|Key figures for Property & Casualty reinsurance
|in EUR million
|+/- previous year
|Gross written premium
|Net premium earned
|Underwriting result 2
|Net investment income
|Operating result (EBIT)
|Group net income
|Earnings per share in EUR
|EBIT margin 1
|Combined ratio 2
| 1 Operating result (EBIT) / net premium earned
2 Including expenses on funds withheld and contract deposits
Accounting for 62% of our premium volume, Property & Casualty reinsurance is Hannover Re’s largest business group. It is structured according to our Board areas of responsibility, namely “Target markets”, “Specialty lines worldwide” and “Global reinsurance”.
Property and casualty reinsurance markets around the world continue to be shaped by an oversupply of capital available for risk coverage. The heavy hurricane losses in the United States in 2017 and 2018 have done little to change this state of affairs. At the same time, prices and conditions are under sustained pressure from additional capacities originating from the insurance linked securities (ILS) market. The environment in which Hannover Re is operating therefore remains challenging. Stronger demand for reinsurance covers could, however, be observed in some loss-affected regions and among certain clients.
We were satisfied with the outcome of the treaty renewals as at 1 January 2018 – when 65% of our portfolio in property and casualty reinsurance (excluding facultative business and structured reinsurance) was renegotiated. The rate increases in catastrophe business following the previous year’s devastating hurricane losses nevertheless fell short of market expectations. Although the treaty renewals proved challenging, we benefited from our customer intimacy and our ability to offer tailor-made reinsurance solutions. The increases were particularly marked in Australia, Asia and the United Kingdom. In addition, we were thoroughly satisfied with the treaty renewals in North America as well as in Western and Eastern Europe. In the area of cyber covers, too, attractive opportunities opened up to expand our portfolio. We noted a sharp rise in demand among customers for reinsurance solutions designed to provide solvency relief, enabling us to book further appreciable gains in the structured reinsurance segment.
We were similarly satisfied with the various rounds of treaty renewals that took place during the year. In the area of natural catastrophe covers we adhered to our profit-oriented underwriting policy and the exposure consequently remained comfortably with our risk appetite, which was unchanged from the previous year. We were able to significantly improve our position on a number of sizeable customer accounts, especially in North America and Europe.
Against this backdrop gross premium rose by 11.8% in the calendar year to EUR 12.0 billion (previous year: EUR 10.7 billion). At constant exchange rates the increase would have been 16.2%, a figure well ahead of our expectations. The level of retained premium climbed to 90.7% (89.7%). Net premium earned increased by 18.0% to EUR 10.8 billion (EUR 9.2 billion); adjusted for exchange rate effects, growth would have amounted to 22.5%.
The 2018 financial year was not dominated by major losses to the same extent as the previous year, which went down in Hannover Re’s history as the year with the heaviest burden of large losses. After a very moderate major loss experience in the first half of 2018, the loss incidence in the third quarter was essentially in line with our quarterly expectations. The most significant losses incurred in the third quarter included Typhoon "Jebi" in Japan, with an anticipated net strain for our account of EUR 134.7 million. We expect a net loss of EUR 37.4 million for Hurricane "Florence". Expenditure on large losses in the fourth quarter, however, went significantly over our budget, with the forest fires in California topping the list of major loss events. A net loss of EUR 129.5 million is anticipated for the so-called "Camp Fire", while the cost of the "Woolsey Fire" is put at EUR 63.8 million for net account. The net strain from Hurricane "Michael" is expected to amount to EUR 46.3 million. Our total net major loss expenditure in the 2018 financial year came to EUR 849.8 million (EUR 1,127.3 million), a figure slightly in excess of our large loss budget of EUR 825 million. For a detailed list of these large losses please see section "Underwriting risks in property and casualty reinsurance". The underwriting result including interest and expenses on funds withheld and contract deposits increased appreciably to EUR 372.8 million (EUR 15.5 million). The Combined ratio improved to 96.5% (99.8%) and was thus slightly higher than our 96% target for the financial year.
