Germany
For the German life and annuity insurance market the year under review posed a number of challenges. These can be attributed to the changes in business conditions: the low interest rate level for euro-denominated government bonds, in conjunction with the ongoing debate about the credit risk of peripheral Eurozone countries, the discussions surrounding the implementation of Solvency II and the evident shift in demand which, as was already the case in 2009, is giving precedence to annuity and capitalisation products with a single premium payment.
The low level of interest rates for fixed-income securities, which account for by far the largest share of the assets held by German life insurers, has both short- and long-term implications. In the second half of 2010, for example, a vigorous debate raged among German actuaries – in consultation with the Federal Financial Supervisory Authority (BaFin) – about the level of the future actuarial interest rate, which currently stands at 2.25% per year. While the regulator suggests a reduction to 1.75% per year, the actuaries and the German Insurance Association take the view that 2.0% constitute an appropriate guaranteed level.
The behaviour of consumers is also noteworthy: in new business single-premium products, coupled with shorter policy periods, are preferred. The lapse rates for in-force business, which compared to the previous year have stabilised on a high level, point to a shift in loyalty patterns that in future will have considerable implications for the financial strength of life insurers.
Tax-privileged products for individual retirement provision (so-called “Riester” and “Rürup” pensions), which are offered in a number of variants, continue to enjoy broad popularity. Variable annuities, which were heavily pushed by some providers in recent years, have seen a sharp decline, while risk-oriented covers intended for individual provision (such as disability covers) or to provide for surviving dependants (e.g. mortality protection) still exert a broad market appeal.
Within the Hannover Re Group the German market is served from Hannover by our subsidiary E+S Rückversicherung AG.
A focus of our activities on the life and annuity side is the customer group consisting of German mutual insurers and those life insurers with a close affinity to product distribution through banks (bancassurance). With a portfolio of more than 40 clients we have achieved a pleasing degree of market penetration and were able in recent years to acquire several new accounts despite a fiercely competitive environment.
Premium income in the year under review totalled EUR 343.0 million (EUR 389.8 million). The experience of the biometric risks of mortality and morbidity was very good, thereby enabling us to generate an attractive operating profit despite taking a write-down on deferred acquisition costs in connection with certain financing arrangements.