Development of the Group segments

Non-Life Reinsurance

 

2010

2009

2008 1)

2007 1), 2)

2006 1)

Figures in EUR million

     

Gross written premium

6,340

5,753

4,997

5,611

7,143

Net premium earned

5,395

5,237

4,287

4,631

5,638

Underwriting result

78

136

200

16

79

Net investment income

779

610

47

863

925

Operating result (EBIT)

909

760

122

902

813

Combined ratio (net) 3) in %

98.3

96.7

95.0

98.8

98.2


1)
Limited comparability due to changes in segment allocation
2) Adjusted on the basis of IAS 8
3) Including deposit interest result

By far the bulk of the non-life reinsurance transacted within the Talanx Group is written by the Hannover Re Group. Hannover Re maintains business relations with more than 5,000 insurance companies in about 150 countries. With a global network consisting of more than 100 subsidiaries, affiliates, branches and representative offices in around 20 countries, the group employs approximately 2,200 staff.

In non-life reinsurance we do not pursue any growth targets, but instead keep a close eye on rate movements: we expand our business if the rate situation is favorable and scale back our portfolio if prices are not commensurate with the risks.

Business experience in 2010 in line with expectations

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 practiced 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.

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 programs 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, Hannover Re successfully extended its position.

Premium growth of 10%

The gross premium volume for our Non-Life Reinsurance segment increased as forecast, rising by 10% to EUR 6.3 (5.8) billion. At constant exchange rates, especially against the US dollar, growth would have come in at 7%. The level of retained premium fell from 94.1% to 88.9%. Net premium earned climbed 3% to EUR 5.4 (5.2) billion.

Healthy profitability despite heavy loss expenditure

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 662 million, compared to EUR 240 million in the previous year. It thus surpassed the expected level of EUR 500 million. Against this backdrop, the combined ratio climbed to 98.3 (96.7)%. The largest single loss event for our account in the year under review – at EUR 182 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 million owing to 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 114 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 85 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 58 million to EUR 78 (136) million. Net investment income climbed 28% to EUR 779 (610) million. The operating profit (EBIT) in this segment increased by 20% to EUR 909 (760) million. The very good profit on ordinary activities was assisted by a special effect associated with a decision of the Federal Fiscal Court (BFH). After the BFH had confirmed that taxation of foreign-sourced investment income recorded by Irish subsidiaries was not permissible, we were able to release provisions that had been constituted in this regard. Against this backdrop, all tax risks were reassessed.

Our business fared better than expected in the year under review in our target markets of Germany and North America: the premium volume remained virtually unchanged at EUR 1,754 (1,738) million. The combined ratio stood at 97.4% in the year under review, after 104.7% in the previous year. The operating profit (EBIT) for the target markets totaled EUR 301 (119) million.

The development of our specialty lines was thoroughly satisfactory. This subsegment of non-life reinsurance includes marine and aviation business, credit/surety, structured reinsurance, ILS (insurance-linked securities), the London market and direct business. The premium volume climbed from EUR 2,234 million to EUR 2,372 million. The combined ratio improved to 91.4 (96.5)%. The specialty lines segment delivered an operating profit (EBIT) of EUR 370 (256) million.

We combine all markets worldwide under global reinsurance, with the exception of our target markets of Germany and North America and the specialty lines. This subsegment also encompasses worldwide catastrophe business, facultative reinsurance, agricultural risks and Sharia-compliant retakaful business. The development of markets in global reinsurance business was challenging in the year under review. The premium volume here surged by 25% to EUR 2,213 (1,775) million. The combined ratio soared to 106.1 (87.9)% owing to an exceptionally heavy burden of major losses. The operating profit (EBIT) consequently shrank to EUR 112 (356) million.