Market conditions for worldwide life and health reinsurance were challenging in the year under review, as a consequence of which our premium volume also grew less vigorously in 2013 than in previous years. Gross premium income increased by 1.4% to EUR 6,145.4 million (EUR 6,057.9 million). Adjusted for exchange rate fluctuations, growth would have come in at 5.1%. In the year under review we thus achieved our targeted gross premium growth in the range of 5% to 7%. The level of retained premium decreased to 87.7% (89.3%). Net premium earned was down slightly by 1.2% to EUR 5,359.8 million (EUR 5,425.6 million); adjusted for exchange rate effects, net premium increased by 2.4%.

The operating result (EBIT) of EUR 150.5 million (EUR 279.0 million) fell short of the previous year’s figure owing to a number of different influencing factors, but it was still solid. The key factors in the decline were the elimination of positive non-recurring effects from 2012 as well as losses in Australian disability business. Group net income reached EUR 164.2 million (EUR 222.5 million); earnings per share amounted to EUR 1.36 (EUR 1.84).

In the following section we discuss in detail developments in our reporting categories in the year under review.

Financial Solutions business encompasses those reinsurance transactions that – along with the transfer of biometric risks – can optimise the financial position of our ceding companies. Reinsurance solutions of this type offer clients an alternative means of raising capital as well as the resulting optimisation of their equity and debt position. Gross premium income for this reporting category amounted to EUR 1,554.3 million (EUR 1,536.6 million) in the year under review, accounting for 25.3% of the total premium volume. The major driver of growth here in 2013 was our US subsidiary. Thanks to solutions designed to provide relief for capital and reserves so as to optimise the balance sheet structure of our clients, we were able to build on the successful development of the previous year in the United States. This type of reinsurance is heavily influenced by regulatory requirements, such as those arising out of the planned Solvency II standards and to some extent also indirectly from the Basel III framework. At this early point in time it still remains to be seen whether these effects will have positive or negative implications for insurance demand; this will only become clear in the future, once Solvency II and other prudential regimes have been adopted on a mandatory basis. Increasing regulation was also evident in emerging markets, especially in Asia. Although competition continues to intensify on account of the business potential in these regions, we booked double-digit percentage growth rates for our premium in both China and Hong Kong. Despite a challenging market climate, we thus asserted our leading position in Financial Solutions business.

In our reporting category of Risk Solutions we further differentiate between Mortality, Morbidity and Longevity.

The Mortality sector encompasses our business with exposure to the mortality risk. For our company, as a reinsurer, the main danger is that the actual mortality in a portfolio may diverge negatively from our expectations. Mortality business is traditionally a core component of life and health reinsurance. This is reflected in the gross premium volume of EUR 2,833.5 million (EUR 2,824.6 million) generated in 2013. At 46.1%, it contributes the lion’s share of total premium income. In the US risk-oriented life reinsurance market we further expanded our share to more than 10%. This is all the more gratifying given that the market itself contracted again – as it had already in 2012. Irrespective of this, our focus was on further optimising our portfolio management, which we shall continue to do in the coming years.

In Europe the business climate on the reinsurance market was again challenging in 2013 and the market for traditional risk-oriented products proved to be largely saturated, leaving only limited scope for growth. Against this backdrop, a number of primary insurers in the German market came up with plans to modify traditional products – such as term life insurance – and limit the long-term guarantees under savings products in order to preserve the competitiveness of such offerings in the future. It is all the more pleasing to report that, among other things, we were able to retain our leading position in Italian credit life business.

Developments and trends in society around the world are exerting a growing influence on the insurance sector. In 2013, for example, we observed a sharp increase in lifestyle products – an area where traditional insurance is often combined with perks for sports and leisure activities. The idea is to motivate insureds to lead a more health-conscious lifestyle and hence also positively influence the policy experience.

The Morbidity risk is generally considered to be the risk of deterioration in a person’s state of health due to disease, injury or infirmity. Typical products are strict (any occupation) disability, occupational disability and long-term care insurance. Gross premium in this reporting category increased to EUR 872.9 million (EUR 813.0 million). Growth was generated principally in South America and Asia.

The less favourable developments in morbidity business are connected to the elevated risk experiences and reserve increases in Australian disability business, the adverse repercussions of which left their mark throughout the entire industry on insurers and reinsurers alike. Intensive efforts have been made on the Australian market to counteract this development and thereby improve results.

The US health market is facing considerable changes as the healthcare reform programme popularly known as “Obamacare” begins to take effect in 2014. One of the core elements of the new reform is curbing price increases in the medical sector. The health insurance market is also taking active steps to counter this effect, hence opening up new insurance opportunities which we seek to cover with the broadest possible range of reinsurance solutions. As a further factor, the so-called dual demonstration programme was launched in the United States: previously operated independently of one another, the federally backed Medicare programme was coordinated with Medicaid, responsibility for which rests with the individual states. The dual demonstration programme is aimed at insureds who are theoretically entitled to participate in both schemes. For health insurance companies participating in the new programme this created fresh business potential, hence also leading to new opportunities on the reinsurance side. As anticipated, developments in the Middle East region were also positive, consequently giving rise to attractive profitable growth in group business.

The Longevity reporting category encompasses annuity and pension insurance products as well as all reinsurance solutions connected with the longevity risk. This business frequently involves the transfer of sizeable portfolios, for which we – in our role as reinsurer – take over the annuity payments that will actually be incurred in the future. The greatest risk is associated with the longevity of the insureds in the portfolios and the resulting potentially incorrect estimations of the duration of recurring pension payments. In the year under review we wrote a gross premium volume of EUR 884.7 million (EUR 883.6 million). The worldwide demographic trend has led to consistent growth in the elderly proportion of the population, hence bringing a significant increase in longevity exposure and boosting demand for such products. We already enjoyed concrete benefits from this trend in the year under review in the form of a rise in inquiries regarding the assumption of longevity portfolios. The United Kingdom continues to be the largest market, where we supported life insurers with – among other things – the risk assessment of annuity insurance policies in the financial year just ended. Yet we also received our first specific inquiries from other European countries too and submitted quotations. This expanding market is, however, also encouraging an ever-increasing number of new providers to move into the business, causing competition to intensify sharply. As an established business partner with a decades-long track record, we were able to renew existing contracts and reinsure our first longevity portfolios outside the United Kingdom despite the more competitive climate.

Irrespective of the various reporting categories, we are seeing a clearly emerging trend towards automated underwriting. We offer our customers this additional service in the form of point-of-sale systems. These are designed to relieve the strain on underwriters associated with the application process while at the same time enhancing underwriting efficiency. Furthermore, particularly as a consequence of the challenging low interest rate environment, run-off business began to take on greater significance in 2013 and became a central concern for primary insurers. Activities in this area are focused on the professional run-off of closed blocks of business.

This trend towards the growing importance attached to additional services that go above and beyond pure reinsurance protection was again sustained in 2013. In the markets of Eastern Europe, in particular, insurers are seeking to tap into new growth segments, e.g. for disability products and private health insurance covers. The level of service expected here – not only from insurers but also reinsurers – is rising. Thanks to our customer-oriented solutions and innovative product ideas in this area, we were able to consolidate existing customer relationships and win over new clients.