Munich Re Group: Auto Insurance - Analysis of the consolidated cash flow statement

Our primary insurance and reinsurance operations have a significant influence on the cash flow of the Munich Re Group. We generally first collect the premiums for the risks assumed and do not make payments until later, in the event of a loss. The cash flow statements of insurance companies are therefore of limited relevance. The cash flow statement is adjusted to eliminate the effects of fluctuations in exchange rates and changes in entities consolidated.

In the consolidated cash flow statement, the Group profit of €1,528m is used as the starting point for determining the cash inflows from operating activ ities. The consolidated result is adjusted by €1,067m to take account of the higher technical provisions. There was an increase in provisions for future policy benefits at the Group’s primary insurers due to portfolio development and strong new business production at recently established companies abroad, whilst the high maturity payouts of the past decreased further. By contrast, our reinsurers’ provisions for future policy benefits fell, mainly owing to our reductions of large-volume quota share treaties. Their loss re serves increased, primarily because a large portion of the many major losses (e.g. those caused by Hurricanes Gustav and Ike) had not yet been settled. The net gains on the disposal of investments - which in adjusting the consolidated profit have to be deducted from the cash flows from operating activities - are essentially attributable to the disposal of securities available for sale and equity derivatives. The negative balance from write-ups and write-downs (triggered by share price losses that could not be fully offset by the use of derivatives) has to be added to the consolidated result again.

The cash outflows for investment activities were determined by payments for the acquisition of investments. These exceeded the inflows from the sale/ maturity of investments by €3,461m. In the financial year, we completed the following main acqusitions: in the second quarter, we acquired 100% of the shares in the US primary insurer The Midland Company. The purchase price of €861m has been reduced in the cash flow statement by the cash of €131m held. The Munich Re Group additionally assumed a total of €643m in investments and €466m in technical provisions through the acquisition. On 30 September 2008, we acquired a further 61% in BACAV, thus increasing our share - holding to 90%. The purchase price of €416m has been reduced by the cash of €96m held. The acquisition added investments of €3,851m and tech nical pro visions of €3,920m to the Munich Re Group’s books. Besides this, we purchased Sterling Life Insurance Company and Olympic Health Management Systems Inc. in the year under review for a total of €223m. We paid the amount in cash, reducing this in the cash flow statement by the cash of €92m held. As a result of the acquisition, the Munich Re Group assumed a total of €96m in investments and €72m in gross technical provisions. We also acquired 65% of the share capital of ERGO Daum Direct Auto Insurance Co. The purchase price of €37m has been reduced by the cash of €0.2m held. As a consequence of the purchase, investments of €112m and technical provisions of €121m were transferred to the Munich Re Group. Lastly, we purchased 100% of the shares in the holding company The Roanoke Companies for €34m, less the cash of €9m held. In this connection, the Munich Re Group assumed intangible assets of €43m and liabilities of €12m.

The cash outflows for financing activities stem mainly from the share buybacks of €1,498m and the dividend payment of €1,181m for 2008.

Overall in the year under review, cash – which encompasses cash with banks, cheques and cash in hand – fell by €151m to €2,354m.

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