A number of different components promote risk diversification: our market leadership in the area of enhanced annuities, substantial growth in acceptances of the longevity risk associated with senior citizens’ and long-term care insurance products, growth in Latin America, Asia and Africa as well as the mortality risk from business written in the United States.

Our business model and the associated diversity of our portfolio give rise to a broad spectrum of factors that can influence our operating result (EBIT). Essentially, these are:

• Development of the biometric risks of mortality, longevity and morbidity
• Client-related counterparty risk in relation to financing arrangements
• Structural risk associated with the persistency of the business in force in the area of financial solutions
• Investment risk 1: investment performance of the assets under own management that cover the shareholders’ equity and our non-deposited reserves
• Investment risk 2: Investment performance of the deposits with ceding companies
• Developments on international capital markets, especially fluctuations in exchange rates between our balance sheet currency (EUR) and the most relevant foreign currencies (USD, GBP, AUD and ZAR)
• Development of our own administrative expenses

The experience of the three biometric risks of mortality, longevity and morbidity, which is a key influencing factor on profitability, was very mixed in the year under review.

The mortality risk within the US portfolio recorded an extremely patchy experience in the year under review. While a large block of business newly acquired in the first quarter of 2011 surpassed our expectations, other areas of the business fell short of the anticipated profitability (among other things on account of temporarily elevated suicide rates).

Australian disability annuity business again failed to match up to our expectations in the year under review, necessitating the establishment of additional reserves running into the mid-double-digit million euros.

Elsewhere, however, our claims experiences in the United Kingdom, Germany, Scandinavia and France continued to be exceptionally pleasing. Our profit expectations were met and in some cases surpassed. Claims experiences in the emerging markets of Asia, Africa and Latin America similarly remained favourable.

The capital market was heavily influenced by the opinions of the rating agencies in the year under review. The credit rating of certain countries, even including the United States, was downgraded, while others saw their outlook revised to negative – meaning that a downgrade is a distinct possibility.

With this in mind it is gratifying to note that our clients consistently have excellent ratings. This implies sound creditworthiness and a secure financial position, as a consequence of which our client-related counterparty risk – which we carry primarily in the financial solutions segment – was unremarkable in the year under review. The risk associated with the persistency of the business in force was similarly inconspicuous in the year under review and remained within the bounds of our expectations.

When it comes to investing our portfolio of assets under own management we pay close attention to the requirements of appropriate currency and duration matching as well as asset/ liability management; we also attach considerable importance to quality and diversification. Despite our conservative investment policy the turmoil on financial markets did not leave our investment performance unscathed. In the US reinsurance market we are exposed to the investment risk associated with securities deposited with ceding companies to cover the benefit reserves on account of the prescribed “mark-to-market” measurement, cf. here Section 7.1 “Derivative financial instruments”. This can give rise to sometimes sharp annual fluctuations in the reserves. The widening of credit spreads for securities is directly reflected in our income statement under the item “unrealised gains/losses on investments”. A valuation loss in the mid-double-digit million euro range was incurred here in the year under review. These valuation losses will be entirely made good if the securities perform as planned until maturity – provided there are no defaults among the debtors that issued the securities.

The securities deposited with our ceding companies outside the United States, on the other hand, generally do not entail an investment risk because a fixed rate of interest income is normally contractually agreed for the reinsurer under such contracts – and guaranteed to us by the primary insurer – irrespective of the actual movement in market interest rates.

The currency risk is of major significance to our company as an internationally operating life and health insurer. For the most part we write our treaties with primary insurers in the local currency and also constitute the necessary reserves in the particular currencies. Since matching cover is not entirely possible for every item, fluctuations in exchange rates influence the profit and loss account. In the year under review the devaluation of the US dollar had particularly negative implications for our result.

Altogether, we booked total investment income of EUR 512.6 million (EUR 508.2 million); of this amount, EUR 188.3 million (EUR 204.1 million) derived from assets under own management and EUR 324.3 million (EUR 304.2 million) was attributable to deposits with ceding companies.

We traditionally devote special attention to the efficiency of our business model. Our administrative expenses amounted to EUR 130.6 million (EUR 118.7 million) for the year under review, corresponding to 2.5% of our gross written premium. This administrative expense ratio – which is extraordinarily low compared to our main competitors – is made possible by our lean processes, the delegation of responsibilities on all levels and our concentration on relevant customer groups in the context of our Customer Relationship Management strategy.

The operating profit (EBIT) totalled EUR 217.6 million (EUR 284.4 million) in the year under review. The EBIT margin of 4.5% fell somewhat short of our expectations.

The financial solutions and bancassurance segments again delivered excellent returns. The multinationals pillar also favourably influenced our total result in the year under review with a healthy EBIT margin, whereas the profitability of new markets was impaired by a highly conservative reserving policy for the longevity risk. Going forward, however, we expect this strategic pillar to make a significant contribution to our net income.

Despite the positive overall underwriting experience, the performance of life and health reinsurance in the year under review came in slightly below our expectations on account of the difficult situation on the international capital markets. With an average tax ratio of 14.1% and after allowance for minority interests, net income after tax in life and health reinsurance amounted to EUR 182.3 million (EUR 219.6 million). This was equivalent to earnings of EUR 1.51 (EUR 1.82) per share.