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Industry-specific environment

The volatile economic environment and accompanying economic policy measures also shaped developments in the international insurance industry in the year just ended: with many markets in a state of stagnation, the order of the day for insurers was once again to demonstrate their stability. Long-term investment strategies and sophisticated risk management systems paid off. The year under review was spared claims on the exceptional scale incurred in 2011 as a result of that year’s devastating natural disasters.

On the economic policy side, the continued adherence to low interest rates caused concern in the major economic areas. This intervention has now come to represent a powerful control mechanism of a more sustained nature, which also puts increasing pressure on the insurance industry. This was reflected in 2012 in the ongoing reform efforts in matters of insurance industry policy and regulation – as exemplified in the US by continuing work on the “Solvency Modernization Initiative” (SMI) and in Europe by the regulatory process as part of Solvency II.

In 2012, following on from Florida and New York, more US states created a legal avenue – subject to strict conditions – for financially strong foreign reinsurers to collateralise their liabilities to US cedants at a lower rate than the otherwise prescribed 100%. Hannover Re is currently authorised in Florida and New York with a reduced collateral requirement of 20%. If additional states follow suit and adopt the regulatory reform contained in the non-binding model law of the National Association of Insurance Commissioners (NAIC), Hannover Re can look forward to the prospect of more equitable framework conditions here too.

Implementation of the Solvency II Directive continued to be a central preoccupation for the European insurance industry. As things currently stand, the previously announced 2014 deadline for entry into force cannot be met. Solvency II envisages more demanding requirements for insurance undertakings with respect to capital resources, risk management and reporting obligations.

Increasingly exacting capital requirements are prompting stronger demand for reinsurance protection among primary insurers: in this way insurers are able to reduce possible risks associated with fulfilment of their minimum capital requirements. At the same time, they can retain the flexibility to adjust their capital resources through short contract periods.

The German Federal Parliament adopted a package of measures in 2012 as part of the SEPA (Single Euro Payments Area) Accompanying Act with a view to strengthening the risk-bearing capacity of the life insurance industry. The steps taken by the federal government address the resilience of life insurers in times of crisis such as the currently protracted phase of low interest rates. Even though German life insurers continue to be able to meet their guarantee commitments over the medium and long term, a sustained policy of low interest rates will pose a challenge to them.

Despite the ongoing uncertainty in the markets and the generally weak state of the economy, German insurers enjoyed a stable business development in 2012: premium income across all lines climbed by 1.5% in 2012 to EUR 180.7 billion. Indeed, German credit insurers could even chalk the year up as an all-time success: thanks to stronger demand for credit insurance coverage in the market they wrote 10% more contracts overall in credit, surety and fidelity insurance and boosted their gross premium by 2% to around EUR 1.6 billion.


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