by acquiring investments that react similarly to capital market fluctuations wherever possible. This reduces our vulnerability to capital market fluctuations and stabilises our economic capital resources.

In this approach, any deviations from the structure of our liabilities are made consciously, taking due account of our risk tolerance and the achievable risk spreads. Therefore, we measure investment risks incurred not in absolute terms, but in relation to changes of values in our liabilities. This approach means that exchange rates, fluctuations in interest rates and inflation have the same effect on assets and liabilities. The purpose of our economic ALM is to ensure that the currencies and maturities of the liabilities are matched as closely as possible for each of the Group’s related undertakings. Local accounting and supervisory requirements must also be taken into account.

To make our economic ALM as effective as possible, we use derivative financial instruments to hedge investment products against fluctuations on the interest-rate, equity and currency markets.

The central building blocks for implementing the investment strategy are virtual portfolios made on the basis of reference indices, the so-called Strategic Asset Allocation (SAA) and Tactical Asset Allocation (TAA). The primary objective in preparing investment decisions is to maximise the return on the investments while maintaining a specified risk appetite. SAA and TAA are designed to sustainably

• optimise the risk/return ratio from the perspective of the shareholder,
• reflect the structure of liabilities,
• be well diversified, and 
• generate no unnecessary costs (transaction costs, administrative costs).

SAA and TAA also includes requirements such as financial solvency, balance-sheet volatility, rating, solvency, etc. 

Since 1999, Munich Re (Group)’s investments have been managed by MEAG MUNICH ERGO AssetManagement GmbH, München, (MEAG AMG), a legally autonomous subsidiary of Munich Reinsurance Company, by means of a service agreement with Munich Reinsurance Company. The services provided comprise asset management and certain Group financial functions. In order to manage special securities assets held by individual Munich Re (Group) companies, MEAG AMG uses its fully-owned subsidiary MEAG MUNICH ERGO Kapitalanlagegesellschaft mbH (MEAG KAG), a regulated asset management company pursuant to Section 134a(1) no. 2 of the Stock Corporation Act, under the supervision of the Federal Financial Supervisory Authority (BaFin).

The Group Investment Management (GIM) divisional unit of Munich Reinsurance Company is responsible, as the investor, for the operational management of MEAG AMG, including measuring performance. MEAG AMG carries out its duties in line with its mandate, including the requirements of the SAA and TAA, special risk management requirements (limits/triggers), supervisory rules, and ancillary accounting constraints.

Munich Reinsurance Company reserves full rights to issue instructions in the service agreement with MEAG AMG. One element of the service agreement is the right to delegate non-critical services, which MEAG AMG makes use of.

Shareholder and creditor rights have been delegated to MEAG (MEAG MUNICH ERGO Kapitalanlagegesellschaft mbH and MEAG MUNICH ERGO AssetManagement GmbH), which exercise them independently and without instruction from Munich Reinsurance Company. Any potential conflicts of interest are dealt with at MEAG by means of corresponding guidelines. MEAG employees must also observe the Munich Re (Group) Code of Conduct.

MEAG has produced a guideline to govern engagement policies as a shareholder at annual general meetings. For more detailed information on the requirements pursuant to Section 134b of the Stock Corporation Act, please refer to MEAG’s website and the compliance guidelines (https://www.meag.com/en/inform/compliance.html).

The asset manager’s achievement of objectives, and performance, is measured by the GIM divisional unit given performance relative to the TAA.

MEAG AMG’s performance is determined on the basis of quantitative and qualitative criteria – the balanced scorecard. An important element of this is achieving the required contribution to profits. Transaction costs, for example, are also taken into account when calculating the degree of outperformance. MEAG AMG is compensated at standard market rates for the services it performs.

The mandate managers at Munich Reinsurance Company and MEAG AMG communicate by phone and in writing, which contributes to the proper supervision of the mandate specifications. There are also regular Investment Committee meetings with MEAG AMG to discuss the tactical implementation of the mandate. This ensures close cooperation between all areas involved in ALM.

Group-wide reporting by MEAG AMG to Munich Reinsurance Company ensures that the GIM divisional unit and decision-makers can continuously monitor all investment activities.

Individual portfolio overhead is not explicitly monitored, but is reflected in the achievement of performance objectives. If strategic decisions result in larger transactions, attempts are made to keep costs as low as possible. Generally, MEAG AMG and its subsidiaries must apply the principle of best execution when carrying out transactions. For further details, please refer to the Best Execution Guidelines on the MEAG website (https://www.meag.com/en/inform/compliance.html).