Annual General Meeting 2014

As the number of Munich Re shares has changed since the invitation to the AGM was published and now stands at 6,407,095, the Supervisory Board and Board of Management have updated their proposal regarding appropriation of the net retained profits.

The Supervisory Board and the Board of Management propose that the net retained profits for 2013 of €1,300,223,787.00 be utilised as follows:

Appropriation of net retained profits

Pursuant to Section 120 para. 4 of the German Stock Corporation Act, the Annual General Meeting can pass a resolution to approve the remuneration system for members of the Board of Management.

The resolution pertaining to this agenda item relates to the remuneration system for members of the Board of Management applicable at Munich Reinsurance Company since 1 January 2013. A description of this system is provided in the remuneration report, which forms part of the (Group) management report included in the annual reports referred to under agenda item 1. As already mentioned, the annual reports can be accessed on our website at www.munichre.com/agm (under “Documents”). They will also be sent to shareholders on request. In addition, they will be available and explained at the Annual General Meeting.

The Supervisory Board and the Board of Management propose that the remuneration system for members of the Board of Management applicable since 1 January 2013 be approved.

Unless expressly permitted by law, Munich Reinsurance Company requires the authorisation of the Annual General Meeting to buy back shares. The authorisation granted on 20 April 2011 has been exhausted to a significant extent by the share buy-back programme launched in November 2013. To again provide the Company with the full scope of active capital management afforded by such authorisation, it will be proposed to the Annual General Meeting that the Company be granted a further authorisation to buy back own shares.

The Supervisory Board and the Board of Management propose that the following resolutions be adopted:

a) The Company shall be authorised to buy back shares up to a total amount of 10% of the share capital at the time the resolution is adopted. If at the time this authorisation is first exercised the existing share capital is lower, that amount shall be deemed material. The authorisation may be exercised as a whole or in partial amounts, on one or more occasions and for one or more purposes by the Company, but also by dependent Group companies or enterprises in which the Company has a majority shareholding or by third parties for its or their account. The shares acquired plus other own shares in the possession of the Company, or attributable to the Company pursuant to Sections 71d and 71e of the German Stock Corporation Act, may at no time amount to more than 10% of the share capital. The authorisation may not be used for trading in own shares.

b) The shares shall be acquired at the discretion of the Board of Management aa) via the stock exchange; or bb) via a public purchase offer to all shareholders; or cc) via a solicitation to all shareholders to submit sales offers (request to sell); or dd) via a public offer to all shareholders to exchange Munich Re shares for shares in another listed company as defined in Section 3 para. 2 of the German Stock Corporation Act.

aa) If the shares are bought back via the stock exchange, the purchase price (excluding incidental expenses) may not exceed by more than 10% or undercut by more than 20% the arithmetic mean of the closing price in Xetra trading on the Frankfurt stock exchange determined for Company shares with the same securities reference number on the last three days of trading prior to the commitment to purchase.

bb) If the shares are bought back via a public purchase offer, the purchase price per share or the upper and lower limits of the price range (excluding incidental expenses) may not exceed by more than 10% or undercut by more than 20% the arithmetic mean of the closing price determined in Xetra trading on the Frankfurt stock exchange for Company shares with the same securities reference number on the fifth, fourth and third trading day before the date on which the offer is published. If after a public purchase offer there are significant deviations in the relevant share price, the offer may be adjusted. In this case, the basis for determining the purchase price or the purchase price range will be the arithmetic mean of the closing price determined in Xetra trading on the Frankfurt stock exchange for Company shares with the same securities reference number on the fifth, fourth and third trading day before the public announcement of the adjustment. The volume may be restricted. If the offer is oversubscribed, the shareholders’ right to tender shares may be excluded insofar as acceptance is based on quotas. The Company may provide for preferred acceptance of small lots of shares (up to 100 shares tendered per shareholder). The purchase offer may provide for further conditions.

cc) If the Company publicly solicits submission of offers to sell Munich Reinsurance Company shares, the Company may in its solicitation state a purchase price range within which offers may be submitted. The solicitation may provide for a submission period, terms and conditions, and the possibility of adjusting the purchase price range during the submission period if, after publication of the solicitation, significant share price fluctuations occur during the submission period. Upon acceptance, the final purchase price shall be determined from all the submitted sales offers. The purchase price (excluding incidental expenses) for each Company share may not exceed by more than 10% or undercut by more than 20% the average closing price of Company shares in Xetra trading on the fifth, fourth and third trading day prior to the relevant date. The relevant date shall be the date on which the offers are accepted by the Company. If the number of Company shares offered for sale exceeds the total volume of shares the Company intended to acquire, the shareholders’ right to tender shares may be excluded insofar as acceptance is based on quotas. The Company may provide for preferred acceptance of small lots of shares (up to 100 shares tendered per shareholder).

