The initial price for the 2008 long-term incentive plan is € 121.84 (134.07). As a result of Munich Reinsurance Company’s capital increase in the business year 2003, the initial share prices for the stock appre- ciation rights issued up to then and the number of stock appreciation rights already granted were adjusted in accord- ance with the conditions.
In the year under review, a total of 132,306 (94,115) stock appreciation rights were granted, 126,676 (90,383) of these to Board of Management members. The future obligations arising from the long- term incentive plans are covered with Munich Re shares or options on Munich Re shares.
The personnel expenses and income incurred for the stock appreciation rights are determined on the basis of the change in the fair value of the underlying options. The fair value recognises not only the intrinsic value (difference between current share price and initial share price of the stock appreciation rights) but also the pos- sibility of growth in value up to the date of forfeiture or expiry of the rights and is determined on the basis of recognised val- uation models, taking into account the exercise conditions. The stock apprecia- tion rights of the financial year had a fair value of € 3.6m (2.9m) when granted. At each balance sheet date, the fair value is calculated and reserved; this amount is recognised in full. The personnel expenses recognised in the income statement there- fore correspond to the change in the provi- sion in the year under review, taking into account any rights exercised. In the year under review, provisions of € 17.8m (13.8m) had to be posted; the personnel expenses totalled € 4.3m (– 0.7m). The weighted average share price for the stock appreciation rights exercised in 2008 was € 110.45 for plan year 2004 and € 123.50
for the plan year 2005. No stock apprecia- tion rights were exercised in 2008 from the schemes operated in 2002, 2003 and 2006. The intrinsic value of the exercisable stock appreciation rights amounted to € 4.3m (7.3m) at the balance sheet date. Each stock appreciation right entitles the holder to draw in cash the difference between the Munich Re share price at the time when the right is exercised and the initial share price.
The stock appreciation rights may only be exercised after a two-year vesting period and then only if the share price is at least 20 % higher than the initial price. In addi- tion, Munich Re shares must have outper- formed the Euro Stoxx 50 twice at the end of a three-month period during the term of the plan. The gross amount that may be obtained from the exercising of the stock appreciation rights is limited to an increase of 150 % of the initial share price.
Stock appreciation rights not exercised on the last trading day of the plan term are exercised on the participant’s behalf inso- far as the prerequisites for this are met. If the prerequisites are not met, the stock appreciation rights are forfeited.
If another company acquires control of Munich Re or the company’s group of shareholders changes significantly due to a merger or comparable transaction or intended business combination (“change in control”), all plan participants from the Munich Re Group may exercise their stock appreciation rights within 60 days after the change in control becomes effective, even if the prerequisites for exercising the rights are not yet met at that juncture.
In conformity with the German Corporate Governance Code, we explain here the principles of the remuneration system for ERGO’s Board of Management and the structuring of the individual remuneration components.
Until now, the structure and system govern- ing the Board of Management’s remunera- tion has been determined by the Board Committee of the Supervisory Board, whose three members comprise the Chair- man of the Supervisory Board, another of the shareholder representatives and one of the employee representatives. Regular reviews of the remuneration structure have been conducted by the full Supervisory Board.
In accordance with the German Corporate Governance Code, in future the remunera- tion system for the Board of Management, along with the key elements of relevant con- tracts, will be determined by the full Super- visory Board. The Board Committee of the Supervisory Board will prepare the draft resolutions for submission to the full Super- visory Board, which will review the remu- neration system at least every three years unless earlier reviews become necessary in individual cases.
[39b]
Structure of the remuneration system for the Board of Management Expenditure for the Supervisory Board
totalled € 1.0m (1.1m), of which € 0.3m (0.4m) is profit-related remuneration. Total remuneration of the Board of Man- agement’s members for their activities on behalf of the holding company and Group companies amounted to € 9.0m (12.6m), of which variable elements accounted for 64 % (70 %).
