Annual Report 2010 - Hannover Re

In the Eurozone, too, the upsurge in the economy should be
sustained; the ifo-Institute expects GDP to rise by 1.4% overall
in 2011. The differences between member states will likely
remain considerable. In countries with relatively solid public
finances and no major structural problems, such as Germany,
Finland, Austria and the Netherlands, the economy should
grow at an above-average pace and unemployment should fall.
Countries on the European periphery, however, will likely experience
only a sluggish recovery (for example in Spain, Italy
or Ireland) or even recession (for example in Greece). The
enormous repercussions of the crisis and the pressure to consolidate
will be adverse factors here. In 2011 all Eurozone
countries will embark on a course of fiscal consolidation. As a
result, public spending and disposable incomes will likely be
detrimentally affected. The resurgence in domestic demand
will consequently slow.
In China the pace of expansion will likely diminish in 2011,
although it will remain on a high level. An increasingly restrictive
monetary policy will probably play a role here and should
ultimately restrict the growth in economic output to 8%.
In Japan the government and central bank are trying to counteract
the slowdown in economic growth. In November 2010,
for example, the government approved a further economic
stimulus package, while the Bank of Japan launched another
asset purchasing plan. A more modest rate of expansion than
in 2010 should nevertheless be anticipated.
Capital markets
International bond markets will likely continue to see low
yields in 2011. The first cautious hike in prime rates by the
ECB is not anticipated before the end of 2011 at the earliest;
the US Federal Reserve will probably only follow suit in 2012.
As a consequence of the prevailing expansionary monetary
policy, yields on German government bonds will likely remain
on a low level in 2011. The same is true of the United States,
where yields will probably rise only marginally by the end of
2011. Bonds issued by peripheral countries of the European
Monetary Union should, however, remain under pressure.
While the budgetary situation of these countries will likely
improve, concerns about possible insolvency after expiry of
the EU/IMF rescue package will doubtless persist – especially
as regards Greece, Ireland and Portugal. Should the economic
upturn lead to an increase in corporate profits, this would
open up price potential on the equity markets. Any increases
in prices in 2011 will, however, probably be subject to considerable
volatility.
The insurance industry
Having held its ground in the crisis, the international insurance
industry will make another important contribution to
economic stability in 2011. Insurers operate in the field of loss
limitation, loss prevention and risk diversification; in this way
they support economic development. They not only spread
risks across a number of actors, they also help to shape markets
and serve as a catalyst for financing and investments. For
2011 the German insurance industry expects premium income
to contract overall – against the backdrop of the anticipated
decline in income from single-premium business in life insurance.
In the international arena the insurance industry looks
set to expand its role in the economy and society in 2011.
Non-life reinsurance
Overview
We are broadly satisfied with conditions in non-life reinsurance.
The renewals as at 1 January 2011 – the date on which
67% of our treaties in traditional reinsurance were renegotiated
– passed off better for our company than the market players
had generally expected. Despite softer market conditions,
we had sufficient opportunities to write profitable business.
All in all, we were able to enlarge the premium volume by 2%
in this round of renewals.
Even though rates declined sometimes substantially on account
of the healthy capital resources enjoyed by primary insurers
and the absence of market-changing major losses in the
developed markets, we were nevertheless able to maintain
prices on a stable level in many instances – including for example
in US casualty business involving small and mid-sized
risks. As a direct consequence of the heavy loss expenditure
associated with the sinking of the “Deepwater Horizon” drilling
rig we obtained appreciable price increases on covers for
offshore oil exploration. While original rates climbed by
around 20%, price increases of roughly 25% were attainable
in non-proportional reinsurance. We also succeeded in pushing
through higher prices in European motor liability business.
The treaty renewals for US catastrophe business were, however,
disappointing. Rates for the most part declined in the
absence of losses from hurricanes. In keeping with our policy
of active cycle management we reduced our exposure. In areas
where major disasters occurred, such as the earthquake
in Chile, the positive effects on the price level remained within
regional bounds and failed to usher in a worldwide trend
94 Management report Forecast
Hannover Re Group annual report 2010