dd) In the case of a public offer to exchange Munich Re shares for shares in another listed company (“exchange shares”) as defined in Section 3 para. 2 of the German Stock Corporation Act, a certain exchange ratio may be specified or also determined by way of an auction procedure. A cash benefit may also be provided for as an additional payment to the exchange offered or as compensation for any fractional amounts. In each of these procedures for the exchange of shares, the exchange price or the applicable upper and lower limits of the price range in the form of one or more exchange shares and calculated fractional amounts, including any cash or fractional amounts (excluding incidental expenses), may not exceed by more than 10% or undercut by more than 20% the relevant value of Company shares. The basis for calculating the relevant value of each Company share and of each exchange share shall be the respective arithmetic mean of the closing price in Xetra trading on the Frankfurt stock exchange on the fifth, fourth and third trading day before the date on which the exchange offer is published. If the exchange shares are not traded in the Xetra trading system on the Frankfurt stock exchange, the basis shall be the closing prices quoted on the stock exchange having the highest average trading volume in respect of the exchange shares in the course of the preceding calendar year. If after a public exchange offer there are significant deviations in the relevant share price, the offer may be adjusted. In this case, the basis for the adjustment shall be the arithmetic mean of the closing price on the fifth, fourth and third trading day before the date of the public announcement of the adjustment. The volume may be restricted. If the exchange offer is oversubscribed, the shareholders’ right to tender shares may be excluded insofar as acceptance is based on quotas. The Company may provide for preferred acceptance of small lots of shares (up to 100 shares tendered per shareholder). The exchange offer may provide for further conditions.

c) The Board of Management shall be empowered to use shares acquired on the basis of the aforementioned or previously granted authorisations or pursuant to Section 71d sentence 5 of the German Stock Corporation Act for all legally admissible purposes, and in particular as follows:

aa) They may be used for launching the Company’s shares on foreign stock exchanges where they are not yet admitted to trading.

bb) They may be sold directly or indirectly in return for non-cash payment, in particular as part of offers to third parties in connection with mergers or acquisitions of companies or parts of companies, shareholdings or other assets. Selling in this connection may also include the granting of conversion or subscription rights or of warrants and the transferring of shares in conjunction with securities lending.

cc) They may be sold to third parties for cash other than via the stock exchange or via an offer to all shareholders.

dd) They may be offered for subscription to the holders of conversion rights or warrants issued by the Company or one of its dependent Group companies.

ee) They may be directly or indirectly offered for purchase and transferred to current or former employees of the Company or its affiliated companies, or to Board members of its affiliated companies. The shares may also be transferred to a third party provided that it is ensured from a legal perspective that such third party will offer and transfer the shares to the persons mentioned above.

ff) They may be retired without a further resolution of the Annual General Meeting being required. Any retirement may be limited to a portion of the bought-back shares. The Board of Management may determine that the shares can also be retired in a simplified process, without reducing the share capital, by adjusting the proportion of the Company’s share capital represented by each of the remaining no-par-value shares. In this case, the Board of Management shall be authorised to adjust the number of no-par-value shares in the Articles of Association.

d) The Supervisory Board shall be empowered to use Company shares acquired on the basis of the aforementioned or previously granted authorisations or pursuant to Section 71d sentence 5 of the German Stock Corporation Act as follows:

They may be transferred to the members of the Company’s Board of Management as part of their remuneration. This particularly applies if the rules governing the remuneration of the members of the Board of Management require or will require the Board members to invest part of the variable remuneration assigned to them in Company shares that must be held for a specific period of time. If this requirement relates to a variable remuneration component assessed on a multi-year basis, a minimum holding period of around two years shall be stipulated. In all other cases, the minimum holding period shall be approximately four years. To be eligible, an individual must be a member of the Board of Management either at the time of transfer of, or at the beginning of the assessment period for, the variable remuneration component concerned. The details of remuneration for members of the Board of Management are established by the Supervisory Board. These include rules on how to deal with holding periods in special cases such as retirement, disability or death.

e) The price at which the shares are launched on other stock exchanges in accordance with subitem c) aa or sold in accordance with subitem c) cc in exercise of the authorisation may not significantly undercut the opening price determined in Xetra trading on the Frankfurt stock exchange for Company shares with the same securities number (excluding incidental costs) on the day the shares are launched or the binding agreement with the third party is concluded. In addition, in these cases the sum of the shares sold, together with any shares that may have been or will be issued or sold during the term of this authorisation by directly or indirectly excluding the shareholders’ subscription rights, pursuant to Section 186 para. 3 sentence 4 of the German Stock Corporation Act, may not exceed a total of 10% of the share capital, either at the time this authorisation enters into force or when the shares are issued or sold.

f) Should the Xetra trading system be replaced by a comparable successor system, the latter shall also take the place of the Xetra trading system for the purposes of this authorisation.

g) The authorisations in accordance with subitems c) and d) may be utilised one or more times, partially or wholly, individually or jointly; the authorisations in accordance with subitem c) bb, cc, dd or ee may also be utilised by dependent Group companies or enterprises in which the Company has a majority shareholding, or utilised for its or their account by third parties.

h) Shareholders’ subscription rights in respect of these bought-back shares shall be excluded insofar as the shares are used in accordance with the authorisations in subitems c) aa, bb, cc, dd, ee or d). Beyond this, if bought-back shares are sold via an offer to the shareholders, the Board of Management shall be entitled to exclude shareholders’ subscription rights insofar as this is necessary to grant subscription rights to the bearers of Company or Group company convertible bonds or bonds with warrants to the extent to which such bearers would be entitled as shareholders after exercising their warrants or after the conversion requirements from such bonds have been satisfied.

i) The authorisation shall be valid until 29 April 2019. The authorisation to buy back shares granted by the Annual General Meeting on 20 April 2011 shall be invalidated as from the moment this new authorisation comes into effect.

