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Property and casualty reinsurance
| Key figures for property and casualty reinsurance | |||||||
|---|---|---|---|---|---|---|---|
| in EUR million | 2017 | 20161 | |||||
| 1.1. – 31.3. |
1.4. – 30.6. |
+/– previous year |
1.1. – 30.6. |
+/– previous year |
1.4. – 30.6. |
1.1. – 30.6. |
|
| Gross written premium | 2,814.7 | 2,612.7 | +22.9% | 5,427.5 | +17.3% | 2,125.2 | 4,627.4 |
| Net premium earned | 2,165.7 | 2,147.0 | +14.4% | 4,312.8 | +12.4% | 1,877.1 | 3,838.4 |
| Underwriting result | 90.7 | 58.3 | -11.8% | 149.0 | -10.5% | 66.1 | 166.4 |
| Net investment income | 243.4 | 232.1 | +11.1% | 475.5 | +14.3% | 208.9 | 416.1 |
| Operating result (EBIT) | 309.8 | 324.5 | +23.3% | 634.3 | +12.7% | 263.2 | 562.9 |
| Group net income | 215.4 | 228.6 | +31.5% | 444.0 | +17.4% | 173.8 | 378.1 |
| Earnings per share in EUR | 1.79 | 1.90 | +31.5% | 3.68 | +17.4% | 1.44 | 3.14 |
| EBIT margin2 | 14.3% | 15.1% | 14.7% | 14.0% | 14.7% | ||
| Combined ratio3 | 95.6% | 97.4% | 96.5% | 96.1% | 95.4% | ||
| Retention | 88.6% | 90.3% | 89.4% | 88.5% | 88.2% | ||
| 1 Restated pursuant to IFRS 3 (cf. section 3 of the notes) 2 Operating result (EBIT) / net premium earned 3 Including funds withheld |
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Property and casualty reinsurance remains intensely competitive worldwide; the supply of reinsurance coverage continues to far outstrip demand. Even though the business results posted by insurers have deteriorated in some areas and more reserves are increasingly being released, the capital resources of most market players can still be considered adequate. The additional capacities originating from the insurance-linked securities (ILS) market are an additional factor in the sustained pressure on prices and conditions – especially in US natural catastrophe business.
This was the environment in which the treaty renewal season as at 1 April took place for Japan, along with more modest treaty renegotiations – in terms of volume – for the markets of Australia, New Zealand, Korea and North America. In view of the predominantly soft market conditions we largely concentrated on existing business in order to safeguard the good quality of our property and casualty reinsurance portfolio.
In Japan rates continued to decline in property business, albeit at a more moderate pace than had been the case in the previous round of treaty renewals. In casualty business substantial rate increases were obtained on the back of past losses, enabling us to book additional premiums in these lines. In New Zealand the earthquake of November 2016 put a stop to the downward rate trend. Part of our North American business was also renewed on 1 April. The pressure on prices here has eased appreciably across the various lines, and in both property and casualty business we were able to achieve largely stable prices.
The gross written premium for our total portfolio rose sharply by 17.3% as at 30 June 2017 to EUR 5.4 billion (EUR 4.6 billion). This reflected a surge in demand for reinsurance solutions offering solvency relief, not only in Europe but also in North America. We were thus able to more than offset premium declines in other areas. At constant exchange rates growth would have come in at 16.9%. The level of retained premium was higher than in the corresponding period of the previous year at 89.4% (88.2%). Net premium earned increased by 12.4% to EUR 4.3 billion (EUR 3.8 billion); adjusted for exchange rate effects, the growth would have been 11.8%.
The second quarter was spared any large losses, and major loss expenditure as at 30 June 2017 consequently came in well below the level of the corresponding period at EUR 122.9 million (EUR 352.7 million).
Further strains were incurred in the second quarter as a result of the UK government’s decision to reduce the discount rate for personal injury compensation payments (known as the “Ogden rate”) from 2.5% to -0.75% effective March 2017. This means that claims for severe personal injuries, such as those caused by motor vehicle accidents, can be become considerably more costly, resulting in higher payments under liability insurance covers. Bearing in mind that this affects not only future claims but also past claims that have still to be run off, insurers and reinsurers alike are faced with a need to substantially strengthen their reserves. We established additional loss reserves of around EUR 291 million as at 30 June 2017 for this purpose. In view of the very adequate level of our IBNR reserves (for claims that have been incurred but not yet reported), however, this does not give rise to any runoff losses. We anticipate that the change in the Ogden rate will require further additional reserves to be set aside in the course of the financial year. Nevertheless, these should be offset by the IBNR reserves that have been constituted.
Although the underwriting result for total property and casualty reinsurance contracted by 10.5% to EUR 149.0 million (EUR 166.4 million), it remains on an adequate level. The combined ratio is still positive at 96.5% (95.4%). The investment income booked from assets under own management developed highly satisfactorily, climbing by 17.1% to EUR 473.7 million (EUR 404.5 million) on the back of higher ordinary income. Against this backdrop, the operating profit (EBIT) for the Property & Casualty reinsurance business group improved by 12.7% as at 30 June 2017 to EUR 634.3 million (EUR 562.9 million). The EBIT margin of 14.7% (14.7%) was once again well above our minimum target of 10%. Group net income increased by 17.4% to EUR 444.0 million (EUR 378.1 million). Earnings per share amounted to EUR 3.68 (EUR 3.14).