Life and health reinsurance

• Consistently favourable developments across international markets
• US financial solutions business beats expectations
• Operating result boosted against a backdrop of stable premiums

Life and health reinsurance somewhat exceeded our expectations in the first half of 2018.

The situation on the German market was virtually unchanged. According to the SFCRs (Solvency and Financial Condition Reports) published in May, the capital adequacy ratios of German primary insurers calculated under Solvency II continued to show an improving trend year-on-year as at the end of 2017. With the insurance industry still hoping for accommodations from policy makers, reinsurance offerings in the area of financial solutions designed to ease the strain associated with the additional statutory reserve requirement for the interest rate risk (Zinszusatzreserve) or to deliver solvency relief attracted only muted interest.

In the rest of Europe the development of our business was highly promising. In the case of Western European markets, a trend can be discerned among new and existing customers alike towards the expansion of product portfolios – especially when it comes to risk-oriented covers. The United Kingdom continued to see intense competition, which was further exacerbated by pricing pressure in the market and hampered business profitability.

Markets in Central Europe for the most part maintained their favourable course and are typically showing growth, leading to profitable new business for our portfolio.

In Eastern European markets, most notably Ukraine, Bulgaria, Azerbaijan and Russia, market developments were in line with expectations and we were able to build on the positive movements of the previous year.

In Asian countries interest in financial solutions was again very lively. Furthermore, it was evident that health insurance products were increasingly coming into focus for primary insurers. Particularly in China, economic growth was extremely dynamic and went hand-in-hand with a further rise in demand for insurance protection. This opened up thoroughly favourable opportunities for our company to write new business. In Japan and Korea, too, we were able to write new business in the areas of both risk solutions and financial solutions.

In Australia the regulatory framework for retirement provision was adjusted, which will likely prompt a need for action on both the insurance and reinsurance side with an eye to the underlying insurance products. The primary market saw further moves towards consolidation among larger banks and the resulting sales of life insurance portfolios. These dynamic developments promise an attractive business potential for our Australian subsidiary.

We view Latin America as a growing insurance market, albeit one that is under intense competitive pressure. We were able to successfully renew our portfolio and also generated additional new business, thereby maintaining our market position on a consistently stable, high level.

In the United States the financial solutions business written by our subsidiary developed very favourably in line with our expectations. Rate increases have been initiated to improve the results of our legacy US mortality business from older underwriting years. While these actions negatively impact earnings in the short term, the long-term effects on profitability will nevertheless be positive. We were pleased to see that the mortality in the period under review came in below our revised expectations. The charge to earnings from this business was consequently significantly lower than in the previous year. All in all, then, both the mortality solutions and the health and special risk segments performed better than forecast.

Primary insurers in international markets are showing enthusiastic and steadily rising interest in the field of automated underwriting. So-called “lifestyle” insurance products, which particularly target the sector of the population focused on a healthy lifestyle through integrated wellness components, are also taking on growing prominence. Insurers around the world are increasingly recognising the demand here and hence also the need for holistic solutions of this type.

The gross premium volume in life and health reinsurance posted a modest decline of 1.5% as at 30 June 2018 to EUR 3.5 billion (EUR 3.6 billion). Growth of 3.7% would have been booked at unchanged exchange rates. The retention was virtually stable at 91.2% (91.6%). Net premium earned was also unchanged at EUR 3.2 billion (EUR 3.2 billion). Growth would have come in at 3.8% at constant exchange rates.

Bearing in mind the low interest rate environment, we are satisfied with the investment income of EUR 239.1 million (EUR 301.7 million). While ordinary investment income remained stable, realised gains and losses came in lower. Income from assets under own management consequently contracted to EUR 141.6 million (EUR 180.2 million). The income booked from securities deposited with our ceding companies fell to EUR 97.5 million (EUR 121.5 million).

The operating result (EBIT) as at the end of the first half-year amounted to EUR 219.4 million (EUR 165.2 million), an improvement of 32.8% compared to the previous year’s level. The strategic target is to increase the operating result (EBIT) by 5% per year. Group net income totalled EUR 146.8 million (EUR 114.2 million).