United Kingdom and the London Market
In the year under review we acquired new accounts and further diversified our portfolio in the United Kingdom. In accordance with our marketing strategy the focus was on expanding specialised niche business, such as travel personal accident covers, while scaling back our catastrophe-exposed business as planned.
In casualty business Hannover Re again profited from its very good rating. While the price level in the previous year had held stable, the year under review saw a slight reduction in rates. Although in a few instances our involvement is of a long-term nature, we generally pursue an opportunistic underwriting policy in the London Market.
Our premium volume in the year under review remained stable; all in all, the loss experience was moderate.
The London Market is also a prominent centre for the underwriting of international marine and aviation risks; in both lines Hannover Re ranks among the market leaders.
After the original market had seen sharp rate declines in aviation insurance in 2007, leaving insurers with their first overall deficit, there was heavy pressure to stop this premium erosion. The crisis on financial markets and associated loss of capital among insurers also had a favourable effect on rate movements on both the insurance and reinsurance sides, with the result that initial tendencies towards stabilisation and rising rates could be discerned in the year under review. What is more, the opening up of the Brazilian insurance market presented new business opportunities in aviation reinsurance.
Notable major claims in the year under review included the deadly plane crash in Madrid as well as a satellite failure, producing a total net burden of losses in the order of EUR 13.9 million.
+++ Marine business impacted by hurricane losses +++
Following two years that were virtually spared major claims, rates in marine reinsurance softened slightly in 2008. There were, however, regional differences. The Asian market, for example - which is one of the most fiercely competitive in the world - saw reductions of around 20%. Overall, we largely preserved our existing portfolio, although exposures in the Gulf of Mexico were purposefully reduced. Our underwriting policy is slanted heavily towards non-proportional covers.
Along with higher basic losses on the primary side in offshore energy business, it was hurricane "Ike" that inflicted substantial losses on the (re)insurance industry: despite the relatively moderate intensity of its winds, the slow speed of the hurricane's advance led to considerable damage. The market loss for offshore business - i.e. the drilling rigs and oil platforms in the Gulf of Mexico - was put at around USD 3 billion. Prices for covers in the Gulf of Mexico are therefore likely to rise appreciably. As a further factor, the crisis on financial markets has prompted general market hardening as insurance and reinsurance capacities contract.
Our net burden of losses from hurricane "Ike" was in the order of EUR 222.1 million and encompassed not only offshore but also onshore business, i.e. the insured property damage on land. Another hurricane - by the name of "Gustav" - was recorded in the Caribbean in the year under review, although the resulting strain for Hannover Re's account was relatively modest at around EUR 18.1 million.
+++Hannover Re posts very good result in credit and surety reinsurance +++
We were thoroughly satisfied with the development of the credit and surety lines in Europe. Business here is traditionally geared to continuity, and loyalty considerations are therefore of major significance in relations between insurers and reinsurers.
Percentage breakdown of gross written premium in the United Kingdom by line of business
Despite the worsening economic environment in Europe primary insurers again increased their retentions. An oversupply of reinsurance capacity continues to prevail, although ceding companies are placing greater emphasis on the financial strength of their reinsurers. The rate decline on the primary insurance side was halted in the wake of the financial market crisis. In some regions, such as Italy and Spain, rates even increased significantly. Although conditions on the reinsurance side deteriorated somewhat, they are still adequate. Demand for protection in the political risks segment rose worldwide.
We selectively expanded our involvement in credit and surety business in the year under review - primarily by increasing shares under existing programmes, although also through new business relations in the surety line; the premium volume was consequently slightly boosted. We were able to cement our position as one of the three market leaders and further enhance the diversification of our portfolio by enlarging our surety business and stepping up our acceptances of political risks.
A rising claims frequency was observed in the credit line, especially in Spain and Italy. While a slight increase in claims was also witnessed in other countries, the previous year had been notable for a record historic low. The claims experience in surety business and the political risks segment was favourable.