Presentation

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Presentation

Munich Re Group
Acquisition of The Midland Company
Telephone conference
for analysts and investors
Torsten Jeworrek
Jörg Schneider
17 October 2007
Munich Re Group
Acquisition rationale
3
Overview of Midland
7
Financial impact
14
Summary
17
Back-up
19
Munich Re Group –Acquisition of The Midland Company –17 October 2007
Agenda
2
3
Overview of Midland
7
Financial impact
14
Summary
17
Back-up
19
Agenda
3
Munich Re Group
Midland acquisition
Unique opportunity to expand in US specialty p-c market
Transaction highlights
Strategic rationale
US$ 65 per share offer for 100%
of outstanding shares of The
Midland Company (Midland)
Focus on profitable, fast-growing US specialty insurance segments
Emphasis on short-tail, low-severity personal lines insurance
Entirely funded through own
funds
Long-standing experience of Munich Re in specialty insurance via
US subsidiary
EPS enhancement from 2008 onwards
Full integration into Munich Re Group
Support of financial targets announced as part of Changing Gear
programme
No changes to Munich Re’
s capital management commitment
to return >€8bn to shareholders by 2010
Further detaching Munich Re from traditional p-c reinsurance cycle
Assumed value US$ 1.3bn
4
Getting closer to the risk
Occupying strategic growth areas along risk value chain
Global insurance market
Wholesale
Tailor made
Risk
distribution
Generating value
for shareholders by
giving access to all
parts of value chain
Retail
Industrial
business
Co-insurance
MGA
Facultative
business
Mass
production
Midland:
Specialty primary
High severity
Low frequency
Reducing dependency
on property-casualty
reinsurance cycle
Low severity
High frequency
Realisation of
synergies
across Group
Diversification
results in
reduced capital
requirements
Customer
5
Munich Re Group
Midland acquisition
Logical step within our new US strategy
US primary p-c market –Net premiums written
Goals of new US strategy
in US$ bn
 Participate in significant potential of
US p-c market
434
436
448
 Increase profitability from direct and broker
reinsurance as well as primary insurance by
330
284
260
 Sustainable, profitable growth over course
of market cycle
 Employing a client-centric approach
 Developing closer broker relationships
to support clients’needs
 Building a dominant presence in specialty
primary insurance segments
1995
1998
2001
2004 2005 2006
Source: A.M. Best
One of the world’
s largest and fastgrowing insurance markets
Full commitment
to disciplined cycle management
CAGR 5.1%
6
3
Overview of Midland
7
Financial impact
14
Summary
17
Back-up
19
Agenda
7
Munich Re Group
Overview of Midland
Company overview
Insurance operations conducted by American Modern
Corporate structure
M/G Transport
Services Inc.
American Modern Insurance Group (AMIG)
Midland
MGT
Services Inc.
Transportation business
Holding for insurance operations
2006
Gross written premiums p-c
Aimed to be divested
US$ 781m
Combined ratio
93.8%
8
Overview of Midland
US p-c specialty insurer
Non-cyclical growth
AMIG p-c gross premiums written
in US$ m
11.1%
CAGR1 1987-2006 Industry:
CAGR 2001-2006 AMIG:
7.0%
781
CAGR1 2001-2006 Industry: 6.3%
4.5%
722
664
556
376
387
423
445
472
698
588
501
276
218
106
106
108
129
143
169
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Consistently outperformed the US p-c market
1 Source:
A.M. Best, net written premiums.
CAGR 1987-2006 AMIG:
9
Munich Re Group
Overview of Midland
High profitability throughout the cycle
Combined ratio p-c AMIG against industry1 1997 –2006
Less volatile than general
p-c industry
110%
10y-Ø US
p-c: 104.1%
100%
10y-Ø AMIG
p-c: 96.6%
90%
AMIG p-c
US p-c
80%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Very high profitability with
improving combined ratios
even in high-loss years
2004 and 2005
120%
Net profit 2006:
US$ 71m
Strong RoEs
Post-tax RoE Midland 1997 –20062
in %
12.3
12.1
13.1
9.8
1997
1
13.8
14.3
2004
2005
13.3
9.5
1998
Source: A.M. Best.
