Business development
As anticipated, the financial market crisis and the associated shortage of capital among primary insurers in the year under review had a stimulating effect on our operational business.
As a capital management tool for our clients, the appeal of reinsurance grew in the year under review – especially in capital-intensive segments of non-life reinsurance. We were consequently able to push through appreciable rate increases in 2009, which even ran into the double-digit percentages in some lines such as credit and surety reinsurance. Although our expectations exceeded the price increases achieved in certain areas, we were highly satisfied overall with the development of the non-life reinsurance business group. In the context of these market opportunities we succeeded in growing our premium income in the year under review – appreciably so – after years of declining volume.
The various rounds of treaty renewals again demonstrated that ceding companies attach considerable importance to a reinsurer's rating, especially where the underwriting of long-tail casualty business is concerned. In this case a very good rating is a prerequisite for any provider seeking to be offered and awarded the opportunity to write the entire spectrum of business. With our very good ratings (“AA–” from Standard & Poor's and “A” from A.M. Best) we are one of the reinsurers to satisfy this condition.
Our second business group, life and health reinsurance, developed exceptionally satisfactorily. Given the significantly weaker solvency position of life insurers, the need for reinsurance solutions continued to grow; demand thus increased in the year under review for risk- and financially oriented products.
Another positive factor was the reversal of unrealised losses on securities deposits held by ceding companies for the account of Hannover Re.
The central event for our life and health reinsurance in the year under review was the acquisition of a large US life reinsurance portfolio. We have thus set a course for further profitable growth. The transaction strengthens our segment of risk-oriented reinsurance in the United States, in which we had hitherto been underrepresented. This acquisition served to improve the diversification of our revenue streams, since life reinsurance – noted for greater stability and less volatility – now accounts for an even greater share of the total portfolio.
We are satisfied with the development of our investments. The portfolio of assets under own management showed further growth to reach EUR 22.5 billion thanks to positive cash inflows from the technical account. Ordinary income fell slightly short of the comparable figure for the previous year at EUR 810.5 million (EUR 829.8 million) owing to generally lower interest rates. Deposit interest rose to EUR 276.8 million (EUR 199.6 million). Writedowns of EUR 141.3 million (EUR 479.9 million) were taken on securities (excluding real estate), including EUR 92.6 million (EUR 26.9 million) on alternative investments – primarily private equity and real estate funds. Given the minimal holding of equities, write-downs of just EUR 3.2 million (EUR 356.1 million) had to be taken here, while on fixed-income assets they were halved to EUR 45.4 million (EUR 96.9 million).
In view of increased fair values, the write-downs were opposed by write-ups of EUR 20.1 million on fixed-income securities written down in previous periods. Further positive effects stemmed from the recognition of financial derivatives embedded in insurance contracts as well as from structured products subject to mandatory separation requirements, hence causing their fair values to rise by an amount of altogether EUR 100.6 million (–EUR 119.7 million) that was recognised in income.
Despite the prevailing difficult market climate, especially in the first half of the year, we were thus able to boost net investment income from assets under own management year-on-year back to the expected level of EUR 843.6 million (EUR 78.9 million). Our net investment income including income on funds withheld and contract deposits amounted to EUR 1.1 billion (EUR 276.8 million).
Gross premium in total business climbed by 26.5% to EUR 10.3 billion (EUR 8.1 billion). At constant exchange rates the premium volume would have grown by 26.1%. As a consequence of the financial market crisis our capital market transaction “K6” was placed with a reduced volume; the retention therefore increased from 89.1% to 92.6%. Net premium earned consequently surged even more strongly by 31.8% to EUR 9.3 billion (EUR 7.1 billion).
We are highly satisfied with the development of our business results. The operating profit (EBIT) increased exceptionally vigorously to EUR 1.1 billion. The net income of just EUR 148.1 million booked in the 2008 financial year had been shaped by the repercussions of the financial market crisis. Group net income for 2009 soared by EUR 858.2 million to EUR 731.2 million, in part assisted by special effects associated with the ING life reinsurance portfolio as well as by funds withheld by ceding companies. Earnings per share stood at EUR 6.06 (–EUR 1.05).
We use retrocession, i.e. the passing on of portions of our covered risks to other reinsurers, as a means of risk reduction. In the course of the year the reinsurance recoverables on unpaid claims – i.e. receivables due to us from our retrocessionaires – decreased to EUR 1.7 billion (EUR 2.1 billion). We continue to attach considerable importance to the quality of our retrocessionaires: 96.0% of the companies with which we maintain such business relations have an investment grade rating of “BBB” or better from Standard & Poor's.
Alongside traditional retrocessions we also conserve our capital by transferring insurance risks to the capital market.