The tense economic climate and the associated economic policy measures still in place in some areas again shaped the landscape for the international insurance industry in 2014: faced with protracted low interest rates, particularly great importance attaches to preserving the value of investments and the stability of returns.
The interest rate situation continued to be reflected in the technical pricing of premiums on primary and reinsurance markets. Discipline was once again the order of the day in 2014 so as to offset further declines in investment income.
With investors searching for higher-return investments, the market for insurance-linked securities (ILS) once again attracted very substantial (re)insurance capacity: additional alternative capital here came up against an unchanged level of demand. Pressure on prices and conditions consequently intensified still further, especially in natural catastrophe business.
In addition, (re)insurers were heavily preoccupied in the year under review with the impending implementation of the Solvency II Directive – which is now planned for 2016. Most significantly, the preparations for the new requirements presented companies with considerable challenges: in 2014, for example, a stress test was conducted under Solvency II conditions by the European regulator EIOPA (European Insurance and Occupational Pensions Authority) – supported inter alia by Germany’s Federal Financial Supervisory Authority (BaFin) – as a form of dress rehearsal for insurance undertakings. The participants on the German side included property / casualty as well as life and health insurers. It was evident from the test that the reinsurance industry, in particular, meets and in some cases comfortably surpasses all requirements to the necessary extent.
The announced reform of the UK Pensions Act by the Chancellor of the Exchequer in March of the year under review caused a stir in that country’s pensions market. For the longevity (re) insurance industry, it means that the current tried and tested insurance solutions will have to be reworked and modified in line with the changed conditions and requirements.
Generally speaking, though, the favourable development of longevity business in Europe – including for example in France, Spain and Scandinavia – has given grounds for satisfaction. Stronger demand for reinsurance protection in this segment has reaffirmed our expectation that due to shifts in demographics the insurance market for longevity risks offers a promising business potential which extends well beyond the borders of the United Kingdom.
In 2014 the industry incurred relatively slight insured losses from extreme weather events. A winter storm that impacted Japan in February was the most expensive natural catastrophe for the (re)insurance sector, measured by the total economic losses. In Europe storm Ela, which swept across France, Belgium and western Germany over the Pentecost weekend, caused the heaviest losses.
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