In addition to the acquisition channels proposed in the authorisation under item 6 of the agenda, the possibility to buy back own shares by using derivatives is also to be provided for.

The Supervisory Board and the Board of Management therefore propose that the following resolutions be adopted:

a) By virtue of the authorisation granted at the Annual General Meeting on 30 April 2014 under item 6 of the agenda, the Company may in accordance with the provisions of subitems b) to h) below buy back own shares also by using derivatives in the form of put options, call options, forward purchase contracts (where shares are delivered more than two days after conclusion of the purchase contract), or a combination of such instruments (hereinafter all referred to as ”derivatives”).

b) Derivatives may be used in one of the ways outlined under aa), bb) or cc) below, or in a combination of these:

aa) Derivatives may be issued or acquired via Eurex Deutschland or LIFFE (or a comparable successor system). In this case, the Company shall inform shareholders of any planned issue or acquisition of derivatives by placing a public announcement in the newspapers. Different exercise prices (excluding incidental expenses) on different due dates may be selected for the derivatives, even if they are being issued or acquired at the same time.

bb) The issue of put options, the purchase of call options, the conclusion of forward purchase contracts or a combination of such derivatives and their respective fulfilment may also be conducted outside the stock exchanges listed under aa) if the shares to be delivered to the Company on exercise of the derivatives have previously been acquired via the stock exchange at the current share price in Xetra trading on the Frankfurt stock exchange.

cc) The conclusion of put or call option contracts may be publicly offered to all shareholders, or option contracts may be concluded with a bank or a credit institution (hereinafter referred to as ”issuer”) pursuant to Section 53 para. 1 sentence 1 or Section 53b para. 1 sentence 1 or para. 7 of the German Banking Act (KWG), subject to the obligation to offer these options to all shareholders for subscription.

The Company may only buy back the derivatives outlined under items aa) to cc) in order to retire them.

c) In the case of subitem b) aa and bb, the exercise price of the options or the acquisition price payable in settlement of a forward purchase contract (in each case excluding incidental expenses) per share may not exceed by more than 10% or undercut by more than 20% the opening price determined in Xetra trading on the Frankfurt stock exchange for Company shares with the same securities number on the day the derivative contract is concluded. If own shares are bought back using options, the acquisition price (excluding incidental expenses) payable by the Company for the shares corresponds to the exercise price agreed on in the option. The acquisition price (excluding incidental expenses) paid by the Company for options may not exceed, nor may the sale price (excluding incidental expenses) collected by the Company for options fall short of, the theoretical market value of the respective option determined according to recognised principles of financial mathematics, the calculation of such market value considering among other things the agreed exercise price. The forward price agreed on by the Company in forward purchase contracts may not be substantially higher than the theoretical forward price determined according to recognised principles of financial mathematics, the calculation of such forward price considering among other things the current stock market price and the term of the forward purchase contract.

d) In the case of subitem b) cc, the exercise price of the options (excluding incidental expenses) per share may not exceed by more than 10% or undercut by more than 20% the arithmetic mean of the closing price determined in Xetra trading on the Frankfurt stock exchange for Company shares with the same securities number on the fifth, fourth and third trading day prior to publication of the offer. In the event that the offer to shareholders is oversubscribed, the shareholders’ right to tender shares may be excluded insofar as acceptance is based on quotas. The Company may provide for a preferred offer for concluding option contracts or a preferred allocation of options for small lots of shares (options up to 100 shares per shareholder).

e) The term of the derivatives shall be a maximum of 18 months in each case and be so determined that exercising derivatives to acquire shares will be completed by 29 April 2019 at the latest. The Company may use derivatives to acquire own shares up to a maximum of 5% of the share capital at the time the resolution is adopted at the Annual General Meeting. If at the time this authorisation is first exercised the existing share capital is lower, that amount shall be deemed material.

f) If derivatives are used to buy back own shares, pursuant to subitem b) aa or bb, shareholders shall not have a claim to conclude such derivative contracts with the Company, in line with the provisions of Section 186 para. 3 sentence 4 of the German Stock Corporation Act. Shareholders shall also not have the right to conclude derivative contracts to the extent that, on conclusion of derivative contracts pursuant to subitem b) cc, the Company has provided for a preferred offer or preferred allocation for the conclusion of derivative contracts with regard to small lots of shares. Shareholders shall have a right to tender their shares to the Company only insofar as the Company is obligated to purchase shares from them pursuant to the derivative contracts.

g) The authorisation may be exercised as a whole or in part amounts, on one or more occasions and for one or more purposes by the Company, but also by dependent Group companies or enterprises in which the Company has a majority shareholding, or by third parties for its or their account.

h) In all other respects, the conditions and uses of the authorisation granted under item 6 of the agenda shall apply.

The term of office of the Supervisory Board members expires at the end of the Annual General Meeting on 30 April 2014. Pursuant to Sections 96 para. 1 and 101 para. 1 of the German Stock Corporation Act and Sections 5 (1), 15 para. 1, and 22 of the German Act on the Co-Determination of Employees in Cross-Border Mergers (MgVG) in conjunction with the agreement concerning the co-determination of employees of Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (hereinafter referred to as “the Company”) concluded between the managements of the Company and Münchener Rück Italia S.p.A. and with the Special Negotiating Body dated 28 November/10 December/12 December 2008 as well as Article 10 of the Company’s Articles of Association, the Supervisory Board shall be composed of ten members elected by the shareholders at the Annual General Meeting and ten members elected by the employees. On the basis of this agreement on co-determination, the employee representatives on the Supervisory Board will be elected by the relevant bodies prior the Annual General Meeting. The shareholder representatives are to be elected at the Annual General Meeting on 30 April 2014.