The investment income booked in the Property & Casualty reinsurance business group was very pleasing. Against a backdrop of stable ordinary investment income, the income from assets under own management contracted by 16.1% to EUR 999.3 million (EUR 1,191.5 million). The sharp decrease relative to the previous year can be attributed to the exceptionally high gains realised in that year from the liquidation of our Portfolio of listed equities. With major loss expenditure coming in lower than in the previous year, the operating profit (EBIT) climbed to EUR 1,322.6 million (EUR 1,120.2 million). The EBIT margin was stable at 12.2% (12.2%). We thus achieved our minimum target of 10%. Group net income improved by 11.0% to EUR 929.1 million (EUR 837.3 million).
In the following section we report in detail on developments in the individual markets and lines of our Property & Casualty reinsurance business group, split into the three areas of Board responsibility referred to at the beginning of this section.
|Property & Casualty reinsurance: Key figures for individual markets and lines in 2018
|Gross premium 2018 in EUR million
|Change in gross premium relative to previous year
|Gross premium 2017 in EUR million
|EBIT in EUR million
|Maximum tolerable combined ratio (MtCR)
|Specialty lines worldwide
|Credit, surety and political risks
|UK, Ireland, London market and direct business
|Worldwide treaty reinsurance
|Catastrophe XL (Cat XL)
|Structured reinsurance and insurance-linked securities
Hannover Re classifies North America and Continental Europe as target markets. The premium volume rose by 9.5% to EUR 3,455.8 million (EUR 3,155.6 million). Growth thus surpassed our expectations. The combined ratio improved from 102.8% to 100.0%. The operating profit (EBIT) fell to EUR 416.6 million (EUR 441.8 million) owing to lower investment income.
The North American (re)insurance market is the largest single market both worldwide and for our company. Our business here is written largely through brokers.
The US economy continued its growth trajectory in 2018. This favourable development was shaped by a generally stable financial situation, a further decline in the unemployment rate and increased consumer spending. The move by the Federal Reserve to raise the key interest rate, hence making it possible to generate higher investment income in the US dollar area, was also gratifying. The stronger growth in the United States of course also had positive implications for premium growth in the insurance industry. All in all, the normalised premium growth was likely in the mid-single-digit percentage range.
The price increases observed on the primary insurance side in 2017 were sustained throughout 2018. The most striking rate increases were recorded in industrial property business.
However, even lines whose performance had been particularly unsatisfactory in recent years – such as general liability and directors’ and officers’ insurance – showed positive tendencies in the year under review. Rates moved appreciably higher at the end of the year in light of further large loss events in the United States, including for example Hurricanes "Florence" and "Michael" as well as the forest fires.
Even though exceptionally high losses were incurred on the reinsurance side in 2017, they did not impact the overall market capacity. To this extent, the pricing adjustments were less marked than many market players had expected. While rate increases were booked under loss-affected programmes, significant improvements failed to materialise and there were no implications for loss-free programmes. What is more, the price trend lost further momentum as the year progressed. The sharply higher loss frequency in the second half of the year, however, subsequently ushered in some rate improvements.
The bulk of our activities in North America are conducted in liability and property business. Modest rate increases were obtained for liability business, which is split into the three subsegments of standard, special and professional liability. Against this backdrop we enlarged our premium volume. Selective growth was booked in the area of cyber covers; rising demand here was prompted by loss events and regulatory changes. In property insurance, too, we made the most of the improved rate quality to expand our business volume.
While major loss expenditure in 2018 was lower than in the previous year, the loss events resulted in a total strain slightly in excess of our expectations. Detailed figures on our large losses are provided on page "Underwriting risks in property and casualty reinsurance". It is pleasing to note that in the financial year just ended the losses impacted Hannover Re less heavily than our market shares would have suggested – something which can be attributed to our prudent underwriting policy in highly exposed zones and our retrocession strategy.
On the whole, we were satisfied with our results in North America. We are a valued partner based on our expertise and robust financial strength. On this basis, we were able to acquire new clients while at the same time expanding long-standing customer relationships and we thereby further extended our market footprint. In the year under review we continued to cautiously expand our Portfolio of program business, a form of primary insurance that we write through managing agents in North America.
We are now authorised as a “Certified reinsurer” in 37 US states, a status which enables us to post significantly lower collateral in favour of US-based ceding insurers. The reduction in the level of collateral from the previous 100% to just 10% for technical reserves had positive implications for our result. The situation should improve still further going forward because under the bilateral agreement signed between the United States and the European Union in September 2017 collateral requirements for business written in the US will be entirely eliminated after a transitional period of five years.
