Technical risks in life and health reinsurance
All risks directly connected with the life of an insured person are referred to as biometric risks (especially the miscalculation of mortality, life expectancy, morbidity and occupational disability); they constitute material risks for our company in the area of life and health reinsurance. Counterparty, lapse and catastrophe risks – e.g. with an eye to pandemics – are also material since we also prefinance our cedants' new business acquisition costs. As in non-life reinsurance, the reserves are essentially calculated according to information provided by our clients and are also determined on the basis of secure biometric actuarial bases.
Through our own quality assurance measures we ensure that the reserves established by ceding companies in accordance with local accounting principles satisfy all requirements with respect to the calculation methods used and assumptions made (e.g. use of mortality and disability tables, assumptions regarding the lapse rate etc.). New business is written in all regions in compliance with underwriting guidelines applicable worldwide, which set out detailed rules governing the type, quality, level and origin of risks. These global guidelines are revised annually and approved by the Executive Board. Special underwriting guidelines give due consideration to the particular features of individual markets.
By monitoring compliance with the relevant underwriting guidelines, we minimise the potential counterparty risk stemming from an inability to pay or deterioration in the credit status of cedants. Regular reviews and holistic analyses (e.g. with an eye to lapse risks) are carried out with respect to new business activities and the assumption of international portfolios. The interest guarantee risk, which is important in life business in the primary insurance sector, is of only minimal risk relevance to our company owing to the structure of our contracts. The actuarial reports and documentation required by local regulators ensure regular scrutiny on the level of the subsidiaries.
| Sensitivity analysis of the Market Consistent Embedded Value (MCEV) and European Embedded Value (EEV)1 | ||
|---|---|---|
| Base values in EUR million | MCEV 20082 | EEV 20072 |
| 1More extensive information is provided in the EEV/MCEV reports published on our website. The presentation is based on the EEV/MCEV principles for publication, which are defined by the CFO Forum. The CFO Forum is an international organisation of Chief Financial Officers from major insurance and reinsurance enterprises. | ||
| 2Before consolidation, excluding minority interests. | ||
| Base value | 2,421.6 | 2,483.9 |
| Interest rate curve +100 basis points | 0.5% | 0.1% |
| Interest rate curve –100 basis points | (0.3%) | (0.8%) |
| Fair value of equities and real estate –10% |
0.0% | 0.0% |
| Costs –10% | 1.1% | 0.8% |
| Lapse –10% | (1.4%) | 0.4% |
| Mortality –5% | 13.2% | 7.8% |
The Market Consistent Embedded Value (MCEV) is a measure used to evaluate life insurance and reinsurance business; it is calculated as the present value of the future shareholders' earnings from the worldwide life and health reinsurance portfolio plus the allocated capital. The calculation makes appropriate allowance for all risks underlying the covered business. The resulting Market Consistent Embedded Value is established on the basis of the principles of the CFO Forum published in June 2008. For the 2006 and 2007 financial years the European Embedded Value (EEV) was calculated on a market-consistent basis. Based on the latest available data published on 5 May 2009 (valid as of 31 December 2008), the table shows the MCEV 2008 and its sensitivity to selected scenarios in comparison with the corresponding sensitivities of the EEV 2007.
The moderate change in the MCEV under the scenarios shown is in line with our risk-bearing capacity in this area and reflects our portfolio's high degree of diversification. The consolidated MCEV before minority interests amounted to EUR 1,652.0 million (EEV 2007: EUR 1,715.1 million) as at 31 December 2008. Making allowance for the different calculation methods, this represents an increase of 4.3% (12.3%) since the embedded value for 2007 comparable with the MCEV 2008 stood at EUR 1,583.7 million. The operating MCEV earnings totalled EUR 172.4 million (EUR 280.0 million), while the value of new business stood at EUR 150.5 million (EUR 106.4 million). The development relative to the values for the previous year was in line with our expectations. Regarding the change in the previous year's figure, please see the “European Embedded Value Report 2007”. We shall publish the MCEV for the 2009 financial year on our Internet website at the same time as the quarterly report for the first quarter of 2010.