Former members of the Board of Man- agement and their surviving dependants received € 4.0m (8.5m) in total. A provision of € 38.7m (36.8m) has been set aside for current and future pension payments to this group of people.
Total remuneration of the Supervisory Board and the Board of Management [39] [39a]
Structure and system of the Board of Management’s remuneration
Component Assessment basis/ Corridor Precondition for Payment
parameters payment
Basic remuneration, Function, responsibility, Fixed Contractual Monthly
remuneration in kind/ length of service amount stipulations
fringe benefits on the Board (company car,
healthcare, insurances)
Short-term Consolidated result 0–150 % Achievement of objectives Once annually in
compensation (ERGO Group) (fully achieved following year
component: Divisional result =100 %) Annual bonus Individual objectives
Medium- and long-term Consolidated result 50–150 % Achievement of objectives In the fourth year
compensation (ERGO Group) (fully achieved at least 50 % on average
component: =100 %) over three years
Medium-term bonus
Share-price-based Appreciation in 0–150 % 쐍 End of vesting period As from third year of plan
compensation Munich Re (cap at 150 % (2 years) until end of plan
component: share price on share price 쐍 Share price increase 20 % Long term incentive plan increase) 쐍 Munich Re shares have
(stock appreciation outperformed the
rights; term: seven years) Euro Stoxx 50 twice at the end of three-month period during the term of the plan
Retirement plan: Basic remuneration, Fixed amount 쐍 Retirement – Pension entitlement number of years 쐍 Insured event
on the Board 쐍 Premature termination or non-extension of employment contract under certain circumstances
Notes to the Consolidated Financial Statements
Other information
Fixed components Basic remuneration
The fixed annual basic remuneration is paid in the form of a monthly salary.
Remuneration in kind/fringe benefits Remuneration in kind and fringe benefits are granted according to function, and are commensurate with market conditions. Income tax on the benefits in question is to be paid individually by each member of the Board of Management.
Variable components
Short-term compensation component – Annual bonus
This compensation component is based on different categories of objectives. The tar- gets and scaling for Group and divisional/ segment objectives are geared to particu- lar indicators; individual objectives form the basis for the achievement of personal targets. The key indicators used for the Group and divisional/segment objectives comprise key figures from external accounting and from value-based manage- ment.
Medium- and long-term compensation component – Medium-term bonus
The medium-term bonus is based on per- formance over a three-year period and is measured on the basis of the Group result category from the short-term compensa- tion component. Payments are made only if the achievement rate is at least 50 % on average for the three-year period. The three-year planning period started in 2006 expired on 31 December 2008.
A medium-term bonus has again been set up for the 2009 financial year, although its structure differs significantly from the pre- vious three-year bonus plans. Whilst the
(value-based success factors) and improv- ing the Munich Re share’s total share- holder return (TSR).
Share-price-based compensation component – Long-term incentive plan This remuneration component, with a long- term perspective, is linked to the sustained appreciation of Munich Re’s share price. The long-term incentive plan is set up each year, and the participants receive a certain number of stock appreciation rights. These can only be exercised if, after a two-year vesting period, Munich Re’s share price has risen by at least 20 % since inception of the plan and the shares have outperformed the Euro Stoxx 50 at least twice at the end of a three-month period during the term of the plan. The exercise hurdles are exacting and in keeping with the German Corporate Governance Code.
Whether the stock appreciation rights can be exercised and, if so, when, is not certain at the time they are granted. The exercising and proceeds depend on the development of the share price and the exercise price and date. The amount of income is limited. Up to now, stock appreciation rights have only been exercised under the plans set up in 2003 and 2005. Further information on the long-term incentive plans can be found in the note [38].
