Life and health reinsurance

• Very good overall profitability partially overshadowed by negative risk experience in US mortality business of prior underwriting years
• Increasingly fierce competition and more exacting regulatory requirements necessitate innovative and customised reinsurance concepts

All in all, we are satisfied with the development of our life and health reinsurance business in the first half of 2016. Following a very good first quarter, the second quarter also lived up to our expectations.

In Germany the return on 10-year sovereign bonds turned negative for the first time. In addition, the reduction of the maximum actuarial interest rate to 0.9% for endowment life insurance and annuity products effective 1 January 2017 was officially announced. These developments clearly demonstrate the protracted difficult situation in the German life insurance market. Life insurers are coming under more and more pressure to adapt their product range in order to maintain the appeal of life insurance policies. By delivering individually tailored reinsurance solutions we strive to efficiently support our customers.

In the other markets of Northern and Western Europe conditions were similarly challenging. In these circumstances, we are satisfied with the development of our business. Our expectations in Eastern European markets were also fulfilled, and we take an upbeat view of the business prospects for the second half of the year.

In Asian markets developments varied widely from country to country. Japan, for example, finds itself – very much like Germany – facing an ageing population and a low interest rate environment. In China local regulatory requirements for the (re)insurance sector continue to become more exacting. In Malaysia, on the other hand, the launch of a new lifestyle insurance concept reflects the dynamic growth of the market. In India, too, the business development is pleasing. As an innovative reinsurer, we have successfully brought to completion various critical illness product solutions that are individually tailored to the needs of our customers.

The longevity sector is seeing continued growth in international activities. This can be attributed in part to the progressive global demographic shift and increasing awareness of the need to provide for old age. At the same time, more and more insurers and pension funds also find themselves in need of reinsurance solutions for their longevity portfolios. The competitive state of the UK market remains unchanged. Here, however, our long-standing expertise and extensive data resources give us a significant competitive advantage, hence enabling us to enjoy a thoroughly satisfactory development in the reporting period just ended.

The performance of our US mortality business fell short of expectations in the period under review due to specific effects in various blocks of business. Financial solutions business, on the other hand, developed better than planned. Furthermore, the health and special risk portfolio surpassed our expectations and made a pleasing positive contribution to what adds up to a solid result from our US business.

We booked a gross premium volume of EUR 3.7 billion (EUR 3.6 billion) as at 30 June 2016, corresponding to an increase of 1.2%. At unchanged exchange rates growth would have come in at 4.2%. The retention rose slightly to 91.8% (86.5%). Net premium earned climbed 6.5% to EUR 3.3 billion (EUR 3.1 billion). At constant exchange rates the increase would have been as much as 9.7%.

Investment income from assets under own management fell by 11.9% to EUR 158.1 million (EUR 179.4 million) in the reporting period just ended, although it should be borne in mind that the previous year's figure included a non-recurring special effect of EUR 39 million. Income from securities deposited with ceding companies amounted to EUR 164.1 million (EUR 187.3 million).

The operating result (EBIT) in life and health reinsurance as at 30 June 2016 reached a level of EUR 179.1 million (EUR 200.0 million). Profitability therefore declined by 10.5% compared to the previous year's period. Financial solutions business generated an EBIT margin of 16.3%, comfortably surpassing the target of 2%. Longevity business reached its targeted 2% EBIT margin at 2.1%. Mortality and morbidity business delivered an EBIT margin of 4.3%, hence missing the stated EBIT margin of 6%. Group net income totalled EUR 130.6 million (EUR 145.6 million). Earnings per share amounted to EUR 1.08 (EUR 1.21).