Notwithstanding the good growth already generated in 2017, the premium volume in North America increased by a further 10.8% in the year under review to EUR 1,893.2 million (EUR 1,708.3 million). The combined ratio improved to 102.5% (111.3%). Against this backdrop, the operating profit (EBIT) climbed to EUR 227.2 million (EUR 177.5 million) despite a drop in investment income.
We group together the markets of Northern, Eastern and Central Europe as Continental Europe. The largest single market here is Germany. The premium volume for our business in Continental Europe totalled EUR 1,562.6 million (EUR 1,447.3 million) in the year under review. The combined ratio deteriorated to 97.1% (93.1%). The operating profit (EBIT) declined to EUR 189.4 million (EUR 264.3 million).
The German market is served within the Hannover Re Group by our subsidiary E+S Rück. As the “dedicated Reinsurer for Germany”, the company is a sought-after partner thanks to its very good rating and the continuity of its business relationships. E+S Rück is superbly positioned in its domestic market and a market leader in property and casualty reinsurance.
The German insurance market was stable in the year under review and recorded modest premium growth. The largest increases in property and casualty insurance were seen in the highest-volume lines, namely motor and property insurance, and in the latter case especially in homeowners’ insurance as well as industrial and commercial lines. Altogether, the original market for property and casualty insurance probably grew by around 3%, hence keeping up the pace of the previous year. However, claims expenditure rose considerably more sharply than premium income, leading to a deterioration in overall market profitability. This was especially true of fire insurance for industrial customers, where the combined ratio is expected to clearly exceed 120%.
German insurers continued to raise their retentions in view of their healthy capital resources. So-called alternative capital, i. e. risk transfer to the capital markets, did not play a significant role in the German reinsurance market. On the whole, Hannover Re obtained slightly improved rates and conditions in the 2018 treaty renewals. This was also the case in industrial fire insurance, although the rate adjustments here were still not sufficient in view of the high frequency of large losses. Given the intensity of the competition, we have only written risks in this segment on a highly selective basis in recent years. Positive results were, however, booked in the motor, general liability, householders’ and accident lines.
In natural catastrophe business Storm "Friederike" resulted in a loss of EUR 24 million on the Group level. Localised flood events caused by heavy rainfall were also recorded. Given the increasing prevalence of natural disasters, covers for extended natural perils are likely to become ever more important.
Cyber insurance is another area of growing significance in Germany. In 2018 we continued to expand our service and pricing models in order to cater to the rising demand for these covers. In addition, we partnered with FinLeap, a fintech incubator, to create Perseus. Perseus offers SMEs a platform for insurance protection and IT solutions in connection with cyber risks.
All in all, we are satisfied with the development of our property and casualty reinsurance Portfolio in the German market. Premium income surged appreciably in the year under review through the expansion of existing customer relationships; we had anticipated a slight decrease in premium in our guidance.
Primary insurance markets in Continental Europe were once again intensely competitive in the year under review on account of surplus capacities; this was especially true of mature markets such as France and Northern Europe. The situation was particularly competitive in the fire / industrial lines and in motor business.
On the reinsurance side, too, a competitive environment prevailed. Somewhat more lively demand, most notably for bespoke reinsurance solutions offering solvency relief, had a stabilising effect on prices and conditions. Tighter requirements placed on insurers’ capital resources by Solvency II and more rigorous supervision by regulators, coupled with the anticipated changes in accounting principles, additionally played a role here.
In Western Europe we continued to expand our market share on the back of stable, risk-appropriate rates. Growth was spread across various lines, including long-tail liability and accident business. We consolidated our good market position in builder’s risk insurance in France. Our motor business in the Netherlands also fared well.
Growth rates in the countries of Central, Eastern and Southern Europe – for both the primary and reinsurance market – were still stronger overall than the European average. Prices largely held stable in the treaty renewals in the face of sustained intense competition. Exceptions here were loss-impacted programmes, especially in Russia, where sometimes substantial adjustments were necessary. Rates in motor business in Poland remained stubbornly on the previous year’s level in 2018 – after the sharp upward trend observed in prior years.
In Northern Europe we further cemented our position through our local footprint and boosted our premium income despite a difficult market climate. Notwithstanding an increased frequency of mid-sized losses, mostly the result of fires, we were able to generate an underwriting profit.
