R+V Versicherung AG Annual Report

Developments on the international
reinsurance markets
Business assumed from cedents outside
the R+V Group was affected by developments
on the international reinsurance markets.
Because most property and casualty
insurance business is deferred by one year,
the following paragraphs primarily present
the situation as it was in calendar year
2001.
Economic environment
The contraction of the global economy in
the middle of the year accelerated in the
course of 2001, with the rate of expansion
slowing substantially in almost all countries
and regions. A major factor in this development
was that the strong boom in the US,
which had long functioned as the motor for
the global economy, came to an abrupt
end. The downturn quickly spread to the
rest of the world via a crash in stock market
prices, deterioration in sentiment among
companies and finally a contraction in trading
activity.
This slowdown was triggered by two key
factors. The preceding increase in crude oil
prices curbed economies almost everywhere
and fears of inflation took hold,
resulting in a tightening of monetary policy
in key countries. The slump was further
accelerated by the downturn in the IT
sector. Whereas massive investments in this
area had accelerated growth in many parts
of the world up to mid-2000, the slump in
this sector accelerated the economy’s
downturn. This extraordinary development
was another reason why forecasts for
numerous countries had to be revised
downwards in the course of the year – even
before the events of September 11.
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However, in the early summer of 2001, the
first indications emerged that the downturn
would not continue in the same form as in
the past and that a recession was therefore
not in sight. The business climate brightened,
both in the US and in the euro-zone,
due to the improvement in underlying
economic conditions and the fact that
the global raw materials markets were
showing signs of relaxation. At this time,
the economy appeared to have bottomed
out and it seemed that a recovery was on
the cards for the last quarter of the year.
These hopes were dashed by the events
of September 11.
International reinsurers had never been so
affected by one single event in any previous
year. The terrorist attacks in the US on
September 11 resulted in the largest single
insurance claim in insurance history – at
least USD50 billion. The insurance claim
from Hurricane Andrew, which had broken
all records up to then, amounted to only
half of the sum payable as a result of the
terrorist attack on the World Trade Center.
This puts the extent to which the insurance
sector was affected in fiscal 2001 into perspective,
but also highlights the enormous
capacity of the direct insurance and reinsurance
sector to cope with such a once-in-acentury
event.
This extraordinary event and the complexity
of the related claims created uncertainty
and led to a review of risk exposure in the
entire insurance sector. The face of the
insurance market changed dramatically as a
result. Direct insurance policies increased
almost across the board, reinsurance
capacity declined and cover for terrorism
risks in commercial and industrial sectors
became almost impossible to come by.