Specialty lines
As far as our specialty lines are concerned, the round of treaty renewals as at 1 January 2010 offered a mixed picture: as expected, slight rate reductions were observed in marine business after very good results in 2009. In the face of falling prices in the energy sector we scaled back our exposures. Our goal is to further improve the regional diversification of the portfolio and to act on business opportunities in countries outside Western Europe and the United States. Overall, we expect the premium volume in marine business to contract slightly in 2010.
The rate trend in aviation reinsurance was favourable, with increases in the lower double digits virtually across the board. These were, however, expected in view of the significant major claims experience in the year under review. We stepped up our acceptances with major airlines and thereby improved our position overall. In general aviation business rates were stable, albeit on a low level. In the space segment they have now come under pressure following the profitable performance in 2009. We expect to generate rising premium income for our total aviation portfolio in the current financial year.
Rate movements in credit and surety reinsurance remain positive, and our premium volume will thus increase again in 2010. This is true of credit and surety business as well as political risks. In view of the challenging economic climate we are nevertheless standing by our cautious underwriting strategy: our acceptances are concentrated on existing clients, and we only write larger shares in areas where conditions are highly attractive or promise considerable improvement.
Following on from the reductions already achieved in proportional credit business in the year under review, further cuts in reinsurance commissions were possible in the treaty renewals for 2010. All in all, it may be stated that cedants rewarded our client-oriented approach while credit business was experiencing a difficult phase. Conditions in surety business held stable during the 2010 renewals, and commissions improved again on 2009. Since US (non-proportional) business showed signs of rate softening after seven years without significant losses, we slightly reduced our participation. Rate increases as well as lower commissions were obtained for 2010 in the area of political risks.
The premium increases generated by the renewals at the beginning of the year left the split of our three lines virtually unchanged: the proportion of credit business stands at roughly 55%, surety accounts for around 35% and political risks have a share of about 10%. Although the general environment in credit business will not be easy for 2010, we see very good scope overall to further strengthen our market position. Significantly better conditions, falling loss ratios and reduced liabilities should appreciably boost our result for the current financial year.
We are thoroughly satisfied with the development of our structured reinsurance products. Given the likelihood of more exacting capital adequacy requirements under Solvency II, further growth will be possible in Europe. Potential for surplus relief contracts is opening up in emerging markets, since here too risk-based capital models are increasingly being adopted. While rates in the US and UK fell slightly, we achieved stable conditions for other markets. We are pressing ahead in 2010 with our strategy of enhancing our portfolio's regional diversification. All in all, we are looking forward to a pleasing financial year.
Demand for insurance-linked securities had already rallied in 2009, and we expect to see increased levels of market activity in 2010. This can be attributed to the improved liquidity position of investors. We shall profit from this in multiple respects: on the one hand, in our function as a service provider for clients and investors that transfers (re)insurance risks predominantly from insurance companies to the capital market, and on the other hand as an investor through our own actively managed ILS funds with a total volume currently in the order of USD 150 million. What is more, in 2010 we shall build on our previous successful risk transfers to the capital market (“Globe Re”, “Fac Pool Re”).
The treaty renewals in the United Kingdom were broadly satisfactory. In motor insurance rates moved slightly higher and are still adequate. Rates in liability business and workers' compensation insurance held stable or declined slightly, but they improved in the financial institutions sector.
In direct business we anticipate good business conditions and rising premium volume for 2010. Our new branch of Inter Hannover in Australia will extend its operations. In South Africa, too, we expect to see growth in premium income. In this market the upcoming Soccer World Cup should also have a positive effect on the business climate with an eye to increasing liabilities.