Press release

• Profit of €1.5bn for the first nine months
  
  
• Profit of €365m for the third quarter, despite windstorm losses of approx. €550m
  
  
• Renewals at 1 January 2005: Munich Re expects reinsurance prices as a whole to remain firm
   

"The interim result after the third quarter is still good – despite the claims burden from the windstorms. Our selective underwriting policy has paid off in the light of increasing risks. Consequently, in the ongoing renewals of reinsurance treaties, we will continue to negotiate according to the maxim of profitability before growth. Our primary insurance group has also succeeded in producing a notable upswing. On this strong basis, we are adhering to our result target of €2bn in the event of further very good business experience, but after the series of windstorms we now see €1.8bn as the lower limit of the target range if business experience remains normal", said Jörg Schneider, Munich Re Board member whose portfolio includes accounting, in a media telephone conference.

The figures for the Munich Re Group at 30 September 2004 (see attachment for more details):
The profit for the first nine months of 2004 amounts to €1.5bn (compared with –€0.5bn in the corresponding period last year). In spite of severe hurricanes and typhoons in August and September, the Group kept on course in the third quarter, with a profit of €365m (42m). Apart from the covers for natural hazards, the reinsurance underwriting business performed very well, with the profit tripling in the first nine months to €1.4bn (0.4bn). Primary insurance also made a positive contribution to the Group result with €135m (–907m).

At €28.9bn (30.7bn), the Group's premium income for the first nine months remained at a high level, despite the curbing effects of the rise in the euro and the selective underwriting policy of the reinsurers in non-life business. Shareholders' equity has increased to €19.5bn since the turn of the year (31 December 2003: €18.9bn), primarily due to the high consolidated profit.

Business experience in the third quarter was marked by an unusually high number of cyclones, which impacted the segment result with an estimated €550m. However, in relative terms, Munich Re was less strongly affected by these storms than some other providers. Munich Re kept its claims burden down through increased retentions for primary insurers, reduction of liability limits and more efficient accumulation control. In spite of the windstorm losses, the Group's reinsurance operations show a clear profit of €294m (118m), since business experience was otherwise good. For the first three quarters, the Group recorded a substantial profit of €1,387m (435m).

The combined ratio for the first three quarters, including the claims burdens from natural catastrophes (4.6 percentage points), was only 98.8% (97.0%). For the third quarter alone (natural catastrophe losses: 14.2 percentage points) it amounted to 105.8% (99.3%). On the basis of current estimates, the major loss resulting from the spectacular lorry accident on the Wiehltal bridge in Germany will cost Munich Re up to €20m, and the explosion of a gas pipeline in Belgium nearly €30m.

Renewals during the year 2004 brought the Group's reinsurers risk-adequate terms and conditions, despite varying price trends in individual segments and regions. Munich Re withdrew from treaties that no longer met its profitability requirements, and the planned reduction of some large individual treaties also lessened the premium volume. Premium income from reinsurance business totalled €17.5bn (19.1bn) for the first three quarters, a decrease of 8.4%, 3.3 percentage points of which were due to currency translation effects. Property-casualty reinsurance recorded premium of €11.8bn (13.9bn) and doubled its contribution to the reinsurance result to €1,053m (492m). American Re, the Group's largest non-life reinsurance subsidiary, showed a US GAAP profit for the first nine months of US$ 194m (320m) after tax, with gross premium income of US$ 3.2bn (3.5bn). This result includes the windstorm losses of US$ 155m in its home market and reserve strengthening for earlier years amounting to US$ 195.4m. In life and health reinsurance, premiums rose to €5.7bn (5.2bn), an increase of 10.9% – adjusted to eliminate currency translation effects, the increase was 13.5%. The life and health segment contributed €334m (–57m) to the profit in reinsurance.

The Group's primary insurers, in particular ERGO, Karlsruher and Europäische, continued their positive development in the third quarter. They improved their net profit for the first nine months to €135m (–907m), the equivalent period last year having been affected by extreme tax burdens and high writedowns on equities.

Premium income in the primary insurance segment remained virtually unchanged in the third quarter at €4.1bn; in the first three quarters it fell by 0.6% to €13.0bn, mainly due to the sale of a Dutch subsidiary at the beginning of the year.

The life and health insurers bettered their last year's result for the first nine months by approx. €700m to €45m (–649m). Premium declined marginally to €8.8bn (8.9bn), falling in life insurance to €5.4bn (5.5bn), mainly owing to lower single premiums. In the insurers' home market of Germany, the Retirement Income Act was passed in June. The life insurers expect a marked increase in new business from this by the end of the year, given that clients will only be able to take out tax-exempt endowment policies until then.

