Life and health reinsurance
| Key figures for life and health reinsurance | |||||||
|---|---|---|---|---|---|---|---|
| in EUR million | 2018 | 20171 | |||||
| 1.1. – 30.6. | 1.7. – 30.9. | +/– previous year |
1.1. – 30.9. | +/– previous year |
1.7. – 30.9. | 1.1. – 30.9. | |
| Gross written premium | 3,518.2 | 1,816.7 | +6.0% | 5,334.9 | +1.0% | 1,714.1 | 5,284.2 |
| Net premium earned | 3,170.7 | 1,586.1 | +1.1% | 4,756.8 | -0.7% | 1,568.4 | 4,788.7 |
| Investment income | 239.1 | 130.0 | -0.7% | 369.1 | -14.7% | 131.0 | 432.7 |
| Operating result (EBIT) | 219.4 | (64.2) | 155.2 | -24.6% | 40.7 | 205.9 | |
| Net income after tax | 146.8 | (53.8) | 93.0 | -31.5% | 21.5 | 135.7 | |
| Earnings per share in EUR | 1.22 | (0.45) | 0.77 | -31.5% | 0.18 | 1.13 | |
| Retention | 91.2% | 89.4% | 90.6% | 91.2% | 91.5% | ||
| EBIT margin2 | 6.9% | -4.0% | 3.3% | 2.6% | 4.3% | ||
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The development of our life and health reinsurance business in the third quarter was in line with our expectations. Treaty recaptures prompted by our announced rate increases in US mortality business resulted in considerable one-time charges in the period under review. This was mitigated by the fact that mortality rates for this business in 2018 are proving to be better than expected. Developments elsewhere in international life and health reinsurance were favourable, driven among other things by sustained strong interest in protection against longevity risks.
In Germany, too, we are seeing continuing interest in reinsurance solutions that address the additional statutory reserve requirement for the interest rate risk (“Zinszusatzreserve”) or deliver solvency relief. The number of contracts actually taken out is, however, still small.
When it comes to the coverage of longevity risks, our business in most European markets fared as anticipated. In the United Kingdom reinsurers are faced with increasing price pressure in annuity transactions involving closed blocks of business. In the area of enhanced annuities interest in tailor- made longevity products is growing not only in the rest of Europe but also in countries such as China, Japan, South Africa and Australia. Most notably, Australia is currently seeing lively interest in longevity solutions for retirees on account of changes in the general regulatory framework. In this connection we are working to partner with numerous primary insurers and pension funds.
In Asia health insurance products that offer guaranteed benefits over time are attracting growing attention. In Korea, for example, an innovative concept launched for critical illness coverage is enjoying brisk demand among customers. Our branch in Korea successfully secured the reinsurance of this new business with a number of large insurers.
In the United States the measures to optimise US mortality business are bearing fruit, but they also continue to take a toll on the result in life and health reinsurance. The background here is the negative performance overall of a large block of business acquired at the beginning of 2009 and about which we have already reported regularly in the past. After we notified the customers of rate increases in the second quarter, more of them than anticipated availed themselves of their resulting right to treaty recaptures. In the third quarter we absorbed associated pre-tax charges of USD 260 million, equivalent to EUR 218 million. It is to be expected that this figure will increase even further in the course of the fourth quarter. At the present point in time it is our assumption that the strain for the full year will be in the order of USD 350 million to USD 400 million.
While the treaty recaptures are currently a drag on the profitability of US mortality business, the losses associated with these treaties will be largely eliminated in subsequent years and we therefore anticipate a substantial increase in earnings. A better-than-expected mortality in our US mortality solutions portfolio over the past three quarters also continues to alleviate the strains. Furthermore, our financial solutions business in the United States is developing well and hence living up to our expectations. Our health and special risks portfolio similarly performed as anticipated.
The gross premium income generated for life and health reinsurance business as at 30 September 2018 was stable at EUR 5.3 billion (EUR 5.3 billion). Adjusted for exchange rate effects, growth would have reached 4.8%. Net premium earned was unchanged at EUR 4.8 billion (EUR 4.8 billion). An increase of 3.2% would have been booked at constant exchange rates. The level of retained premium was slightly lower than in the previous year at 90.6% (91.5%).
The investment income amounted to EUR 369.1 million (EUR 432.7 million). The main driver of the decrease in investment income in life and health reinsurance was the realised gains booked in the previous year, which derived largely from fixed-income securities.
The operating result (EBIT) for our life and health reinsurance business contracted to EUR 155.2 million (EUR 205.9 million). Reflecting the strains discussed above, the contribution to Group net income amounted to EUR 93.0 million (EUR 135.7 million).