The general business climate in the international (re)insurance industry remains challenging. On the one hand, the protracted low level of interest rates is making it more difficult to generate attractive investment returns. At the same time, reinsurers are also facing a significantly more competitive environment than in previous years. Hannover Re has adjusted well to these challenging conditions with its prudent reserving approach, broadly diversified investment strategy and selective underwriting policy in non-life reinsurance. Despite appreciable rate erosion, which is especially noticeable in US natural catastrophe business, we nevertheless continue to see encouraging business potential. Particularly noteworthy here are Asia-Pacific markets, the countries of Central and Eastern Europe, marine lines as well as facultative business and structured reinsurance. Based on constant exchange rates, the Hannover Re Group expects to generate stable to slightly higher gross premium volume in the current financial year.

An excess supply of reinsurance capacity was a dominant feature of the treaty renewals as at 1 June and 1 July, just as it was in prior renewals too. Some parts of North American business, agricultural risks and the portfolio in Latin America traditionally come up for renewal at this time.

The pressure on rates and conditions remained high following the very good results posted by insurers and reinsurers in the absence of significant losses. As a strongly capitalised reinsurer with a very good rating, we are nevertheless a preferred partner for our cedants and are thus able to choose our acceptances from among the entire range of business on offer. In US property business rate declines of between 5% and 10% were the norm under programmes that had been spared losses. Rate increases of up to 30% were obtained for loss-impacted treaties. Prices in US property catastrophe business remained under heavy pressure, although it was not quite as intense as during the renewals of 1 January 2014. Although there are isolated positive indications that a bottom may have been reached, prices will not trend higher again without significant major losses. Competition in US casualty business was considerably fiercer than it had been in the renewals at the beginning of the year. As far as our business in Canada is concerned, we see promising opportunities despite an increasingly competitive environment. Against the backdrop of our selective underwriting policy, we modestly reduced our premium volume for North America as at 1 July 2014.

Broadly speaking, we are satisfied with the outcome of the treaty renewals in Latin America. The vigorous growth in this region remains unabated, although slight rate decreases can similarly be observed in the markets of Central and Southern America. Parts of our business with agricultural risks were also up for renewal. Here, too, there is an excess of reinsurance capacity overall. We maintained our good positioning in this market.

For the full 2014 financial year we expect to book – at constant exchange rates – a largely stable gross premium volume in total non-life reinsurance. We will not make any concessions to our systematic underwriting discipline and will stand by our policy of reducing shares in areas where risks are not adequately priced. We are targeting a combined ratio of less than 96%. In terms of the EBIT margin, we are again aiming for a level of at least 10%.

In life and health reinsurance we expect to see favourable developments with attractive business opportunities in the second half of the year. This includes further stabilisation of results in our Australian disability portfolio. In industrialised nations we are facing new challenges associated with highly complex and in some cases still uncertain regulatory solvency requirements such as Solvency II. Demand for reinsurance protection in the area of Financial Solutions is expected to grow. The focus will be on reinsurance solutions individually tailored to bring capital relief and optimise the solvency position of our clients. Demand for longevity products should remain on a high level owing to the shift in demographics. In Asian countries, too, they are likely to attract stronger interest on account of population growth and rising prosperity. As far as Germany is concerned, it is to be anticipated that the future direction of the traditional life insurance market will depend heavily on the practical implementation of legal changes currently under discussion, including for example the participation of customers in valuation reserves and reduction of the guaranteed rate of return.

For 2014 we are looking to book organic, currency-adjusted gross premium growth in the low single-digit percentage range in life and health reinsurance.

In Australian group business we have succeeded in pushing through our envisaged prices. Here, too, we shall systematically relinquish business in cases where risks cannot be written at adequately priced conditions.

In the reporting categories of Financial Solutions and Longevity we continue to target an EBIT margin of at least 2%, while our targeted EBIT margin for Mortality and Morbidity business remains at 6%.

The expected positive cash flow that we generate from the technical account and our investments should – subject to stable exchange rates and yield levels – lead to growth in our asset portfolio. In the area of fixed-income securities we continue to emphasise the high quality and diversification of our portfolio. We are not currently planning to make any significant changes to the allocation of our investments to individual asset classes. The focus here is primarily on stability while maintaining an adequate risk/return ratio, thereby enabling us to respond flexibly to general developments and opportunities that may present themselves. We are targeting a return on investment of 3.2% for 2014.

In both non-life and life/health reinsurance it is our assumption that we shall accomplish our minimum IVC targets of 2% xRoCA for non-life reinsurance and 3% xRoCA for life and health reinsurance.

Assuming that the burden of major losses does not significantly exceed the expected level of EUR 670 million and that there are no extraordinary movements on capital markets, Hannover Re continues to anticipate Group net income in the order of EUR 850 million for the 2014 financial year.

Our targeted payout ratio for the dividend remains unchanged in the range of 35% to 40% of Group net income.


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