1999
2
2000
2001
6.3
7.0
2002
2003
2006
Calculated on average equity.
10
Overview of Midland
Sustainable underwriting
AMIG p-c rate increase p.a.1
in %
8.6
6.6
5.3
3.7
3.4
2.5
2.0
1.9
0.7
1995
1996
1997
1998
1.5
0.9
0.9
1999
2000
2001
2002
2003
2004
2005
2006
2007
Rate adequacy is a key component of overall profit strategy
Niche products and diversified distribution insulates from competitive rate pressure of broader market
1
For residential property and recreational casualty.
6.3
11
Munich Re Group
Overview of Midland
Highly focused specialty insurer
GWP 2006 by business mix
Split by product type
Residential property
54%
Other
20%
Recreational
casualty
11%
Financial
institutions
15%
Credit life and related
6%
Excess &
surplus lines
8%
Collector car/
Snowmobile
1%
Watercraft
3%
Recreational
vehicles
3%
Motorcycle
4%
Debt cancellation
and other
2%
Collateral protection
6%
Other
6%
Manufactured
housing
41%
Dwelling
fire and
other
13%
Mortgage fire
7%
Total GWP 2006: US$ 832m1
1 Thereof
AMIG p-c US$ 781m.
Split by segment
in %
12
Overview of Midland
Distribution
Multiple distribution channels to market specialty products
GWP 2006 by distribution channel
Distribution channels
General
agents
29%
Specialty agents
5%
Agency
Personal line products are marketed through
specialty, general and independent agents
Financial institutions
Banks and credit unions which place insurance
products on behalf of borrowers to insure
collateral
Independent
agents
6%
Point of sale –Manufacturers and dealers
Distribution of residential property insurance
through manufactured housing dealers,
vertically integrated manufacturers and
specialty agents
PoS lender
11%
Point of sale –Lender
PoS
manufacturers
20%
Financial
institutions
23%
Channel for insurance products through
financial institutions that provide financing for
products that American Modern insures
Affinity/ Strategic alliance
Provide specialty products to policyholders of
other insurance carriers via strategic alliances
with standard multi-line insurance companies
All other (incl. Affinity/
Strategic alliance)
6%
13
Munich Re Group
3
Overview of Midland
7
Financial impact
14
Summary
17
Back-up
19
Agenda
14
Financial impact
Combined platform
Cross-selling
New products
New producers
 Mutual marketing of
combined product portfolio
 Creation of new products
through combination of
know-how
 Cross-selling and new
products through shared
know-how leads to higher
awareness and expansion
of producer network
 Cross-selling through comarketing, private labeling
and fronting
 Higher acceptance of new
Midland products through
backing of Munich Re
Realization of revenue synergies
and exploitation of multiplier effects
Building a leading specialty lines platform in the US
15
Munich Re Group
Financial impact
Accretion and synergy potential
Acquisition of Midland is value-enhancing
EPS accretion1
EPS accretive for Munich Re shareholders
already in 2008
in €
0.38
Significant synergy potential through
Leverage of Munich Re’
s product
development capabilities and
0.24
Midland’
s ability to cross-sell
0.12
Financing through own funds
2008E
2009E
2010E
Implementation of announced capital
management programme not affected
Strong solvency ratios maintained after
acquisition
Pre-tax synergies
in US$ m
55.2
58.5
62.5
Cost
synergies
Midland to be fully integrated into Munich Re
Group
32.8
Revenue
synergies
11.2
2008E
1
2009E
2010E
2011E
2012E
Calculation based on assumed and stable number of ~208m shares at beginning of year 2008, 2009 and 2010.
