Credit and surety

The situation in credit and surety insurance was challenging on account of the recession. The effects were especially evident in countries that were either hard hit by the real estate crash, such as the US, Spain, Ireland and the UK, or heavily dependent on exports, for example Germany and Japan. Some bottoming out was nevertheless observed in the fourth quarter.

Against the backdrop of higher insolvency figures, insurers were faced with significantly increased claims rates in the year under review; this was particularly true of the credit line. Dramatic rehabilitation of the business was therefore initiated. Premiums thus climbed by low doubledigit percentages while exposures were reduced. In some cases it was even possible to obtain increases in the range of 50% to 100%. In surety business, too, rates picked up, although the average increases were less appreciable due to lower claims rates.

Parallel to the measures undertaken to restore credit insurance to profitability, government assistance programmes were launched in most European countries; they are intended to facilitate access for risks of a lower quality to credit insurance covers. In Germany, too, such a programme was implemented. Experience to date has shown that these measures do not, however, call into question the business model operated by credit insurers.

For the reinsurance industry the claims situation was similar to that seen in the primary sector, although nonproportional business was scarcely impacted by losses.

Hannover Re is one of the market leaders in worldwide credit and surety reinsurance. We concentrate, as we have in past years, exclusively on the core business of the credit and surety lines. We do not write financial guarantees or credit default swaps; peripheral business, such as shipbuilding guarantees, is avoided. We were also able to reduce the extent of our exposure in some areas. All in all, we wrote our business even more restrictively than before and improved the diversification of our portfolio – both by products (credit, surety and political risk) and regions. In the year under review we profited from higher premiums and improved conditions.

Regardless of the above, the credit line was overshadowed by claims rates that rose particularly sharply in the first half of the year. Rehabilitation measures served to reduce the claims frequency in the second half of the year. Compared to previous years, however, the year under review was notable for a substantially increased loss burden. Despite the difficult economic climate, a positive factor was that no single loss exceeded EUR 5 million. In credit reinsurance business we achieved average rate increases of 10% to 25% in the year under review – and in certain cases even as much as 50% to 100%.

The situation in surety insurance was more favourable. Claims rates here were largely acceptable. The premium income booked by many ceding companies fell in part due to reduced transaction numbers, but also owing to an appreciably more restrictive underwriting policy. We obtained premium increases averaging 5% to 10% in the surety line.

The experience of our political risks business was satisfactory. In this segment, too, significant rate increases were pushed through.

We made the most of the appreciable price increases in the year under review and enlarged our portfolio highly selectively. Gross premium in credit and surety reinsurance was substantially boosted. Even though the result only broke even on account of higher default rates and our prudent reserving policy, we expect to move back into the black in 2010 once loss ratios recover. The combined ratio stood at 104.2% in the year under review, reflecting the high claims frequency in trade credit insurance.