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Munich Re: Satisfactory First Quarter in Difficult Environment

-- Solid quarterly profit of $ 1.2 billion, despite substantial major losses and volatile Capital Markets

-- Expected Profit range of $ 4.7-5.4 billion forecasted for 2008, in spite of reduced premium volume in reinsurance

The Munich Re Group recorded a profit of $1.2 billion in the first three months. Operating results decreased by 12.3% to $1.9 billion. However, there were no major sales of shares or large special gains, such as those achieved on the sale of real estate in 2007 in the current financial year, the Company noted. Investment results experienced a 46.6% year-on-year decrease to $2.7 billion, with equity capital declining to $37.6 billion since January 1st. "We are adhering to our most important target for 2008 – to achieve a return on risk-adjusted capital of at least 15%, which means a profit of $4.7-5.4 billion," Chief Financial Officer Joerg Schneider noted.

As in the preceding years, Munich Re again published the necessary level of risk capital for the Group together with the figures for the first quarter. The risk capital determined using an internal risk model, was $24.3 billion as of December 31st, 2007. In this context, Mr. Schneider stressed the benefits of the Group's integrated business model of primary insurance and reinsurance: "In addition to the value and cost synergies we leverage, we are also saving significant capital costs by balancing risks across the two businesses." In total, the Group's risk-based capital requirements are nearly $3.2 billion lower than if primary insurance and reinsurance were transacted by separate companies.

The "Changing Gear" Program is going well and is taking effect," stressed Mr. Schneider. "With our active cycle management, innovative business initiatives and attractive payouts, we are right on track." Munich Re's objective is to generate a profit of more than $395 million from new reinsurance activities by 2010 and to raise earnings per share to over $28, excluding any positive one-off effects. Further shares with a volume of at least $1.58 billion are to be repurchased before the Annual General Meeting in 2009. In primary insurance, ERGO is systematically driving international business expansion forward, the most recent example cited by Mr. Schneider was ERGO's joint venture with the HERO Group for life primary insurance business in the emerging market of India.

Further highlights of the First Quarter report were:

-- Primary Insurance:

The Group's primary insurers again posted good results in the first quarter of 2008, with operating results totaling $388.7 million (–22.2%) and consolidated results after tax totaling $257 million (–34.8%). From an underwriting perspective, the first quarter of 2008 again performed very well, the combined ratio in the property-casualty segment improved significantly to 89.0%.

Gross premiums written in the Munich Re Group's primary insurance business advanced to $7.58 billion. In property-casualty insurance (including legal expenses insurance), premium climbed by 2.3% to $3.08 billion. In the life and health segment, total premium income rose to $4.9 billion, gross premiums written amounting to $4.6 billion. Not included in the final figure are the savings premiums of unit-linked life insurance and capitalization products such as "Riester" pensions in Germany – product lines which are playing an ever more important role.

German new business accounted for double-digit year-on-year growth as expected, the key factor behind the increase being the fourth Riester subsidization stage, which commenced at the beginning of the year. If it had not been for this factor, new business would have declined by 12.6%, mainly because the sales process has become more complicated due to a reform of the German insurance contract law.

-- Reinsurance:

Despite the burden from major losses, reinsurance transactions performed favorably, contributing $897 million to the Group's overall profits. Major losses were floods in two coal mines in Queensland, Australia, in January and February. Munich Re expects its claims costs to add up to nearly $158 million in each case. Although the impact from European winter storm Emma was significantly lower than last year's Kyrill, it resulted in high losses of $118 million, lifting the total burden to $913 million. "Major losses are part of our business. That is why loss patterns such as the one in the first quarter do not alarm us," Board Member Torsten Jeworrek stated. The combined ratio amounted to 103.8%, of which 10.7 percentage points were attributable to natural catastrophes.

In the renewals of treaty business in property-casualty reinsurance in the United States, India, Japan and Korea on April 1st, price development varied considerably between markets and classes of business. An aggregated look at the April renewals revealed that the trend towards pressure on prices is continuing. "We steer our business with a view to ensuring risk-adequate prices for our portfolio. This increasingly requires active cycle management in the form of shifts within the portfolio," Mr. Jeworrek added. In the US market, Munich Re recorded its first successes with the realignment of its strategy and grew profitably in niche segments.

Munich Re intends to pursue its approach of consistent profit orientation for the forthcoming renewals on July 1st in further parts of the US portfolio, in Australia and in the Latin American markets. "Risk-commensurate prices and conditions are still essential. It is the only way we can provide the high amount of capacity needed to cover major individual risks and catastrophe losses," Mr. Jeworrek further noted.

-- Investments:

Due to the credit crisis and price falls on the Stock Exchanges in Capital Markets in the first quarter of 2008, Munich Re's well-balanced investment portfolio, which is managed by MEAG, held up well. Compared with year-end 2007, the value of the Group's investments as of March 31st, 2008 receded by only 3.4% to approximately $268.9 billion. In comparison with the outstanding results of the first quarter of 2007, the investment result reduced by 46.6% to $2.7 billion, equivalent to a return of 3.9% based on the average market value of the portfolio. This decline was attributable to a lower balance from gains and losses on disposals and from write-ups and write-downs. Despite the turmoil on the markets, this balance was still positive at $0.3 billion, but was $1.9 billion lower than in the previous year.

As of March 31st, 2008, the equity-backing ratio had decreased to 7.2% of the Group's total investments at market values, including hedging instruments. Only $7.9 billion of write-downs were necessary on its small portfolio of investments exposed to the US subprime mortgage market.

The remainder of Munich Re's investment portfolio predominantly comprises Government bonds and other comparably low-risk fixed-interest financial instruments. Owing to the considerably increased credit risk spreads and with a view to earning higher returns, the Group intends to slightly expand what has, until now, been a relatively small portfolio of corporate bonds and structured credit products, accounting for approximately 8.5% of its investments. "We are taking very careful steps in this direction and are maintaining our established policy of skepticism where excessively complex financial instruments are concerned," Mr. Schneider emphasized.

-- Prospects:

The Group aims to achieve a return of at least 15% on risk-adjusted capital in 2008. "Despite the greatly increased volatility on the Capital Markets and the growing pressure on prices in reinsurance, we aim to achieve a profit of $4.7-5.4 billion in 2008," Mr. Schneider pointed out. This range is $310 million higher than the original forecast for 2007 published a year ago; the actual result for the year was $6.1 billion due to high investment income and one-off effects from changes in tax legislation.

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Munich Re America Corporation, a member of the Munich Re Group, is one of the leading providers of reinsurance in the United States. Through its subsidiaries, it writes treaty and facultative reinsurance, insurance, and provides related services to insurance companies, other large businesses, government agencies, pools and other self-insurers. The Munich Re Group, whose business also includes primary insurance and asset management, has a preeminent position in the global reinsurance industry. It is headed by Munich Reinsurance Company of Munich, Germany, which includes reinsurance subsidiaries, branches, service companies and liaison offices in more than 60 locations worldwide, serving corporate clients from around 160 countries. More about Munich Re America products and services can be found at www.munichreamerica.com.