On the whole, we were satisfied with the premium development and rate movements in Continental European markets. By expanding long-established customer relationships with both larger and smaller companies, we achieved further encouraging growth.
Under specialty lines we include marine and aviation reinsurance, credit and surety reinsurance, business written on the London Market as well as direct business and facultative reinsurance.
The premium volume for specialty lines in the year under review amounted to EUR 2,919.5 million (EUR 2,767.6 million). The combined ratio improved to 94.3% (98.8%). The operating profit (EBIT) for specialty lines increased to EUR 421.2 million (EUR 349.5 million).
After somewhat softer prior years, marine reinsurance largely stabilised in 2018 on the level of the previous year. Given the continued low price of oil, despite a brief surge in the middle of the year, oil companies held back from making investments and insurance demand remained unchanged. The excess capacities still existing in the market for transportation of freight and cargo did nothing to ease a highly competitive situation. The resulting further slight market softening made itself felt in the insurance terms and conditions.
The Lloyd’s of London insurance market was among those impacted by these difficult market conditions. Results in a number of marine lines were still in the red. Customers responded by scaling back or entirely discontinuing their acceptances in selected marine lines.
On the reinsurance side the supply of capacity remained unchanged. This did not, however, lead to premium reductions. The hurricanes in the third quarter of 2017 ensured that prices remained largely stable, albeit without having adverse runoff implications. Overall, the losses incurred in marine reinsurance were below average in 2018. The only exceptions here were a loss incurred in builder’s risk hull insurance in Germany, which was covered in the portfolios written by some Lloyd’s insurers, as well as Typhoon “Jebi”, which affected the Japanese marine market and hence also the reinsurance programmes.
In view of our market position as one of the world’s leading marine reinsurers, the aforementioned losses also left their mark on our books.
The gross premium for our marine portfolio contracted by 11.3% to EUR 230.8 million (EUR 260.1 million). The underwriting result improved to EUR 125.4 million (EUR 6.6 million) owing to the low loss expenditure. The operating profit (EBIT) increased to EUR 146.0 million (EUR 35.7 million).
After a protracted soft market phase on the aviation insurance market that had lasted several years, the encouraging tendencies already evident at the end of 2017 were sustained. One of the key drivers behind this development was a reduction in the available underwriting capacities which – depending on the particular segment – was in some cases substantial. Rate increases were especially marked for general aviation business in the United States, which accounts for roughly 50% of the global general aviation market. Nevertheless, appreciable signs of improvement could also be discerned in other segments, too, such as airline business.
The positive developments in the primary market only partially filtered through to the reinsurance side. This was to some extent due to the fact that improved results – as a reflection of the course of business – take time to show up in the Reinsurers’ books. As a further factor, the available capacity essentially remained constant aside from some minor changes. In sum, it may be stated that the market environment was more favourable than it had been one year earlier.
Our underwriting strategy in this phase remained disciplined. We kept our focus on the non-proportional segment, where we operate as one of the market leaders.
The premium volume for our total aviation portfolio contracted slightly in the year under review to EUR 227.2 million (EUR 247.9 million). The combined ratio stood at 84.4%. The operating profit (EBIT) of EUR 55.7 million (EUR 267.8 million) fell well short of the previous year’s EBIT, although this had been massively influenced by the release of reserves set aside for prior underwriting years that were no longer required.
Growth in the global primary insurance market picked up somewhat, albeit coming off a low level. Reinsurance cessions, on the other hand, were broadly stable relative to previous years, nudging higher only in the area of political risks.
The loss experience was characterised by a stable claims frequency and loss amounts for individual claims that were on a similar level to prior years. Against this backdrop, prices and conditions were mostly unchanged on both the insurance and reinsurance side.
Hannover Re writes the bulk of this business in the form of proportional treaties. It ranks among the market Leaders in worldwide credit and surety reinsurance and in the reinsurance of political risks. Existing accounts were expanded and new clients added in the year under review, thereby further diversifying the portfolio.
Gross premium consequently increased by a very pleasing 11.5% in the 2018 financial year to EUR 743.2 million (EUR 666.7 million). The combined ratio for the entire segment amounted to 85.8% (91.1%). The operating profit (EBIT) reached EUR 155.0 million (EUR 112.8 million).
