Information pursuant to Sections 134b and 134c of the German Stock Corporation Act (Aktiengesetz)

For the most part, Munich Reinsurance Company invests in Portfolio Companies not directly, but indirectly through alternative investment funds (AIF, i.e. specialised funds) and undertakings for organisms for collective investments in transferrable securities (UCITS, i.e. public funds). Such indirect investments are managed by MEAG MUNICH ERGO Kapitalanlagegesellschaft mbH, Munich („MEAG KAG“). MEAG KAG is solely authorized to exercise voting rights and other forms of engagement in Portfolio Companies. As Munich Reinsurance Company is therefore not exercising shareholder rights itself, information regarding its own engagement is not required.  Information regarding the engagement policy of MEAG KAG and its execution (including the exercise of voting rights) are published under the following link:

https://www.meag.com/de/informieren/stimmrechtsausuebung.html

Apart from the aforementioned direct investments, Munich Reinsurance Company is partially also holding direct investments in Portfolio Companies. In relation to the total amount of assets under management of Munich Reinsurance Company, their part is however marginal (less than 1% in market values as of December 31, 2019). Therefore Munich Reinsurance Company has not adopted an engagement policy pursuant to Sec. 134b para. 1 of the German Stock Corporation Act for such direct investments. Accordingly, information regarding its execution and regarding the exercise of voting rights pursuant to Sec. 134 para. 2 and 3 of the German Stock Corporation Act is not required.

Information on the investment strategy, Sec. 134c para. 1 of the German Stock Corporation Act

The global investment strategy („investment strategy“) of Munich Reinsurance Company 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. Risk concentration shall be avoided 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 Munich Reinsurances Company acts 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 its value-based management system.

Asset-liability management means that in putting together investment portfolios (Assets), important qualities of technical and other obligations (Liabilities) are taken into account (Management). The ALM aims to ensure that changes in macroeconomic factors influence the value of investments of Munich Reinsurance Company and technical provisions and other liabilities in a similar way.

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

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

To make the economic ALM as effective as possible, derivative financial instruments are used 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. 

Agreements with investment managers, Sec. 134c para. 2 of the German Stock Corporation Act

For the most part, Munich Reinsurance Company invests in Portfolio Companies not directly, but indirectly through alternative investment funds (special funds) and undertakings for organisms for collective investments in transferrable securities (public funds). Such investments are managed by MEAG KAG. MEAG KAG is a regulated investment management company under surveillance of the German Federal Financial Supervisory Authority Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) and has capacity of an investment manager within the meaning of Sec. 134a para. 1 Nr. 2b) of the German Stock Corporation Act.

Investments in special funds are governed by agreements with MEAG KAG (investment conditions) that set out the design of the fund investments and the investment strategies.  The alignment of the investment strategy and the investment decision with profile and term of the liabilities is ensured by the definition of a strategic target portfolio of capital investments that mirrors the profile and the term of liabilities, including the requirements of the SAA and TAA, special risk management requirements (limits/triggers), supervisory rules, and ancillary accounting constraints.

Investments in public funds are made under the prerequisite that the investment strategy of the investment manager and the index on which the fund is based correspond with the requirements of Munich Reinsurance Company concerning the structure of its liabilities. For details of the investment strategies of the respective public funds, we refer to the internet site of MEAG KAG and the publications available there.

The exercise of shareholder rights has been delegated to MEAG KAG, which exercises them independently and without instruction from Munich Reinsurance Company. Generally, securities lending is allowed.

For the management services it performs, MEAG KAG receives a compensation at customary, fixed and not performance-related rates (management compensation), calculated on the basis of the fund´s value on pre-defined dates, and withdrawn from the funds property. 

Individual portfolio costs are reflected in the performance of funds. Generally, MEAG KAG must apply the principle of best execution when carrying out transactions. If (for example) strategic decisions result in larger transactions, attempts are made to keep costs as low as possible.

MEAG KAG regularly reports to Munich Reinsurance Company on transactions carried out in the funds, also within regular Investment Committee meetings. This ensures that all investment activities can continuously be monitored.

The agreements concluded between Munich Reinsurance Company and MEAG KAG run for an indefinite period and may be terminated with three months’ notice to the end of a month.

Apart from the indirect investments, Munich Reinsurance also invests directly in Portfolio Companies. The management of such direct investments of Munich Reinsurance Company is assigned to MEAG MUNICH ERGO AssetManagement GmbH, Munich („MEAG AMG“), a subsidiary of Munich Reinsurance Company. MEAG AMG performs its services only within Munich Re Group and therefore does not require a permission. As a consequence, it is not regarded as an investment manager within the meaning of Sec. 134a para. 1 No. 2 of the German Stock Corporation Act. With respect to direct investments, the information pursuant to Sec. 134c para. 2 and reports pursuant to Sec. 134c para. 4 of the German Stock Corporation Act are therefore obsolete.