Western and Southern Europe

Non-life reinsurance: Breakdown of gross written premium in global reinsurance by line of business

enlarge

In France there has been no easing in the intensity of competition. Faced with this challenging market climate, our strategy is to preserve the profitability of our portfolio through a selective underwriting policy. We were largely successful in accomplishing this goal in the year under review.

Our underwriting policy remains concentrated on the casualty sector, especially medical malpractice. In builder’s risk insurance we are one of the leading players in France. The accident line is another focus of our activities.

No significant loss events were recorded in the year under review.

We slightly increased our premium volume in France.

The primary insurance market in the Netherlands was notable in the year under review for further mergers between smaller companies. Yet more sizeable providers – who received government assistance during the financial crisis – are also up for sale. Overall, clients purchased less reinsurance protection. In some lines, such as motor business, we were nevertheless able to enlarge our market share and expand our premium volume.

Covers for major risks such as natural catastrophes continued to attract growing demand. The stimulus here was provided by the more exacting requirements placed on risk management systems in connection with the preparations for Solvency II. Against this backdrop, rates for catastrophe business rose.

In contrast to the previous year, the loss situation on the Dutch market was moderate and we were therefore able to improve the result of our business.

Northern Europe

The markets of Northern Europe are served by our branch in Stockholm. Thanks to the reinsurance capacities that we are able to offer as well as our very good ratings, we are one of the most prominent providers of reinsurance coverage in this region.

Whereas the previous year had been overshadowed by several natural disasters, the year under review was spared major losses for our company. All in all, we are satisfied with the development of our business in the markets of Northern Europe. Reinsurance rates were broadly stable, with price increases attainable under loss-impacted programmes. Our portfolio remained stable.

Central and Eastern Europe

Compared with the primary insurance markets of Western Europe, growth rates in the countries of Central and Eastern Europe continue to be above average. As a result, competition remains fierce and original rates are declining in most countries and lines of business. On the reinsurance side, by contrast, rates and conditions were by and large stable.

Hannover Re regards the countries of Central and Eastern Europe as strategic growth markets. As forecast, we booked double-digit growth in premium income here in the 2012 financial year.

In the 35 countries of Central and Eastern Europe we rank among the three largest providers of reinsurance protection. We quote business in all lines and markets. Our underwriting policy remains opportunistic, i. e. we are guided by the relevant profitability considerations. In the case of loyal clients, we are willing to extend our margin requirements over a longer period of time.

The 2012 financial year passed off successfully for our company, with rates reflecting the associated risks. Thanks to our selective underwriting policy and a favourable loss experience we were again able to generate satisfactory margins in the year under review.

Latin America

Hannover Re is well-positioned in Latin America and a market leader in some countries. The most important markets for our company are Brazil – where a study found us to be one of the three most highly regarded reinsurers –, Mexico, Argentina, Colombia, Venezuela and Ecuador.

Latin American markets have enjoyed very vigorous growth in recent years. The Brazilian government, for example, again implemented a number of programmes in 2012 to stimulate the economy – including cutting taxes on new vehicle purchases. With an eye to the two upcoming major sporting events, namely the FIFA World Cup in 2014 and the 2016 Olympic Games, the country is investing heavily in its infrastructure and in power generation. These growth incentives continued to fan rising demand for (re)insurance covers in the year under review.

We ensure close business ties with our clients through our representative office in Brazil. We operate in this market as an “admitted reinsurer”. Although competition here is intensifying, this did not adversely affect our business. Thanks to our excellent financial standing we are a highly valued partner, especially for casualty covers. In view of the attractive opportunities we continued to expand our portfolio in this line and in motor business. No major losses were incurred in the year under review; the loss ratio came in lower than in the previous year and an improved result was posted for 2012.

New supervisory regulations introduced in Argentina placed limitations on the business opportunities available to foreign reinsurers that do not have a local branch. As a result, companies such as Hannover Re are now only able to assume covers for local reinsurers. We exceeded our target of preserving 70% of the existing portfolio in the year under review. We boosted our premium volume in Central America, Chile and the Caribbean. The most attractive line in these Latin American markets continues to be casualty business.

Owing to the limited scope to transact business in Argentina, our total premium volume in Latin America contracted in 2012. No major losses were incurred in the year under review. All in all, we are satisfied with the development of our business in Latin America.

Japan

For Hannover Re Japan is an important market – one in which business relations are traditionally of a long-term nature. Our relationships with clients became even closer as a consequence of the commitment that we showed to our Japanese cedants in the aftermath of the devastating earthquake of March 2011.

Along with catastrophe covers we transact our business in Japan across all lines of property and casualty insurance; especially in casualty business and in personal accident insurance, we enjoy a leading position. Having been heavily impacted by the earthquake and subsequent tsunami in the previous year, the Japanese market was spared major losses in the year under review.

Following on from already marked increases in 2011, rates again surged sharply higher in the aftermath of the earthquake. Since the flood events in Thailand had also inflicted sizeable losses on Japanese insurers, covers for flood risks similarly showed significant price increases. Overall, rates and conditions moved in a very favourable direction across most lines of business.

The premium volume for our portfolio in Japan grew appreciably in the year under review. Results were thoroughly satisfactory.

Southeast Asia

Hannover Re’s main markets in Southeast Asia are Malaysia, Thailand, the Philippines, Indonesia and India. Our portfolio here consists predominantly of property business. The accident, crop and livestock insurance lines as well as structured reinsurance products were further expanded in the year under review. We also continued to engage in the field of micro-insurance, which enables low-income individuals to purchase insurance protection. This market has grown particularly strongly in India.