The gross premium booked from the United Kingdom, Ireland, the London Market and direct business rose from EUR 791.2 million to EUR 992.5 million. The combined ratio for this segment improved to 111.8% (140.9%). The operating profit (EBIT) totalled EUR 21.3 million (EUR -106.5 million).
The result of the property and casualty business that we reinsure for companies in the United Kingdom and on the London Market was satisfactory in 2018. In general terms, the market climate in the UK was still highly competitive, primarily due to excess capacity.
Rates in most lines on the London Market stabilised in the year under review. The increase in natural catastrophe losses caused by various hurricanes and the major fires in California did not, however, give rise to an additional strain for our portfolio. Further premium increases running well into double-digit percentages were obtained for the motor third party liability line, which covers private customer portfolios and had been adversely affected by the reduction of the Ogden rates in 2017. Prices in property reinsurance similarly rose sharply for business that had been impacted by Hurricanes “Harvey”, “Irma” and “Maria” in 2017.
The Ogden rate (= discount rate used in the UK to calculate lump-sum compensation payments for personal injuries) was left unchanged in 2018 after the change made in 2017 – which had necessitated significant adjustments to loss reserves. We were, however, successful in our push to find a commercial solution for exposures to acts of terrorism committed in the UK where a motor vehicle is used to kill or injure. As a result, with effect from 1 January 2019 this risk is now excluded under reinsurance treaties across the entire UK motor reinsurance market and is instead placed as a standalone cover.
We write a large portion of our direct business in the London Market and through our Swedish branch. We were satisfied with the development of this segment despite the prevailing intense competition, even though profitability in direct business was particularly impacted by the business that we wrote in the London Market. While this year’s hurricane season was noticeably more benign and caused appreciably fewer losses, some markets and products saw hardening in the second half of the year. Rather than continuing to fall, the premium level here held stable or even trended higher. We were able to act on promising business opportunities in the year under review and enlarged our premium volume.
With effect from 1 January 2019 we are participating in a joint venture with HDI Global SE that focuses on specialty lines in primary business. In this connection we sold the majority interest in our subsidiary International Insurance Company of Hannover SE (Inter Hannover) to the Talanx subsidiary HDI Global.
Its activities essentially remain centred on primary insurance, as has been the case to date. The business predominantly consists of tightly defined portfolios of niche or other non-standard business for which we provide reinsurance.
In contrast to obligatory reinsurance, a reinsurer underwrites primarily individual risks in facultative business. The general environment for both types of reinsurance in the various markets is, however, for the most part comparable.
In the first six months of the year under review it remained the case that extended coverage concepts and price reductions were observed in many areas. Faced with this market environment, we wrote our business selectively and increasingly focused on major, long-established customer relationships.
Following on from the costly 2017 financial year, natural catastrophe losses remained on a high level. In contrast to the previous year, the results posted in facultative business in 2018 also reflected a growing number of mid-sized man-made losses. This unusual accumulation of medium-sized market losses, coupled with continuing large losses, led to capacity shortages in the affected regions and market segments. We responded to the attractive business opportunities opened up by this turnaround in keeping with our prudent underwriting approach and risk appetite.
Thanks to greater decentralisation of our underwriting activities and the associated expansion of competencies at regional entities, we were able to significantly strengthen our customer relationships. This led to potential avenues for new business and corresponding additional premium income in our target regions of the United States, Asia and Australia. What is more, the investments that we had made in past years in the areas of cyber risks and renewables were rewarded with attractive premium growth in the year under review.
Despite a challenging year, we are satisfied with the development of our overall facultative portfolio in the financial year just ended. Along with the expenditures on catastrophe losses, substantial strains were also incurred in industrial fire insurance across all regions. The combined ratio improved only slightly on the previous year at 101.9% (103.7%). The operating profit (EBIT) came in at EUR 43.1 million (EUR 39.7 million).
We combine all markets worldwide under global reinsurance with the exception of our target markets and specialty lines. This segment also encompasses global catastrophe business, the reinsurance of agricultural risks, Sharia-compliant retakaful business as well as structured reinsurance and insurance-linked securities.
The premium volume increased by 17.0% in the year under review to EUR 5,600.8 million (EUR 4,787.7 million). The combined ratio improved to 95.4% (98.2%). The operating profit (EBIT) climbed to EUR 484.8 million (EUR 328.9 million).