At €3.4bn, premium income for the first nine months in health insurance showed a slight fall of 1.0% compared with last year; but after taking into account the sale of the Dutch subsidiary, there was a 4.9% increase in premium from the remaining companies, with German new business in particular developing very positively.

The property-casualty insurers contributed €90m (–258m) to the primary insurance result. The combined ratio for property-casualty business, including legal expenses insurance, amounted to an outstanding 92.2% (96.3%). Premium for the first three quarters rose by 1.7% to €4.2bn (4.1bn), with growth in personal lines business particularly strong in the liability and homeowners' insurance segments.

The largest part of the primary insurance segment, the ERGO Insurance Group, earned a profit of €176m (–718m) in the first three quarters. "The Group is well on the way to achieving sustained profitability", said Schneider. ERGO is also scheduled to complete the realisation of a new management structure by the beginning of the new year. As from 2005, it will reduce its costs according to plan by €300m per annum, already achieving savings of €200m in 2004.

Munich Re has decided to involve ERGO more closely in significant Group processes, especially strategic issues and risk management, so that there is now "unified control" within the meaning of the German Stock Companies Act. Responsibility for the management of its insurance group (Hamburg-Mannheimer, VICTORIA, DKV, D.A.S. and KQV) continues to lie with ERGO.

The ERGO Insurance Group expects to earn its cost of capital in 2004, and thus earlier than originally announced. In the current year, it will strengthen VICTORIA Leben's equity capital through an allocation of €500m to the capital reserve. Munich Re will help finance this amount out of existing Group resources through a subordinated loan of €400m to ERGO. Even before the capital injection, VICTORIA Leben has substantially reduced its "hidden losses" (negative valuation differences), adjusted its reserves to reflect the changed biometric risk, improved its pricing and implemented a strict cost-savings programme.

The Munich Re Group's investments, most of which are managed by MEAG, had a carrying amount of €177.2bn (171.9bn) at 30 September 2004. The investment result for the nine month totalled €5.7bn (4.0bn). As already reported half way through the year, the Munich Re Group has further reduced its investment in the German financial services sector by lowering its stake in Allianz to just under 10%. The proportion of investments in equities at 30 September shows a reduction of 13.8% since the beginning of the year (15.2%).

1The lower result for the primary insurance segment as a whole is partly attributable to the normal amortisation of goodwill in connection with Munich Re's acquisition of ERGO shares.

In view of its selective business policy, Munich Re is expecting Group premium for 2004 to show a slight reduction to about €39bn (40.4bn). If exchange rates remained the same, gross premium would total approx. €23bn (24.8bn) in reinsurance and around €18bn (17.6bn) in primary insurance, before consolidation in each case.

The Group is adhering to its result target of €2bn. Schneider: "Nevertheless, after the series of windstorms this objective has become much more difficult to attain, so that it is now the upper limit of a conceivable range. If business experience remains normal and is not subject to extraordinary influences, we should be able to achieve an annual result of €1.8bn as the lower limit. That would be the best result in Munich Re's history. I am confident, but naturally remain cautious, as we still have nearly two months of the business year ahead of us."

The windstorms were a stress test for the industry. Further severe natural hazard events have followed in the fourth quarter: Typhoon Tokage in Japan, with an insured market loss of about US$ 1bn–3bn, which cost Munich Re approx. €65m, and an earthquake of magnitude 6.8 in Niigata, with at least 37 fatalities and several thousand injured, from which Munich Re itself does not expect significant losses, however. These events have provided a forceful reminder for all market players of the high exposure of insured values and thus the fundamental necessity for risk-adequate prices and conditions. The hurricanes and typhoons in August and September cost the insurance industry around US$ 30bn; the claims burden borne by Munich Re was approx. €550m – an amount that in itself exceeds the expected figures for natural catastrophes for a whole year. Losses from weather extremes are increasing worldwide, often disproportionately owing to the growing concentration of values. Munich Re therefore expects prices for natural catastrophe covers to rise accordingly.

In the forthcoming renewals in reinsurance treaty business, Munich Re envisages prices and conditions remaining stable overall. There will be further differentiations according to region, line of business and client segment. In market segments in which loss potentials are growing, upward price adjustments are necessary again. Torsten Jeworrek, responsible on the Board of Management for special and financial risks in reinsurance: "For Munich Re's underwriters, the maxim is still 'profit before growth'. We are willing to sacrifice premium volume if we cannot achieve a risk-adequate price level. On the other hand, we will take systematic advantage of business opportunities that meet our profitability requirements."

The quarterly report, along with a presentation for the media telephone conference, can be viewed from 8.30 a.m. at www.munichre.com.

Münchener Rückversicherungs-Gesellschaft
signed Jörg Schneider           signed Rainer Küppers