Markets, business climate and legal environment

International insurance markets

The dominant influencing factor on international insurance markets in 2010 was the global economic recovery, which offered insurance enterprises a good opportunity to replenish their capital resources after the slumps prompted by the worldwide financial and economic crisis. The broadly positive development of business was, however, adversely affected by disruptive effects such as the sovereign debt crisis and protracted political turmoil in several regions of the world along with the associated instabilities. Steadily growing importance also attaches to the requirements – which have become increasingly exacting in recent years – placed by regulators on insurers and financial services providers; these are giving rise to a broad spectrum of new management and supervision processes that need to be implemented. The sustained low interest rate environment continues to present an enormous challenge to the ability of companies to fulfill insurance contracts, some of which remain in force over decades. Measured by international standards, even though the shock waves of the financial crisis have still not entirely dissipated, the insurance sector nevertheless once again proved to be a major stabilizing factor in 2010. The security and provision concepts that it offered again constituted an indispensable element of the macroeconomic cycle. As one of the most prominent investors around the globe, the international insurance industry plays a key role in growing prosperity for private households and the business community. Life insurance markets continued to recover from the setbacks of the financial crisis in 2010, which had taken a particularly heavy toll on certain products such as unit-linked life and annuity insurance. The resurgence of new business helped boost premium income worldwide. On the other hand, the diminished returns in the investment sector served to curtail the profitability of life insurers. On the life reinsurance side, products for longevity risks and sizeable block assumption transactions served as growth drivers in the industrialized nations, while sales of products covering the risks of death and disability were flat. Demand for individual retirement provision and coverage for surviving dependants nevertheless remains strong, since the earliest possible and continuous accumulation of funded individual retirement provision constitutes an essential component of long-term wealth management.

The picture on the non-life insurance and reinsurance markets was a mixed one in 2010. Although the primary sector profited from rising demand as the economic gloom lifted, premium growth – especially in saturated markets – was limited. The continued soft market conditions, particularly in the industrial and motor insurance lines, led to a worsening of the underwriting result in 2010 that reflected an increase in the combined ratios based on claims for the financial year. This was equally true of the US and major European markets. Reinsurance markets, on the other hand, were in a comparatively better state. Along with the positive run-off results from well-priced prior years and broadly intact underwriting discipline combined with an adequate rate level, this produced satisfactory results overall despite increased spending on catastrophe losses.

On the climate front 2010 will go down in the books as the warmest year since measurements began around 160 years ago. With 950 natural catastrophes – roughly 90% of them weather-related – it also recorded the second-highest number of major loss events since 1980. The probability of a correlation between the clearly measurably trend towards global warming and the increased proliferation of natural disasters to record levels is now assessed as high by georesearchers and risk researchers. It should also be noted that the number and severity of earthquakes has also grown steadily in recent years.

Compared to the previous year, the volume of total economic losses climbed in 2010 by around USD 60 billion to roughly USD 130 billion worldwide, of which approximately USD 37 (2009: 22) billion were attributable to insured losses. What is more, 2010 saw the third-most severe hurricane season – measured by number and intensity – in the past 100 years, although it produced relatively low insured losses in the order of USD 150 million owing to the fact that the hurricanes raged almost exclusively on the open seas. The rising population density and concentration of values around the world, sharply growing traffic and shipping volumes and the close interlinking of goods and services internationally are reflected in a steadily increasing vulnerability of people and infrastructure to natural catastrophes and man-made disasters. Despite the alarming numbers, therefore, it may be concluded that 2010 passed off reasonably innocuously.