We are thoroughly satisfied with the development of our worldwide treaty reinsurance. Gross premium income grew to EUR 2,298.3 million (EUR 1,826.7 million). The combined ratio of 93.0% was considerably better than in the previous year (96.3%). The operating profit (EBIT) increased to EUR 304.6 million (EUR 237.4 million).
Highly destructive natural disasters such as typhoons and tsunamis shaped the market in the Asia-Pacific region. Most notably, Typhoons “Jebi”, “Trami” and “Prapiroon” caused considerable windstorm and flood losses in Japan. Although we observed further modest price reductions in Japan for catastrophe covers during the first half of the year, the large losses should have an appreciable effect on demand for reinsurance capacities as well as on prices. Bearing in mind the general environment described above, our market position in Japan remained stable. Our result, however, declined significantly year-on-year due to the high level of catastrophe losses.
In China we further cemented our market position as a local Reinsurer. Thanks to our very good relationships with selected customers and our innovative market presence, we were able to substantially grow our portfolio despite sustained intense competition. Profitability was in line with our expectations.
Along with China, the region of Southeast and South Asia continues to drive growth in the Asia-Pacific. We achieved good results here across the board, although we note that profitable growth in the primary market does not necessarily carry over to the reinsurance markets. Margins here continue to be very squeezed in many areas – a state of affairs that will likely continue in the years to come, especially in those markets that are not affected by large losses. Thanks to our focused underwriting policy, we generated a very pleasing result in the region of Southeast and South Asia served by our branch in Kuala Lumpur, Malaysia.
In general terms, we are committed to further diversifying our range of covers and our regional footprint in Asia. Systematic expansion of our business in defined areas assures profitability and growth over the medium term, especially from tailor-made reinsurance solutions.
In India we have been operating as a local reinsurer since 2017 and are thus able to share in the promising growth opportunities offered by this country. Outside of agricultural insurance, however, our business did not perform satisfactorily in the financial year just ended. Among other things, this was due to flood losses and the ongoing generally difficult market conditions.
We have had a presence in Australia and New Zealand for more than three decades and are positioned as the number three among Australian property and casualty reinsurers. Australia, in particular, remains fiercely competitive. We generated especially strong growth here with multi-line covers. Reinsurers such as ourselves with a very good rating, long-standing expertise and excellent business relationships have opportunities here to obtain more attractive prices than the market as a whole. We can therefore look back on a very pleasing overall result for the region. Australia and New Zealand continue to be attractive catastrophe markets for global reinsurance capacities.
Our property and casualty reinsurance business in South Africa is produced by three companies: our subsidiary Hannover Reinsurance Africa Limited writes reinsurance in all lines. Compass Insurance is responsible for direct business generated mostly through underwriting management agencies (UMAs). Our third subsidiary, Lireas Holdings, holds interests in several of these UMAs. This enables us to comprehensively steer and control the business. Agency business forms the pillar of our activities in South Africa, although traditional reinsurance is also written in South Africa and other African countries.
The African insurance and reinsurance market was unremarkable in the year under review, with significantly fewer large losses than in the 2017 financial year. The market hardening observed in the previous year therefore continued to stabilise.
We see considerable potential to further grow our agency business. Additional expansion into other African markets is also conceivable, as soon as the local regulatory authorities give their backing to cross-border reinsurance solutions.
Our involvement in insurtech activities also gave grounds for satisfaction in the year under review. These include, among others, Pineapple. This start-up evolved directly out of our innovation competition held in 2016 under the name Journey Re, which delivered valuable stimuli for our business and led to the founding of several new start-ups. Not only has Pineapple gone on to commence insurance operations, it has also won numerous national and international awards. Taking the role of a digital broker, the company offers an insurance solution that enables its customers to participate in positive insurance results within a self-defined risk pool. Above and beyond this, we are involved in various other promising initiatives and start-ups in the South African market in what is a very dynamic environment.
Despite the competitive landscape, we are very well positioned in Latin America and a market leader in several countries on the continent. The most important markets for our company are Brazil, where we are also present with a representative office, as well as Mexico, Argentina, Chile, Columbia and Ecuador. The main lines in Latin America and the Caribbean are property and motor insurance; liability lines are growing more slowly. We consistently offer our customers tailored solutions and suggest various alternative options. Our business relations have been cultivated in some instances over many years both on a direct basis and through reinsurance brokers. Above all in countries exposed to natural catastrophes, very attractive growth opportunities have opened up of late. Local insurers here specifically seek out our expertise and capacity.