The Supervisory Board proposes that the following persons be elected to the Supervisory Board as representatives of the shareholders for the next term of office, i.e. until the end of the Annual General Meeting in 2019:

a) Prof. Dr. oec. Dr. jur. Ann-Kristin Achleitner, Munich, Germany, Scientific Director of the Center for Entrepreneurial and Financial Studies (CEFS) at the Technical University of Munich

b) Dr. jur. Benita Ferrero-Waldner, Madrid, Spain, President of the EU-Latin America/Caribbean Foundation (EU-LAC Foundation)

c) Prof. Dr. rer. nat. Ursula Gather, Dortmund, Germany, Rector of TU Dortmund University

d) Prof. Dr. rer. nat. Peter Gruss, Munich, Germany, President of the Max Planck Society for the Advancement of Science

e) Gerd Häusler, Frankfurt, Germany, CEO of Bayerische Landesbank

f) Prof. Dr. rer. nat. Dr. Ing. E.h. Henning Kagermann, Königs Wusterhausen, Germany, President of acatech – German Academy of Science and Engineering

g) Wolfgang Mayrhuber, Hamburg, Germany, Chairman of the Supervisory Board of Deutsche Lufthansa AG

h) Dr. Ing. E. h. Dipl. Ing. Bernd Pischetsrieder, Breitbrunn-Urfahrn, Germany, Chairman of the Supervisory Board of Munich Reinsurance Company

i) Anton van Rossum, Brussels, Belgium, Chairman of the Supervisory Board of Royal Vopak NV and member of the Board of Credit Suisse Group

j) Dr. phil. Ron Sommer, Meerbusch, Germany, Chairman of the Supervisory Board of MTS OJSC, Russia

The proposals of the Supervisory Board are based on the recommendations of the Nomination Committee and take into account the objectives approved by the Supervisory Board regarding its composition.

Prof. Dr. rer. nat. Dr. Ing. E.h. Henning Kagermann, Chairman of the Audit Committee, meets the requirements of Section 100 para. 5 of the German Stock Corporation Act to qualify as an independent financial expert.

Pursuant to Section 5.4.3 sentence 3 of the German Corporate Governance Code in the version dated 13 May 2013, it is pointed out that Dr. Ing. E. h. Dipl. Ing. Bernd Pischetsrieder has announced his willingness to stand for re-election as Chairman if he is returned to the Supervisory Board.

The intention is to elect each member individually to the Supervisory Board.

In the Supervisory Board’s assessment, none of the proposed candidates has any personal or business relations with Munich Reinsurance Company, its Group companies, the governing bodies of Munich Reinsurance Company, or with a shareholder holding a material interest in Munich Reinsurance Company, that would require disclosure under Section 5.4.1 para. 4 of the German Corporate Governance Code in the version dated 13 May 2013.

The Annual General Meeting is not obliged to follow election proposals.

The following profit transfer agreements have been concluded between Munich Reinsurance Company (controlling company) and its wholly owned subsidiaries (controlled companies) incorporated as German limited liability companies (GmbH)
 

• Profit transfer agreement with MR Beteiligungen 1. GmbH of 19 November 2002
• Profit transfer agreement with Silvanus Vermögensverwaltungsgesellschaft mbH (formerly operating under the name of MR Beteiligungen 3. GmbH) of 19 November 2002
• Profit transfer agreement with MR RENT-Investment GmbH (formerly operating under the name of MR Beteiligungen 4. GmbH) of 19 November 2002
• Profit transfer agreement with MR Beteiligungen 14. GmbH of 19 November 2002
• Profit transfer agreement with MR Beteiligungen 15. GmbH of 19 November 2002
• Profit transfer agreement with MR Beteiligungen 16. GmbH of 19 November 2002
• Profit transfer agreement with Schloss Hohenkammer GmbH (formerly operating

under the name of Akademie Schloß Hohenkammer GmbH) of 11 April 2003 An amendment of these profit transfer agreements became necessary following promulgation of the German Act Amending and Simplifying Taxation of Companies and the Tax Treatment of Travel Expenses (UntStRÄndG) of 20 February 2013 (Federal Law Gazette I, p. 285), which amends Section 17 sentence 2 (2) of the German Corporation Tax Act (KStG). This amended Section 17 sentence 2 (2) of the German Corporation Tax Act now stipulates that “assumption of a loss is agreed by reference to the provisions of Section 302 of the German Stock Corporation Act (AktG) in the respective applicable version”.1 For this purpose, Munich Reinsurance Company has concluded agreements amending the profit transfer agreement with each of the above-mentioned controlled companies, thus ensuring that each of the profit transfer agreements continues to comply with the requirements for tax unity.

