Non-life reinsurance
We were thoroughly satisfied with the treaty renewals as at 1 January 2009 – the date on which a good twothirds of our treaties were renegotiated. The situation on the reinsurance markets has improved appreciably. This is due to the financial market crisis, which has led to a capital shortage throughout the worldwide insurance industry and hence fuelled demand for reinsurance covers. Hardly any further rate reductions were observed, and some rate increases pushed into the double digits. This is particularly true of catastrophe business, and especially those programmes that had suffered losses in 2008 – but it was also the case in worldwide credit and surety reinsurance, which saw rate increases of up to 50%. German business continued to be attractive.
In the course of the renewal season it was again evident that ceding companies are attaching considerable importance to their reinsurers' ratings; this applies particularly to the underwriting of long-tail casualty business, where a very good rating is an indispensable prerequisite in order simply to be asked to submit a quotation. With its very good ratings ("AA-" from Standard & Poor's and "A" from A.M. Best), Hannover Re is one of the few reinsurers to meet this condition without reservation.
We are very content with market conditions in Germany: our subsidiary E+S Rück enjoyed highly satisfactory treaty renewals in its domestic market.
In motor liability business we obtained appreciable rate increases after several years of reduced basic premiums in the original market and claims inflation for bodily injuries. In view of the accumulation losses carried in 2008, significant improvement in conditions were also possible in own damage business.
Prices and conditions in personal accident insurance remained on a very pleasing level for E+S Rück. Going forward, as in the past, we shall support our clients in this line not only by assuming risks in treaty and facultative reinsurance but also by offering them product innovations.
Rates in property catastrophe business climbed sharply as expected following a year of heavy losses.
We were able to further extend our already large market share in Germany thanks to new customer relationships and increased treaty shares under existing accounts, thereby cementing and expanding our position as one of the leading reinsurers in the profitable German market.
In the United Kingdom, too, we were satisfied with the treaty renewals; in both motor insurance and casualty business we enlarged our portfolio on the back of increased rates.
+++ 2009/2010 promise good business conditions +++
Owing partly to the heavy losses from hurricane "Ike" in 2008, but also due to the worldwide financial market crisis, capacities in marine business contracted sharply in both the primary and reinsurance sectors; rates consequently rose. Increases were recorded in regions that had suffered heavy losses, such as the Gulf of Mexico, with prices here climbing by as much as 35%. In aviation business, too, where Hannover Re ranks among the global market leaders, the premium erosion was halted.
In Northern European countries, too, the rate erosion came to a halt in view of the repercussions of the financial market crisis. Insurers are buying additional reinsurance capacity in order to protect their balance sheets. Given the fact that smaller insurers are likely to struggle to improve their strained capital position through their own efforts alone, the current financial year is expected to bring market consolidation.
In the Netherlands the financial market crisis led to a "revaluation" of the technical account, prompting rates to rise again in industrial property insurance. In other Western European countries, too, business opportunities improved and we were therefore able to enlarge our premium volume.
The outlook for rates in France has brightened. Further improvement in prices for natural catastrophe risks should be attainable on the back of the severe winter storm "Klaus" in January. The net burden of losses for Hannover Re is in the mid- to high double-digit millions of euros.
The countries of Central and Eastern Europe are strategic growth markets for our company, insofar as we continue to be able to write profitable business going forward. At the time of the 2009 treaty renewals, as expected, we observed an appreciable surge in demand among insurers for high-quality reinsurance protection. As a result, we were able to acquire new clients and enlarge our shares in existing business, especially in Russia and other successor states of the former Soviet Union. Our premium volume was substantially expanded. The profitability of the written portfolio continues to be more than satisfactory.
For North America, too, we are looking to a significantly improved market environment in the current year; reductions in rates or conditions are a thing of the past. The diminished capital resources of primary insurers – in the aftermath of the financial market crisis – have fanned demand for reinsurance covers and hence pushed up prices. Especially in areas where reinsurance capacity is scarce, e.g. catastrophe business in exposed zones such as the Gulf of Mexico and California earthquake territory, we are seeing double-digit price rises. It should, however, be noted that prices here were not always commensurate with the risks.
+++ Rates for US catastrophe business still not adequate +++
In catastrophe-exposed US property business the market began to harden – both in terms of rates and conditions. It was also gratifying to note that the premium erosion in US casualty business was halted. Indeed, it was even possible to push through rate increases in directors' and officers' (D&O) and professional indemnity business. With the effects of the financial market crisis still reverberating, we expect to see further price rises in the middle of the year.
All in all, we are looking to a slightly enlarged premium volume for North America in the current financial year and stronger growth rates in 2010. In view of the favourable general climate, we shall set aside our cautious stance of the past year and step up our involvement. Our good market position and excellent contacts with all major market players should help us in this regard.
