R+V Versicherung AG Annual Report

North America
Growth by the US economy had weakened
substantially by mid-2001, and the expected
recovery now did not materialize. Rather,
signs of improvement were quashed by
the terrorist attacks on September 11.
Manufacturing industry was affected particularly
badly by the downturn. Production
declined 6% as against mid-2000 and
capacity fell to its lowest level in two
decades. The IT sector in particular cut
back heavily on production.
Almost all demand components were
affected by the decline. The downturn in
corporate investment, which had rocketed
during the investment boom, was particularly
pronounced. From the beginning of the
year onwards, double-digit decreases were
recorded, due both to poorer sales
prospects and to slashed profit margins.
Companies’ inventories were also dramatically
reduced. In contrast, private consumption
continued to climb until the very
end, even though it, too, lost momentum.
Investment in housing also expanded,
aided by the Federal Reserve’s interest rate
cuts. The weak foreign economic climate
reduced North American exports. However,
since imports also dropped substantially
and the terms of trade improved, the balance
of payments deficit improved for the
first time in ten years.
The labor market now felt the full force of
the economic downturn. Unemployment
figures began to rise rapidly, peaking in
October following the terrorist attacks on
the World Trade Center on September 11.
After the US insurance sector had suffered
entirely unsatisfactory premium levels and
high claims expenses in 1998 and 1999,
direct insurers and reinsurers began raising
rates again in 2000.
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However, in the year under review, these
price increases were insufficient to improve
the earnings situation in the long term.
A number of players on both the direct
insurance and the reinsurance market either
withdrew from the business due to unsatisfactory
earnings or were forced to restructure
their operations.
The attack on the World Trade Center
on September 11, 2001 left the insurance
sector facing the single largest claim in its
history – estimates put it at USD50 billion at
least. However, even before the terrorist
attacks, the combined ratio of many market
players already exceeded 120%. Following
the events of September 11, loss ratios
shot up once more, resulting in a bleak year
for the insurance sector.
Latin America
In 2000, Latin America had recovered from
the preceding period of stagnation, with
almost all countries achieving a substantial
increase in real GDP. The downturn in the
global economy hit the region hard, and
overall economic output fell in many countries
in 2001. Mexico was worst affected by
the slump, as demand from the US – its
most important trading partner – dropped
sharply. Other countries were also impacted
by the fall in crude oil prices, which resulted
in a worsening of their terms of trade.
These external shocks hit the countries
before their foreign trade position had had
time to become consolidated. As a consequence,
their balance of payments deficits
remained at a high level, and foreign debt
rose. The problem was aggravated by
capital outflows, as the political situation
was also unstable in some countries, particularly
in Argentina. Unresolved budgetary
problems added to the difficulties and, last
but not least, the currencies of several
countries came under pressure.