16
3
Overview of Midland
7
Financial impact
14
Summary
17
Back-up
19
Agenda
17
Munich Re Group
Summary
Summary
Solid basis for profitable growth
Attractive target
 Midland has a consistent long-term track record of superior underwriting leading to
above market growth and profitability
Fit into strategy
Generating value
for shareholders
 Large synergy potential with Munich Re America’
s existing business
 Strategic fit with recently announced US strategy
 Move into primary niche segments reduces dependency on p-c cycle
 Acquisition is EPS accretive for Munich Re shareholders already in 2008
 Full commitment to >€8bn capital management programme
Midland represents a unique opportunity to enhance Munich Re’
s position
in US p-c specialty insurance market segments
18
3
Overview of Midland
7
Financial impact
14
Summary
17
Back-up
19
Agenda
19
Munich Re Group
Back-up
Transaction
Offer
 US$ 65/ share (equaling US$ 1.3bn) for 100% of outstanding shares
Structure
 Transaction certainty through US M&A regulatory environment
Funding
 Acquisition is entirely funded through own funds
Conditions to
closing
 Acceptance of transaction by majority of shareholders (>50%)
 Regulatory approval
Expected in Q2 2008
Milestones
Signing
Regulatory approval
Shareholder approval
Closing
Highlights
20
Back-up
Transaction structure
Transaction certainty through US regulatory M&A environment
Transaction structure
Acquiring stock
Majority of Midland shareholders vote in
favour of the merger (>50% sufficient)
Midland
shareholders
SPV merges into Midland
Midland’
s shareholders receive cash
consideration in exchange for 100% of
outstanding shares
No costly buy-out of minorities
(“
all or nothing”
)
100%
SPV
Merger
SPV‘
s stock is converted into Midland stock
21
Munich Re Group
Back-up
Business model
Based on strong distribution network and efficient IT-infrastructure
Midland business model
Policyholder
Policyholder
Premium
Retail agent
Policyholder
Policyholder
Policyholder
Claim
Retail agent
Retail agent
Retail agent
Wholesale
broker
Financial
institution
MGA
Premium
Commission and profit commission
Claim
MidlandLinkTM
Paper A
Paper B
Paper C
Paper X
Midland Holding
Policyholder
22
Back-up
Segments
Residential property
Manufactured housing
Gross premiums written
Property damage coverage for owners of
manufactured homes for broad range of perils
including fire, wind, hail, lightning, floods and
theft
in US$ m
424.7
421.6
449.3
2004
2005
2006
H1 2007
94.3
95.4
96.2
93.1
2004
2005
2006
H1 2007
Site-built dwelling
Combined ratio
Coverage for low-valued individual and one-tofour family homes, as well as vacant,
unoccupied, and seasonal dwellings
in %
Provides for more limited property damage and
liability coverage, as compared to traditional
homeowners’
policies
Distribution predominantly through general and
independent agents and affinity relationships
233.9
Policies typically include limited liability
coverage; generally written for 12 months
23
Munich Re Group
Back-up
Segments
Financial Institutions
Mortgage fire
Policies placed through financial institutions
and written to provide protection to lenders
against physical damage on homes and
buildings uninsured by borrower
in US$ m
122.1
101.5
100.6
79.1
Policies placed through financial institutions
and written to cover physical damage of
uninsured manufactured housing units,
automobiles or other collateral
2004
2005
2006
H1 2007
Combined ratio
Debt cancellation
in %
Debt cancellation is non-insurance form of
credit protection
93.5
92.9
92.9
2005
2006
H1 2007
Collateral protection
24
Back-up
Segments
Recreational casualty
in US$ m
111.3
Products are underwritten primarily through
general, independent and specialty agents,
and point of sale and affinity relationships
100.4
94.3
55.7
Risks underwritten include both property
damage as well as limited liability coverage
Referred to as “
Recreational casualty”
because products have slightly higher bodily
injury exposure than its pure property products
Growth can develop because of enhanced
execution as opposed to competing on basis
of price
2004
2005
2006
H1 2007
Combined ratio
in %
96.6
97.0
101.6
2005
2006
H1 2007
Composed of motorcycle, watercraft,
recreational vehicle, collector car and