We are similarly very satisfied with the outcome of the treaty renewals in China. Both the crisis on financial markets and the losses from the 2008 snowstorm generated greater demand for reinsurance. Treaty conditions in proportional property business, which accounts for around 80% of the local market volume, showed substantial improvements – prompting us to appreciably expand our involvement. In non-proportional property business prices held stable, while they showed doubledigit gains under loss-affected programmes. We enlarged our premium volume in China by roughly 30%. Given the importance of the Chinese market, we stepped up our efforts to obtain a licence for a branch office serving non-life reinsurance business.
The renewals picture in the other Asian markets was a mixed one. The state of the market in Taiwan remained broadly unchanged; conditions in proportional treaties are largely stable. In Japan – where the bulk of contracts are renewed on 1 April – we also expect rates to rise owing to the effects of the financial market crisis.
The retakaful segment continues to develop very well: here, too, the financial market crisis has positively impacted demand for Sharia-compliant products. Both our subsidiary in Bahrain and our branch in Malaysia enjoyed appreciable increases in premium income.
+++ Substantially increased premium volume expected in retakaful business +++
Along with our treaty business, we shall extend our involvement in the facultative segment – i.e. in the (re)insurance of individual risks, particularly in engineering business. Numerous infrastructure-related construction activities are funded by Islamic financial institutions, which for their part obtain insurance from takaful companies. We expect the premium volume in the current financial year to come in substantially higher.
In Latin America we extended our market presence by opening a new representative office in Brazil. The outcome of the treaty renewals as at 1 January, however, fell short of our expectations. Our interest is focused primarily on agricultural risks. Although only 15% of the treaty portfolio was up for renewal on 1 January, it may be observed that the trend in this segment is exceptionally favourable. We provide covers for agricultural risks not only in Latin America but worldwide. Substantial premium growth is anticipated for the current financial year.
As far as our business in South Africa is concerned, we expect 2009 to bring a rise in premium volume, which is driven by specialty business. In the area of structured products, too, we anticipate fresh business stimuli as a consequence of more exacting capital requirements and the repercussions of the financial market crisis.
In Australia we are looking to premium growth in the original currency for 2009. During the current financial year our subsidiary International Insurance Company of Hannover plans to open a branch office in Australia so as to further promote specialty business.
The financial crisis and economic crunch have had farranging repercussions on worldwide credit and surety reinsurance. The number of insolvencies – and hence also the loss ratios – is set to rise. In the face of this business climate we are seeing appreciable hardening on the markets to the benefit of reinsurers and were thus extraordinarily satisfied with the outcome of the treaty renewals as at 1 January 2009. In proportional credit business we were able to push through significantly reduced commissions. Rate increases in the mid-doubledigit percentage range were obtained for non-proportional covers. Although we appreciably enlarged our premium volume, we also significantly scaled back our acceptances in some business segments. In these cases we did not consider even high prices to be commensurate with the risks.
The development of structured reinsurance products has been highly satisfactory. The loss of capital at primary insurers has sharply boosted demand, especially for surplus relief contracts. Our goal is to further diversify our business and to expand in regions outside the United States. These efforts are proving successful. Especially in Asia, we have achieved sizeable growth. Yet in the US market, too, demand has risen.
In facultative reinsurance, which involves the writing of individual risks, around 40% of our treaty portfolio was renewed on 1 January. In this area we observed stable rates in virtually all markets. While a tendency towards a hardening market has made itself felt in the wake of the financial market crisis, the rate increases are still relatively insignificant. Only in US property business were we able to secure price increases running into the low double-digits. We anticipate further rate increases in the second half of the year.
+++ Reinsurers scarcely impacted by the recession +++
All in all, it may be stated that for our company – as a reinsurer – conditions in non-life reinsurance are once again favourable and should improve even further in 2010.
Although the recession continues to spread, it will scarcely affect us as a reinsurer since its primary impact is on the income statement of companies and less on the fixed assets to be insured. Conditions for a financially strong reinsurer such as Hannover Re are good. The increased demand among insurers – triggered by diminished capital resources and greater risk awareness – is coming up against a reduced supply, hence prompting higher prices. A further positive factor is that the capital market's interest in reinsurance products has faded. In view of this environment and our very healthy diversification, and thanks to our excellent rating, we are able to generate attractive business. In non-life reinsurance we continue to have a close eye on profitable niche business, as a consequence of which we are looking forward to a very positive development in the current financial year.
For the non-life reinsurance business group we expect net premium growth of 10% in the original currencies as well as a healthy profit contribution.