While amending the agreements to ensure compliance with the rules governing the assumption of losses, all profit transfer agreements have also been amended with regard to the transfer of profits. They now contain a general reference to the application of the most recent version of Section 301 of the German Stock Corporation Act, which governs the maximum amount of profit that may be transferred, or any subsequent regulatory provision. Section 301 sentence 1 of the German Stock Corporation Act, as amended by the German Accounting Law Reform Act (BilMoG) of 25 May 2009 (Federal Law Gazette I, p.1102), prohibits the transfer as profit of undistributable restricted amounts pursuant to Section 268 para. 8 of the German Commercial Code (HGB). This provision was introduced after conclusion of the profit transfer agreements to be amended. Compliance with the legal provisions is secured by the general reference provision, which becomes an integral and binding provision of the profit transfer agreement along with any possible future amendments to Section 301 of the German Stock Corporation Act.

The amendments mentioned above form the material content of each of the seven amendment agreements. The agreements amending the respective profit transfer agreements do not provide for any other changes. The original profit transfer agreements of 19 November 2002 and 11 April 2003 and the respective agreements amending them are completely identical in their material provisions.

On 18 February 2014, the shareholders’ meetings of the above-mentioned subsidiaries approved the respective agreements amending the profit transfer agreement in notarised form. In addition, the agreements amending the profit transfer agreement require approval from the Annual General Meeting of Munich Reinsurance Company. Subsequently, they will become effective upon entry being made in the Commercial Register with respect to the corresponding subsidiary.

Pursuant to Sections 293a and 295 para. 1 of the German Stock Corporation Act, the Board of Management of Munich Reinsurance Company submitted joint reports with the management of each of the subsidiaries involved, explaining and justifying from a legal and economic standpoint the contents of and reasons for conclusion of the agreement amending the profit transfer agreement. The joint reports can be accessed on the Munich Reinsurance Company website (www.munichre.com/agm) under “Documents”, along with the following documents requiring disclosure:
 

• The respective agreements amending the profit transfer agreements between Munich Reinsurance Company as the controlling company and the seven controlled companies;
• The existing profit transfer agreements between Munich Reinsurance Company as the controlling company and the seven above-mentioned controlled companies;
• Munich Reinsurance Company’s annual financial statements, management reports, consolidated financial statements and Group management reports for the financial years 2011, 2012 and 2013;
• The annual financial statements and management reports of the seven controlled companies (unless an exemption applies under Section 264 para. 3 of the German Commercial Code) for the past three financial years.

All documents requiring disclosure will also be made available at the Annual General Meeting. Since Munich Re is the sole shareholder in the controlled companies, it was not necessary to have the agreements audited and to present an auditor’s report pursuant to Sections 293b ff. of the German Stock Corporation Act.

The Supervisory Board and the Board of Management propose that

a) the agreement of 8/20 January 2014 amending the profit transfer agreement of 19 November 2002 with MR Beteiligungen 1. GmbH,

b) the agreement of 9/20 January 2014 amending the profit transfer agreement of 19 November 2002 with Silvanus Vermögensverwaltungsgesellschaft mbH (formerly operating under the name of MR Beteiligungen 3. GmbH),

c) the agreement of 8/20 January 2014 amending the profit transfer agreement of 19 November 2002 with MR RENT-Investment GmbH (formerly operating under
the name of MR Beteiligungen 4. GmbH),

d) the agreement of 8/20 January 2014 amending the profit transfer agreement of 19 November 2002 with MR Beteiligungen 14. GmbH,

e) the agreement of 8/20 January 2014 amending the profit transfer agreement of 19 November 2002 with MR Beteiligungen 15. GmbH,

f) the agreement of 8/20 January 2014 amending the profit transfer agreement of 19 November 2002 with MR Beteiligungen 16. GmbH,

g) the agreement of 8/20 January 2014 amending the profit transfer agreement of 11 April 2003 with Schloss Hohenkammer GmbH (formerly operating under the name of Akademie Schloß Hohenkammer GmbH) be approved.

The intention is to approve each amendment agreement by individual vote.

1. Re item 6 on the agenda

The Annual General Meetings of recent years have adopted resolutions authorising the Company to buy back and use own shares. The current authorisation has been exhausted to a significant extent by the share buy-back programme launched in November 2013. Therefore, the proposed resolution before you is designed to grant a new authorisation. The Company is again to be given the opportunity, either on its own or via dependent Group companies or enterprises in which the Company has a majority shareholding or via third parties acting for its or their account, to buy back own shares up to a total amount of 10% of the Company’s current share capital or the Company’s existing share capital at the time this authorisation is first exercised, whichever amount is the lower. The new authorisation is again to be granted for a term of five years.

For this purpose, the Company is to be enabled to buy back shares not only via the stock exchange but also through a public offer to shareholders of the Company or through a public solicitation to shareholders to submit an offer to sell Company shares. The Company is also to be given the possibility to offer not only cash but also shares in other listed companies by way of exchange, which for shareholders can be an attractive alternative to a public purchase offer. It gives the Company additional scope for optimally structuring share buy-backs, which is also in the interests of the shareholders.

If, following a public offer to shareholders of the Company to sell or exchange their shares or a public solicitation to shareholders to submit an offer to sell Company shares, the number of Company shares tendered or offered for sale exceeds the total number of shares the Company intended to acquire, acquisition or acceptance will be effected by excluding the right of shareholders to tender shares based on the ratio of shares tendered or offered. This procedure will simplify the acquisition process. The preferred acceptance of small lots of shares (up to 100 shares tendered per shareholder) also serves the purpose of simplification. Own shares which the Company buys back may be sold again via the stock exchange or a public offer to all shareholders. This takes account of the statutory principle of equal treatment (Section 53a of the German Stock Corporation Act).