snowmobile insurance products
25
Munich Re Group
Back-up
Segments
Other specialty products
Excess and surplus lines
 Strategic alliance with Bell & Clements entered into in
February 2002
in US$ m
166.1
 Coverage include both personal and commercial risks
with emphasis on small account property coverage
133.3
117.0
83.4
 Provides physical damage coverage for long-haul
trucks, principally to owner-operators
2004
 Policies generally protect only against damage to
insured vehicle and do not insure against liability
claims
Auto rental
2005
2006
H1 2007
Credit life
 Predominantly written on rental recreational vehicles,
coverage includes physical damage and liability
Commercial property
 Policies provide property coverage for damage to
manufactured homes and recreational vehicles
resulting from fire, wind, hail, lightning, floods, theft or
vandalism
 Policies that provide credit insurance to consumers
who finance purchase of personal property
 Available coverage includes credit life, credit accident
and health
Long-haul trucking
26
Back-up
Key balance sheet information and reserving
Total assets
Total liabilities
Total equity
Cash and investments
Deferred acquisition costs
Unearned premium reserves
Loss reserves
Debt
Statutory surplus
2002
1,101.1
792.2
308.9
2003
1,192.2
836.2
356.1
2004
1,364.7
932.4
432.3
2005
1,428.1
943.7
484.4
2006
1,569.5
994.8
574.7
745.7
96.4
406.3
164.7
90.4
242.2
848.7
87.9
383.9
204.8
95.8
289.9
978.3
90.4
390.4
232.9
115.9
355.5
950.5
88.4
395.0
254.7
111.8
394.3
1,036.4
99.3
445.3
221.6
108.4
450.7
Reserving redundancy/ deficiency in US$ m
1996 -3
1997
1998
1999
2000
2001
2002 -2
2003
2004
2005
Predominantly
short-tail
business
Reserve/
premium and
reserve/ surplus
ratio indicate
conservative
reserving policy
Eight out of ten
years show
reserve
redundancies
4
10
3
1
3
33
39
10
Conservative
balance sheet
Key balance sheet information
in US$ m
27
Munich Re Group
Back-up
Assets
Investment portfolio
As of 30 June 2007
76% fixed income
(US$ 781m)
US Government bonds
3%
Municipals
40%
Short-term investments
6%
“
AA”average
quality
No exposure to US
subprime mortgage
instruments
Mortgage backed bonds
11%
Equities
24%
Corporates & other bonds
16%
Total: US$ 1,038m
4.9 years
average duration
28
Appendix
Financial calendar
Contacts
Disclaimer
29
Munich Re Group
Appendix
Financial calendar
5 November 2007
Interim report as at 30 September 2007
13 December 2007
Investors' Day on ERGO, London
25 February 2008
Balance sheet press conference for 2007 financial statements
17 April 2008
Annual General Meeting
18 April 2008
Dividend payment
8 May 2008
Interim report as at 31 March 2008
Analysts' conference, Munich
6 August 2008
Interim report as at 30 June 2008
7 October 2008
Investors' Day on life reinsurance, London
7 November 2008
Interim report as at 30 September 2008
19 February 2008
Investors' Day on property-casualty reinsurance, London
30
Appendix
Sascha Bibert
Ralf Kleinschroth
Head of Investor & Rating Agency Relations
Tel.: +49 (89) 38 91-39 10
E-mail: sbibert@munichre.com
Tel.: +49 (89) 38 91-45 59
E-mail: rkleinschroth@munichre.com
Dr. Thomas Dittmar
Robert Kinsella
Tel.: +49 (89) 38 91-64 27
E-mail: tdittmar@munichre.com
Tel.: +49 (89) 38 91-30 19
E-mail: rkinsella@munichre.com
Frank Kopfinger
Andreas Silberhorn
Tel.: +49 (89) 38 91-28 94
E-mail: fkopfinger@munichre.com
Tel.: +49 (89) 38 91-33 66
E-mail: asilberhorn@munichre.com
Münchener Rückversicherungs-Gesellschaft
Königinstrasse 107, 80802 München, Germany
Fax: +49 (89) 38 91-98 88
E-mail: IR@munichre.com
Internet: www.munichre.com
For information please contact
31
Munich Re Group
Appendix
This report contains forward-looking statements that are based on current assumptions and
forecasts of the management of Munich Re. Known and unknown risks, uncertainties and
other factors could lead to material differences between the forward-looking statements given
here and the actual development, in particular the results, financial situation and performance
of our company. The Company assumes no liability to update these forward-looking
statements or to conform them to future events or developments.
Disclaimer
32

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