The markets of Central and South America continue to see above-average growth rates, albeit with considerable differences from country to country. Heightened demand for high-quality risk protection still holds sway in most countries, enabling financially robust reinsurers to book business at adequate prices. Recent acquisitions of sizeable portfolios by primary insurers in Latin America have prompted increased demand for reinsurance capacities, a development from which our company will continue to benefit.
The prevailing price level is commensurate with the risks given the available worldwide capacities. When it comes to proportional capacity for the coverage of catastrophe risks, capacity would appear to be in somewhat short supply.
It is to be expected that the high frequency and severity of windstorm events in the Caribbean will continue. Particularly with this in mind, we offer our clients solutions designed to close potential gaps in coverage, such as for flood losses.
In the financial year just ended most Latin American markets continued to show very vigorous growth. Primary insurance premiums are currently rising here – depending on the market – by between 5% and 15% annually. This is driven not only by high rates of inflation, but also by the growing purchasing power of the middle class. The strongest demand for reinsurance covers was in the area of catastrophe risks, not only within individual markets but also increasingly across national borders.
Broadly speaking, we are satisfied with the development of our business in Latin America and the Caribbean, which delivered a clearly pleasing result in the year under review.
We expanded our market position for the coverage of agricultural risks. Particularly in emerging and developing economies, the growing need for agricultural commodities and foodstuffs combined with the increased prevalence of extreme weather events are generating stronger demand for insurance and reinsurance solutions. For example, the InsuResilience initiative of the G7 nations – in which we are participating – has set itself the goal of offering insurance protection against climate risks to millions of poor and at-risk individuals in developing countries by the year 2020. In Europe, too, the unusually dry summer prompted discussions around the subject of crop insurance.
The increasingly widespread implementation of public-private partnerships presents new opportunities for our company to write profitable business in markets that have still to mature. The growing availability of new technologies, such as remote sensing by satellites, will enable us to further enlarge our scope of business through innovative and efficient insurance products such as parametric covers.
Rates and conditions were stable in primary insurance business. On the reinsurance side, sustained pressure on prices and intense competition were evident in mature markets such as the United States and Canada.
We successfully moved forward with the geographical and line-based diversification of our portfolio. Our result was highly satisfactory thanks to the absence of large losses and our healthy diversification.
We write retakaful business, i. e. reinsurance transacted in accordance with Islamic law, worldwide. Our focus is currently on the Middle East, North Africa and Southeast Asia. To this end, we are represented by our Bahrain-based subsidiary Hannover ReTakaful B.S.C. We also maintain a branch in Bahrain with responsibility for traditional reinsurance in the Middle East. Furthermore, we have established two branches in Labuan, Malaysia, that specialise in family-owned enterprises and retakaful business in the local markets.
Our retakaful business has grown very vigorously since we entered the segment in 2006 and we are now optimally positioned in the market. The development of our business in the year under review was satisfactory on the whole. The insurance markets of the Middle East and North Africa continue to post dynamic growth rates, with the United Arab Emirates and Saudi Arabia still constituting the largest single markets.
Our major markets nevertheless remain highly competitive. Even though the stubbornly low price of oil is a drag on economic momentum, the inflow of international underwriting capacities remains undiminished. A positive factor here is the action currently being taken to significantly improve the regulatory framework in the Middle East and North America (MENA) region. This is likely to increase the spread of insurance and open up opportunities for retakaful business and the broader reinsurance market.
Bearing in mind this market climate, we again put the focus on selective underwriting in the financial year just ended. Our premium income was consequently slightly lower.
We write the bulk of our catastrophe business out of Bermuda, the worldwide centre of competence for this segment. In the interest of diversifying the portfolio, our subsidiary Hannover Re (Bermuda) Ltd. has also written risks in some specialty lines.
After the historically high windstorm losses of 2017, the reinsurance of natural catastrophes continued to be a focus of renewal negotiations in the financial year just ended. The dominant factors were an unchanged excess supply of capacity and sustained high capital inflows from the ILS market, as a consequence of which prices increased only slightly. Rate increases were higher under loss-affected programmes, although they fell short of market expectations. In Florida, for example, increases of around 20% were booked under programmes that had suffered losses. Furthermore, certain programmes impacted by forest fires and mudslides in California saw rate rises of up to 30% in the course of the year under review. We are seeing growing demand for reinsurance covers from government programmes offering protection against flood risks.