Besides this, the Company may also limit the shareholders’ subscription rights and, pursuant to Section 186 para. 3 sentence 4 of the German Stock Corporation Act, may sell the Company’s own shares to institutional investors, for example, or launch the shares on foreign stock exchanges. That is in the interests of the Company and puts it in a position to react quickly and flexibly to favourable stock market situations.

The shares may only be sold at a price which does not significantly undercut the current stock market price. The Board of Management will endeavour – taking into account current market circumstances – to keep any discount on the stock market price as low as possible. It will only avail itself of this authorisation to exclude subscription rights in the sale of own shares insofar as – in conjunction with existing authorisations to issue shares by making it easier to exclude shareholders’ subscription rights, namely from capital approved for this purpose, or as a result of an issue of convertible bonds or bonds with warrants – the limit of 10% of the
Company’s share capital is not exceeded.

The authorisation is also designed to give the Company the option of having own shares available to offer as a consideration in connection with mergers, acquisitions of companies or the purchase of shareholdings. International competition and the globalisation of the economy also require this type of acquisition financing. The proposed authorisation is intended to give the Company the necessary scope to take quick and flexible advantage of opportunities that arise for acquiring companies or shareholdings, without placing a strain on its liquidity. This is reflected in the proposed exclusion of subscription rights. In determining the valuation ratios, the Board of Management will ensure the interests of the shareholders are appropriately considered. As a rule, when measuring the value of the shares offered as a consideration, it will take as a basis the stock market price of Munich Re shares. However, a systematic coupling of the valuation to a stock market price is not provided for, in particular to prevent fluctuations in the share price from jeopardising negotiation outcomes once they have been reached. Disposals against non-cash payment are also to include indirect processing in which a bank or similar institution acts as an intermediary.

The Company will have the possibility to issue convertible bonds or bonds with warrants against both cash and non-cash payment. To service these bonds, it may be expedient to use own shares in part or in full, instead of a capital increase. This is also provided for in the authorisation, with an exclusion of shareholders’
subscription rights.

Finally, the authorisation allows the possibility, in the event of own shares being sold by means of an offer to all shareholders, for shareholders’ subscription rights to be partially excluded in favour of the holders of convertible bonds or bonds with warrants. This enables the holders of convertible bonds or bonds with warrants to be granted a subscription right as protection against dilution, instead of a reduction of the exercise or conversion price.

Besides this, the Company is to be enabled to issue shares to employees of the Company or its affiliated companies, as well as to the Board members of its affiliated companies. The issue of shares to these individuals serves to integrate them into the Company and promotes the assumption of co-responsibility.

Therefore, the issue of shares to employees and managers is in the interests of both the Company and its shareholders. We would like to be able to offer the abovementioned individuals own shares also within the framework of innovative participation models, for instance in connection with conditions that commit them to a certain period of service with the Company. Besides this, we wish to have the option of linking a share offer or share issue to other conditions, for example personal or department, or to a project or to Company profit targets. Finally, we would like to be able to use shares within the framework of our remuneration systems. Since 2010, variable remuneration schemes for specified managers are required to include medium- and long-term components. We wish to have the option of using own shares for this purpose.

Where permitted by law, the Company is to be given the option of involving a suitable third party, such as an issuer, in conducting the transaction. This can be useful in particular with a view to facilitating practical implementation and reducing the effort and expense involved. The involvement of such third party shall be subject to the proviso that shares may only be transferred in accordance with the authorisation granted by the Annual General Meeting and, where applicable, at the end of a vesting period or subject to a holding period. The Company will ensure that this is the case.

When making use of the authorisation to issue such employee shares, there should be the option of setting an amount attributable to each share that is below the respective current stock market price. The benefit should in this case not be determined on the basis of a formal consideration of the discount per share. Rather, the overall amount of the benefit granted in each case to an individual through discounted shares should be in a reasonable proportion to the individual’s remuneration or to the expected advantage to the Company, subject to the condition being fulfilled, as well as to any vesting period or minimum holding period stipulated.

Transferring own shares can be an economically viable alternative to using available authorised capital because it saves the effort and expense associated with a capital increase and the approval of new shares, and helps avoid the dilution effect that would otherwise occur.

