Non-life reinsurance

enlarge

Accounting for 55.5% of our premium volume, non-life reinsurance is Hannover Re’s largest business group. We do not pursue any growth targets here, but are instead guided by active cycle management according to which we expand our business if the rate situation is favourable and scale back our portfolio if prices are inadequate.

The expectations expressed with regard to the treaty renewals as at 1 January 2010 were confirmed over the course of the year: prices remained broadly stable, although they softened slightly in loss-free segments. Rate increases were also recorded in areas that had seen sizeable losses in 2009, such as aviation insurance or credit and surety reinsurance. The fact that prices remained on a largely stable level also reflects the underwriting discipline practised among reinsurers. Given the lower returns attainable on investments owing to the low interest rate level, the primary focus of attention was even more heavily on underwriting results. This was also true of the various treaty renewal phases that took place within the year. Although the major loss situation was certainly tense throughout the year under review, our combined ratio of 98.2% still came in below our targeted maximum level of 100%.

The treaty renewals in North America were in line with our expectations, although the rate level in many areas was not adequate. We therefore exercised caution in assuming additional risks. In credit and surety business – despite growing capacity on the market – we were again able to push through significantly improved conditions and expand our market position. In worldwide catastrophe business prices for reinsurance covers declined as expected owing to the relatively untroubled major loss experience in 2009 as well as the improved capital resources of primary insurers. Rate reductions in the United States were particularly marked; price increases were nevertheless obtained under loss-impacted programmes in certain regions.

All in all, we enjoyed very good opportunities to generate profitable business and extend our market share. The focus of our activities was on the markets of China as well as Central and Eastern Europe, facultative reinsurance and agricultural risks. In the UK market, too, we successfully extended our position.

Details of developments in the individual markets are provided on the following pages.

Along with traditional retrocession, we again transferred insurance risks to the capital market in the year under review so as to conserve our capital. We increased our “K6” facility, which was launched in 2009, by USD 152 million to the desired volume of more than USD 300 million – specifically USD 329 million. The portfolio assembled for the “K6” securitisation consists of non-proportional reinsurance treaties in the property catastrophe, aviation and marine (including offshore) lines.

The gross premium volume for our non-life reinsurance business group increased as forecast, rising by 10.3% to EUR 6.3 billion (EUR 5.7 billion). At constant exchange rates, especially against the US dollar, growth would have come in at 6.7%. The level of retained premium fell from 94.1% to 88.9%. Net premium earned climbed 3.1% to EUR 5.4 billion (EUR 5.2 billion).

Even though the hurricane season in North and Central America again passed off very moderately in the year under review without any expenditures for our account, the major loss situation was exceptionally strained in 2010. Hannover Re’s total net expenditure on catastrophe losses and major claims in the year under review amounted to EUR 661.9 million, compared to EUR 239.7 million in the previous year. It thus surpassed the expected level of EUR 500 million. Against this backdrop, the combined ratio climbed to 98.2% (96.6%).

The largest single loss event for our account in the year under review – at EUR 181.9 million – was the severe earthquake in Chile. The devastating earthquake in Haiti, on the other hand, produced a somewhat more modest loss amount of EUR 27.2 million owing to the lower insured values. In Europe, too, we were impacted by a number of natural disasters in the year under review, including for example several flood events and a powerful winter storm (“Xynthia”). The earthquake in New Zealand, which caused destruction on a massive scale, resulted in a net strain of EUR 113.8 million for our account.

Along with the aforementioned natural disasters, one loss event in particular attracted worldwide attention in the year under review – namely the sinking of the “Deepwater Horizon” drilling rig, which caused extensive environmental damage. Particularly with regard to possible liability claims, very many questions remain unanswered; the loss for the insurance industry and hence also for reinsurers is therefore still difficult to assess. The loss reserves of EUR 84.7 million that we set aside in 2010 reflect all the actual and potential exposures for our portfolio from this complex loss event that are known to us at this point in time and, as things currently stand, represent a conservative level of reserving.

In view of the substantial major loss expenditure, the underwriting result for non-life reinsurance contracted year-on-year by EUR 61.2 million to EUR 82.4 million (EUR 143.5 million). Net investment income climbed 28.1% to EUR 721.2 million (EUR 563.2 million). The operating profit (EBIT) increased by 20.3% to EUR 879.6 million (EUR 731.4 million). Group net income in non-life reinsurance was positively affected to the tune of EUR 112.2 million in 2010 owing to the decision of the Federal Fiscal Court in the aforementioned matter of additional taxation. This amount was not split into the three segments of target markets, specialty lines and global reinsurance. Group net income consequently surged by a very appreciable 22.9% to EUR 581.0 million (EUR 472.6 million). Earnings per share amounted to EUR 4.82 (EUR 3.92).

In the following pages we report in detail on our non-life reinsurance business group, which is split into three segments according to the areas of responsibility on the Executive Board: target markets, specialty lines and global reinsurance.