Letter to Shareholders

Dear Shareholders,

Last year was very good for Munich Re. We managed to surpass our profit target for the third consecutive year. With a net result of €4.6bn, your company earned €600m more than we had initially planned for 2023.

We would like you to benefit accordingly from this success, as in years past. Subject to approval by the Annual General Meeting, the dividend will be significantly increased by €3.40 to €15 per share – raising the bar to a new level. We have also approved a new, larger share buy-back with a volume of €1.5bn.

The year 2023 thus marks the latest pinnacle in the creation of value on behalf of our shareholders. After all, we have returned €22.9bn of capital to our shareholders in the form of dividends and share buy-backs over the past ten years. That is an average of €2.29bn every year. Our balance sheet and capital position remain very strong. Hence all strategic and financial options with regard to growth, investments, and dividend payouts are open to us. Our solvency ratio of 267% remains above the optimum range.

We are just past the halfway point of our five-year Ambition 2025 strategic programme, which defines our medium-term financial targets for the financial years 2021–2025. While maintaining a sound capital base, by the end of 2025 we aim to achieve a return on equity of 14–16% and boost both earnings per share and the dividend by an average of at least 5% annually. Our return on equity in 2023 already amounted to 15.7%. Since 2021, earnings per share have grown annually by almost 20% on average. Our dividend has increased by an average of about 15% each year in the same period.

The capital markets have been rewarding our excellent performance. During the first three years of Ambition 2025, our share price rose by almost 60%. During that same period, the German stock market index (DAX) increased by only 22%. What’s more, Munich Re’s share price topped €400 for the first time ever in 2023, for a new historical high. In terms of total shareholder return, which comprises income from share price increases and dividends, we have further extended our lead over the competition over a span of several years. Of the eight leading reinsurers and primary insurers in Europe, none has created more value for shareholders in the 2020s than Munich Re.

Our Group is in excellent shape – but the world is not. Recent years have been marred by a multitude of simultaneous major crises, which have taken a toll on the insurance industry, too. Our planning phase for Ambition 2025 coincided with the first year of the COVID-19 pandemic, which subsequently impacted us heavily in 2021, the initial year of our five-year strategy programme. War then broke out in Ukraine in 2022, unleashing economic turbulence in the form of volatile capital markets, extreme rates of inflation and an abrupt rise in interest rates. These new and immediate threats nearly overshadowed climate change – despite devastating natural disasters plaguing the planet, such as the flooding in Germany’s Ahr valley in summer 2021 and Hurricane Ian in the United States in autumn 2022.

The year 2023 was sadly no exception, particularly in the wake of the earthquake in Turkey and Syria. Some 74,000 people lost their lives in natural disasters last year, far exceeding the long-term average. While inflation eased considerably last year, it remains far above the target rate associated with price stability. Geopolitical tensions rose anew in 2023, with the escalation in the Middle East being the latest example. People in Ukraine have been enduring destruction and suffering for over two years. And then there is the perennial crisis regarding Taiwan between global superpowers China and the United States. Any one of these wars or conflicts could spread beyond its current boundaries, erupting into something with an unforeseeable outcome as well as massive humanitarian and economic consequences. There is a significant amount of uncertainty.

We have coped well with all of the above-mentioned external shocks so far. Atop a solid foundation, Munich Re reliably generates high income. By resolutely expanding lines of business with less volatile earnings profiles – including ERGO, life reinsurance and Global Specialty Insurance, our newest division – and buoyed by our unrelenting commitment to performance, we have made our Group robust against fluctuations in both property-casualty reinsurance and investments.

In 2023, the ERGO field of business achieved its annual target by generating a net result of around €720m. In international business, ERGO earned much more insurance revenue than in 2022 – chiefly due to growth in propertycasualty insurance business in Poland and the good performance of health business in Belgium and Spain. In addition, the full consolidation of ERGO’s property-casualty business in Thailand also helped boost insurance revenue. Insurance revenue likewise rose in the Property-casualty Germany segment, particularly on account of third-party liability and motor insurance business. In the ERGO Life and Health Germany segment, supplementary and travel insurance in particular contributed to renewed revenue growth. Moreover, demand remained high for biometric risk cover and capitalefficient investment solutions.