Furthermore, the Company is also to be given the option of paying variable remuneration to members of the Company’s Board of Management wholly or partly in the form of Company shares subject to a minimum holding period, rather than as a cash bonus. For instance, this option may be considered for the Board of Management’s existing remuneration scheme as described in the remuneration report included in the 2013 Munich Re Group Annual Report. The Company is also to be enabled to transfer Company shares subject to a minimum holding period, particularly as an alternative to making cash payments that recipients are obliged to invest in Company shares subject to a minimum holding period. By transferring shares with a minimum holding period instead of making a cash payment, part of the remuneration is deferred, and ties to the Company are strengthened by allowing the member of the Board of Management to participate in a sustainable increase in the Company’s value. When transferring shares to members of the Board of Management, the value attributed to each share transferred may not significantly undercut the stock market price. It will thus be possible to set up or continue variable remuneration schemes that provide an incentive for long-term sustainable management. Because the shares must not be sold before the expiry of the holding period, the Board member participates in both positive and negative stock market price fluctuations during the holding period. As a result, there may be a bonus or a detrimental effect. A minimum holding period of around four years shall be stipulated for members of the Company’s Board of Management. A minimum holding period of around two years may be stipulated if shares are transferred in lieu of a cash payment in a variable remuneration scheme that already uses a multi-year assessment basis. The above mechanisms take into account the aims of the German Act on the Appropriateness of Management Board Remuneration (VorstAG), the requirements of the German Corporate Governance performance objectives, objectives within the employee’s divisional unit Code, and the provisions of the German Insurance Supervision Act (VAG) in conjunction with the German Remuneration Regulation for Insurance Companies (VersVergV). To be eligible to receive shares, the respective member of the Board of Management must be employed with the Company at the time the underlying objectives are defined or agreed and/or at the time the shares are transferred. It will thus be possible to pay part of the bonus in the form of shares even if employment begins during the year or if the variable remuneration is paid after the termination of employment with the Company. The details of remuneration for members of the Board of Management are established by the Supervisory Board. These include rules on how to deal with holding periods in special cases such as retirement, disability or death. There is no intention to issue stock options.

For shares used in connection with the rules of remuneration of the Board of Management, the implementation details shall be at the discretion of the Supervisory Board; for the other shares, they shall be at the discretion of the Board of Management. In order to achieve the above objectives, it is necessary to exclude the subscription rights of shareholders. This option will only be exercised if, in the estimation of the Supervisory Board or – in the latter case – the Board of Management, it is in the interests of the Company and thus of its shareholders.

As outlined above, not only the shares acquire on the basis of this authorisation resolution are to be used. The authorisation is also intended to include shares acquired on previous occasions. It is advantageous for the Company and creates further flexibility to be able to use these own shares in the same way as those acquired on the basis of this new resolution.

We propose that own shares acquired on the basis of a resolution taken to authorise the buy-back of shares may be retired without requiring a new resolution of the Annual General Meeting. For this purpose, the Annual General Meeting will transfer the decision regarding the retirement of shares to the Board of Management.

The Annual General Meeting can also authorise the Board of Management to retire no-par-value shares without reducing the share capital. The proposed authorisation provides for this option in addition to retirement with a share capital reduction. If own shares are retired without reducing the share capital, the proportion of the unchanged share capital represented by each of the other no-parvalue shares automatically increases. The Board of Management is therefore also to be authorised to make the necessary amendment to the Articles of Association to take account of the resultant reduction in the number of no-par-value shares.

The Board of Management will report on the use of the authorisation at the Annual General Meeting.

2. Re item 7 on the agenda

Apart from the possibilities to buy back own shares as provided for under item 6 of the agenda, the Company is again to have the option of acquiring own shares using derivatives.

In the past, the Company has made successful use of the possibility of buying back own shares by using derivatives. This has confirmed that for the Company it may be advantageous to sell put options or purchase call options, for example, instead of directly acquiring Company shares. The Board of Management intends to use put and call options, forward purchase contracts or a combination of such instruments only as a supplement to conventional share buy-backs.

When selling put options, the Company grants the acquirer of the put options the right to sell Munich Re shares to the Company at a price laid down in the put option (exercise price). In return, the Company receives an option premium, which thus allows high option premiums. If the put option is exercised, the option premium paid by the acquirer of the put option reduces the countervalue rendered as a whole by the Company for the acquisition of the shares. It is economically expedient for the option holder to exercise the put option if the Munich Re share price at the time of exercise is lower than the exercise price, because the holder can then sell the shares at the higher exercise price. From the Company’s point of view, the advantage of share buy-backs using put options is that the exercise price is fixed on the day that the option contract is concluded, whilst the liquid funds do not flow until the exercise date. Furthermore, owing to the option premium collected, the acquisition price of the shares for the Company is lower than the share price when the option contract is concluded. If the option holder does not exercise the option because the share price at the exercise date is higher than the exercise price, the Company is unable to acquire any of its own shares in this way but still has the collected option premium.

In the case of a call option, the Company acquires the right – against payment of an option premium – to purchase a predetermined number of Munich Re shares at a predetermined price (exercise price) from the seller of the option, the writer. It is economically expedient for the Company to exercise the call option if the Munich Re share price on the date the option is exercised is higher than the exercise price, because it can then purchase the shares from the writer at the lower exercise price. In this way, the Company hedges against rising share prices. In addition, the Company’s liquidity is not affected, since the fixed acquisition price for the shares does not need to be paid until the call options are exercised.

Forward purchase contracts are contracts for purchasing Munich Re shares where there are more than two trading days between the conclusion of the purchase contract and the delivery of the shares purchased. In a forward purchase, the Company enters into an agreement with the forward seller to acquire the shares at a specified future date at a price stipulated at the time of concluding the forward purchase contract. It can be economically expedient for the Company to enter into forward purchase contracts in order to ensure that a future demand for own shares can be met at a certain price level on a specific date.

The issue or purchase of derivatives via a European derivatives exchange such as Eurex Deutschland or LIFFE offers the Company additional flexibility to acquire own shares with due consideration for the effect on the stock exchange. The buyback of own shares corresponds to indirect acquisition via the stock exchange. To ensure that any shareholders interested have the possibility to participate in such models, the proposed resolution stipulates that shareholders have to be informed prior to the issue or exercise of such derivatives.