Weighting of remuneration components In the case of 100 % achievement of objec- tives (annual bonus, medium-term bonus) and based on the imputed value of the share-price-linked compensation (long- term incentive plan) at the granting date, the weightings of the individual compo- nents in terms of total remuneration are as follows: basic remuneration approx. 30 %, annual bonus approx. 35 %, medium-term bonus approx. 20 %, and long-term incen- tive plan approx. 15 %. Annual bonus, medi-
In addition it is ensured that the targets set for the members of the Board of Manage- ment do not have undesirable effects. In accordance with the recommendations of the German Corporate Governance Code, the monetary remuneration of the Board members thus comprises fixed and variable components.
The total remuneration is set at an appro- priate level by the Board Committee of the Supervisory Board and reviewed at regular intervals, also taking into consideration data from peer-group companies. Criteria for the appropriateness of compensation are in particular the respective Board member’s duties, the Board member’s personal perfor- mance, the performance of the Board as a whole and the financial situation, perfor- mance and future prospects of the Com- pany. New Board members are generally placed at a level which allows sufficient potential for development in the first three years.
Other remuneration
In the case of seats held on other boards, remuneration for board memberships must be paid over to the Company or is deduct- ed in the course of regular compensation computation. Excepted from this is remu- neration for memberships explicitly recog- nised by the Company as personal. No such memberships exist at present. In the event of a change of control, the members of the Board of Management have no contractual entitlement to payments. As far as the share-price-based remuneration is con- cerned, the conditions merely provide for special exercise options in the event of a change of control.
Pension
Up to and including 2008, the members of the Board of Management are members of a defined benefit plan under which they will receive a fixed pension whose amount depends on their basic remuneration and years of service on the Board. The pension level starts at 30 % and can reach a maxi-
Benefits in case of termination of occupational activities; old-age pension
Members of the Board of Management are entitled to an old-age pension if they resign from active service in the company after their 60thbirthday or when they
reach the retirement age of 65 years. Old-age pension due
to occupational disability
Members of the Board of Management are entitled to an old-age pension if – owing to permanent occupational disability – their contract was terminated by mutual agree- ment, if it was cancelled by the Company, or if it expires because the Board of Manage- ment member mandate is not renewed. Early retirement
with reduced old-age pension
Board of Management members are enti- tled to an old-age pension if their contract comes to an end as a result of non-exten- sion or revocation of their Board of Man- agement mandate without the member having given cause by gross negligence of his or her duties and without having expressed a request to resign; in such cases, the old-age pension shall be contin- gent upon the member of the Board of Man- agement having reached his or her 50th
birthday, that s/he has rendered services to or was employed with the Company for more than ten years at the end of the con- tract and that the Board of Management mandate was extended at least once. Extent of the benefit in all three cases:
쐍 For six months, continuation of previous monthly basic salary (only applies to members of the Board of Management who were appointed before 2006).
쐍 A pension pledge of between 30 % and 50 % of the annual basic salary which in case of early retirement is reduced by 2 % for every whole or part of a year prior to one’s 65thbirthday.
쐍 Up until the person’s 65thbirthday, the
pension is subject to reductions based on other income from activities for third parties.
Notes to the Consolidated Financial Statements
Other information
Non-lapsable entitlement to old-age, occupational disability and dependants’ benefits
Benefits from non-lapsable entitlements are paid out when the pensioner turns 65, when s/he becomes occupationally dis- abled or following the death of the member of the Board of Management.
a) Non-lapsable entitlements subject to the German Company Pensions Act Members of the Board of Management are entitled to non-lapsable benefits in accord- ance with the German Company Pensions Act if they discontinue rendering services to the company before their 60thbirthday
and if their affiliation with the Company at the time of their departure amounts to at least five years.