While our expenditure on large losses in the first six months of the year came in below expectations, the second half of the year was significantly more eventful for the entire insurance sector. Along with losses from typhoons in Japan, hurricanes in the United States and forest fires in California, an increase in the cost of losses from the previous year – especially for Hurricane "Irma" – took a toll on results industry-wide. California was impacted by devastating forest fires for the second year in a row, and the coverage of such risks is therefore likely to draw even more attention.
The gross premium volume for our global catastrophe business grew to EUR 376.4 million (EUR 354.2 million). Given the reduced burden of large losses compared to the previous year, the combined ratio improved to 88.3% (121.1%). The operating profit (EBIT) also improved to EUR 50.9 million (EUR -3.3 million).
With our Advanced Solutions segment we rank as one of the largest providers in the world for structured and tailor-made reinsurance solutions. In this context we assist our clients with their capital management and offer alternative reinsurance solutions that provide solvency relief or protection against the strain of frequency losses.
Growth in the financial year just ended was appreciable in many regions, especially in North and South America as well as in Europe, and played a significant part in the premium growth booked in our property and casualty reinsurance portfolio. Not only did the average premium per contract increase, but also the number of contracts in absolute terms. Looking to the future, we anticipate continued growth in demand for innovative and tailored reinsurance solutions. Over the past ten years we have tripled our premium volume in structured reinsurance to around EUR 2.6 billion. Altogether, almost half our business in structured reinsurance originates from the United States and roughly a third from Europe.
Going forward, we see further strong growth opportunities in North America, Europe and Asia. The purchasing habits of many customers have shifted of late towards holistic reinsurance solutions. This trend shows no signs of easing and will result in more and more customers seeking structured contracts with increasingly complex arrangements in the future. In general terms, though, premium income in this business can fluctuate sharply given that it is routinely based on large individual contracts.
Demand on the capital market for insurance and reinsurance risks essentially remains strong, particularly due to the diversifying nature of such investments. The worldwide volume of newly issued catastrophe bonds was again in the order of USD 11 billion in 2018. The entire ILS market likely reached a volume of USD 95 billion. According to our estimates, up to two-thirds of this amount derives from collateralised reinsurance, under which insurers and investors conclude private risk transfer agreements which are secured by collateral held in trust accounts. We support these transactions through so-called fronting arrangements.
Investors have not lost faith in the ILS market despite taking a hit from various loss events in recent years. This underscores the important role played by the ILS markets in protecting against catastrophe risks.
We leverage the entire spectrum of opportunities offered by the insurance-linked securities market. On the one hand we take out reinsurance with ILS investors, while at the same time we transfer risks for our customers to the capital market as a service. This is done in the form of catastrophe bonds or through collateralised reinsurance. We are also active ourselves as an investor in catastrophe bonds.
In 2018 the volume of new exposures that we transferred to the capital market in the form of catastrophe bonds was in the region of USD 1.5 billion. The largest transaction this year was a USD 500 million catastrophe bond for the Federal Emergency Management Agency (FEMA). The bond provides protection against floods in the United States that result directly or indirectly from a named storm. This was the first time that FEMA transferred risks to the capital market using such an instrument.
In collateralised reinsurance business we continued to step up our cooperation with selected fund managers and in so doing generated attractive margins. It was also pleasing to note that we were able to further expand the transfer of life reinsurance risks to the capital market.
The key role played by the capital market in our purchasing of retrocession protection remains unchanged. Thus, for example, we were able to renew the Protection cover for Hannover Re known as the “K cession” at a level of roughly USD 600 million for 2018. This is a modelled quota share cession consisting of non-proportional reinsurance treaties in the property, catastrophe, aviation and marine (including offshore) lines that has been placed inter alia on the ILS market since 1994. In addition to the K cession we use the ILS market for other protection covers as well.
The gross premium volume in structured reinsurance and from ILS activities grew by 12.2% to EUR 2,926.1 million (EUR 2,606.8 million). The combined ratio stood at 97.7% (97.7%). The operating profit (EBIT) increased to EUR 129.3 million (EUR 94.8 million).