Besides this, the Company is also to be enabled to make a public offer to all shareholders to conclude put and call option contracts. In this case, all shareholders are given the opportunity to tender their shares to the Company at a price fixed in the option agreement; alternatively, they have the possibility to collect an option premium.

This may be termed a ”reverse subscription rights issue”, i.e. here the shareholder is to be given the right to surrender shares to the Company. This right may have an economic value that then benefits all shareholders. In conducting the transaction, a third party such as an issuer may be called in to act as an intermediary for reasons of organisational processing. Shareholders shall have no right to conclude option contracts, however, to the extent that on conclusion of option contracts, the Company has provided for a preferred offer or preferred allocation for the conclusion of option contracts with regard to small lots of shares. This facilitates the application of such a model. The Board of Management is proceed ing on the assumption that the advantages of such a facilitation outweigh any conceivable minor disadvantages to shareholders.

Derivative contracts may also be concluded over the counter and not as a public offer to all shareholders (including employing an issuer as an intermediary). This gives the Company the necessary flexibility to react quickly to market situations. The issue or acquisition of derivatives via a stock exchange may be more expensive or a public offer to all shareholders may take longer than if the transaction were concluded over the counter. There may be other good reasons in the interests of the Company for entering into such an over-the-counter transaction rather than offering a transaction to all shareholders. In this case, and in keeping with the principle of equal treatment, the respective counterparty may, in exercising the derivative, deliver only shares that have been acquired via the stock exchange at the current share price in Xetra trading (or a comparable successor system) on the Frankfurt stock exchange. On conclusion of a put option contract or a forward purchase contract, such a requirement must be an integral part of the transaction.

On conclusion of a call option contract, the Company may exercise the option only if it has been ensured that on exercising the option the respective counterparty delivers only shares that satisfy the aforementioned requirements. The fact that the respective counterparty in the derivative contract delivers only shares acquired under the aforementioned conditions is intended to satisfy the legal requirement of equal treatment of shareholders pursuant to the provisions in Section 71 para. 1 (8) of the German Stock Corporation Act.

Under a forward purchase contract, the acquisition price to be paid by the Company for the shares is the purchase price; in a put or call option, it is the respective exercise price. The acquisition price may be higher or lower than the market price of Munich Re shares at the time of entering into the derivative contract, but it may not exceed by more than 10% or undercut by more than 20% the opening price determined in Xetra trading (or a comparable successor system) on the Frankfurt stock exchange for Company shares with the same securities reference number on the day the option contract or purchase contract is concluded.

In accordance with the proposals submitted under agenda items 7 b) aa and bb, the option premium agreed on by the Company when selling the put options or acquiring the call options may not be lower (in the case of put options) or higher (in the case of call options) than the theoretical market value of the respective options on the settlement date, determined according to recognised principles of financial mathematics, the calculation of such market value considering among other things the agreed exercise price. This shall apply accordingly to the premium under forward purchase contracts.

As a precaution, the right of shareholders to enter into such derivative contracts with the Company as mentioned above is excluded pursuant to Section 186 para. 3 sentence 4 of the German Stock Corporation Act. By excluding subscription rights, the Company – unlike in an offer to all shareholders – is in a position to conclude derivative contracts at short notice. The procedure for fixing the premium and the exercise or acquisition price described above, as well as the requirement specified under agenda item 7 b) bb that the shares delivered for derivative contracts have to be previously acquired on the stock exchange, are intended to rule out economic disadvantages for shareholders from buying back shares using put or call options or forward purchase contracts. As the Company collects or pays a fair market price, shareholders not involved in the derivative transactions do not suffer any loss in value. This corresponds to the position of shareholders in the case of share buybacks on the stock exchange, where in fact not all shareholders can sell shares to the Company. The equal treatment of shareholders is ensured in the same way as with customary buy-backs via the stock exchange, through the fixing of a fair market price. This is also in keeping with the spirit of Section 186 para. 3 sentence 4 of the German Stock Corporation Act, according to which the exclusion of subscription rights is justified if the pecuniary interests of shareholders are safeguarded.

If a public offer is made to all shareholders to conclude an options contract or options contracts have been concluded with a third party such as an issuer subject to the obligation to offer the options to shareholders on subscription, the exercise price per share may not exceed by 10% or undercut by more than 20% the arithmetic mean of the closing price determined in Xetra trading (or a comparable successor system) on the Frankfurt stock exchange for Company shares with the same securities number on the fifth, fourth and third trading day prior to publication of the offer.

If shares are bought back using derivatives, shareholders are to have a right to tender their shares only insofar as the Company is obligated to purchase the relevant shares under the derivatives. Otherwise, the use of put or call options or forward purchase contracts in buying back own shares would not be possible, and the Company would not be able to derive the associated benefits. Having carefully weighed up the interests of the shareholders and the Company and having consulted with the Supervisory Board, the Board of Management considers the non-granting or restriction of the shareholders’ rights to tender shares to be  justified in such cases, given the advantages resulting from the use of put or call options and forward purchase contracts for the Company.

After careful consideration of all the aspects – in particular the interests of the shareholders and those of the Company – the Board of Management will determine the acquisition channels and all other modalities regarding the use of the proposed authorisations to buy back own shares. It will report to the next Annual General Meeting on buying back own shares and the use of derivatives to buy back own shares.