ERGO’s altogether positive business development is reflected on the customer side, too. Regular surveys indicate that customer satisfaction has improved in recent years, and 2023 was no exception. Customers awarded ERGO the highest scores for the processing of insurance claims and policy benefits.

Our reinsurance field of business achieved a result of about €3.9bn in 2023. The property-casualty reinsurance segment was again impacted by high natural catastrophe losses. A relatively low-impact hurricane season notwithstanding, insured losses from natural catastrophes totalled US$ 95bn; the ten-year annual average amounts to US$ 90bn. Conversely, we benefitted from the ongoing hard market. Not only did we achieve higher margins; we also managed to further grow our business.

The new Global Specialty Insurance (GSI) division, established in 2023, helped to boost both our insurance revenue and net result. In addition, life and health reinsurance business continued to develop very favourably as regards both the assumption of biometric risks and financially motivated reinsurance solutions – particularly those that provide financing and capital relief for cedants. This segment’s total technical result amounted to just over €1.4bn, far outperforming the initial guidance of €1.0bn.

Our reinsurance clients hold us in high esteem. We have performed better and better for years now on our net promoter score, which is an industrywide gauge of client satisfaction that we calculate every two years as part of our worldwide client survey. In short, we excel thanks to our reliability, predictability, consistency in action, and our dependability in making solid capacity available.

The excellent business developments in (re)insurance have granted us additional investment flexibility. We deliberately realised losses on the disposal of fixed-interest securities in 2023 in order to benefit more quickly from higher interest rates upon reinvestment, thus boosting future investment income. As a result, the reinvestment yield rose from 2.8% in 2022 to 4.5% in 2023, with the return on investment improving from 2.1% to 2.5%.

In short, Munich Re is in an outstanding position to fully meet all its Ambition 2025 targets. Momentum remains positive this year, with the January 2024 renewals sustaining the years-long trend of gratifying treaty renewals. As a result, we managed to keep profitability levels high and prices stable overall. Premium growth amounted to 3.5%; we wrote more business only when we could tap into attractive opportunities. We also actively discontinued business that no longer met our expectations with regard to pricing or conditions.

In light of sustained good business performance, we want to further grow our net result. Our profit target for 2024 is €5bn. We expect the Group’s insurance revenue to total €59bn and the return on investment to improve markedly, surpassing 2.8%.

In addition to the pursuit of financial success, fundamental components of our business activities include environmental, social and corporate governance (ESG) considerations. We strive to meet our ESG targets with the same determination with which we pursue our financial objectives. In this context, we devote ourselves to two matters in particular as part of our Ambition 2025 programme: increasing the percentage of women in management and decarbonising our investment and insurance portfolios.

Thanks to continual improvements over the past three years, we have nearly met the target we set ourselves for 2025, i.e. 40% of management positions within the Group being held by women. By the end of 2023, this figure had reached 39.5%. We also made considerable progress last year on decarbonisation. In our insurance business, greenhouse gas emissions from coal-fired power plants and from thermal coal production facilities have each decreased by 41% compared with the 2019 base year, while emissions from oil and gas production associated with our property insurance business have been reduced by as much as 80%. For our investments, the reduction remained high, at 47%. We once again expanded our investments in renewable energies, significantly boosting our investment volume from €2.4bn in 2022 to €3.1bn in 2023.

Simply put, the first three years of the five-year Ambition 2025 programme have been very encouraging in every regard. Our nearly 43,000 staff members worldwide will keep on working hard to ensure that Munich Re meets all its Ambition 2025 commitments by the end of next year. We are all optimistic that we will succeed.

I wish to thank you, dear shareholders, for the trust you place in our Group.

Yours sincerely,

Joachim Wenning