Extent of the benefit: the pension pledge amounts to between 30 % and 50 % of the annual basic salary. Non-lapsable is that part of the old-age pension which corre- sponds to the proportion of the effective as opposed to the potential affiliation with the Company until the person’s 65th birthday
(m/n proceedings, Section 2, para. 1 Occupational Pension Law).
b) Improved non-lapsable entitlement Improved non-lapsable entitlement is granted if the employment contract ends due to non-extension (on the part of the Company) without gross negligence or ter- mination request on the part of the individ- ual. An additional requirement is that the member of the Board of Management dis- continues services with the Company before his/her 60th birthday and that the
affiliation with the Company at the time of departure amounts to at least 10 years. Extent of the benefit:
reduced by 2 % for every whole or part of year prior to one’s 65thbirthday.
Dependants’ benefits
In case of death of a member of the Board of Management during active service, the dependants (widow/widower, orphans) will receive the previous monthly basic salary for six months, provided that the member was appointed to the Board of Management before 2006. For members of the Board of Management who were appointed after 2006, the previous monthly basic salary will be paid to the dependants for three months. In case of the death of a member of the Board of Management following retire- ment, the dependents shall receive the pre- vious monthly pension for the duration of three months, provided that the marriage and/or the birth of the child took place before the start of their retirement pen- sion. If the old-age pension of the member of the Board of Management was reduced due to early retirement, any widow/widower and orphan pension shall be calculated on the basis of the reduced amount.
The dependants of a member of the Board of Management who passed away in active service or following their pension will sub- sequently receive the benefits listed below:
쐍 Widow(er) pension amounting to 60 % of the pension pledge.
쐍 Where applicable, age-related reduction of the widow(er) pension depending on the age of the married couple by a maxi- mum of 50 %.
쐍 Taking into account up to 50 % of revenues, provided that they exceed 50 % of the widow(er) pension as well as benefits paid under pension schemes of previous employers (for members of the Board of Management who were appointed after 2006).
On 17 January 2002 Münchener Rückver- sicherungs-Gesellschaft AG, of Munich, informed us that it held 91.7 % of the voting rights of the Company as at 15 January 2002. At the balance sheet date Munich Re held 94.7 % of the voting rights.
ERGO Versicherungsgruppe AG, of Düssel- dorf, prepared these consolidated annual accounts as at 31 December 2008 in accordance with the International Finan-
cial Reporting Standards, and it in turn is included in the consolidated annual accounts of Münchener Rückversiche- rungs-Gesellschaft AG, of Munich. The consolidated annual accounts are being published on the website of the German Corporate Register. The accounts can be obtained directly from either com- pany on request.
Group affiliation
Shares held by members of the Supervisory Board and the Board of Management Members of the Supervisory Board and the
Board of Management held less than 1 % of
the total shares in the ERGO Versiche- rungsgruppe AG as at 31 December 2008.
[41] [40]
Notes to the Consolidated Financial Statements
Other information
The ERGO Insurance Group maintains various reinsurance relations with the Münchener Rückversicherungs-Gesellschaft AG, Munich, and some of its reinsurance subsidiaries. In the year under review, a total of € 978.6m (1,079.5m) in premiums, i. e. 75.5 % (73.9 %) of the total reinsurance premiums was reinsured there and € 758.6m (790.2m) was taken from these reinsurers as payments for insurance claims. Those companies’ share in receiv- ables concerning deposits on ceded busi- ness amounts to € – (2.5m); the share in deposits retained on ceded business is € 5,095.3m (5,103.4m). With regard to accounts receivable from ceded business, their share is € 35.0m (63.8m) and € 29.4m (25.9m) regarding accounts payable.
The ERGO Insurance Group enjoys exten- sive and diverse relations with the HypoVereinsbank Group, one of the major German private banks.
A general agreement has put the relations between the ERGO Insurance Group and HypoVereinsbank into a definite form. In particular, it regulates joint co-operative activities. On the basis of individual co- operation agreements companies of the ERGO Group sell selected products of the HypoVereinsbank. On the other hand, employees of the various companies within the HypoVereinsbank Group sell insurance products of the ERGO Insurance Group to their customers. The co-operation agree- ments signed by the companies of the