Given the ever-greater importance attached to risk-based models and the requirements placed on insurers’ capital resources in Southeast Asia, ceding companies prefer to approach reinsurers with very good ratings for placement of their reinsurance covers. Against this backdrop, demand continued to grow in proportional motor business.

Our goal was to reduce the proportion of catastrophe business and to regroup the portfolio away from treaty reinsurance and more heavily towards facultative coverage concepts. We successfully accomplished this objective. Vigorous growth was recorded in Thailand, where prices rose sharply owing to the severe floods of 2011. Conditions here also improved significantly. Limits of liability were implemented in proportional treaties across virtually all markets.

Prices in other regions remained stable, however, albeit on a level commensurate with the risks.

The development of our business in Southeast Asian markets was highly satisfactory. Our premium volume rose sharply in the year under review. In contrast to the previous year, no major losses were incurred in 2012, enabling us to generate a thoroughly pleasing result.

China

The pace of the Chinese economy’s growth slowed appreciably in the year under review. Nevertheless, at around 15% growth rates in the insurance industry were still strong. In view of the relatively low insurance density as well as more stringent requirements governing the capital resources of insurance companies, we anticipate further vigorous growth here in the years ahead. With this in mind, all major reinsurers consider this country to be a target market – prompting an oversupply of reinsurance capacity in many lines of business.

Overall, business developed satisfactorily in the year under review. Conditions remained broadly stable and the major loss experience was unremarkable. Against this backdrop we booked a satisfactory underwriting result.

The dominant line in China continues to be motor insurance. Impending deregulation in this area – which means that foreign companies too will now be able to offer their own tariffs – is likely to result in softer market conditions in the profitable motor line. In the other lines the environment was again intensely competitive, and expanding our market share was therefore not a central concern for our company.

As anticipated, our business prospects enjoyed a further boost from the close support given to clients by our branch in Shanghai.

On the whole, we are satisfied with the development of our portfolio in the Chinese market. Our premium volume was further enlarged in the year under review.

Australia/New Zealand

Hannover Re still ranks third in the Australian and New Zealand non-life reinsurance market. We write the entire spectrum of reinsurance in this region. For more than 25 years Hannover Re has been represented by a branch in Sydney, at which we have concentrated all our treaty reinsurance activities since November 2012. Our offerings in Australia are complemented by a primary insurance licence held by our subsidiary Inter Hannover.

Following on from 2011, which was a year of heavy losses for Australia and even more so for New Zealand, no major losses were recorded in the year under review. As a consequence of the strains incurred in the previous year, appreciable rate increases and improvements in conditions were observed for catastrophe covers in 2012. Prices in the casualty sector remained unchanged.

All in all, we are satisfied with the development of our portfolio in Australia and New Zealand. Our premium volume increased in the year under review.

Retakaful business

We write retakaful business – that is to say, insurance transacted in accordance with Islamic law – in both Southeast Asia and on the Arabian Peninsula. We maintain a dedicated subsidiary for this business in Bahrain (Hannover ReTakaful) as well as a branch that bears responsibility for writing traditional reinsurance in the Arab world.

The economic development of this region was more muted than in previous years, although it began to pick up again from the second quarter onwards. The primary insurance market was highly competitive, exacerbating the pressure on rates. On the reinsurance side new players forced their way into the markets with additional capacities. Prices for non-proportional motor and catastrophe business were particularly hard hit by this excess supply.

Hannover Re is strongly positioned in the Islamic world. The largest single market for our company continues to be Saudi Arabia, followed by Malaysia. Our strategy is to generate further profitable growth. The premium volume in treaty reinsurance climbed more than 10%, driven principally by extensive government spending on infrastructure and construction projects. In facultative reinsurance growth rates for property lines were even higher. On the other hand, prices for casualty covers fell sharply in a fiercely competitive environment. Nevertheless, we successfully maintained the leading position in our most important markets without neglecting our profitability requirements.

The otherwise exceptionally vigorous premium growth was curtailed by various special effects in the year under review. These included the slowdown in economic growth associated with the Arab Spring and the termination of business relations with Syrian companies as sanctions entered into force. Despite this, further dynamic expansion is to be anticipated in retakaful business. Since 2009 we had enjoyed an average growth rate of around 25%.

The loss situation in the year under review was satisfactory. The largest single loss was a fire at a shopping centre in Qatar’s capital city. The resulting strain for our company was in the mid-single-digit million euros.

Agricultural risks

Demand for the insurance of agricultural land and livestock continues to grow, especially in view of a steadily rising need for food and the effects of climate change. This is especially true of developing countries, where micro-insurance programmes – which protect individuals with minimal financial means against crop failures – are taking on added importance. Given the expanding premium volume written by primary insurers, the premium for reinsurance covers also increased worldwide. Hannover Re is one of the largest reinsurers of agricultural risks.

The focus of our underwriting policy in 2012 was on further optimising our portfolio. We systematically scaled back our shares in cases where we no longer considered the rates to be commensurate with the risks. In addition, we are working towards even more balanced diversification of our portfolio – both in terms of the geographical spread and the breakdown by lines of business. In this respect we are stepping up our involvement in livestock covers. The premium income for our total portfolio increased once again in the year under review.

The year under review brought heavy losses for business with agricultural risks. Most notable was the catastrophic drought in the United States, which caused enormous damage to the farming sector. Our result, too, was impacted by this loss event in an amount of EUR 43 million.

The loss events that occurred in the agricultural risks sector will – as was already the case last year – lead to rate increases and improved conditions.